2 Contents Corporate Information 3 Highlights 4 Organisation Structure 5 Chairman’s Statement 6 Management Discussion and Analysis 12 Directors and Senior Management 23 Corporate Governance Report 29 Report of the Directors 34 Independent Auditor’s Report 51 Consolidated Statement of Comprehensive Income 53 Consolidated Balance Sheet 54 Company Balance Sheet 56 Consolidated Statement of Changes in Equity 58 Consolidated Cash Flows Statement 59 Notes to the Consolidated Financial Statements 60 Five Years Financial Summary 155 ANNUAL REPORT 2010 3 Corporate Information DIRECTORS AUDIT COMMITTEE LEGAL ADVISERS Executive Directors: Lin Zhijun (Chairman) Hong Kong Ouyang Minggao Sidley Austin Ma Chunji (Chairman of the Board) Chen Zheng Cai Dong (President) Tong Jingen Wei Zhihai (Vice President) PRC Wang Haotao (Vice President) REMUNERATION DeHeng Law Offices Tong Jingen (Chief Economist) COMMITTEE Wang Shanpo (Chief Engineer) AUDITOR Pan Qing (Vice President) Chen Zheng (Chairman) Lin Zhijun PricewaterhouseCoopers Non-executive Directors: Li Xianyun Wei Zhihai SHARE REGISTRAR Georg Pachta-Reyhofen Tong Jingen Jörg Schwitalla Computershare Hong Kong Investor Lars Wrebo HEAD QUARTER Services Limited Independent Non-executive 165 Yingxiongshan Road, Ji’nan COMPANY WEBSITE Directors: Shandong Province, China Postal code: 250002 www.sinotruk.com Shao Qihui Lin Zhijun REGISTERED OFFICE IN STOCK CODE Ouyang Minggao HONG KONG Hu Zhenghuan 3808 Chen Zheng Units 2102-2103 Li Xianyun China Merchants Tower INVESTOR RELATIONS Shun Tak Centre EXECUTIVE COMMITTEE 168-200 Connaught Road Central Securities Department Hong Kong Ma Chunji (Chairman) China: Tel (86) 531 8866 3808 Fax (86) 531 8558 2545 Cai Dong COMPANY SECRETARIES Wei Zhihai Hong Kong: Tel (852) 3102 3808 Wang Haotao AND AUTHORIZED Fax (852) 3102 3812 Tong Jingen REPRESENTATIVES Wang Shanpo Email: [email protected] Pan Qing Tong Jingen Kwok Ka Yiu PUBLIC RELATIONS STRATEGY AND CONSULTANT INVESTMENT COMMITTEE PRINCIPAL BANKERS Christensen Ma Chunji (Chairman) Industrial and Commercial Bank of Tel: (852) 2117 0861 Cai Dong China - Ji’nan Branch, Email: [email protected] Shao Qihui Tianqiao Sub-branch Ouyang Minggao Bank of China - Ji’nan Branch Hu Zhenghuan Agricultural Bank of China- Wang Haotao Ji’nan Branch, Huaiyin Sub-branch Wang Shanpo China Construction Bank – Ji’nan Branch, Tianqiao Sub-branch 4 Highlights 2010 2009 Increase/(Decrease) % Operating results (RMB million) Turnover 39,656 27,901 11,755 42.1 Earnings before interest and tax 2,505 1,593 912 57.3 Profit attributable to equity holders of the Company 1,481 837 644 77.0 Profitability Gross profit margin 16.0% 13.4% 2.6% 19.4 Operating profit margin 5.8% 4.9% 0.9% 18.4 Net profit margin 4.4% 3.6% 0.8% 22.2 Liquidity Current ratio (time) 1.4 1.5 (0.1) (6.7) Inventory turnover (days)* 105.0 83.2 21.8 26.2 Trade receivable turnover (days)* 78.5 65.5 13.0 19.8 Trade payable turnover (days)* 119.2 115.5 3.7 3.2 Per share data Earnings per share - basic (RMB) 0.54 0.38 0.16 42.1 Dividend per share (HKD) 0.18 0.06 0.12 200.0 Share information (as at 31 December) Number of issued shares (million) 2,761 2,761 — — Market capitalisation (RMB million) 18,819 22,049 (3,230) (14.6) * 2009 figures are not adjusted with the changes after the adoption of merger accounting from the acquisition of CNHTC Jining Commercial Truck Co., Ltd. • Turnover at RMB39,656 million, 42.1% increase • Heavy duty truck sales volume at 150,064 units, 38.3% increase; export volume at 13,549 units, 59.4% increase • Profit attributable to equity holders of the Company at RMB1,481 million, 77.0% increase • Basic earnings per share at RMB0.54, 42.1% increase • Proposed final dividend per share at HKD0.18, 200% increase ANNUAL REPORT 2010 5 Organisation Structure Note : All above subsidiaries are wholly-owned subsidiaries of the Company unless otherwise stated Organisation Structure As at 31 December 2010 6 Chairman’s Statement “During the period under review, the Group’s turnover rose 42.1% to RMB39.7 billion; its profit attributable to equity holders increased by 77.0% to RMB1.5 billion.” Ma Chunji Chairman ANNUAL REPORT 2010 7 Dear Shareholders, During the period under review, the Group’s turnover rose 42.1% to RMB39,656 million. Profit before income tax On behalf of the board (the “Board”) of directors (the increased by 56.9% to RMB2,054 million. Profit “Directors”), I am pleased to present the annual results attributable to equity holders of the Company increased for Sinotruk (Hong Kong) Limited (“Sinotruk” or the by 77.0% to RMB1,481 million. “Company”) and its subsidiaries (together, the “Group”) for the year ended 31 December 2010 (“period under During the period under review, the Group maintained review”). stable development in various areas and continued to insist on innovations. This led to the upgrade of the overall Review production technologies. Particularly, the reduction of the weight of tractors in turn increases its competitive strength