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TRANSCRIPT
March 2014
Annual Results Presentation
China Shanshui Cement Group Limited
Disclaimer
This presentation has been prepared by China Shanshui Cement Group Limited (“Shanshui” or “the Company”) and
the Company is solely responsible for its contents
The information presented or contained in these materials is subject to change without notice and its accuracy is not
guaranteed
Neither the presentation nor any of the information contained therein constitutes an offer to sell or issue or the
solicitation of an offer to buy or acquire or invitation to purchases or subscribe for any securities of the Company in
any jurisdiction or an inducement to enter into investment activity, nor may it or any part of it form the basis of or be
relied upon in connection with any contract, commitment or investment decision whatsoever.
2
Section
I
II
III
Review of 2013 Annual Results
Future Outlook
Q & A
Agenda
3
2013 Annual Results Review
4
2013 2012 YoY Growth
Sales Revenue (RMB MM) 16,535.2 16,161.0 2.3%
Cement 13,349.0 13,262.0 0.7%
Clinker 1,800.0 1,904.0 (5.5%)
Concrete 850.0 465.0 82.8%
Others 536.0 530.0 1.1%
Shandong Region 10,853.4 10,692.4 1.5%
Northeast Region 4,553.5 4,677.0 (2.6%)
Shanxi Region 838.5 706.7 18.7%
Xinjiang Region 289.8 85.0 241.2%
Gross Profit (RMB MM) 3,829.2 4,111.3 (6.9%)
EBITDA(1) (RMB MM) 3,798.7 4,264.6 (10.9%)
Net Profit (RMB MM) 1,074.7 1,603.8 (33.0%)
Net Profit Attributable to the Equity Shareholders of the Company
(RMB MM) 1,016.7 1,518.5 (33.0%)
Basic Earnings per Share (RMB) 0.36 0.54 (33.3%)
Gross Margin (%) 23.2% 25.4%
Net Margin (%) 6.5% 9.9%
Note: (1)EBITDA = Net income + finance costs + tax expenses + fixed assets depreciation + amortization
Key Financial Results
5
2013 2012 YoY Growth
Capacity (MM tonne)
Cement 94.2 89.6 5.1%
Clinker 45.4 39.0 16.4%
Concrete (MM m3) 16.2 14.6 11.0%
Sales Volume (MM tonne)
Cement and Clinker 62.6 56.9 10.2%
Cement 53.4 47.8 11.7%
Clinker 9.2 9.0 2.1%
Concrete (MM m3) 2.9 1.7 72.4%
Unit Selling Price (RMB / tonne or m3)
Cement 249.9 277.2 (9.8%)
Clinker 195.3 211.0 (7.4%)
Concrete 296.7 280.0 6.0%
Cement Regional Unit Selling Price (RMB/ tonne)
Shandong Region 243.9 268.3 (9.1%)
Northeast Region 270.3 303.8 (11.0%)
Shanxi Region 218.9 239.9 (8.8%)
Xinjiang Region 226.8 200.0 13.4%
Key Operating Results
6
5,0794,111 3,829
0
3,000
6,000
9,000
2011 2012 2013
Gross profit Gross margin
4,8014,265
3,799
0
3,000
6,000
9,000
2011 2012 2013
EBITDA EBITDA margin
30.1% 25.4% 23.2%
28.5% 26.4% 23.0%
13.7% 9.9% 6.5%
Financial Overview
7
Sales revenue
Gross profit
EBITDA (1)
Net profit (2)
Notes: (1)EBITDA = Net income + finance costs + tax expenses + fixed assets depreciation + amortization
(2)Net income before deduction of minority interest
(RMB MM) (RMB MM)
(RMB MM) (RMB MM)
16,862 16,161 16,535
0
5,000
10,000
15,000
20,000
2011 2012 2013
2,312
1,604
1,075
0
1,000
2,000
3,000
4,000
2011 2012 2013
Net profit Net margin
The Sales Contribution from Shanxi and Xinjiang Regions
to the Group is Increasing
8
Sales breakdown by area – 2012 Sales breakdown by area – 2013
The proportion of sales contributed by Shanxi and Xinjiang Regions to total sales increased by 2.0
percentage points YoY. This is mainly due to:
− The commencement of operations for operating companies in Shanxi and Xinjiang contributed to
more production volume
− Regional unit selling price of Cement in Xinjiang Region increased by 13.4%
Shandong66.2%
Northeast28.9%
Shanxi4.4%
Xinjiang0.5%
Shandong65.6%
Northeast27.5%
Shanxi5.1%
Xinjiang1.8%
2013 2012
RMB MM % Revenue RMB MM % Revenue
Percentage point
change
Total cost of sales 12,706 76.8% 12,050 74.6% 2.2 Points
