Our Businesses SPECIAL STEEL 22% of assets
In HK$ million 2013 2012 Change Revenue 41,332 40,358 2% Attributable profit 1,306 211 519% Assets 58,429 55,622 5% Operating cash inflow 5,082 4,704 8% Capital expenditure 3,705 4,613 (20)%
12 CITIC Pacific Annual Report 2013 c T Review of2013 dri C our in S to a 20 asset operations c materia w tightening T C spe omponents ompared l tee his he hinese hina. so i
ll c 1 stee impro v c c 2
en l o intensified ia genera ompetiti w
ontinue outperformed v in l
l era to stee hen v l produ
v e estment pri c e c ll w
onsumption onomy l
l effi measures and c stee the
se operating ith es, and
v to c c e c
our tion
ien
tor
industry
l profitabi 20 a ad affe
po mar l has though
c
v 1 transitions as mar
w y antage. the w 2, c
w
and k
t er
imp i s
parti
ll et en l the
k e -
o mar generation eting a dri
ll w l
e v in l ity
optimise . l so H this ironment x emented
ed. v stee C c perien k
o en, u
et of put hina
w l
T and
ar from eased
in e
l indi his, the l v
mar y
pressure er, 20
c
sa impro in the
c
ed
v
se
being CITIC is gro 1 by l idua
k oup es in the 3
c et. v affe
produ tors
as
the w o efforts 20 Exc v
l l l w se th ed ati ed c
Pa stee 1 in
on ting
by go e c
3. w l of
v c ess ond c c ity in
A ifi estment l t the
v
ontinued ith
in l e
fi mi ma c S
the ernment, 20 s c v in x
eraging the the v ed ha apa
x
1 pe k ra
. arious 3 W ers l
f
w
c auto c
ia e of - ity
in l
mi from more of F o and I the stee c 20 su of profit mpro reated or v
cc er 1 ll 7.24 ra
2, ion, the
a l essfu
this w
20 v
produ our
than v our from erage
materia ements
mi 1
year a
greater 2 a
ne
ll substantia cc
ll profit
a y
in ion c the cc
w ounted
broadened se ts 20
20 ounting
produ
l
ll
during tonnes 1 s in
spe
ing demand 1
margin 3, su
2. the CITIC c c T
pri for ia h l c he E
rise t
l
as the – c for of
uropean stee
a
e ma impro our
Pa
Our Businesses-Ou iron spe for
CITIC 22 spe 1 of
of year. c j 5 l
%
ority
ifi r B a produ 5 c % business high c
ll Pa ore ia 1 c S ia v rise u 9 of
produ c ed l
Our l ifi and % c sinesses -
stee pe
stee
of q c A and our
w in c ua
c
t ompared the nnua A mar ith
ia l e penetration l
c w c l tota p sia x ity l S produ ts
o
l port the as l R in ates. k w k tee
eting spe mar e. eport c $1 l Special Steel Special Stee as rease
sa A fa v l c Al l ,306 w c so l ttributab k o ll ts, es
o ia 20
ets l team though w in ith ume l l 11% d v c 1 er
3
rate, o ame pri a
20
l
than ume. tota
c 1 e
l 13 2.
e l l
Property Iron Ore Special Steel Chairman’s Letter to Shareholders Our Businesses - Special Steel
CITIC Pacific Special Steel CITIC Pacific Special Steel is the largest dedicated Major products include special steel bars, special steel manufacturer of special steel in China. It operates plates, medium-to-thick wall seamless steel tubes, two plants – Jiangyin Xingcheng Special Steel and special wires and special forging steel. These products Xin Yegang – with an annual production capacity of are widely used in auto components, machinery 9 million tonnes. manufacturing, oil and petrochemicals, transportation, energy, railways and shipbuilding, as well as other Located in Jiangyin City of Jiangsu Province and industrial sectors. Huangshi City of Hubei Province respectively, the two plants are strategically situated next to the Yangtze River to serve the key markets for special steel in eastern and central China.
Production capacity and products Capacity (’000 tonnes) Products Bars 4,400 Bearing steel Gear steel Spring steel Non-quenched and tempered free-cutting steel High-pressure tube billet steel Tools and die steel Big casting round billet Plates 2,850 Pressure vessel steel plate High strength shipbuilding steel plate Ocean engineering steel plate Engineering machinery wear-resistant steel plate Pipeline steel Die and mould plate Seamless steel tubes 1,100 Petroleum drilling pipe Pin bush pipe Boiler pressure vessel pipe Engineering machinery pipe Bearing pipe Wires 500 High-end core steel Automobile fastener steel Bearing steel Spring steel Special forging steel 150 Railway bearing steel Tools and die steel Cold roller steel Ultra-high strength steel High-temperature alloy Stainless steel Total 9,000
14 CITIC Pacific Annual Report 2013 Our produ S andMarketingSales C in needs A agreements year’s end c the p is T produ T operations. c ma and onferen ommuni his he e ustomer l s
v ants the ll
entory. one x
ing
forum,
imise three ra
of important S operating
ales andmar
c c prin
produ w
so more
ea tion tion produ e x materia c
c
that c k
amp e profit c orders
h ate
and
ip ey for and a
v c of year cc l tion c w
w e isibi l areas
ts
e
ording appro our forum that this
e
ith sa are
l of
w dire
c determine v pro k phi l l ity
et devel
c an es e e o
our
enab mar that dri
x ustomers l c organise
c x ume v
isting and l l ser t urement is imate y. osophy
l o v mar y
T k es l
an
umes he l v et to
es
herefore, o stabi e are CITIC
c pment
k opportunity l
and
de l them p our produ eting y ustomers
raise se a 70
v and
in l management.
e ity
sa c potentia p l % Pa
opment, ured
ba
l better.
l
ants efforts, c w in
es understand c of produ tion l ifi an
e terms
and the
c S
as
are gi c to
v e to
l c v pe Order
a w
o c
fo arrange
es mar to
produ
ti ab l
ustomers. resu ume. c of ith ll v w
ia our o ity l
e Pr ards k the w l S
minima eting their l to
o t ing
and T c
tee stee d of
tion k
his
uc the
eep
l
’s ti
l
o
l
n management M c de and k produ he c w engineering our Pa v W broadening I appro industries ma w industries. G n ertifi ustomers eep o enera ith hi any e
c l l v 20 ume ps
c
ifi c e a M sa hinery
h l
c 1 or c S
opment
pa c x hie us
c buyers l 3, i ha es ation c imate c ts l M
c he and pe
our ontra
better
e v v a a w ed e w otors, T
l
c cc c rather in. manufa
ti ia
hey been
e the pri pro ith sa l
ma
ording v y impro
of l S
ser in Our c ities 1 l
c ted es
understand tee c C mar H c our p 4 in e hinery, v
ess
%
l than identified
hina. and onda, e. of ate cl
top
c in l to v
’s ude k turing, of to produ
ed our of
et
the produ
and
manufa
mar ten tota demand
through
c ne resu
V
R
end and hanges, Our Businesses- produ
CITIC a energy, o
c w c seam k w
l lk and
ts
eting ustomers c the l sa as
material pr
produ ts s ts users aerospa
Pa w c are l k
w es turers by c c
agen, oi distributors. l needs in ifi ey ts. ess
ere and c A
re efforts produ transportation, l
a
I the c su and areas cc v
n ts nnua stee
enue.
so c
V
c in e
20 a de
e and h do l of
o cc l erating
petro o l R d c se the 1 lv as
v l
cu fo ers for ounted
w our 3, e eport tube dire o,
c T Special Steel in l c nstream
rement tors, op
C 7
oyota, used auto, D further affi c c c 1% aterpi reasing c
hemi 20 ire
ustomers, ne t mar the
l l 1 a y iated
of
c
3
for w
ll on t to
CITIC k c of
sa
ll
ets.
