Monday, November 30, 2020
 
Columnist
Martin Hennecke
 
CIMC
HKEx Stock Code : 02039 
 
Corporate Profile
The Group is a global leading equipment and solution provider in the logistics and energy industries.

Business Review - For the year ended December 31, 2012

(1) Consolidated Operating Results

The operating income, the operating profit and the net profit attributable to equity holders of the Company decreased significantly, which was mainly due to depression of the macro-economy, downturn of market demand from container and vehicle businesses, especially the notable decline in sales and prices of containers compared with that of the same period of last year, and our operating results reduced significantly compared to the same period of last year due to the fact that the revenue and profit basis of the Company were relatively high in the previous year.

Compared to the same period of the previous year, the production scale of containers and vehicles of the Company decreased, the receivables and the purchase costs of raw materials reduced correspondingly and the working capital increased; compared to the previous year, the net cash flow generated from the operating activities in the year decreased. Influenced by the decrease of operating size, capital expenditure and costs, the total liabilities ratio of the Company was 64.89%, and the level of liabilities ratio decreased compared with the end of the previous year.

(2) Segment Results

Container Manufacturing Business

In 2012, the operating income from our container business was RMB24,840 million, representing a decrease of 29.17% as compared with the same period of last year, and its net profit was RMB1,807 million, representing a decrease of 50.21% as compared with the same period of last year, both achieving the expected goals. The total sales of the Group's ordinary dry containers were 1,080,900 TEUs, representing a decrease of 24% as compared with the same period of last year and the sales revenue was RMB15,463 million, representing a decrease of 28.90% as compared with the same period of last year. The total sales of reefer containers were 123,300 TEUs, representing a decrease of 31% as compared with the same period of last year and the sales revenue was RMB4,370 million, representing a decrease of 30.36% as compared with the same period of last year. The total sales of special containers (excluding tank containers and pallet containers) were 73,100 units, representing a decrease of 5% as compared with the same period of last year and the sales revenue was RMB5,964 million, representing a decrease of 9.97% as compared with the same period of last year.

The decrease in our revenue during the year was primarily due to the decrease in demand for containers compared with the same period of last year as a result of the slowdown in the growth rate of global economy and trade. In addition, the price for containers also decreased approximately 10% during the year. The decrease in our gross profit margin was primarily due to the price reduction in containers and appreciation of Renminbi. However, the price of steel, being the principal raw material for container manufacturing, also dropped compared with the same period of last year, which offset the negative impact by the price reduction in containers on our profit before taxation to some extent.

The containers market usually fluctuates in demand and prices between the low and peak seasons of a year. The first and fourth quarters of 2012 were both low seasons, while the second and third quarters of the year turned out to be peak seasons with significant pickup. For instance, the prices of 20-feet standard dry containers in low seasons were approximately 15% lower than those in peak seasons. Impacted by the weak demand in the industry as a result of tough economic situation and shipping cycle, the capacity utilization rate of standard dry containers declined. During the year, container manufacturers further enhanced their market adaptability to cope with market downturn in which they promoted renovation and upgrading, introduced mechanized and automatic production equipment and appropriately allocated and enhanced their capacities.

In 2012, facing up with rapid fluctuations in market demand, the Group effectively integrated its resources and conducted cost control in a quick response to market changes, thus enhancing the operating efficiency of the container business. The Company carried on its strategic upgrading initiatives, promoted lean production and the “ONE” management model to further improve the factory management. In addition, we also promoted the application of technological achievements, reformed traditional production process and enhanced the level of automation to reduce labor intensity and improve production efficiency. Adhering to the philosophy of “Safe, Green, Smart Application and Light Weight”, the Company focused on promoting the utilization of new green technologies such as water-based paint and bamboo and wood floors to achieve energy conservation and emissions reduction. In 2012, the “Theoretical Research and Application of Composite Structure of Wood and Bamboo” jointly developed by our Company and universities won the second prize for the National Scientific and Technological Advance Award which has significantly improved the safety, conservation and reuse of our products, receiving high recognition from international customers. Currently, our Company is the one and the only enterprise in the industry that has obtained the Certificate of China Environmental Labelling Products (中國環 境標誌產品認證). New wooden container floorboards currently accounted for over 30% of our total procurements, saving 500,000 cubic meters of tropical woods each year, equivalent to the protection of 35,000 hectares of tropical rainforest, and directly reducing carbon dioxide emissions. Compared with traditional paints, the water-based paint can reduce the emission of organic exhaust gas, creating a good production environment while preserving resources. Our Company commenced its research on the application of water-based paint since 2003, which was officially applied to production of our containers in large quantities in 2011. Since 2012, the research on application of zinc-free water-based paint has also made encouraging progress. The new alternative of wooden container floorboards to traditional materials and the introduction of a new painting technology ushered a green revolution in the container industry.

