The Group is a leading international engineering contractor and service provider by revenue with a primary focus on EPC projects and particular expertise in the power sector, capable of providing one-stop customized and integrated engineering contracting solutions and services.
Business Review - For the year ended December 31, 2012
A. I nternational Engineering Contracting Business
We are an international engineering contractor and service provider with a primary focus on EPC projects and particular expertise in the power sector. Our International Engineering Contracting Business is one of the traditional core business of the Company, which represents approximately 62.2% of the Company's total revenue in 2012.
For the four years ended December 31, 2012, we have operated our International Engineering Contracting Business in more than 46 countries and regions, primarily in Asia and Africa.
In 2012, our International Engineering Contracting Business continued to grow while maintaining its overall stability. Our scale of business expanded, profitability maintained at a higher level and revenue reached a record high. Meanwhile, we strengthened our capability in managing and controlling aspects such as project design, procurement and construction by adherence to promoting refined management, optimizing project execution procedures and enhancing our subcontracting management model.
1. Commendable Project Performance
In 2012, our engineering contracting projects won prizes from national and nationwide industry associations for the first time and received commendation from governments of the countries where our projects locate, which highlighted our strength and enhanced our brand recognition. The supercritical coal fired power plant in Turkey was awarded the Luban Prize (overseas project), the highest prize for construction engineering in China. This marked the first time that a coal fired power plant having won the Luban Prize (overseas project). Phase I of Puttalam coal power project in Sri Lanka won the “China Project Management Achievement Award” awarded by the Project Management Research Committee China (中國（雙法）項目管理研究委員會) at the 11th China Congress on Project Management in November 2012. The president of Equatorial Guinea, attended the completion ceremony for the national electric power dispatching center project in Equatorial Guinea and presented medals of honors to SINOMACH and our Company in recognition and appreciation of our outstanding contribution to the economic growth of Equatorial Guinea. In 2012, we successfully completed various engineering contracting projects, including the receipt of the completion certificate for the highway project in Congo-Brazzaville and the alkali processing plant project in Turkey.
2. Breakthrough in Becoming Effective of Projects
At the beginning of 2012, we analyzed each signed projects pending to be effective and identified a group of key projects to procure their becoming effective. Bottlenecks of those key projects were identified and overcome by means of our concerted efforts under the collaboration and interaction among our management, functional departments and business departments. Meanwhile, we further improved the business compatibility mechanism (業務對接機制) with the financial and insurance institutions by holding business compatibility conferences with China Export & Credit Insurance Corporation (“Sinosure”) and the Export- Import Bank of China to facilitate the signing and becoming effective of related projects. A group of key projects came into effect on schedule with the volume of projects becoming effective hitting a record high through the concerted efforts of the Company. For instance, the construction of the Salah Al-Din power plant project in Iraq was officially commenced, which had a power unit with an installed capacity of 630,000 kW, being the largest power unit in Iraq thus far. The Serbia power plant project (Phase I) became effective successfully, which was another significant breakthrough in the Eastern European market since our presence in Belarus. Our 3G mobile network construction and 2.5G network expansion project in Bangladesh led the country into a brand new information era.
3. Continued Deepening of Project Origination
In 2012, while consolidating our market share in the traditional market, we strengthened the guidance and support of new market expansion through wellplanned, well-organized and systematic project origination. The sales and marketing network of our International Engineering Contracting Business has reached more than 60 countries and regions. Our business divisions proactively participated in competitive bidding projects and were successful.
In 2012, our newly signed projects with a contract value of more than US$100 million each included:
• a railway project of US$990 million in Ghana
• a power plant project of US$950 million in Ukraine
• a power transmission and transformation station project of US$337 million in Soyo, Luanda of Angola
• a power station extension project of US$185 million in Kazakhstan
• a power station for oil refinery project of US$160 million in Tema, Ghana
• an agricultural irrigation project of US$152 million in Chad; and
• a national infra-network project (phase II) of US$133 million in Bangladesh.
4. Remarkable Success in Safety Management of Project Works
In 2012, we faced challenges in overseas safety work as we implemented various projects across many regions. In view of this, our management dedicated much attention and priority to work safety. During the year, we revised and published the “Comprehensive Contingency Plan on Accidents of Production Safety and Emergencies (《生產安全事故及突發事件綜合應急預案》)” and increased our efforts on on-site safety management. 11 specialised safety management officers were newly assigned on site for projects in countries such as Venezuela, Belarus and Iraq. Our management also led teams to supervise and inspect work safety in new regions and high-risk regions. We also held work safety trainings and experience-sharing sessions to enhance the analytical skills of the safety management officers in respect of accidents and day-to-day management skills. In 2012, there was no material work safety accident.
5. Strengthened Capability in Project Engineering Technology
In 2012, we completed the acquisition of 50% equity interest in Zhongnan.
Meanwhile, we also established a professional team specialised in project origination of municipal environmental protection and civil engineering projects through the technical service platform of China Machinery R&D. China Machinery R&D made gradual progress to undertake small-sized power generation project and 220KV (and below) power transmission and transformation projects.