a our ar
l l es 15
Property Iron Ore Special Steel Chairman’s Letter to Shareholders Our Businesses - Special Steel
Our products are sold to these industries Sales (’000 tonnes) Percentage of total sales Industry 2013 2012 2013 2012 Auto components 2,363 2,008 33% 31%
Machinery manufacturing 1,616 1,560 22% 24%
Power generation 895 804 12% 12%
Oil and petrochemical 795 799 11% 12%
Shipbuilding 480 664 7% 10%
Metal works 459 423 6% 6%
Railway 136 119 2% 2%
Others 494 175 7% 3%
Total 7,238 6,552
16 CITIC Pacific Annual Report 2013 Our Our Ohr 3 12% 132 E Others A oa ,0 100% 1,101 Total M Idnsa4 4% 46 Indonesia Ida4 4% 46 India Venm5 5% 58 Vietnam A Taln 76% 24% 67 263 Thailand Korea R In ‘000tonnes rp 4 23 246 urope egion meri i 6 sia idd
produ produ l e c E /C as ast ountry c c & ts ts Others
are are
e so x l ported d
to
these
N to o rth
22 these
regions w est
regions
in C hina
and S S a o l es u c 168 th v ountries w o est l ume ( ’000 c S 1,078 entral o
N u tonnes 323 o th- rth 1 1 34 09 1 255 ) 4,412 East Our Businesses- CITIC Per N Pa o c c rtheast 133 entage ifi c A nnua
of l R eport
tota Special Steel
20 l e 1 x 3 ports 1 1 2 0 % % % % 17
Property Iron Ore Special Steel Chairman’s Letter to Shareholders Our Businesses - Special Steel
In the export market, we continued to raise awareness steel. As a result, exports of medium-to-thick plates of our products and build up our share of high-end increased. Total export volume in 2013 was about 1.1 products, such as bearing steel, steel for automobiles, million tonnes, a 22% increase compared with 2012. steel plates, seamless steel tubes and heat-treated bar
Key customers
Percentage of Customer Profile revenue Yangzhou Chengde t A privately owned company with the widest range of seamless 2.2% Steel Pipe Co. steel tube products in China. t This key producer of high-end large diameter seamless steel tubes purchased 135,000 tonnes of special steel products in 2013 from CITIC Pacific Special Steel. Bekaert Management t The world’s largest independent manufacturer of drawn steel 2.1% (Shanghai) Co., Ltd. wire products and an advanced application solution provider. t The company has been working with CITIC Pacific for four years. In 2013, it bought 130,000 tonnes of wire products from CITIC Pacific Special Steel. Anyo Automotive t An affiliate of Shanghai Automotive Group, Anyo Automotive 1.7% Material Co., Ltd. Material is the largest passenger car maker in China. t CITIC Pacific Special Steel is a major supplier to this company with over 100,000 tonnes sold in 2013. C&U Group t One of the largest privately owned bearing manufacturers in 1.5% China. t CITIC Pacific Special Steel has an exclusive agreement with this company, supplying it with 95,000 tonnes in 2013 Wanxiang Group t The largest auto component manufacturer in China. 1.3% t Its main universal joint product has a domestic market share of more than 65%. t In 2013, CITIC Pacific Special Steel supplied about 81,000 tonnes to Wanxing Group. Shaeffler Group t One of the world’s most well-known bearing manufacturers. 1.1% t About 80% of Shaeffler’s procurement in China comes from CITIC Pacific Special Steel. SKF Group t A leading global bearing manufacturer that buys 90% of its 0.8% bars in China from CITIC Pacific Special Steel. t A global strategic cooperation arrangement now exists between the two companies. Sany Heavy Industry t The largest engineering machinery manufacturer in China and 0.6% Co., Ltd. sixth largest in the world. t This company is one of the biggest customers of Xin Yegang’s seamless steel tubes.
18 CITIC Pacific Annual Report 2013 market trends Understanding alliances Strategic DEVELOPMENT SALES AND MARKET tyre cordstyre inthe automobileindustry. steel annual capacity of500,000 tonnestomeetthemarket demandforhigh-end For example, in2013CITICPacific SpecialSteelbuiltawire productionlinewithan products indifferent market segmentsandadjustourproduct mixaccordingly. trends, we analysingindustry canBy identifypotentialapplications forspecialsteel solid foundationforfuture salesexpansionindomesticandinternational markets. expandedourclientbaseandare providingrelationships have uswitha further companies, includingCaterpillar, SiemensandSumitomoCorporation. These China Railway Group. withtenwell-known ourco-operation In2013,we extended overseas companies, suchasSKFofSweden, ChinaStateConstruction Group and We now have strategic cooperation relationships with13well-known domestic and thisisawin-winsituation.” So supply ofhighquality products. alsobenefitby course,channel. havingasteady Of ourpartners “Building strategic alliances withcustomersensures astablesales CITIC Executive &Marketing –Sales Pa c ifi c A nnua l R Liu Jianjun eport
20 1 3 19
Property Iron Ore Special Steel Chairman’s Letter to Shareholders Our Businesses - Special Steel
2013 production
Production Category (’000 tonne) Percentage Change Bars 4,780 66% 4% Plates 1,480 21% 27% Seamless steel tubes 600 8%13% Wires 300 4% 36% Forging steel 70 1% (13)% Total 7,230 100% 10%
Capacity utilisation
Bars 100%
Plates 52%
Seamless steel tubes 55%
Wires 62%
Special forging steel 65%
“ Innovation is fundamental to staying competitive. Our research goal is to develop new products that will replace 10% of our current products every year.”
Hu Jiajia Research Technician
20 CITIC Pacific Annual Report 2013 S S CITIC B Products stee produ petro uti sa the to ne c ma more a gre intensified produ q ompetition. l upp ua pe ars so
l wc es l e c isation w
l xc same
l hinery ity, c sa , v w l
omers c 27 Pa ia y about eed c c hemi o w
ts tion w in hi l l % c umes
an ifi l p
c su hi
the demand, e h
rate
from l c S mar l manufa
c c ates v
c in impro optimising ines are a h e W h
l
pe l medium
of in the as se k of as e
20 so eting,
c
at operated
turn c bars
ia bearing the in
v tors, 1 l p c CITIC d w ement l S 2
turing l
20 ate
main
w
to hi tee p
during - parti w 1 l
to c 1 ate produ
i 2. mar ll h l e -
Pa .48
l stee hea l is
impro w
in Our y industries. l at ed c
c ines the k
to u
ere
ifi profit mi et. the near
v l c l
ar to
, c S operationa t y the
l ll
gear H
v l mi ab
p to
eading ion y intensified e year pe
l o
fu ate in
l x auto profitabi margins. w e 52
c
ll c and
tonnes stee e G the to ia w
% v mar l S i
apa er, c
. v in ere
produ
Our en raising oi l omponent tee
l c k and through rease l approa c
et
l at that ity in and pri ity. l
p c
are
about c l 20
spring c ontinued ate in er
e
produ our the
1
20 of c
3.
sa h
W
1 and
bar bar l
is 3, es c e
t
F U ma de I T most tonnes S S W P9 in from S in n urthermore, he i a eam ni x c cl or
l 1 v 20 es reased c v ma uding e
k hinery uti boi ersity
l 1 l
s. the op y of 3, j l
l or ess due in l isation
S er seam our C c
H
890
20
to
and hina tubes, orporations
industry.
arbin stee to
1 resear 55 l
l 3,
ess high
ast X in rate S %
a u c l B tandardi
1 .