Road transportation vehicle business

CIMC Vehicle Group Co., Ltd. (“CIMC Vehicle Group”), a subsidiary of the Company, adhered to the strategic development of the full value chain businesses including the design and development of products, the manufacturing and delivery of products, sales of products and services and customer tracking and feedback, committing to the strategic vision of “relying on our national competitive strengths to offer global customers first-class land logistics equipment and services. CIMC Vehicle Group has established 22 production bases, with a total annual production capacity of over 200,000 sets in various locations throughout Central China, East China, South China, North China, Australia, Thailand, the United States and other countries and regions, and established over 400 service centres and sales outlets in North America, Europe, Australia, and China. It has ranked No.1 in the world in terms of production and sales since 2006.

In 2012, the total sales of road transportation vehicles were 98,800 units (sets) in 2012, representing a decrease of 34.95% as compared with the same period of last year. The sales revenue was RMB14,130 million, representing a decrease of 17.84% as compared with the same period of last year, and the net profit was RMB137 million, representing a decrease of 73.24% as compared with the same period of last year.

During the year, the Group's vehicle business incurred a substantial decrease in both sales volume and operating income, which was primarily due to the slowdown in the growth rate of both the world's major economies and domestic economy, the sustained control over the real estate industry by the Chinese government, the shrinking investment in fixed assets and the slowdown in the development of the logistics industry. In addition, the uncertainties of the global economy such as the spreading European debt crisis slowed down the growth of the global economy, which led to the continued decline in demand for road transportation vehicles.

Despite decreasing demand, intensive competition and overall industrial loss in the Chinese automobile market, the Group continued to make profit and maintain the first place in the domestic market. Our major products such as flat-trucks, staked-side trailers, tipping trailers, powder tankers, refrigerator cars and tank trucks continued to lead the industry in terms of market share, among which the sales of our refrigerator cars achieved a substantial increase.

Overseas markets maintained a momentum of growth in general, especially the strong growth in the North American market, which was the main source of profit for our vehicle business. Vanguard National Trailer Corporation, being the major subsidiary of our Group in North America, achieved a substantial growth in sales and profit by improving management and seizing market opportunities in the past two years. Skeletal vehicles in the Group's vehicle business remained the largest market share in the North American market, and our refrigerator cars have successfully penetrated into the American mainstream market, with the output and sales both exceeding 1,000 units with better-than-expected profit. The Group maintained a good momentum of development in emerging markets such as Asia, South America and Australia, with satisfactory growth in both sales volume and profit. In the European market, Burg Silvergreen has completed the development, research and production of third-generation semi-trailers, representing the global development direction of special vehicle technology. It made a successful exhibition at Hanover Auto Show of Germany in September 2012, and launched its products into domestic and European markets. Its European business has still been in the initial stage of commercial operation, and is yet to be profitable.

In 2012, the Group continued to adopt a steady operation strategy for its vehicle operations in all major markets around the world. The Group committed to the integration of resources, the enhancement of operation efficiency for assets and corporate profitability, the implementation of business unit management model, and the promotion of marketing network and establishment of brand system. In addition, the Group explored the vehicle logistics park business model and steadily promoted relevant investment and construction, and intensified its efforts in new products development and investment, such as engineering vehicles and third-generation semi-trailers.

In 2012, C&C Trucks Co., Ltd. (集瑞聯合重工有限公司), which is owned as to 45% by the Company, also faced enormous pressure on its heavy truck business. Despite its annual sales revenue of RMB672 million, it still recorded a substantial loss which was mainly due to the decelerating domestic economy and the downward trend in the industry. According to the incomplete statistics, in 2012, the domestic sales of heavy trucks were approximately 610,000 units in aggregate, representing a decrease of 33% as compared with last year. During the year, C&C Trucks Co., Ltd. (集瑞聯合重工有限公司) proactively expanded its market share and reduced its supply chain costs, fully initiated the lean production model to improve and exercise strict control over product quality. In order to adapt to the new development trends including load limit, specifications limit and emissions improvement, it concentrated on promoting product innovation and launching competitive products. Among which, its new product development was mainly focused on light weight, M-platform and the State-IV products.