Raw materials 4,222 25.5% 3,792 23.5% 2.0 points
Coal 3,326 20.1% 3,516 21.8% (1.7) points
Power 1,863 11.3% 1,830 11.3% 0.0 points
Depreciation and amortisation 1,016 6.1% 958 5.9% 0.2 points
Others 2,278 13.8% 1,954 12.1% 1.7 points
Effective Cost Control and Strengthening Internal
Management
Benefited by 11.8% year-on-year drop in average purchasing price of coal to RMB573.9/ton, coal
cost is reduced to RMB3.33 billion in 2013, representing only 20.1 % of sale revenue
As for cost reduction, output of residual heat power generation reached 1.105 billion KWH in 2013,
successfully reducing clinker production cost by RMB453 million
9
2013 2012
RMB MM % Revenue RMB MM % Revenue
Percentage point
change
Sales and marketing expenses 478 2.9% 391 2.4% 0.5 points
Administrative expenses 1,092 6.6% 910 5.6% 1.0 points
Finance costs 968 5.9% 925 5.7% 0.2 points
Total 2,538 15.4% 2,226 13.8% 1.6 points
Steady Operating Efficiency
During the reporting period, the proportion of sales and marketing expenses to revenue slightly
increased by 0.5 percentage points
The proportion of administrative expenses to revenue increased 1.0 percentage points yoy
The proportion of finance costs to revenue increased 0.2 percentage points yoy
10
2.4x
3.2x
4.3x
1.8x
2.9x
4.0x
0.0
1.0
2.0
3.0
4.0
5.0
2011 2012 2013
Total debt to EBITDA Net debt to EBITDA
Capital Structure Matching with Business
Development
11
Leverage ratio Debt Structure
Notes: (1) Long term Borrowings = Long term bank loans + other bank loans (less current portion) + long term bonds (less current portion)
(2) Short term Borrowings = Short term bank loans + current portion of other borrowings + current portion of long term bonds
(3) Net gearing = Net Debt / (Net Debt + Equity attributable to Equity shareholders of the Company + minority interest), Net Debt = Total debt – cash and cash equivalent
(1) (2) (3)
(RMB MM)
71.5%
77.8%58.3%
28.5%
22.2%
41.7%11,465
13,466
16,490 50.9%
56.9%
60.4%
0
5,000
10,000
15,000
20,000
25,000
2011 2012 2013
Long term debt Short term debt Net gearing
Effective Working Capital Control
12
Working capital days (1) Operating cash flow
Note: (1) Inventory days = Average inventories / Cost of sales * 365;
Days of sales outstanding= Average trade receivables / Revenue * 365;
Days of purchase outstanding= Average trade and bill payables / Cost of sales * 365
(RMB MM) (Days)
47.4
56.3 54.0
9.3 11.7
16.6
65.7
73.9
82.9
0
20
40
60
80
100
2011 2012 2013
Inventory days Days of sales outstanding
days of purchase outstanding
1,549
1,930 1,925
0
500
1,000
1,500
2,000
2,500
2011 2012 2013
2013 Dividend Distribution
13
2009-2013 Total dividend
2009-2013 Dividend per share
We propose to distribute final dividend of HKD 0.092
per share totaling HKD 259.1 million for 2013
– Major considerations:
Company’s dividend policy
Company’s future expansion plan
Cash return to shareholders
Company’s debt financing capacity, operating
cash flow and capital expenditure
In the recent years, we have maintained a stable,
consistent and good dividend policy which brings good
return to our shareholders
(HKD MM)
(HKD per share)
273.1
408.3
681.5 656.1
259.1
0
200
400
600
800
2009 2010 2011 2012 2013
0.097
0.145
0.242 0.233
0.092
0.00
0.05
0.10
0.15
0.20
0.25
0.30
2009 2010 2011 2012 2013
14
Future Outlook
22.527.8 31.1
36.543.7
51.3
0
20
40
60
80
100
2009A 2010A 2011A 2012A 2013A 2014E
15
China’s Fixed Asset Investment Targeted to Growth Steadily(2)
(RMB Tn)
China Leads the Global Economic Growth (1)
Total Cement Production in China (3)
(MM tonne)
(%)
Investment Plan - Shandong/Liaoning/Shanxi/Inner Mongolia/Xinjiang
China’s Continued Economy Growth Ensures Demand
for Cement
China GDP Growth Rate World GDP Growth Rate