for reased z year stee tubes c oi
hou
3 strength of h w % l
er
team l our w hi
H in W tubes bought
e c c Our Businesses- sa ea CITIC z
j h or rease seam ation
oined l w v de es k
y p
s Pa e amounted M
l v to ate and
e c c obtained this l C ifi ess a l
w ompared oped the c c A ommittee
for S hinery ith
ne nnua stee hanghai
o
use S
w v u erseas l R hanghai l
l c produ tra to
tube eport to in w ertifi Special Steel
- 600,000
on super su ith the B
l 20 mar oi cc c V c ines
20
ation
t, 1 l hea esse essfu er 3
c 1 k riti
2 et. v
l
y s. c ll
21
a
y l
Property Iron Ore Special Steel Chairman’s Letter to Shareholders Our Businesses - Special Steel
Wires Special forging steel Xingcheng Special Steel’s new 500,000 tonne wire In 2013, production and sales of forging steel was over production line began operating in June 2013 and by 70,000 tonnes with a utilisation rate of about 65%. the end of 2013 had sold 300,000 tonnes. With our increased wire production capacity, we were able to meet the market demand for wire products such as tyre cord steel, high-end core steel and automobile fastening steel, as well as high-end bearing and spring steel.
Product pricing
RMB/tonne Bearing steel Spring steel Steel tubes 8,000 Steel plates
7,000
6,000
5,000
4,000
Mar Jun Sep DecMar Jun Sep Dec 2012 2013
22 CITIC Pacific Annual Report 2013 companies global steel against leading Benchmarking process the certification Speeding up quality raising product mix, product Enhancing our COMPETITIVENESS RAISING OVERALL and application capabilities and increasing productionefficiency. global level, we have putinplace clearstrategies aimedatimproving ourresearch is alsobelow leadingglobalsteelcompanies. Inorder tobecome competitive at a amount ofcapital andresources devoted research toproduct anddevelopment For example, onournewplateproducts isatarelatively profitability low level. The some ofthebestglobalsteel companies we seethatthere isstillalotwork todo. We have aleadingpositioninthedomesticmarket, yet benchmarked against achievement.CNOOC forournewplateproducts, anoteworthy as approvals from andcertifications companies suchasChinaPetrol, Sinopecand 2013, we received from 493certifications various customersandagenciesaswell requirements butprovides confidence amongexistingandpotentialcustomers. In consuming process. notonlymeansthatproducts Certification have metcustomers by customersandrelevant agenciesisessential. Thisisastringentandtime- For specialsteelproducts to berecognised and accepted by themarket, certification of newproducts, about11%oftheyear’s totalproduction. maintain ourleadingpositioninthemarket. In2013,we produced 800,000tonnes improvement control managementandquality inproduction enablesusto toclientsonspecialsteelapplications.consultation services Inaddition,continuous research centres are tasked withdeveloping newproductsaswell asoffering CITIC Pacific SpecialSteel’s technical centres, laboratories andpost-doctoral the bestinworld.” steel producer inChina.Butthisisnotenough. We want tobe “We arethe biggest, andIcerta General Manager–JiangyinXingchengSpecialSteelWorks inly thinkwe arethebestspecial Vice President –CITICPacific SpecialSteel CITIC Pa c ifi c A nnua l R eport Qian Gang
20 1 3 23
Property Iron Ore Special Steel Chairman’s Letter to Shareholders Our Businesses - Special Steel
Raw Materials Major raw materials Raw material used Percentage of total Type in 2013 (‘000 tonne) production cost Iron ore 10,540 30% Scrap steel1,220 10% Coke 3,100 15% Alloy 280 12% Total 15,140 67%
Source of iron ore Country Percentage of totalMain suppliers Australia 44%Hamersley China 17%Mines in Northeast China and Hubei Province Brazil16%Vale Others 23%Jiangsu Huamao Trading, Shandong Wanbao, B.M. Holding
Price of major raw materials
RMB/tonne Iron ore Coke Scrap steel 4,000
3,000
2,000
1,000
Mar Jun Sep DecMar Jun Sep Dec 2012 2013
24 CITIC Pacific Annual Report 2013 costs Reducing input supply astable Securing PROCUREMENT RAW MATERIAL warehouse space butreduced riskcaused inventory by price fluctuations. fromcycle 60 daysin2012to40days, whichnotonlyreleased additional to reduce raw material inputcosts.theiron ore inventory In2013, we shortened cycle. theinventory Bothoftheseare essential inoureffort andshorten inventory improvements inoperating have alsohelpedusreduce efficiency ourraw material A centralised procurement strategy strengthens ourbargaining power. Continued tonnes, needs. sufficientformeetingoursteel-making giving CITICPacific SpecialSteelatotalcoke production capacity of3.3million ore mineinAustralia. We alsocompleted attheendof2013, anewcoking facility end. Thepelletplanthasbeguntouseiron ore concentrate from CITICPacific’s iron which commenced operation inMay2013andproduced 710,000tonnesby year We now have capacity apelletplantwithanannualproduction of6milliontonnes, minimise costs. iron topurchase ore highquality andothermaterials,on ourability aswell as to orlong).Toprocess (short meetourraw materialneeds, we baseourprocurement lump ore andsinter, andindifferent amountsdependingonthesteelmaking Iron ore, forexample, isusedinourblastfurnaces indifferent formssuchaspellets, A stablesupplyofvarious raw forourproduction process. materialsisnecessary so itiscritical thatwe lower theircosts asmuch aspossible.” These raw materialsformaround70%ofourplants’ cost production need tomake surethatourplantshave secureandsufficientsupplies. “My jobistosource raw materialssuchasironore, coke andalloys. We Deputy General Manager–ProcurementDeputy CITIC Pa c ifi c A nnua l R eport Li Xishan
20 1 3 25
Property Iron Ore Special Steel Chairman’s Letter to Shareholders Our Businesses - Special Steel
Facts and Statistics Special steel refers to steel produced using special These products are sold to parts manufacturers for techniques, with special characteristics and special manufacturing products such as gears, bearings and purposes. Categorised by shape, special steel includes springs. bar steel, plates, strip steel, tube steel and wire steel. Industries and major products used Applied industry Products Practical examples
- Transmission gears - Gear steel - Bearings Auto - Bearing steel - Transmission shafts Components - Spring steel - Connection rods - Alloy structural steel - Crankshafts
- Oil cylinder pipes for - Alloy structural steel engineering machinery Machinery - Carbon structural steel - Hydraulic props support for Manufacturing - Tooks and die steel coal mining machinery - Large modules
- Tyre cord steel - Radial tyres Metal Works - Steel for standard parts - Standard bolt parts
Power - High pressure tube billet - High pressure boiler tubes Generation - Casting round tube billet - Wind power ring parts
26 CITIC Pacific Annual Report 2013 A pp Petro S l ied hipbui R M
ai Oi nutyProdu industry i c l lw hemi itary l & l ay ding c a l - S - C - All - H - H - A - S - M pipe pring eam arbonisation n igh igh edium oy c hor c l -
ine sPra ts strength temperature l stru ess
stee c
- stee hain hea
c stee tura l v l
y stee
l p bearing l
tubes p stee l ate l ate
l a ll l
oys
stee l Our Businesses- CITIC - L - W - B - B - F - E - B - S - D - A - - D - Oi Offshore pipe c asteners oup o ngine he c ogies earings ody n e ri hee l ti c c ck Pa ll c and omoti c ll hor l c a s s l
ines ifi ings tubes l o l s c A
e ll
c b gas ars x
l hains nnua dri amp v ades e
and transport ll springs l R ing l es eport Special Steel c
p asing l atform
20
1 3
27
Property Iron Ore Special Steel Chairman’s Letter to Shareholders Our Businesses - Special Steel
Practical examples
Offshore drilling Drilling pipe platform
LNG tanker
Keel
Seamless steel tubes Medium-thick plates Bar products
Slewing ring Gear steelBearing steel
Wind turbine components
Auto components
28 CITIC Pacific Annual Report 2013 Our S from te stee T materia in iron he pe cl c hno M uding l I
l ron spe c or ateria C
ong R passes the o ia a
k
w ore l mo e ogies l l c s, l l
ia s stee
pro
ong the and l l ten stee
through c : l Sc
ess the
l
or hot ad the furna iron. rap manufa Bl l
ast
l p short l iron
e uses stee
c l ong short -
ants e A refining
v l fter
arious
iron pro pro
emp pro c
the turing c c
ore
ess, VIM/VIR ess C c ESR furna l
furna El on ess oy
produ All mo e ar v
c
mligPoesn Products Processing Smelting or
and oy erter and
tri c a
t c
uses ll w l e c c
ten oys pro e, o c
c the
tion different o an
stee s k are c c e
‘RH ess short rap
as pro
l added LF is ’
stee ra or
c produ
esses, w pro v a l VD
, as
c c pig uum ess. or
c
the RH ed
degassing re w pro shaped are re C ontinuous i c c q q ll I asting asting ngot
uirements uirements. c fo therefore esses, c
used
to
v