Energy, Chemical and Food Equipment Business The Group's energy, chemical and food equipment business is mainly conducted through CIMC Enric Holdings Limited (“CIMC Enric”) and its subsidiaries. CIMC Enric has 15 manufacturing facilities and research centers across the PRC and Europe. Such as Shijiazhuang and Langfang in Hebei province, Bengbu in Anhui province, Nantong and Zhangjiagang in Jiangsu province, Jingmen in Hubei province, Nanjing, Randers in Denmark, Menen in Belgium and Emmen and Sneek in Netherlands, respectively.

Despite the sluggish major economies, the domestic demands for LNG storage and transportation equipment and engineering, cryogenic equipment and tank containers are very strong benefiting from the demand in the downstream industries of energy sector, especially the rapid growth in the supply and consumption of natural gas. In 2012, the energy, chemical and liquid food equipment business of our Group maintained a strong momentum of growth. The operating income from this business in 2012 was RMB9,634 million, representing an increase of 12.96% as compared with last year. The net profit was RMB645 million, representing an increase of 30.85% as compared with the corresponding period of last year, among which the operating income from energy (natural gas) equipment business of CIMC Enric was RMB4,268 million, representing an increase of 26.2% as compared with the corresponding period of last year. The operating income from chemical equipment business was RMB2,846 million, representing a decrease of 1% as compared with the corresponding period of last year. The operating income from liquid food equipment business was RMB968 million, representing an increase of 69% as compared with the corresponding period of last year.

The increase in our sales revenue for the year was primarily due to the increase in sales volume as compared with the same period of last year as a result of the increased market demand for natural gas and other energy resources and the expansion of production capacity of CIMC Enric as well as the declining price of raw materials. In addition, the sales of chemical equipment such as the newly-developed light tank containers increased, and the demand for liquid food equipment in Chinese market also increased. The acquisition of Ziemann Group in Germany in August 2012 also made positive contribution to the increase in our gross profit margin of energy, chemical and food equipment business.

In 2012, CIMC Enric carried out an effective product mix strategy. In respect of energy equipment, while reinforcing its presence in the market of mature products such as cryogenic transportation vehicles/tankers, gas and liquid tankers, medium-pressure LPG transportation vehicles, high-pressure tube CNG trailers, hydraulic natural gas filling sub-stations, natural gas compressors and large-sized cryogenic storage tanks (above 30,000 cubic meters), the Group focused on the development of cryogenic gas bottles, brand new manufacturing technique for helispherical gas bottles and LNG gas stations, which all received encouraging market acceptance. The Group also put more efforts in the research and development of products and technologies such as LNG vessel storage tanks, spherical tanks, small and medium-sized natural gas liquefaction equipment, highcalibre steel bottles, containers for nuclear materials and large-sized natural gas compressors. In respect of chemical equipment, the Group focused on the development of special tank containers and light-weight tank containers. In respect of food equipment, CIMC Enric acquired part of the assets in Ziemann Group in Germany in August 2012 at a consideration of 26.502 million. Ziemann Group in Germany was the largest manufacturer and supplier for equipment of breweries in the world. It was an established German enterprise with a history of 160 years and its international operating network spread over Germany, France, Mexico, Brazil, China and India, and it is capable of building up and providing world-class saccharification equipment, tank groups, integrated breweries and turnkey projects, which included the manufacturing, processing, installation and testing of equipment, engineering project management and on site technical support and services. Over the years, Ziemann Group has been in a leading position in terms of manufacturing techniques for large-sized beer tanks and saccharification equipment. The joining of Ziemann Group will enable our Group to improve its core technologies in the area of liquid food, with the capability and qualification in providing comprehensive solutions for turnkey projects to our customers, as well as to enhance our brand influence.

To further strengthen its service and research and development capabilities, CIMC Enric acquired Nanjing Yangzi Petrochemical Design & Engineering Co., Ltd. (“YPDI”), with a view to facilitate itself with capabilities in engineering service, integrated solution and product design and research. The Group established an engineering business center to carry out internal integration and coordination. The Group also improved the collaboration of TGE Gas Engineering GmbH and Technodyne International Limited in the projects of large-sized cryogenic tanks, and through the merger and reorganisation of its Beijing Technology Company with YPDI, the Group preliminarily built up YPDI's engineering capability in natural gas engineering business. In May 2012, the Group's special project of storage tanks for LNG receiving station in SINES of Portugal was completed and delivered. In September 2012, the mechanical part for the master contracted special project of three storage tanks for COSL's LNG receiving station in Ningbo was completed and successfully delivered.

