Conch: stimulus drives growth, profits surge

Conch: stimulus drives growth, profits surge
Published: 01 April 2010

Anhui Conch, China’s largest cement producer, reported group turnover of CNY24.684bn (US$3.615bn) up 3.2% on 2008 (according to PRC Accounting Standards). Operating profit rose to CNY4.260bn (US$624m), a YoY increase of 42.6%. Profit before tax grew 37.9% to CNY4.476bn (US$656m), while net profit attributable to equity shareholders of the company climbed to CNY3.544bn (US$519m), up 36% YoY.
 


Capital expenditure in 2009 amounted to approximately CNY8bn (US$1.172bn), primarily invested in the construction of new clinker and cement production lines and residual heat electricity generation projects, the company reported. As at the end of 2009, it had authorised additional capital commitments amounting to CNY13.1bn (US$1.919bn), with CNY10bn (US$1.465bn) allocated for capital expenditure in 2010. Group long- and short-term borrowing stood at CNY9.577bn (US$1.403bn), down 11.6% YoY. Gearing stood at 37.9%, down 2.7% compared to 2008 year-end.
 
The company completed the construction of nine clinker production lines, each with a capacity of 5000tpd, and 12 cement grinding units, resulting in an additional clinker capacity of 16.2Mta, and cement capacity of 10.9Mta. As at the end of 2009, the group’s clinker and cement capacity reached 102.06Mta and 105.5Mta, respectively.

Sales overview


Total clinker production volumes for the year reached 95.03Mt, representing a YoY growth of 16.34%, and the total volume of cement produced reached 96.8Mt, up 25.53% YoY. 


Sales in the East China market, which includes Jiangsu, Zhejiang and Fujian provinces, plus Shanghai city, represented 40.9% of total sales and amounted to CNY10.1bn (US$1.479bn), a decrease of 3% on 2008. This is in spite of the fact that sales volume in the region rose by 9.9%, implying price pressure in this traditionally competitive market. Central China sales, which includes Anhui, Jiangxi and Hunan provinces, represented 29% of total sales and amounted to CNY7.166bn (US$1.05bn) – up 19.7% on 2008. The company benefited from the Strategy for Central China Development which has boosted investment into infrastructure and rural projects.  Four new production lines were commissioned during 2009, and group sales volumes rose 39% YoY. South China sales accounted for 22.6% of total sales and amounted to RMB5.568bn (US$816m), up 18.1% YoY. The company reported strong sales and volume growth in this market, supported by an increase in infrastructure projects and real estate. Sales volumes rose at a robust 29.2% YoY. West China, Conch’s smallest market segment comprising just 1.6% of total sales, amounted to CNY394m (US$58m), with growth up 227.65% on 2008 though from a low base. The company noted a decline in export demand, with total export volumes decreasing by 41.2% YoY and accounting for 6.1% of group total sales volume.

Sales of 42.5 grade cement rose to 53.9%, 4.1 percentage points higher than 2008, due to an increase in engineering projects requiring higher grade product. The commissioning of new cement grinding projects resulted in higher internal clinker consumption, consequently sales of clinker sold to third parties declined by 5.4% compared with 2008. Sales of 32.5 grade cement accounted for 30.4% of sales.
 
 


Outlook


The company expects the PRC government to maintain current macroeconomic policies to ensure a continuation of rapid economic expansion of 8% in 2010. Infrastructure projects funded by the CNY4trn stimulus are expected to reach their peak and policies to support rural construction, namely the "Building Materials Subsidy Policy for Rural Villages" will further drive demand for cement.
 


Industry overcapacity is expected to be effectively controlled by government restrictions on market entry, while the elimination of 50Mt of obsolete capacity in 2010, according to National Development and Reform Commission target, will significantly benefit Conch going forward.
 


Conch has allocated CNY10bn (US$1.465bn) for capital expenditure in 2010, which will fund the expansion of clinker and cement capacity amounting to 28.8Mt and 50Mt, respectively.
 


In 2010, in efforts to improve energy efficiency and reduce environmental impact, the company will put an additional 15 sets of residual heat electricity generation units into operation with an aggregate new installed capacity of 162MW.