Notes: (1) IMF
(2) NBS, Research Report
(3) NBS
Shandong 2014 Investment Plan
Transportation infrastructure investment: RMB56.5 Bn, including RMB39 Bn in highway construction.
Affordable housing: 316k and 190k units will commence and complete construction respectively; 500k
units of rural houses to be built and 100k units of dilapidated rural houses to be renovated
Liaoning 2014 Investment Plan
Transportation infrastructure investment: RMB44 Bn; the construction of 7 expressway projects will be
continued, with total expressway mileage exceeding 4,000 km, and 3,355 km of roads to be upgraded; 75
port projects including 49 continuing projects and 26 new projects will be constructed. Affordable housing:
310k units will be constructed
Shanxi 2014 Investment Plan
Highway construction investment: RMB21 Bn including RMB15.5 Bn in expressways, with 27 new and
continued projects totaling 1,665 km; RMB5.5 Bn will be invested in provincial and rural roads with total
mileage of 1,800 km. Affordable housing: 230k and 180k units will commence and complete construction,
with RMB45 Bn to be invested
Inner Mongolia 2014 Investment Plan
Highway construction investment: RMB65 Bn, with 14,000 km of highways to be constructed, including
1,900 km of expressway and 2,000 km of first-class highway. Affordable homes: an investment of
>RMB130 Bn is planned for 2013-2017; RMB22 Bn will be invested to build 170k units of affordable home
and RMB111 Bn will be invested to redevelop 59.9k of shanty house
Xinjiang 2014 Investment Plan
Transportation FAI: RMB30-35 Bn will be invested to build 7 national highways. Investment in water
conservancy construction: RMB16 Bn
7.7% 7.5%
3.0%3.7%
0%
2%
4%
6%
8%
10%
2013A 2014E
1,6481,870
2,085 2,1842,414
0
500
1,000
1,500
2,000
2,500
3,000
2009 2010 2011 2012 2013
16
Cement Industry Benefits from the Macro-economic
and Industry Policies
I II
III IV
Robust Demand Driven by Investment in Fixed Assets
Consolidation and Obsolete Capacity Phase-out Encouraged by Industry Policy
Cement Demand Supported by China’s Urbanization Process
Vertical Integration and Higher Environmental Standard Proposed by Government
In July 2013, China Cement Association published “Measures for Promoting
Mergers and Reorganizations in Cement Industry,” advocating for the active
policy and financial support for the energy-saving and environment friendly
projects, and encouraging large companies to expand across the value chain
In September 2013, the State Council issued the “Air Pollution Prevention
and Control Action Plan” to promote clean production. It promulgates a clean
production review in the cement industry, and incentivizes and provides
subsidies to companies implementing energy saving and emission reduction
In December 2013, the MEP (2) issued a revised version of “Emission
Standard of Air Pollutants for Cement Industry”, which will be implemented in
2014 and is considered as the most strict environmental protection measure
in China cement industry. This will further help accelerate the phase-out of
obsolete capacity and encourage the industry upgrade
In July 2013, China Cement Association published the “Measures for
Promoting Mergers and Reorganizations in Cement Industry,” supporting the
restructuring of large cement companies, with the targets of raising
production concentration ratio of the top ten cement enterprises to over 35%
In July 2013, the State Council issued guidance mandating the differential
treatment in financing policies for cement and other industries with severe
overcapacity issues, including providing credit support for the acquisition
activities of larger companies and putting stringent limit on loans to
companies with obsolete capacity