Through a forward-looking study on the demand in the industry chain of natural gas equipment, especially its judgment on future cryogenic equipment market, in 2012, CIMC Enric continued to increase its capacity significantly, rationally optimized and expanded its cryogenic production capacity, relocated to new plants and relocated its production lines, so as to establish an effective production layout and develop an advantage in production capacity. The Group also specifically increased the production capacity and production volume for special tank containers and cryogenic tanks/vehicles/bottles, commenced the construction of production lines for light-weight helispherical bottles in Shijiazhuang, and expanded the production capacity of LNG manufacturing equipment in Zhangjiagang and LPG equipment in Jingmen. In the second half of the year, the new plants and new production lines in Shijiazhuang, Langfang, and Bengbu in Anhui province commenced operation. As a result, the effective production layout and advantage in production capacity of the Group was promptly established, so as to satisfy the rapidly increasing market demand for the supplying and application equipment of natural gas in the PRC, and secure a significant growth in both operating income and profit of the business sector at the same time.

In 2012, CIMC Enric continued to implement cost control and lean management programs. Operational efficiency and quality have been enhanced with internal resources allocated and shared among operating units more effectively. In terms of the supply chain, the Group implemented centralised and collaborated procurement policy, and achieved cost reduction through optimising product design and production process.

In 2012, CIMC Enric devoted itself to the research of product technology, patent and technical development, so as to build a solid foundation for its products to enter the overseas market in the future, and added new sales channels in Nigeria, Pakistan, Southeast Asia and Uzbekistan, and focused on exploring the North American market for expansion.

Offshore Engineering Business

We are one of the leading offshore engineering equipment manufacturers in the world and have been involved in the competitive international market of offshore engineering business all the time. Our major products include jack-up drilling platforms, semi-submersible drilling platforms, and auxiliary vessels for offshore engineering. The Group has established a complete set of strategic business system of “one center with three bases”, consisting of Yantai CIMC Raffles Offshore Co., Ltd. (“YCRO”) as the manufacturing, assembly, testing and delivery base for semi-submersible drilling platforms, Longkou CIMC Raffles Offshore Co., Ltd. (“LCRO”) as the manufacturing base for jack-up drilling platforms, and Haiyang CIMC Raffles Offshore Ltd. (“HCRO”) as the manufacturing base for module works. The Group also holds a “National Energy Marine Petroleum Drill Platform R&D (Experiment) Center” which was issued by the National Bureau of Energy (國家能源局) of the PRC, and consists of CIMC Offshore Engineering Institute Research Center Co., Ltd. (中集海洋工程研究院有限公司) in Yantai and Ocean Engineering Design and Research Institute of CIMC (中集船舶海洋工程設計研究院) in Shanghai.

In 2012, the sales revenue from offshore engineering business of the Group reached RMB1,829 million in aggregate, representing an increase of 217.29% from RMB577 million in the previous year. It incurred a net loss of RMB527 million, narrowing down significantly by 52.81% as compared with the previous year. The significant increase in operating income and the decrease in loss were mainly due to the sales of SUPREME DRILLER, a self-constructed jack-up drilling platform, and the completion of the delivery of COSL PROMOTER, a deep water semi-submersible drilling platform.

Our sales revenue increased substantially compared with the previous year, which was primarily attributable to the recognized sales revenue from the jack-up drilling platforms H197, H267 and JU2000, the semi-submersible drilling platforms cosl3 # and cosl4 # and ship repair projects. In addition, for the same period of the previous year, as only a few projects were delivered and the amount of recognized sales revenue from the projects under construction are relatively small, the base number of sales revenue is relatively small.

In 2012, CIMC Raffles Offshore (Singapore) Limited (“CIMC Raffles”) achieved a smooth progress in delivering its main products. In March 2012, a jack-up drilling platform named “SUPREME DRILLER” was delivered. In April 2012, COSL PROMOTER, the third deepwater semi-submersible drilling platform for COSL Drilling Europe AS (CDE), was successfully delivered. In December 2012, EXPLORER LIFTER (“SSCV2#”), China's first deepwater semi-submersible lifting platform independently designed and constructed by CIMC Raffles (and the intellectual property right was wholly owned by CIMC Raffles), was successfully delivered within a historical short period of only 27 months; and H195, the Caspian Sea jack-up drilling platform of the EPC project was delivered, which was China's largest offshore engineering cooperation project in Russia.