Global and domestic economic conditions in 2010 were and the success of the development of high-power natural volatile and complex. Major economies were slowly gas engines resulted in the growth of sales in trucks recovering. Meanwhile, China’s economy was expansive, equipped with powerful natural gas engines. gradually leaving behind the negative effects of the global financial crisis. The domestic economy maintained the We saw strong sales of our improved 70-ton HOWO Mine growth momentum of the end of 2009 in the first half of Overload Dumper, which has influenced the development 2010, before slowing somewhat in the second half of the trend of large-tonnage mine dumping trucks. The product year. During 2010, domestic demand for heavy duty truck has become a new source of growth for the Group. was strong due to China’s robust growth. In order to fulfill the customers’ demand for loans to The Group conducted a careful analysis of special market purchase heavy duty trucks, we actively provide situations and took advantage of the opportunities from consumption loan product which support truck sales. China’s rapid economic growth and strong demand for The Group remained China’s top truck exporter by taking heavy duty truck. With appropriate actions and decision, initiatives to expand overseas markets. It exported 13,549 production and operational indicators established new units, a 59.4% increase over the year 2009. records. The Group further enhanced its overall strength and core competencies. According to the statistic of China The Group implemented lean manufacturing methods Association of Automobile Manufacturers (CAAM), sales through all its product lines as part of its commitment to of heavy trucks by the Group together with its parent product quality. The Group together with its parent company, China National Heavy Duty Truck Group company won the “Governor of Shandong Quality Award” Company Limited (“Parent Company” or “CNHTC”) were in 2010. 199,600 units in 2010, an increase of 58.2% over 2009. The Group has a leading position in the construction truck The Group takes a proactive approach to risk management market segment which is dominated by tippers as well as and risk mitigation, in order to manage legal and market in the special vehicle segment which is dominated by risks from operations. cement mixer truck. Sales of tractors continued to rise. 8 Chairman’s Statement There has been good progress in our strategic cooperation Prospects and Strategy with MAN SE, the global truck technology leader, and 2011 marks the beginning of China’s Twelfth Five-year localization of the transferred technology is on schedule. Plan. China’s economy will maintain steady growth trend. Both parties sped up the introduction of new products to Although we expect to see some negative effects on the markets and gradually expand scope of cooperation. heavy duty truck industry due to rising raw material costs In December of 2010, our Parent Company, China’s first and a moderate slowdown in economic growth, demand heavy duty truck manufacturer, celebrated its 50th for heavy duty trucks will be boosted by government anniversary as well as the 10th anniversary of Sinotruk’s policies of increasing investment in infrastructure for water restructuring and reform. It shows the ups and downs of conservancy and management and regional economies. 50 years and the great achievements of the Parent Recovery of the global economy appears uneven and the Company. We endeavour to develop into an internationally existence of some uncertain factors may pose challenges renowned and domestically irreplaceable heavy duty truck for exports of heavy duty trucks. However, we believe the manufacturer as well as to build up an international heavy overall trend is positive and expect to see a year-over- duty truck brand. year increase in exports in 2011. Acquisition and consolidation Despite the challenging external environment, the Group will continue to focus on sustainable and rapid growth in In accordance with the automobile industry restructuring its core businesses. Among our priorities are: and revitalization plan as well as its own development strategies, the Group successfully acquired Sinotruk 1) To expand our well established sales network; Chengdu Wangpai Commercial Vehicles Co., Ltd., and develop and refine our sales, services, and spare parts also established a joint venture, Sinotruk Fujian Haixi networks; improve our marketing capability and Vehicles Co., Ltd. with Yongan Fudi Investment Company services standards; maintain dominance in the Limited. The acquisitions have enabled us to optimize our construction market for heavy duty trucks; develop product mix, and further enhanced our products’ our cargo transportation truck and spare parts competitiveness in the southwest and southeast areas network so as to increase the market share. and, at the same time, marked the Group’s entry into the medium-heavy duty truck and light duty truck industry.