In October 2013, the State Council issued “Guidelines on Addressing Severe
Overcapacity”, proposed to strictly prohibit the construction of new cement
capacity and decisively eliminate obsolete capacity, and aimed to phase-out
another 100 million tonnes of cement (including clinker and grinding) capacity
by the end of 2015, and to abolish PC32.5 grade cement as soon as possible
In June 2013, the State Council approved the “National Highway Network
Planning (2013-2030),” targeting to increase total mileage of national
highway network to 400,000 km by 2030
In March 2014, the Government Work Report stated that 7 million units
affordable homes will commence construction, with over 4.7 million units in
shanty areas
The investment requirement in rail transport will reach RMB320 Bn and the
total construction will amount to 2,800 km in 2014; the total investment in
railway construction is expected to be RMB650-670 Bn and 29,100km of
railway will be built in the same period
The plan for Bohai Channel passageway with an investment totaling c.
RMB260 Bn is expected to be submitted to the State Council for approval
soon
In the Third Plenary Session of the 18th CPC Central Committee held in
November 2013, the government proposed to put forward urbanization and
the construction of new rural areas, to promote the coordinated
development of megacities, mid-sized cities, small cities and small towns,
and to allow local governments to finance the construction of municipal
infrastructure through bond issuance
During the Central Conference on Rural Work in December 2013, it was
emphasized the goal of “Three 100 millions” (1) would be achieved by 2020
In December 2013, the Central Urbanization Work Conference highlighted
the orderly migration of rural population into cities, deepening the renovation
of urban shanty areas, and strengthening the construction of major
infrastructure projects in Central and West China and guiding industrial
transfer; a number of city clusters shall be developed in Central, West and
Northeast China where favorable conditions are available
Have updated based on the
latest numbers / newsrun
国家工信部关于加快推进重点行业企业兼并重组的指导意见
http://www.gov.cn/zwgk/2013-01/22/content_2317600.htm
Note: (1) The goal of 3 100 millions include the change of Hukou registration of 100 million rural population to urban ones, the transformation of shanty towns and villages in cities with a population of 100 million, and the urbanization of Central and
West China with a population of 100 million
(2)Ministry of Environmental Protection
Upper Left Railroad
spending udpated
Source: Digital Cement, Broker Research, Newsrun
1. Increasing Government Investment into Infrastructure – In 2014, China fixed assets investments are targeted to
increase 17.5 % Y-o-Y, indicating FAI will likely reach RMB51.3 trillion for the year of 2014
2. Key relevant themes of China’s “12th Five-Year Plan”
− Affordable housing for RMB1.4 trillion
− To strengthen rural infrastructure construction
− Water-conservation projects for RMB4 trillion
3. Urbanization-related Constructions Will Pick Up
Significantly – China Development Bank forecasts the fund required for
urbanization in China to reach RMB25 Tn in the next 3 years
– The goal of “3 100 millions” will be actively pursued and achieved by 2020
17
Source: Digital Cement
China Cement Investment Declined Continuously since 2011
Source: NDRC, China Cement Association Report, Digital Cement, Newsrun
Robust Demand Disciplined Supply
Cement Price Recovery Realized By Improved Supply/Demand Dynamics
Well Positioned to Benefit from Favorable Market
Dynamics
(%) Y-o-Y comparison of cement fixed asset investment
Source: Digital Cement
(RMB / tonne)
61.7%