furna stee
arious on c
T of
l hoose produ he
c bi the e,
H
ll spe Pier F management c R R ot ets orging sheet o o ring w
asting ll ll ro w c ing ing c c ing
ll or t and ifi ed q hi
k Our Businesses- c
CITIC c ua . ations he
and s l l ity abs v Pa er c
and ro ifi
treatment treatment
a dra pro teams S are c A cc urfa H ll C o w eat ing. c nnua l ording
ing d c c produ
ost e ess
T l R at
hrough effi mat eport
the Special Steel
c to ed c c c ien
20 hes p S
ustomers’ tee F and l R b R orging 1
parts rings ants P c ound l o these B 3 oom l l ate ll y
ar tube the ed
and
29
Property Iron Ore Special Steel Chairman’s Letter to Shareholders Our Businesses IRON ORE 33% of assets
In HK$ million 2013 2012 Change Revenue 389 21383% Attributable loss (1,619) (781) 107% Assets 88,134 81,577 8% Capital expenditure 8,169 16,512 (51)%
30 CITIC Pacific Annual Report 2013 OurOur BusinessesBusinesses - IronIron OOrere Chairman’s Letter to Shareholders to Letter Chairman’s Special Steel Special
Review of 2013 Sino Iron achieved a significant milestone in 2013, Magnetite concentrate produced so far is of high delivering its first shipment of magnetite concentrate quality with 66% iron content and low impurities. As to China. On 2 December 2013, barge loaders carried of mid-February 2014, over 766,000 wet metric tonnes magnetite concentrate product from the new port at (wmt) of concentrate have been produced. Ore Iron Cape Preston to a ship moored offshore, destined for CITIC Pacific’s special steel plant in Jiangsu province. Civil works on lines three to six have begun. CITIC We are now shipping regularly. Pacific Mining (CPM) will directly manage the works. Given the experience China Metallurgical Group Load commissioning for production line one re-started Corporation (“MCC”) has accumulated through the in July after two months of addressing technical and construction of the first two production lines, key operational issues. The objective going forward is to members of the MCC team have been seconded to CPM ensure the smooth operation of the line and increase to assist with the works. the rate of production. The supporting infrastructure, specifically the power Load commissioning of production line two station and desalination plant, is now providing a commenced in the latter part of 2013. However, an steady supply of power and water to the entire project. Property issue was identified with the line’s gearless motor During 2013, we focused on stepping up operational responsible for driving the grinding mill. A new motor reliability through tests, upgrading software, will be installed, and commissioning will begin again improvement of operation management and training. soon after.
CITIC Pacific Annual Report 2013 31 Our Businesses - Iron Ore
As one of the world’s largest and most complex The key issue confronting line two has been the magnetite mining and processing operations, Sino gearless motor. After investigation by the manufacturer Iron is building a world-class workforce. This includes Siemens, the motor is being replaced. We are targeting providing employees with quality training and to resume commissioning in July 2014. development opportunities to progress their careers and benefit the business. Construction for lines three to six has begun with key activities including civil construction for lines three and Construction & Operation Highlights four, and electrical installation of the second stacker. In 2014, civil construction for lines five and six, Processing installation of the two remaining crushers, autogenous Much of the past year was spent addressing technical grinding mills three and four and two remaining and operational issues identified during commissioning filtering facilities at the dewatering plant will of the first two production lines, improving the commence. The construction plan for lines three to six reliability of the production lines and gaining valuable is being finalised, but the current expectation is that experience along the way. they will be completed in 2016.
Design modifications are being made to equipment and Mining systems, including the cyclone feed pump, chute and During the past year, the focus of mining activities control system. Preventive maintenance to reduce the shifted from waste movement to ensuring adequate likelihood of unscheduled shutdowns has also been a ore supply for the crushers and grinding mills at the key focus. As a result of these measures, the production concentrator. line has been operating more smoothly. In 2014, we will continue to fine tune the processing parameters to increase the production rate.
“ The Sino Iron project will deliver a major boost to the Pilbara iron ore industry and is a great example of Chinese confidence in Western Australia.”
Colin Barnett MLA Premier of Western Australia
32 CITIC Pacific Annual Report 2013 Our Businesses - Iron Ore
We achieved this by configuring our mining fleet and procedures are being completed and updated as and associated equipment to ensure that ore for further operation information is gathered. The reliability the current commissioning and production task was of all seven gas turbines has improved following the delivered in the most efficient manner. The mining ramp-up load test, along with tuning, performance and team continues to focus on increasing the productivity emission tests. of the excavators and shovels, and shortening the truck haul route. The maintenance division has focused Plant reliability will further improve once the dynamic on improving truck reliability, including the electrical load shedding test of the Energy Management System reliability of the drive system. (EMS) is carried out in 2014. Balancing the plant reliability with greater operating efficiencies will be Reducing total operational cost has been the priority a key focus. A study examining the most optimised Chairman’s Letter to Shareholders to Letter Chairman’s of the mining operation over the past year. By the end operation mode under selected scenarios has now been of January 2014, approximately 193 million tonnes of completed. waste had been removed, sufficient to allow for the current level of ore mining activity. By lessening the Synchronisation of all three combined cycles, which amount of waste movements, savings were achieved produce less carbon emissions than an open cycle through reduced labour requirements and lower vehicle plant, was completed during the year. As the first operating costs. production line ramps up its production and the second line completes its commissioning in 2014, the power plant will have enough load demand to start Power station Steel Special CITIC Pacific Mining’s award-winning combined cycle load testing the combined cycles. power station has provided a reliable power supply for the operation. Production and equipment management Iron Ore Iron Property
CITIC Pacific Annual Report 2013 33 Our Businesses - Iron Ore
Desalination plant The desalination plant continues to meet the project’s Training continues to be an important component in substantial water requirements, with much of the past bringing up the standard of operators and the emphasis year spent optimising plant efficiency. has been on multi-skilling. Knowledge retention within the team is a top priority. Initiatives undertaken during this period include upgrading operating and maintenance systems to Port improve overall reliability. For example, automated After securing all necessary approvals to export, data collection was implemented to conduct real-time on 2 December the first shipment of magnetite analysis of plant performance, and alarm code software concentrate bound for China was loaded onto a ship was upgraded resulting in quicker identification and moored offshore from Cape Preston. rectification of potential issues. The replacement programme for several faulty components was also We are now shipping regularly. Up to mid-March 2014, completed. there have been five shipments of around 261,126 wmt of magnetite concentrate. The sixth ship is being loaded at The plant produces desalinated water by pushing Cape Preston. At this stage, the most efficient shipping filtered seawater through reverse osmosis membranes. method is to barge concentrate to geared vessels As the desalination process relies heavily on the anchored offshore. CITIC Pacific’s 12 purpose-built mini- performance of these membranes, the plant now has an cape size vessels of 115,000 dwt have been leased out. automated membrane cleaning process, reducing the As concentrate production increases, transshippers cleaning cycle by 80% and improving plant availability.
