Annual Report 2012 Designed & Produced by Hetermedia Services Limited 1
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Annual Report 2012 Designed & Produced by HeterMedia Services Limited 1 Content 2 CITIC Pacific at a glance 4 Financial Highlights 8 Chairman’s Letter to Shareholders Business Review 14 Special Steel 36 Iron Ore Mining 52 Property 64 Other Businesses 70 Financial Review 81 Risk Management 94 Ten Year Statistics 95 Corporate Governance 120 Board of Directors 123 Management Team 126 Directors’ Report 147 Human Resources 151 Corporate Social Responsibility Financial Statements 153 Contents of Financial Statements and Notes 154 Consolidated Profit and Loss Account 155 Consolidated Statement of Comprehensive Income 156 Consolidated Balance Sheet 157 Balance Sheet 158 Consolidated Cash Flow Statement 160 Consolidated Statement of Changes in Equity 162 Notes to the Financial Statements 261 Independent Auditor’s Report 262 Major Properties Held by the Group 264 Definition of Terms 265 Corporate Information CITIC Pacific at a glance CITIC Pacific Limited (267.HK), listed in Hong Kong, is a constituent of the Hang Seng Index. We are a diversified company with a clear focus on three main businesses: special steel, iron ore mining and property development in mainland China. CITIC Pacific is 58% owned by CITIC Group Corporation. We are pioneers and market leaders. • building what is not only the largest magnetite iron ore mine in the world, but one of the largest single investments by a Chinese company outside China. • operating the biggest dedicated special steel manufacturer in China, and • building property projects that enjoy prime locations in economic centers of mainland China. In our businesses, we embrace world-class technology and strive for international best practices. CITIC Pacific is strongly committed to long-term business success and lasting shareholder value. Main Businesses With an annual production capacity of 9 million tonnes, CITIC Pacific Special Steel is the largest dedicated manufacturer of special steel in China. Major products include special steel bars and wires, medium-to-thick Special wall seamless steel tubes, special plates and special Steel forging steel. Currently, over 80% of the special steel products are sold domestically to customers in the auto 22% of assets components, machinery manufacturing, shipbuilding, power generation, oil and petrochemical industries. Page 14 The Sino Iron Project is 100% owned by CITIC Pacific, which has right to extract 2 billion tonnes of magnetite iron ore resource from its mine in Cape Preston in Western Australia’s Pilbara region. Sino Iron is the largest magnetite iron ore development project in Australia and, when completed, Iron Ore will have six production lines with the capacity to produce a total 24 million Mining tonnes of magnetite concentrate a year. 33% of assets In April 2012, CITIC Pacific exercised an option to acquire the right for another 1 billion tonnes. Page 36 CITIC Pacific focuses on developing medium and large scale projects in mainland China. Properties are located in prime areas of Shanghai and major cities in Yangtze River delta area and Hainan Province. Key projects currently under Property development include a resort in Shenzhou Peninsula of Hainan Island, office and mainland China a hotel in the Lu Jia Zui new financial 17% of assets district and residential development in Jiading and Qingpu districts of Shanghai. Page 52 4 CITIC Pacific Annual Report 2012 Financial Highlights Increase/ In HK$ million 2012 2011 (Decrease) Profit attributable to ordinary shareholders 6,954 9,233 (2,279 ) Special steel 211 1,994 (1,783 ) Iron ore mining (781 ) (423 ) (358 ) Mainland China property 911 2,160 (1,249 ) Gain on disposal of assets 2,850 664 2,186 Other businesses 3,763 4,838 (1,075 ) Cash inflows from business operations 7,519 7,934 (415 ) Other cash inflows 7,547 5,633 1,914 Capital expenditure 26,675 24,476 2,199 EBITDA 15,059 18,398 (3,339 ) Earnings per share (HK$) 1.91 2.53 (0.62 ) Dividends per share (HK$) 0.45 0.45 – As at As at 31 December 31 December Increase/ In HK$ million 2012 2011 (Decrease) Total assets 247,386 229,739 17,647 Net debt 83,808 67,777 16,031 Cash and bank deposits 32,821 30,930 1,891 Available committed banking facilities 14,701 15,350 (649 ) Total ordinary shareholders’ funds and perpetual capital securities 84,678 80,958 3,720 Net debt to total capital (%) 50 46 4 Profit attributable to ordinary shareholders Total assets For the year ended 31 December As at 31 December HK$ million HK$ billion 8,893 9,233 5,967 6,954 1,898 56 56 48 81 39 67 33 53 24 36 40 41 38 26 30 163 178 83 139 69 47 105 54 67 (14,632) 43 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 Special steel Iron ore mining Prot attributable to ordinary shareholders Mainland China property Other