In July 2012, the fourth deepwater semi-submersible drilling platform “COSL Xingwang Platform” built for COSL commenced construction in Yantai.

Since the Company acquired YCRO in 2008, the Company has been facing various challenges, including delay in project construction and loss, poor fundamental management, weak design capability and mismatched production capability. The Group adopted a critical responsive strategy and achieved expected progress with significant results in 2012. Our orders were mainly for drilling platforms and the North Sea market in Europe, and the Company gradually obtained new orders, made breakthroughs in technical bottlenecks and pushed forward the delivery of previous projects. The Group also improved the platform construction model, promoted the standardisation and modularisation in design, enhanced the control on risks, costs and expenditures, thus improving the fundamental management.

In February 2012, CIMC Raffles was granted the master construction contract of North Dragon, a deepwater semi-submersible drilling platform by North Sea Rigs As in Norway. This marks that the semi-submersible products of CIMC Raffles received the recognition from North Sea, one of the international mainstream markets, and the capability as a general contractor of CIMC Raffles in engineering projects was further enhanced, and its mass production has commenced. Leveraging on its strengths of shorter delivery time, favorable payment terms, financing support and lower construction costs, the Group will continue to participate in the competitions of overseas markets in the future, while trying to secure new orders in the domestic market.

In terms of platform research and design, the Group has owned the intellectual property right for the detailed design and construction of spud legs of jack-up drilling platforms. The unique construction model for semi-submersible platforms and the construction models for 300-feet and 400-feet jack-up platforms have been improved and established. The Group completed the final designs for three different models of semi-submersible platforms and two different models of jack-up platforms, and accelerated the standardisation and modularisation in design. The Group will also carry out research on deepwater semi-submersible drilling platforms suitable for the South Sea, such as ultra deepwater double-rig semi-submersible drilling platforms and moderately deepwater semi-submersible drilling platforms to meet the demand of our national development strategy.

Airport Facilities Business

In 2012, Shenzhen CIMC-TianDa Airport Support Ltd. (“CIMC Tianda”), a 70% owned subsidiary of the Company, realised operating income of RMB757 million, representing an increase of 32.57% as compared with RMB571 million in the previous year. Its net profit was RMB69 million, representing an increase of 57.66% as compared with RMB44 million in the previous year. The business structure of this segment was further optimized, and the proportion of income from businesses other than civil aviation increased significantly in this segment.

Our revenue from the airport facilities business increased substantially as compared with the previous year, which was primarily attributable to the substantial increase in our garage and logistics businesses which now accounts for a larger proportion of our total revenue, and the continued growth in the passenger boarding bridges business. In addition, the airport shuttle bus business of Beijing Civil Aviation Xinfa Airport Equipment Co., Ltd. which was acquired by our Group in 2012, achieved good operating results in 2012 which also contributed to our revenue growth. As most of our projects were delivered to our customers and most of our account receivables were received from our customers in the second half or the fourth quarter of the year, the decrease in the operating income in the period from January to September of the year narrowed down significantly as compared with the same period of last year.

In 2012, airport facilities business, including passenger boarding bridges, gradually recovered from a low level in the global aviation industry, and the market demand remained stable with steady growth. In 2012, the passenger boarding bridge products of CIMC Tianda continued to dominate the domestic market. In overseas market, while facing German and American enterprises as our major competitors, the Group still managed to obtain a great number of orders. The Group also received a large number of domestic orders for airport baggage handling systems, civil logistic warehouses, three dimensional car parking spaces and passenger boarding bridges. Since the acquisition of Beijing Civil Aviation Xinfa Airport Equipment Co., Ltd. in 2012, the consolidation process went smoothly, and the research and development of bi-directional airport shuttle buses was completed and such products have been sold to Australia. In respect of three dimensional car parking spaces, the Group cooperated with various levels of governments to develop car parking spaces, and extended our services from the manufacturing and after-sale service for car parking spaces to the operation and investment in car parking, and achieved sound results in “car parking real estate” business. In August 2012, the Company, through one of its subsidiaries, increased its shares in Pteris Global Limited (“Pteris”, a company listed on the Singapore Exchange Limited, stock code: J74). The Company indirectly held 14.99% of the share capital of Pteris, becoming its single largest shareholder. As a result, the Group has successfully expanded into the business of airport baggage handling systems and global airport logistics management systems.