34 CITIC Pacific Annual Report 2013 PRODUCT positive feedback. positive feedback. Conference lastyear andreceived inOctober very We introduced ourproduct atthe9 which typically hashigher aluminaandphosphorus. tothetraditionalis complementary Australian ore, alumina intake intheir blastfurnaces, ourproduct As many Chinesesteelplantsaimtolower the impurities suchasalumina,phosphorusandsulphur. of around 66%.Theore alsocontains low levels of withaniron content goodquality so far isof very Tests show thattheconcentrate we have produced General Manager–Technical Services CITIC Pa c ifi c A nnua th l R ChinaSteel eport Lisa Yang
20 1 3 3 5
Property Iron Ore Special Steel Chairman’s Letter to Shareholders Our Businesses - Iron Ore
and these larger ocean-going vessels will be used in simulators were used to perfect safe operating the export operations, which will ultimately increase manoeuvres, assess emergency scenarios and optimise efficiency and help deliver greater economies of scale. barge fleet turnaround. With the experience that comes with regular shipments, overall port performance is In preparation for first shipment, we spent several expected to further improve throughout the course months refining procedures and developing operating of 2014. parameters to manage export activities under a range of prevailing conditions. For example, navigation
Direct shipment from Western Australia to CITIC Pacific Special Steel plant
Beijing
China Shanghai
Taiwan Hong Kong Philippine Sea South China Sea
Cape Preston
WA Australia
Perth Sydney Palletisation plant in Jiangdu district, Yangzhou City Canberra Shipping Route Melbourne Yangtze River
36 CITIC Pacific Annual Report 2013 ENVIRONMENT ENVIRONMENT HEALTH, AND SAFETY Our combined-cycle gas-fired power awards combined-cycle Our stationwon industry forenergy efficiency. programme forvegetation, coral and marinelife, ambient dustandweather events. systems. Wegreenhouse gasemission datacollection and reporting alsocontinued monitoring ourextensive management systemwas appropriate fortheproject’s newoperational status. We continue toevolve our was approach andenvironmental alsospentensuringthatourhealthandsafety Much timeandeffort toaccess medical informationandadviceopportunity onaconfidential basis. We alsoimproved managementcare ourspecialistinjury forstaff andprovided employees withthe management offibres inmobileequipment.Thiswas asignificant achievement. won theChamberofMinerals andEnergy ofWestern Australia Award Innovation inHealthandSafety for much timeandresources onmonitoring andevaluating riskandexpanding our programmes. In2013,we The safemanagementofnaturally-occurring fibrous minerals continued tobeamainfocusin2013.We spent right direction. injuriesonsitehasdropped.actual There isalways more tobedonebut,overall, we continue toheadinthe with large, andcomplex plantandequipmentinaruggedenvironment. this, heavy thenumberof Despite What’s mostpleasingis thatwe have hadanotheryear free ofwork-related fatalities. staffare Our working performance.” behaviours,and positive we safety contin return totheirloved onesattheendoftheirroster. values Bypromotingsafety “At theendofday, it’s atwork allaboutmakingsure everyone issafe andcan ue tomanageriskandimprove safety Environment &Corporate Logistics Executive –HealthSafety, Director CITIC Pa c ifi c A nnua l R Warren Fish eport
20 1 3 37
Property Iron Ore Special Steel Chairman’s Letter to Shareholders Our Businesses - Iron Ore
Mineral Resources Estimate The Australasian Code for Reporting of Exploration The following Mineral Resource estimate is based on Results, Mineral Resources and Ore Reserves (the “JORC assay data from drill holes at the initial mining area Code” or “the Code”) sets out minimum standards, (“IMA”) and surrounds as at 19 April 2010. The Resource recommendations and guidelines for Public Reporting Model was released by Golder Associates in October in Australasia of Exploration results, Mineral Resources 2010, utilising a cut-off grade of 17% MagFe. “Joffre” is a and Ore Reserves. According to the JORC Code, ‘Mineral member of the Brockman Iron Formation, the main ore Resource’ is defined as a concentration or occurrence body for the project. of materials of economic interest in such form, quality and quantity that there are reasonable prospects for eventual economic extraction. Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories.
Total Joffre resource – 2010 results Classification Million tonnes Magnetic Fe (%) Total Fe (%) Measured 806 22.64 32.46 Indicated 1,489 22.94 31.90 Inferred 2,793 23.52 31.51 Total 5,089 23.21 31.77
Measured Mineral Resource Inferred Mineral Resource A “Measured Mineral Resource” is that part of a Mineral Resource for which An “Inferred Mineral Resource” is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content tonnage, grade and mineral content can be estimated with a low level can be estimated with a high level of confidence. It is based on detailed of confidence. It is inferred from geological evidence and assumed but and reliable exploration, sampling and testing information gathered through not verified geological and/or grade continuity. It is based on information appropriate techniques from locations such as outcrops, trenches, pits, gathered through appropriate techniques from locations such as outcrops, workings and drill holes. The locations are spaced closely enough to confirm trenches, pits, workings and drill holes which may be limited or of uncertain geological and grade continuity. quality and reliability.
Indicated Mineral Resource An “Indicated Mineral Resource” is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confidence. It is based on exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are too widely or inappropriately spaced to confirm geological and/or grade continuity but are spaced closely enough for continuity to be assumed.
38 CITIC Pacific Annual Report 2013 Our Businesses - Iron Ore
Sino Iron Project Facts The Sino Iron project is 100% owned by CITIC Pacific, The Sino Iron project is being developed by CITIC which acquired the rights to extract two billion tonnes Pacific Mining, a subsidiary of CITIC Pacific, with its of magnetite iron ore resource from its mine at Cape headquarters in Perth and a representative office Preston, 100 kilometres southwest of Karratha in in Beijing. When completed, the project will have Western Australia’s Pilbara region. The project currently six production lines with the capacity to produce a has a mine life of 25 years. total of 24 million tonnes of magnetite concentrate annually. Actual production volume will depend CITIC Pacific has options to acquire an additional four on the characteristics of the resource being mined. billion tonnes of magnetite iron ore resource at the Contractually, no more than 27.6 million tonnes can be same location. In April 2012, CITIC Pacific exercised exported annually. Shareholders to Letter Chairman’s an option to acquire the right for one billion tonnes. Once this transaction is completed, the life of mine will At peak of construction, about 4,000 people were extend to more than 30 years. engaged on the project. CITIC Pacific Mining employs about 1,000 people on a permanent basis.