6. Heightened Project Integration Capability
We heightened our competitive edge by establishing strategic alliance with large and medium-sized equipment manufacturers. In 2012, we entered into strategic cooperation agreements with three major domestic suppliers.
B. Trading Business
With our extensive sales and marketing network in more than 150 countries and regions around the world, we also engage in the business of international and domestic trading. Our Trading Business bridges the demands of domestic and overseas purchasers and suppliers who wish to source or sell products outside or in the PRC for a wide range of products. We primarily export and, to a lesser extent import and domestically trade, complete sets of plants and equipment and various machinery, electrical, and instrumental products including mining equipment, ship components, automobile parts, medical instrument, household appliances, office equipment, electrical hardware and construction materials, for customers in the PRC and overseas. We conduct our Trading Business through our Company as well as subsidiaries in the PRC and other countries and regions (including Germany, the United States, Australia, Japan and Hong Kong) and overseas representative offices.
In 2012, our trading subsidiaries actively and continuously sought to rightly position ourselves in the market and establishing our core business. We focused our resources on serving major high-end customers, and strengthened, optimized and expanded our representative products in the areas we had the most knowledge. In particular, China National Machinery & Equipment Import & Export (Wuxi) Co., Ltd* (中設（無鍚）機 械設備進出口有限責任公司) penetrated into overseas target markets and developed its international market, such as Japan and Singapore. At the same time, our Company strived to seek new areas for growth. We promoted the concept of establishing an overseas market for machinery equipment of China and are dedicated to exploring new business paradigms and development models for our Trading Business.
C. Other Businesses
In addition to our International Engineering Contracting Business and Trading Business, we also operate the Other Businesses, including the provision of logistics services, exhibitions services, tendering agency services, and other services (including the exportimport agency services and design services), and conducting strategic equity investment.
In 2012, China Machinery R&D, which is engaged in the design services, not only strengthened its technical skills and improved its core competitiveness, but also provided our engineering contracting projects with strong technical support. China Machinery R&D obtained a number of Class A qualifications on thermal power engineering consultation in addition to its existing qualifications, and won the first-class prize of scientific technology awarded by SINOMACH. Revenue and profit of CMEC Comtrans, which is engaged in the logistics services, maintained a stable growth. CMEC Expo , which is engaged in the exhibition services, continued with its excellent performance while making great advancement, and won the award of “2012 Top 10 Chinese Exhibition Project Enterprises (2012年度中國十佳品牌展覽工程企業)” awarded by the China Convention & Exhibition Society. In addition, our tendering services maintained stable development through exploration into new business areas despite the difficulties resulting from the drop of tendering agency business for wind power projects.
Business Outlook - For the year ended December 31, 2012
(1) Optimize our organizational structure and enhance the operational capabilities of the trading subsidiaries
In 2013, we will introduce a series of criteria for the restructuring, merger and acquisition, and closure of the trading subsidiaries. We will increase the registered capital of the trading subsidiaries with sound corporate governance structure, strong risk control, high economies of scale, remarkable economic efficiency as well as an innovative business model to enhance their sustainable development.
(2) Expand the Trading Business Market
The international market will still the principal market of our Trading Business in 2013. We will actively explore business in the developing countries while keeping close attention to the developed countries. We will only participate in domestic transactions in sizeable quantities when their risks are manageable.
(3) Effectively Control the Risks of the Trading Business
In order to effectively control the risks of the Trading Business, we will search for new areas for business growth by taking control of the critical junctures in the trading chain and establishing our key products, to improve profitability and make gradual progress of industrialization of the Trading Business, which will pave the way for creating a trading business model in line with its actual circumstances. Meanwhile, each trading subsidiary will intensify its examination and analysis of its suppliers, customers, market and business model, and reinforce the control over various links such as sourcing, product ownership, warehousing, logistics as well as product transfer, thereby gradually realizing specialized operation, team management and workflow standardization in the management and control system of the Trading Business.
3. Strengthen the Development of Other Businesses
We will strengthen the development of the Other Businesses with specialized services to complement the development of our core businesses. We will also actively explore external markets in order to enhance our competiveness. In 2013, we will continue to support China Machinery R&D to internally undertake design and engineering businesses in respect of hospital, municipal environmental protection and construction with a higher competitive edge. China Machinery R&D will continue to serve as a technology platform for our overseas engineering contracting projects to improve its capabilities in designing power stations and power transmission and transformation stations. CMEC Comtrans will give priority to serve our core business by safely delivering equipment to project sites on a timely basis in strict adherence to project progress plans. CMEC Expo will strengthen its synergy with our core businesses. It will explore holding exhibitions promoting our brands in our core and regionally significant markets to exploit new business opportunities. CMEC Tendering will continue to play its role as a platform for tendering agency services. It will well-utilize its advantages and resources in the area of new energy and strengthen the internal cooperation with the International Engineering Contracting Business and Trading Business to search for new areas for growth.
Source: China Machinery (01829) Annual Results Announcement
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