Looking into 2013 and the future, with the gradual economic recovery, foreign aviation industry will grow steadily, while domestic aviation industry will continue to grow at an annual growth rate of 10%, it is expected that the increase in demand for passenger boarding bridges from both domestic and overseas airports will be optimistic. The trend of upgrade of automation in the Chinese manufacturing industry will promote the rapid development of automation logistic equipment. The gradual decrease in land resources and more intensive car parking problem in the PRC will lead to the steady and rapid growth of three dimensional car parking equipment, and urbanization will boost the rapid demand for engineering vehicles in the cities.

The strategic objective of CIMC Tianda is to become an internationally leading airport facilities supplier and expand its logistic and automation equipment business. While maintaining its leading market position in the passenger boarding bridge market, CIMC Tianda will also develop ground services equipment (GSE) such as airport shuttle buses, airport baggage handling system and other businesses. It will continue to expand the businesses such as three dimensional car parking spaces and automation logistic equipment. The sales revenue and net profit of CIMC Tianda is expected to increase significantly in 2013.

Other Principle Business

• Logistics equipment and service business

The Group is committed to offering specialised logistic equipment and comprehensive logistic solution for customers in different industries. The logistic equipment products of the Group mainly comprise of the pallet containers for vehicle, logistics, food, chemical and agricultural purposes, and the intermediate bulk container (IBC) made of stainless steel for chemical and food usage, as well as specialised logistic equipment. Meanwhile, the Group also provides logistic services based on its standardized logistic appliances, transportation service solutions regarding finished automobiles based on special containers, logistic service solutions regarding logistic of liquid based on IBC containers, logistic service solutions regarding transportation of automobiles based on pallet boxes as well as pallet leasing and repairing services.

In 2012, despite the negative impact of the deteriorated global economic environment as well as the intense competition in domestic logistics industry, the logistic equipment business segment achieved its expected operating targets. The Group achieved sales volume of 870,000 units, decreased by 6.04% as compared with the previous year, and its operating income was RMB1,627 million, representing a decrease of 1.62% as compared with the same period of last year.

In 2012, the logistic equipment business of the Group achieved significant growth in market segments including manufacturing, supply chain, domestic transportation and international logistics. The layout for logistic network across the country was completed and the leasing business system based on multi product lines was developed. In respect of manufacturing business unit, the Group maintained its leading position in the automation industry and developed new products such as offshore boxes; and in respect of supply chain business unit, the Group continued to explore new business opportunities the process of improving its level of standardisation and optimising its logistic model, so as to provide optimised solutions for its customers. The Group's business has completely penetrated into the entire supply chain, including packaging and leasing, in-bound logistics, on-line distribution, finished product delivery and complete set export. In respect of international and domestic logistic business unit, a new business model was developed, including the development of the BUSDECK skeletal containers applicable in solutions for exporting commercial vehicles, stainless steel IBC applicable in solutions for the packaging of specialised chemicals, and the sea transportation and highway transportation for 53-feet containers.

• Container Service Business

The Group placed great efforts in the development of container service business, including but not limited to container stack yards, transformation of old containers, modularized buildings. We have a container stack yard service network across the nation which provided container services such as shipping agency, freight forwarding, logistics and transportation, repairment, storage, and the sales, leasing, refurbishment and repackaging of secondhand containers. The Group proactively developed innovative businesses in the trade and financial services of container logistics and container services throughout the whole life span of containers, and sought new business opportunities arising in the upgrading of coastal industries, the development of Central and Western China, urbanization and the development of tourism, energy conservation and emission reduction, as well as the development of recycling economy. In 2012, the operating income from our container service business was RMB432 million, representing an increase of 25.43% as compared with last year, and its net profit was RMB17 million, representing a decrease of 61.49% as compared with last year.

Based on years of practices in these two business fields, the Group has formed its mature market service capabilities in port logistics services, logistics service network, industry equipment and logistics services, design and manufacturing of standardized logistics equipment, logistics financial services and port container service. On this basis, the Group has integrated the existing service resources by adhering to the overall strategy of upgrading the manufacturing services, and in March 2013, the Group completed the mergers and acquisitions to Zhenhua Logistics Group Co., Ltd., its logistics service and operating capacity has been enhanced accordingly. In the future, the Group will continue to upgrade its operating capacity, develop integrated logistics services business, build three basic operating platforms (i.e. network-based logistics operations, logistics informatization and container recycle), develop the industry supply chain logistics solutions and related specialty services based on standardized logistics equipment, and strive to become China's leading logistics service provider within five years.