Sino Iron’s magnetite process flowchart
Open mine pit Coarse Pebble Secondary Concentrate Conveyor ore crusher classifying pump Steel Special pile cyclone Primary Finishing Slurry pipeline Magnetite Ore classifying magnetic concentrate barges cyclone separator Concentrate stockpiles launder Rough Slurry Transshipment magnetic tank loading barge separator
Magnetite thickener
Classifying Tailings Bulk screen dam carrier
Primary Autogenous Regrind Tailings Filter
crusher grinding mill ball mill thickener press Ore Iron
Haematite process flowchart
Open mine pit Primary Screening Conveyor crusher Coarse ore Product Rail Bulk stockpile screens transport carrier Property
Secondary Fines and lump Stockpiles crusher stockpiles
CITIC Pacific Annual Report 2013 39 Our Businesses PROPERTY 24% of assets
In HK$ million 2013 2012 Change Revenue* Mainland China 2,917 4,133 (29)% Hong Kong 1,004 1,142 (12)% Attributable profit Mainland China 1,045 911 15% Hong Kong 483 569 (15)% Assets Mainland China 46,126 40,623 14% Hong Kong 17,118 15,573 10% Operating cash flow 4,386 1,456 201% Capital expenditure 4,183 3,9167%
* Revenue includes both consolidated and CITIC Pacific’s share of significant equity accounted entities
40 CITIC Pacific Annual Report 2013 OurOur BBusinessesusinesses - PropertyProperty Chairman’s Letter to Shareholders to Letter Chairman’s
Review of 2013 In 2013, the Chinese government continued to introduce purchase restrictions, our Shenzhou Peninsula project in policies and measures to regulate the real estate market Hainan attracted large numbers of buyers and therefore and these, to a certain degree, suppressed speculative recorded satisfactory sales. All these pre-sales bookings, investment. Sales of residential projects therefore were however, will not be recognised until the units are OreIron Steel Special primarily to people looking for homes they would completed and delivered to buyers. occupy themselves or looking to upgrade. With the continued demand for Grade A office buildings During the year, attributable profit from mainland in prime locations, our CITIC Square and Royal Pavilion property rose by 15% owing to the sale of a commercial investment properties in Shanghai maintained a high building (CITIC Plaza Shenhong) in Shanghai. Most of occupancy rate and stable income during the year. our residential projects remained in the development In 2013, we sold an office building to the Shanghai phase, with limited finished units for delivery. Branch of CITIC Bank, which will be constructed on the Shanghai World Expo site. However, pre-sales of residential units in 2013 were at a record high with total sales reaching 223,000m2 Gross Looking at 2014, we do not anticipate significant Area (GA). For projects such as The Centre in Jiading and changes to the policies adopted by the Chinese Property Zhujiajiao New Town in Qingpu, we adjusted our strategy government. We will therefore continue to adjust our based on market demand to focus on the development development strategies in response to the market and sales of smaller apartments, thus achieving a situation. At the same time, we will consider increasing better result during the year. Since Wanning city had no our land bank when appropriate.
CITIC Pacific Annual Report 2013 41 Our Businesses - Property
Assets
Hong Kong 27% Property
24%
Mainland 73% China
Mainland China development properties by GFA
Hotel/ Land bank in mainland China: 7% Resort Facilities 3.14 million m2
Office 18%
Retail 11%
Residential 64%
Note: GFA: permitted gross floor area
42 CITIC Pacific Annual Report 2013 Our Businesses - Property
Mainland China Properties Development projects Land bank Project Usage (GFA) Completion Shanghai Lujiazui Harbour City Office, residential 583,800m2 In phases from 2011 onwards and retail (approx. 263,300m2 completed) The Centre, Jiading Office, hotel, 445,300m2 In phases from 2011 onwards residential and retail (approx. 92,600m2 completed)
Zhujiajiao New Town, Qingpu Residential and retail 331,600m2 In phases from 2009 onwards Shareholders to Letter Chairman’s (approx. 243,500m2 completed) New Westgate Garden Phase II Residential and retail137,300m2 Resettlement in progress Shanghai World Expo site Project Office and retail 57,700m2 2016 Jiangsu Province Noble Manor, Yangzhou Residential152,000m2 In phases from 2008 onwards (approx. 284,900m2 completed) Hainan Province Shenzhou Peninsula, Wanning Hotel, retail and 1,429,500m2 In phases from 2011 onwards residential (approx. 369,800m2 completed) Total 3,137,200m2
Figures are as of the end of December 2013
Projected completion schedule
The Centre, Jiading Noble Manor, Yangzhou Zhujiajiao New Town, Qingpu
2014 Shenzhou Peninsula, Wanning OreIron Steel Special Lujiazui Harbour City Shanghai World Expo site Project 2015
2016
2017 and 1,869 after
500 2,000 (’000m2) Property
CITIC Pacific Annual Report 2013 43 Our Businesses - Property
1 ZHUJIAJIAO NEW TOWN, QINGPU 2 THE CENTRE, JIADING (100% owned) (100% owned) Site: 796,800m2 Site: 156,000m2 Gross floor area: 575,200m2 Gross floor area: 537,900m2 Completed: 243,500m2 (GFA) Completed: 92,600m2 (GFA) Land bank: 331,600m2 (GFA) Land bank: 445,300m2 (GFA) Usage: Low-density residential, Usage: Office, hotel, retail and residential retail and hotel The Centre in northwestern Shanghai is situated Zhujiajiao New Town is located in Qingpu District, at Jiading New Town Station of Metro Line No. 11. Shanghai close to Zhujiajiao Old Village, a renowned Access is also available via the Shanghai-Nanjing scenic spot. The project comprises villas, apartments Expressway, Shanghai-Hangzhou Expressway and and a hotel, and is fully equipped with residential, Shanghai-Qingpu Highway, all within the area. The business, recreational and healthcare facilities. project comprises high-rise residential buildings, Metro Line No. 17, which will have a station close to serviced apartments and a hotel, office buildings and our project, started construction in 2013. shopping malls.
Sale progress in 2013: Sale progress in 2013: Sold units and area: 458 (65,200m2) Sold units and area: 353 (40,400m2) Average selling price: RMB12,000/m2 Average selling price: RMB16,900/m2 (apartments) RMB14,500/m2 (low-rise houses)
PUXI
SHANGHAI
Metro Line 1 Metro Line 7 Metro Line 2 Metro Line 9 Metro Line 4 Metro Line 11
Qingpu 44 CITIC Pacific Annual Report 2013 1 Our Businesses - Property
3 LUJIAZUI HARBOUR CITY, SHANGHAI 4 SHANGHAI WORLD EXPO SITE PROJECT (50% owned) (99.2% owned) Site: 249,400m2 Site: 12,500m2 Gross floor area: 847,100m2 Gross floor area: 57,700m2 Completed: 263,300m2 (GFA) Usage: Office and retail Land bank: 583,800m2 (GFA) The project is located on the former Shanghai Usage: Office, retail, hotel and residential World Expo site, with the Huangpu River on the Lujiazui Harbour City, previously used as a north and World Expo Boulevard on the east. Two shipyard by Shanghai Shipyard Co., is the last office buildings will be built on the site, one of
prime development area on the south shore of which was sold to the Shanghai Branch of CITIC Shareholders to Letter Chairman’s the Huangpu River in central Shanghai. Jointly Bank in 2013. developed by CITIC Pacific and the China State Shipbuilding Corporation, this project comprises high-end office buildings; a five-star hotel and serviced apartments; recreational, commercial, dining and entertainment facilities; and luxury residential properties.
In Lujiazui Harbour City, two office towers were already built and handed over to the buyers. The Mandarin Oriental hotel and serviced apartments are in operation. Currently, three office buildings for three financial institutions are under construction.