3.1%
-8.3% -7.0% -6.5%-20%
0%
20%
40%
60%
80%
2009 2010 2011 2012 2013
250
300
350
400
450
500
550
1/2012 3/2012 6/2012 9/2012 12/2012 3/2013 6/2013 9/2013 12/2013
North Northeast Northwest East Cental South Southwest National Average
8.714.2 16.316.3
12.612.8
2.0 2.2 1.6 1.6
37.6
43.6
2.98.0
24.323.1
5.2 5.22.9 2.2
6.8
6.8
1.5
3.3
2.5 3.5
4.6 4.6
2.2 2.2
53.1
64.6
20.7
27.6
39.439.4
11.711.9
6.7 6.3
0
20
40
60
80
2011 Actual Closure2011 Target Closure
2012 Target Closure 2012 Actual Closure
2013 Target Closure 2013 Actual Closure
18 18
Capacity Closures Will Constrain Supply
Capacity Closures Well on Track Cement Production Under Effective Control
Shandong Liaoning Shanxi Inner
Mongolia
Xinjiang
Have updated based on the
Dcement monthly
publication 201307
(1)
Copal: No update
Please refer to backup for 2013 targets, which
were release May 2013
Sources checked: 数字水泥网
各省经济和信息化委员会
各省发改委
Research Report
Goole, Baidu, Factiva
Xiao: In 2012 Interim NDR, no half year update
either
(MM tonne) (MM tonne)
Source: China Building Materials Industry Association, Digital Cement, NBS
Note: (1) 2013 target capacity closure is used as the proxy for 2012 actual closure since the actual closure data is not available
139 140147 150
154162
4147 48
57 57 60
2125
3339
47 50
3443
54
6459
64
17 2024
30
30
50
0
50
100
150
200
2008 2009 2010 2011 2012 2013
Shandong Liaoning Shanxi Inner Mongolia Xinjiang
(1)
Source : Provincial Governments, Digital Cement
19
Capex Plan
Update
2012 Capacity p11 of AR draft
1H2013 Capacity: P12 of 2013 Interim:截至2013年6月30日,本集团
水泥产能【9,264】万吨
P20 of 2013 Interim: 报告期内,本集团资本性支出约人民币【15.06】亿元,主要用于水泥、
熟料生产线的建设和收购支出
Notes: (1) Capex mainly used as the investments in the construction and acquisition of cement and clinker production lines
(2) Capacity as of 2012 year end and 2013 year end
(RMB MM)
Capital Expenditure (1) Cement Capacity (2)
(MM tonne)
89.694.2
0
40
80
120
2012 2013
3,409
4,3804,155
2,100
0
1,500
3,000
4,500
6,000
2011 2012 2013 2014E
20
2013 Strategy Outlook
In core markets of Shandong and Northeast China, fully leverage
the Company’s comprehensive competitiveness, and adopt a lean
marketing mode to increase volume and stabilize price; In new
markets of Shanxi and Xinjiang, focus on expanding new
customer base and enhance brand influence
Theme 2014 as the “Year of Management Deepening”. Further
formulate and modify procedures and systems, and highlight the
headquarters' role in overall work planning. Assign working
groups to accomplish management enhancement in Northeast
operations, and subsequently in operations in Shanxi and Xinjiang
Further optimize its strategic layout in existing markets. In
Shandong, accelerate the development of product chain including
aggregate and commercial concrete to strengthen its
comprehensive edge. In Shanxi, focus on the establishment of
auxiliary cement grinding stations. Also accelerate the
technological upgrade for part of its existing production lines
Devote to establishing a full set of systematic mechanism with the
focus on trainings of professional skills and ethics. Extend the
communications and cooperation's with well-known domestic and
international universities and institutions, achieve technological
breakthroughs and reserve a pool of talents, to enhance
competitive edge for future market competitions
Further consolidate in core markets to stabilize price and increase sales volume
Reinforce basic management, consider the overall situation and make
breakthroughs in key areas
Optimize industrial layout through scientific development, transformation
and upgrade
Implement human resources strategies, optimize structure and enhance skills
P23 of Draft of Interim report
21
Thank You
Q&A