• Real estate development business

In 2012, there was no fundamental change in the macro control policies relating to the real estate industry in China, the market pressure remained relatively high. In 2012, the Group's projects in Jiangmen, Yangzhou, Zhenjiang, Yangjiang and Shenzhen were all progressed as planned. In 2012, the operating income and the net profit amounted to RMB835 million and RMB75 million, representing an increase of 63.44% and a decrease of 52.82% as compared with the previous year.

• Railway equipment business

Dalian CIMC Railway Equipment Co., Ltd., a subsidiary of the Group, was committed to the expansion of railway equipment business. Before the Group obtained the production qualification granted by the Ministry of Railways of the PRC, the Group focused on the production of bogie, railway accessories and specialised transportation equipment to expand the international market. In 2012, the operating income was RMB220 million, representing an increase of 33.23% as compared with the previous year, and a net profit of RMB3 million was achieved.

• Financial business

As for its financial business, the Group took an overall approach to enhance the efficiency and effectiveness of its internal capital utilization, assist the Group to realize its objectives in industrial strategic development, industrial restructuring and market competition, and was devoted to the establishment of a financial service system which matches its role as a world leading manufacturer, so as to become a profit growth point of the Group. The main operating subsidiaries consist of CIMC Financial Leasing Co., Ltd. and CIMC Finance Company Ltd.. In 2012, the Group achieved a revenue of RMB704 million and a net profit of RMB370 million, representing an increase of 22.46% and a decrease of 15.86% as compared with last year, respectively.

CIMC Financial Leasing Co., Ltd. was established in 2007 and its primary role was to focus on the financial coordination between industry and finance, to promote the overall enhancement in value of the Group and industrial upgrade, and to realise the synergic development in terms of both operation and finance. It promoted the sales of equipment and services of the Group's equipment manufacturing segment, supported the business model transformation of equipment manufacturing segment, and also provided financial solutions and created values for the Group's customers, increased the core competitiveness of the Group, reduced cost by improving sales profit margin and turnover ratio of assets, and optimized the financial structure of the Group.

In 2012, the registered capital of CIMC Financial Leasing Co., Ltd. was increased from US$20 million to US$70 million. CIMC Financial Leasing Co., Ltd. also received the “2012 Innovation Award in Financial Leasing of China”. Financial leasing business has, to different extent, participated and penetrated into the offshore engineering business, energy, chemical and liquid food equipment business, road transportation vehicle business and modularization business of the Group. Financial leasing business was comprehensively involved in the offshore engineering projects in 2012, and gradually formed an innovative offshore engineering leasing model in China. CIMC Financial Leasing Co., Ltd. successfully signed a bareboat chartering contract with CMA CGM, one of our core customers in container segment and the third largest container liner shipping company in the world, to lease ten 9200TEU container ships for a term of 12 years. By successfully providing financial services for the Group's overseas customers in the construction period and operating period of modularized products, the Group has become the sole domestic conglomerate that is capable of providing modularised products as well as relevant project financing.

Since 2010 when it officially commenced operation, CIMC Finance Company Ltd. has been providing professional financial services for members of the Group, and realized the objectives to enhance the centralised management of our Group's capital and increase the efficiency and effectiveness of its capital utilization. CIMC Finance Company Ltd. significantly reduced the financial cost, financing cost and transaction cost levels of the entire Group, effectively prevented and controlled capital risk, and maintained and increased the value of capital. In 2012, CIMC Finance Company Ltd. performed well in management and operation in terms of concentration level of capital, deposits and loans, settlement amount and income, as well as profit.

Business Outlook - For the year ended December 31, 2012

Overall Operation Targets for our Business Development and Initiatives

In 2013, with the opportunity of global economic restructuring, our Group will accelerate the process of industrial restructuring and strategic upgrade, carry out systematic reforms in development strategy, business model, organizational culture, operational management and other areas, continue to implement layering management and precision management so as to realize an “accumulative continuous improvement mechanism”, which will lay a new foundation for the continuous healthy development of our Group.

In respect of container business, we will implement lean management, and strengthen services a and collaboration. Through research and development in technology and management, we strive to break through the manufacturing bottlenecks in terms of increase in component costs, environmental protection, labor-intensive conditions and other factors. In addition, we will also optimize resource allocation to increase the asset operational efficiency of this segment of our business, and promote the decision-making standard.

