citic

ANNOUNCEMENT OF RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2006
CHAIRMAN’S LETTER TO SHAREHOLDERS
I am pleased to report that CITIC Pacific achieved excellent results in 2006. Net profit for the year
was a historic high of HK$8,272 million, a 107% increase compared with 2005. Earnings per share
were HK$3.77. In light of this good performance, our sufficient financial resources, and at the same
time considering the need to further expand our businesses in the future, the board has
recommended paying a special dividend of HK$0.30 per share in addition to a final dividend of
HK$0.80 per share. Including the regular (HK$0.30) and special (HK$0.30) dividend per share
already paid at the interim, total dividend per share for the year is HK$1.70.
All of CITIC Pacific’s businesses performed well in 2006, in particular the three core businesses,
which made outstanding profit contribution. The Special Steel business recorded an impressive
growth in profit of 65% compared to last year. Benefiting from the sale of Festival Walk, profit
contribution from our property business rose 84% compared with last year. Also, in accordance
with accounting standards, fair value gains on revaluation of the Group’s investment properties were
HK$1.08 billion. Infrastructure businesses such as Aviation, Power Generation, Tunnels, and
Environmental businesses all recorded growth in recurrent earnings. These businesses provide
stable and recurring cash flows to the Group. The restructuring of the aviation industry in 2006
provided CITIC Pacific’s shareholders a satisfactory return on investment. Cash realized from this
transaction further strengthened the Group’s financial position for future new investments.
Special Steel
CITIC Pacific’s special steel business had excellent performance in 2006. Through both organic
growth and acquisitions, a plan implemented a few years ago, the Group has expanded its operations
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rapidly. In just a few years, CITIC Pacific’s production capacity has reached seven million tonnes,
commanding a leading position in both product quantity and quality producing a variety of products
such as bearing steel, gear steel, spring steel, and other alloy steel. Today, our special steel business
has become a highlight in the Group’s profit growth and is expected to continue its rapid
development in the foreseeable future.
Jiangyin Xingcheng’s new production line, in partnership with Sumitomo Metals of Japan, is near
completion, with the steel smelting section of the production line already completed and profitable.
The steel rolling section is scheduled to complete and become fully operational in 2007. This
production line, equipped with the most advanced technologies of similar types both domestically
and internationally, is the foundation for the production of high quality and highly energy efficient
special steel products in the future.
Through effective management and integration, the businesses of Hubei Xin Yegang (95%) and
Daye Special Steel (56.6%), which the Group acquired in 2004 and 2005, improved greatly with
significant increases in profitability. A newly built 900,000 tonne coking plant will be completed
and become fully operational in 2007. This plant will not only satisfy demand at Xin Yegang and
Daye Special Steel, but it can also supply coke to other sister plants within the Group. This will
reduce costs and increase the Group’s investment return.
Shijiazhuang Steel Mill officially became a member of the CITIC Pacific group in July 2006.
Today, CITIC Pacific has three special steel manufacturing bases that are ideally located in Eastern
(Jiangyin Xingcheng), Central (Xin Yegang/Daye Special Steel) and Northern (Shijiazhaung Steel)
China. Our plants are positioned to take advantage of the high demand in these three industrial
centres. The plants can also utilize the well developed transportation networks nearby to supply
products to all regions in China. At the same time, these strategic locations are also beneficial in
facilitating product realignment and centralizing purchasing, transportation and sales functions
among the plants.
In 2006, the Group’s steel plants sold a total of 5.9 million tonnes of special steel, a 60% increase
from 2005. Even though prices of raw materials stayed at high levels, profitability of the Group’s
steel business remained at a satisfactory level. CITIC Pacific is optimistic on the future
development of this business. The above mentioned three locations will continue to support each
other in the coming year to fully realize synergies, and to further strengthen our leading position in
China’s special steel industry.
Iron Ore Mining
As previously reported, in March 2006, CITIC Pacific acquired mining rights to one billion tonnes
of magnetite ore, and rights and options to a further five billion tonnes in the Western Pilbara region
of Western Australia. Stage One, which includes the right to the first billion tonnes of reserves,
received approval from the Australian government in June 2006. It will be capable of producing 12
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million tonnes of concentrate annually once operational. Pre-construction design work is underway.
We have signed a general construction contract with China Metallurgical Group Corporation.
(“MCC”). Work on the development of mining, beneficiation plant, pellet plant, desalination plant,
power station and material handling system has begun. First shipment of product is expected to be
in 2009.
Management and technical teams with Chinese, Australian and international experience have been
assembled and will be strengthened step-by-step. The financing framework for the project has been
signed, and the bank has undertaken to support the project by providing long-term project finance to
shareholders and the project companies. Once completed, this mining project will provide a longterm
stable supply of iron ore for the Group’s steel plants.