2
Hu an
g OreIron Steel Special p u
R
i
v
e
r
M
etro
M L etro ine
M
L 7 ine etro 11
L ine Hongkou 1
Putuo 3 Lujiazui
M et ro L in
e Property
2 Metro Line 4
4 PUDONG Xuhui
9 Line Metro CITIC Pacific Annual Report 2013 45 Our Businesses - Property
SHENZHOU PENINSULA, HAINAN ISLAND ( 80%-100% owned) Special Feature Site: 6,790,400m2 Shenzhou Peninsula Gross floor area: 1,799,300m2 Completed: 369,800m2 (GFA) Land bank: 1,429,500m2 (GFA) Usage: Residential, hotel, retail and recreation
Shenzhou Peninsula is located in Wanning, Hainan Province, on the Eastern Coast between Sanya and Boao. Unlike other projects we have developed The project comprises high-end residential buildings, elsewhere, Shenzhou Peninsula is not simply hotels and resorts, shopping arcades, an international a tourism and property development. It is golf course and yacht club. Additional recreational, a project that involves the planning and conferencing, exhibition and cultural facilities are also development of the entire peninsula, including planned. the construction of infrastructure and municipal facilities, transportation systems, public services, On the peninsula, we currently have two hotels – the environmentally-sensitive features, and urban Sheraton and Four Points – a golf complex and beach landscape design. Shenzhou Peninsula is a club. Together with the shopping arcades that opened at complicated yet interesting project. It is like a the end of 2013, the peninsula provides recreational and blank sheet of paper on which we have planned entertainment activities for tourists and residents. everything from the ground up, with ample space to play with. In the past few years, I have witnessed the development of the entire Sale progress in 2013: Shenzhou Peninsula, from a small fishing village Sold units and area: 664 (76,700m2) to a new town today, in a 18km2 area. In future, Average selling price: RMB12,570/m2 it will continue to be developed based on our (apartments) blueprint. RMB21,270/m2
(low-rise houses) We now have two hotels operating on the peninsula – the Sheraton and Four Points. We also have two golf courses, Kokomo Beach Club as well as a lake park. Buses connecting the peninsula to other areas and shuttle buses travelling around the island
46 CITIC Pacific Annual Report 2013 MY DREAM OF LIVING ON THE ISLAND Chairman’s Letter to Shareholders to Letter Chairman’s
Zhu Huayue General Manager – Sales & Marketing
have started operating. We also have a post office, telecommunications system, banks, supermarkets, restaurants, shopping centres and a community centre. At the end of 2013, Shenzhou Peninsula Commercial Square and a community health centre officially opened. Three phases of residential units have already achieved good sales results, and we began construction of the
fourth phase of low-density forest island villas in late OreIron Steel Special 2013.
With this project, we aspire to create a multi-purpose resort village on Shenzhou Peninsula. Whether you come here for a vacation or conference, there are many activities you can enjoy. If you are a sports lover, you can play golf, enjoy water sports or go horse-riding. If you want to be close to nature, you can sail a yacht or explore a country park. For lovers of art and culture, you can visit our themed museums. Even if you don’t have any special preferences, you can simply relax by
taking a stroll on the beach, walking around the town, Property or enjoying a delicious meal. We all have a dream of escaping life’s pressures, and with Shenzhou Peninsula this dream can be fulfilled today.
CITIC Pacific Annual Report 2013 47 Our Businesses - Property
Sales progress of residential projects Sold in the past Approx. (up to end of Average selling residential December 2013) Sold in 2013 price in 2013 Project GFA (units & area) (units & area) (RMB/m2) Zhujiajiao New Town 522,700m2 1,879 458 12,000 (apartments) project, Qingpu (222,800m2 ) (65,200m2 ) 14,500 (low-rise houses) The Centre, Jiading 213,500m2 1,236 353 16,900 (apartments) (122,600m2 ) (40,400m2 ) Noble Manor, Yangzhou 419,200m2 2,034 42 9,440 (apartments) (267,100m2 ) (6,570m2 ) Taihu Jinyuan, Wuxi 228,200m2 960 217 11,670 (apartments) (179,000m2 ) (34,370m2 ) 18,550 (low-rise houses) Shenzhou Peninsula, 1,427,100m2 1,565 664 12,570 (apartments) Wanning (180,000m2 ) (76,710m2 ) 21,270 (low-rise houses) Total 2,810,700m2 7,674 1,734 (971,500m 2) (223,250m 2)
Investment properties Approx. Occupancy Properties Usage Ownership gross area (end of 2013) CITIC Square, Shanghai Office, retail100%114,000m2 98% (office) 92% (retail) Royal Pavilion, Shanghai Serviced apartments 100% 35,000m2 92% New Westgate Garden, Retail100% 23,000m2 100% Retail Portion (phase I), Shanghai Tower A, Pacific Plaza, Office, retail100% 49,000m2 75% (office) Ningbo, Zhejiang Province 67% (retail) Total 221,000m 2
CITIC Pacific’s property investments in mainland China from CITIC Square, located on Nanjing Xilu, Shanghai, continued to enjoy steady rental income, with an which enjoyed an occupancy rate of 98% at the end of overall occupancy rate of approximately 88% at the end the year. of 2013. The main contribution to rental income was
48 CITIC Pacific Annual Report 2013 Our Businesses - Property
Hong Kong Properties Development properties Discovery Bay Discovery Bay, which is 50% owned by CITIC Pacific, effective from April 2013. During the year under review, is a large residential development jointly developed a further 19% of the apartments were sold, bringing with HKR International Ltd. Since its launch in 1973, total sale to 88% since the launch of the project in Discovery Bay has evolved into a fully integrated 2012. Construction of Phase 15 (a low-rise development suburban multinational residential community. Situated of approximately 17,400m2 GFA) was completed, and on the coast of northeast Lantau Island close to the a sale launch is planned for 2014. The occupancy Disney Theme Park, Discovery Bay is endowed with and booking rates of Auberge Discovery Bay hotel open space and recreational and leisure facilities such (approximately 26,000m2 GFA) have been encouraging Shareholders to Letter Chairman’s as a private beach, central park, scenic promenade, golf since the soft opening in March 2013. course, marina and recreation club. Redevelopment at Kadoorie Avenue The current development at Yi Pak Bay is located in the The Kadoorie Avenue project covers a site of northern part of Discovery Bay. The sale of Phase 14, approximately 14,200m2 GFA in an exclusive low- AMALFI, continued in 2013 with a break between May density residential district in Kowloon known for its and November to comply with the new requirements of extensive greenery and mature trees. Foundation and the Residential Properties (First-hand Sales) Ordinance site formation works are scheduled to complete in mid 2014 with project completion planned for 2016. Iron OreIron Steel Special
Investment properties
Approx. Major Properties Usage Ownership gross area CITIC Tower Office, retail 40% 52,000m2 Wyler Centre IIndustrial100% 35,000m2 Property 111 Lee Nam Road Motor Services & Godown 100% 60,000m2 Yee Lim Industrial Centre, Block C Cold Store & Godown 100% 30,000m2
Our Hong Kong investment property portfolio the end of 2013, the overall average occupancy was provided stable rental income to CITIC Pacific. At approximately 97%.
CITIC Pacific Annual Report 2013 49 Other Businesses
Energy
In HK$ million 2013 2012 Change Revenue* 12,278 11,039 11% Attributable profit Power generation 1,402 696 101% Coal 420 440 (5)% Assets 9,784 9,716 1%
* Revenue includes both consolidated and CITIC Pacific’s share of significant equity accounted entities
Attributable profit from power generation increased its wharf facilities therefore further increasing its substantially in 2013 from 2012 due to more electricity transportation capacity, which in turned help lower and heat generated, especially by the Ligang Power transportation costs. In November 2013, CITIC Pacific Station as well as a significantly lower price of coal. For sold 49% of its interest in the Shandong Chenming 2013, total electricity and heat generated by power power plant. plants in which CITIC Pacific has an interest increased 10% and 24% respectively due to the rise in electricity The reduced price of coal meant that the Xin Julong demand. The Ligang power plant substantially coal mine in Shandong, in which CITIC Pacific holds a increased 100% of its heat generation capacity as a 30% interest, recorded a lower attributable profit even result of a technical upgrade. Ligang also expanded though it produced 8 million tonnes of coal in 2013, 31% more than 2012.