In respect of road transportation vehicle business, we will: (1) continue to expand our market share on the regional markets; (2) continue to introduce new technology and new products and promote the application of the third generation semitrailer technology, and speed up the development of engineering vehicles; (3) improve production quality and capacity, including completion of building up the new factory in Europe as well as the specific assorted production lines in China; improving the assembly capacity in the United States; and optimizing the production layout and carrying out technological reform in the production lines in China on a continuous basis; and (4) strengthen the construction of the products distribution channels, improve our sales and service network, and increase our investment in the vehicle logistics park business.

In respect of energy, chemical and food equipment business, our Group will focus on energy industry in the future. We will design strategic plans and carry out prospective research on energy equipment and engineering aspects so as to grasp the opportunity of potential development. We will set up and improve a business-oriented management model and system and strengthen internal coordination to guarantee a healthy business development in the future. We will fully utilize the production capacities of the newly constructed and expanded production bases as well as production lines by improving the operational efficiency of the cryogenic equipment business. We will proactively promote the research and development of new products, and strengthened the development of special tanks, consolidate and increase the market share of our existing major equipment and products so as to enhance the core competitiveness of our Company. We will, by taking advantage of business collaboration and the complementary advantages of China and Europe, enhance our ability for management of engineering projects, and strengthen our engineering business, in particular with a focus on cryogenic tanks, projects of filling stations, small and medium-sized liquefied and petrochemical gas storage and processing projects and chemical spherical tanks. We will further develop international market of high-pressure, lowtemperature, medium-pressure containers, tank containers and liquid food equipment, in particular, vigorously exploring the North American market by utilizing the opportunity of the significantly growing demand in US natural gas market.

In respect of offshore engineering business, we will improve the standardization and serialization level of our products and engineering projects, make an overall planning on the resource allocation in our three production bases, strengthen the management of supply chain, and establish a longterm cooperative relationship with our key suppliers. In addition, we will also enhance our cooperation ability in manufacturing core equipments such as drilling package and polish our advantage in design and manufacturing of spud leg, launch jointly designed or independently designed ship model, and further promote the improvement of production management.

Capital Expenditure and Financing Plan

According to the changes in economic situation and operating environment, as well as the needs for the Group's strategic upgrade and business development, the capital expenditure of our Group is expected to be RMB6,241 million in 2013, for which various forms of financing arrangements will be considered.

Risk Factors for our Future Development

In 2013, the Company's operation will still face the following risks in macro economy and policy adjustments: (1) in the aftermath of the financial crisis, the world's economy is recovering at a slow pace and entering a cycle of low economic growth; in China, the growth rate of exports slowed down due to decrease in external demands, and its energy dependence increased whereas the prices of raw materials fluctuated intensively. The changes and fluctuations in financial markets might result in the potential risks of appreciation of RMB and the fluctuation in the foreign exchange rates of RMB against others; (2) in recent years, the old development model of China, which is characterized by low wages, high energy consumption and environmental pollution, is becoming increasingly difficult to sustain, and the competitiveness of China's traditional manufacturing industry which is focusing on low value-added processing business is also declining. China's economic development is facing up with a number of mid-and-long-term challenges such as economic restructuring, decline in demographic dividends, energy conservation and emission reduction, which will in turn result in plenty of pressures for our Group's business development and production management; (3) impacted by the policies asserting low-carbon, environmental protection, energy conservation, improvement of people's livelihood and sustainable development, the regulations on labor and environmental protection tend to be more stringent and various costs tend to rise; (4) both the manufacturing capacities in emerging market economies and China are excessive while the global shipping capacities are excessive in the mid-to-long term; (5) resources, price of oil, environment and transportation all imposed constraints on the development of automobile industry, while the negative impacts of railway construction, and the adverse effect of split of passenger and cargo on trunk road freight has also imposed certain pressure on the growth of demands for transportation vehicles; and (6) offshore engineering industry is a high investment and long-cycle industry with investment risk. As a “strategic emerging industry”, the development of offshore engineering industry is supported by the state policy. For the domestic offshore engineering industry, in addition to facing up with competition from overseas leading offshore engineering companies, it will also encounter with more intensified competition within this industry as more traditional domestic shipbuilding enterprises and external capitals entered into this industry.

Source: China International (02039) Annual Results Announcement
Chairman LI Jianhong Issued Capital (shares) 1,430M
Par Value RMB 1 Market Capitalisation (HKD) 17,652M
 
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