businesses Foreign exchange loss Special steel, Iron ore mining & mainland China property CITIC Pacific Annual Report 2012 5 Revenue (including both continuing and Dividends per share discontinued operations) For the year ended 31 December For the year ended 31 December HK$ million HK$ 100,086 96,882 0.30 0.30 0.30 0.25 70,614 0.30 46,420 46,409 0.15 0.15 0.15 0.15 20082009 2010 2011 2012 20082009 2010 2011 2012 Revenue Final dividend per share Interim dividend per share Earnings per share Total ordinary shareholders’ funds and perpetual capital securities per share For the year ended 31 December As at 31 December HK$ HK$ 23.20 2.44 2.53 22.18 1.63 1.91 18.73 16.55 13.65 (5.70) 20082009 2010 2011 2012 20082009 2010 2011 2012 Total ordinary shareholders’ funds and Earnings per share perpetual capital securities per share 6 CITIC Pacific Annual Report 2012 CONSOLIDATING DIVERSITY FOR FOCUSED SUCCESS CITIC Pacific Annual Report 2012 7 8 CITIC Pacific Annual Report 2012 Chairman’s Letter to Shareholders Results of 2012 Our profit attributable to ordinary shareholders for“ 2012 was HK6,954 million, which was 25% less than 2011. Profit from continuing business operations was significantly lower, mainly due to a sharp decline in the contribution made by our special steel business in the second half of the year. The weak demand for steel products resulted in loss-making for many steel producers in China. However, the fact that our special steel business was profitable for the year is an indication of the strength of this business. Profits from our mainland property business were also ”lower in comparison with last year. In addition to slowing property sales, the decline in profit was also due to adjusting the pace of our development to match the current market conditions. The hard truth is that both steel and property in mainland China were affected by the macroeconomic environment. While these While the past year was filled two businesses did less well, other businesses with challenges, for CITIC Pacific such as energy, Hong Kong property and tunnels it was also a year of progress and as well as Dah Chong Hong and CITIC Telecom long-term promise. performed satisfactorily and continued to contribute steadily to our profit and cash flow. Dear Shareholders, At the end of 2012 we had HK$48 billion in cash and available committed facilities, which gave us Uncertainties in the global economy and in the financial flexibility to execute our investment particular volatile commodity prices made 2012 a plans and pay a dividend to our shareholders. difficult year for many businesses and industries. In the 12 months to 31 December 2012, the While the past year was filled with challenges, strength of our credit was demonstrated when we for CITIC Pacific it was also a year of progress and successfully raised over HK$53 billion of new funds long-term promise. Although our results were both from traditional bank sources and the issuing lower than last year, I remain confident about our of long-dated bonds under our MTN programme, long-term direction and fundamental strengths. thus lengthening the maturity of our debt. I understand that with these challenges come concerns, and I will address them here with the Our board is recommending a final dividend of aim of earning your confidence in our ability to HK$0.30 per share, giving our shareholders a total generate value for you. of HK$0.45 per share for the year 2012. This is the same as in 2011. CITIC Pacific Annual Report 2012 9 We are mindful that we still have four more I remain confident about lines to build. We are currently working as hard our long-term direction and as we can to get them completed as early as fundamental strengths. possible. CITIC Pacific Mining has in the past few years gained valuable knowledge and first-hand experience in constructing, commissioning and Our Top Priority – the Sino Iron Mine operating the mine. Therefore, for production lines three to six, rather than appoint an EPC Our highest business priority in 2012 was the (Engineering, Procurement and Construction) Sino Iron project in Western Australia, and it will contractor CITIC Pacific Mining itself will manage remain so through this year and the following their construction and commissioning. Having two years. We achieved a major project milestone completed the work for line one and most of in November 2012 when the first concentration line two, some operating entities of our current line began producing iron ore product. We are EPC contractor MCC have accumulated sufficient preparing for first shipment as I write, and the relevant knowledge, and they will be invited to focus now is to commission line two in May 2013. join our team and perform specific tasks in the areas of design, construction, commissioning and We have put so much into this project in every technical services.