Electricity generated Heat generated Installed Location capacity Utilisation 2013 2012 2013 2012 Power plant (Province) (MW) Ownership Type hours (m kWh) (m kWh) Change (kGJ) (kGJ) Change Ligang I & II Jiangsu 1,440 65%Coal fired 5,338 7,686 8,041-4.41% 1,514 1,479 2.36% III & IV Jiangsu 2,460 71.4%Coal fired 5,598 13,772 10,288 33.87% 2,077 321 546% Hanfeng Hebei 1,320 15%Coal fired 5,498 7,257 7,781-6.73% n/a n/an/a Huaibei Anhui 640 12.5%Coal fired 5,223 3,342 3,385 -1.26% n/a n/an/a Hohhot Inner Mongolia 400 35%Co-generation 5,889 2,356 1,930 22.06% 2,459 2,344 4.90% Chenming*Shandong 1849%Co-generation 5,808 105 95 10.52% 3,027 3,200 -5.42% Total 6,278 34,51831,520 9.51% 9,077 7,344 23.59%
* 49% interest of Shangdong Chenming power plant was sold in November 2013
50 CITIC Pacific Annual Report 2013 Other Businesses
Tunnels Location Ownership Franchise till Eastern Harbour Tunnel (Road)Hong Kong 71% 2016 Western Harbour TunnelHong Kong 35% 2023
In HK$ million 2013 2012 Change Revenue* 1,320 1,248 6% Attributable profit 611 561 9% Assets 2,183 2,208 (1)%
* Revenue includes both Eastern Harbour Tunnel and CITIC Pacific’s share of Western Harbour Tunnel
Kowloon
Western Harbour Crossing Eastern Harbour Crossing
Hong Kong
The Eastern Harbour Tunnel The Western Harbour Tunnel www.easternharbourtunnel.com.hk www.westernharbourtunnel.com
The Eastern Harbour Tunnel registered average daily The Western Harbour Tunnel is a key section of the traffic of 72,104 vehicles in 2013, an increase of 2% Route 3 highway connecting Hong Kong Island with from 2012. Among the three cross-harbour tunnels mainland China and Hong Kong International Airport. in Hong Kong, the Eastern Harbour Tunnel had a 29% In 2013, average daily traffic was 61,957 vehicles, up 2.5% market share of total traffic in 2013, a 1% increase from from 2012. Among the three cross-harbour tunnels in 2012. Hong Kong, the Western Harbour Tunnel had a 25% market share of total traffic in 2013, a 1% increase from 2012.
CITIC Pacific Annual Report 2013 51 Other Businesses
Dah Chong Hong www.dch.com.hk
55.6% equity interest held by CITIC Pacific Listed on the Stock Exchange of Hong Kong – code: 01828
In HK$ million 2013 2012 Change Revenue 42,261 48,014 (12)% Attributable profit 492 536 (8)% Assets 21,627 20,306 7%
Dah Chong Hong is engaged in the sales of motor The company has well-established networks in Hong vehicles and related business and services, sales of food Kong, Macau and mainland China, as well as operations and consumer products, as well as logistics services. in Taiwan, Japan and Singapore.
CITIC Telecom International www.citictel.com
41.4% equity interest held by CITIC Pacific Listed on the Stock Exchange of Hong Kong – code: 01883
In HK$ million 2013 2012 Change Revenue* 2,799 3,610 (22)% Attributable profit 443 299 48% Assets 3,893 3,733 4%
* Revenue includes both consolidated and CITIC Pacific’s share of significant equity accounted entities
CITIC Telecom International Holdings Limited (“CITIC CITIC Telecom holds 99% interest in Companhia de Telecom”) is a reputable telecom operator in Asia. Telecomunicações de Macau, S.A.R.L. (“CTM”), one of Macau’s leading integrated telecom services provider. CITIC Telecom owns and operates a telecom hub with CTM, the only full telecom service provider in Macau, its key markets in China and Hong Kong. It is actively is a long-time leader in providing world-class telecom expanding its business internationally by providing services to Macau residents and enterprises while interoperability and interconnection services to global playing a major role in the ongoing development of telecom operators. CITIC Telecom’s main businesses Macau. cover Voice Services, SMS Services, Mobile VAS and Data Services. It also provides a full range of Information and CITIC Group Corporation, one of the largest commercial Communications Technology (ICT) solutions through its organisations in the People’s Republic of China, is the wholly-owned subsidiary, CITIC Telecom International ultimate holding company of CITIC Telecom. CPC Limited (“CITIC Telecom CPC”), across the Asia Pacific region. CITIC Telecom CPC is a preferred partner of leading multinational corporations and business enterprises.
52 CITIC Pacific Annual Report 2013 Evaluating and Accounting for Projects Before a company invests in a new or expanded In the case of Sino Iron, depreciation starts when the business it will evaluate if the project will produce a integrated business starts commercial production. At cash inflow during its life (generally from sales of a present, we are in trial production but expect to enter product) that recovers the cost of the initial investment, into commercial production in 2014. Other than some and a return to the shareholders. The initial investment relatively minor assets such as earthmoving equipment includes not only physical equipment and the cost with a shorter useful life, most of the fixed plants will of its installation, but also interest on loans used to be depreciated on a “unit of production” method. An finance the development and other costs. estimate is made of the total tonnes of production of the mine over its lifetime and depreciation is applied During the life of the project the likely net cashflow per tonne of actual production. As depreciation per will be recalculated and compared with the cost of the tonne matches a cash inflow from sales of that tonne, project or business. If the projection shows that the income should exceed the non-cash depreciation. The net cashflow is not enough to recover the investment, mine itself has been in operation for some years, and the owner will record an “impairment loss” in the profit the earthmoving equipment is depreciated over its and loss account. This is not a cash loss. It is merely useful life. This could be quite complicated as each the result of an evaluation based on assumptions that individual piece of equipment has its own operating may or may not prove to be correct. Some of these life. assumptions may be up to 30 years ahead. While experts assist in making these assumptions, they can Including interest in the cost of an asset stops when not possibly to be absolutely right. They are re-visited the asset is ready for production. As much of the periodically. The assumptions in the long distant future equipment is ready for production, interest that are of less significance than those nearby because the previously was added to the cost of the asset on the net cashflow is reduced in value by “discounting” at an balance sheet will become an expense in the profit and interest rate which itself is an important assumption. loss account. This will make the unit cost high in 2014 and 2015 because production will be significantly less The evaluation of a business takes place at the smallest than the full capacity of the installed equipment. This is unit that can generate cash inflows on its own. In because only two of the six grinding lines at the heart the case of our steel business, it will be an individual of the industrial process will be in operation by the factory or product line; properties generally are end of 2014. They have a nominal capacity of 4 million evaluated individually. Our iron ore business segment tonnes each. The full nominal capacity of all six lines is is an interesting case. It is easy to separate the shipping 24 million tonnes. business and evaluate its future. The majority of the iron ore assets are the mine and a huge range of Although depreciation and interest will likely create a integrated industrial processes that end up placing loss in the Sino Iron profit and loss account until the iron ore concentrate in a stockyard. These assets are grinding mills are in commercial production at a greater one cash generating unit. This has consequences in the scale, the economic value of the Sino Iron project is not profit and loss account. affected as it is evaluated using likely cash flows (in and out) over the life of the project. In the profit and loss account two expenses are important – depreciation and interest. Depreciation is not a cash outflow so it does not affect the economics of the business. Interest is most likely a cash outflow but it is considered in valuing the business not as an expense but by calculating an internal rate of return.
CITIC Pacific Annual Report 2013 53