citic

CITIC Pacific has unrivalled experience and expertise in operating businesses in China
both on the mainland and in Hong Kong. With the rapid development of the Chinese
economy, CITIC Pacific is increasingly focusing its businesses activities on the mainland
of China. Our major businesses are special steel manufacturing; iron ore mining
which supplies the raw material needed in the making of special steel, and property
development in mainland China.
Special Steel
CITIC Pacific Special Steel operates through three steel plants in mainland China with total
annual production capacity of over seven million tonnes. It is a leader in the manufacturing of
special steel used in bearings and gears among others. The three plants are ideally located to
cover the main markets for special steel in Eastern, Central and Northern China.
Jiangyin Xingcheng Special Steel is a leader in China specializing in the making of high-grade
special steel used in bearings, gears, springs and high-pressurized piping steel. Its new line, in
cooperation with Sumitomo Metals of Japan, has the most advanced technology in the industry.
Xin Yegang Steel is located in Central China, it has a long history dating back to 1908. Its seamless
steel tubes, one of its major products, continues to receive strong demand and remains very profitable.
Shijiazhuang Steel Mill became a member of CITIC Pacific Special Steel in 2006. Built in 1957,
it is now a manufacturer of special steel with 2.2 million tonnes in production capacity. Its
products are mainly supplied to the auto component industry.
Iron Ore Mining
CITIC Pacific owns the mining rights to two billion tonnes of magnetite iron ore with options to
another four billion tonnes in the Pilbara region of Western Australia. The two billion tonnes
of ore is capable of producing 27.6 million tonnes of product annually to supply mainland China
and CITIC Pacific’s steel plants in particular.
Property
CITIC Pacific’s property team has extensive experience in building and managing medium and
large scale residential and commercial projects including Shanghai’s CITIC Square and
New Westgate Garden, and Hong Kong’s CITIC Tower.
In the past few years, the Group has been active in investing in properties in mainland China.
Currently CITIC Pacific has a large quality land bank in Shanghai, major secondary cities in the
Yangtze Delta area and Hainan Island.
Major
Businesses
CITIC Pacific Summary Financial Report 2007
I am pleased to report that our group recorded a
net profit of HK$10,843 million for the year 2007,
surpassing the HK$10 billion mark for the first time.
This represents a growth of 31% from the historic high
of HK$8,272 million set in 2006. Earnings per share
were HK$4.91. The board has recommended paying
a final dividend of HK$0.80 per share. Including the
regular (HK$0.40) and special (HK$0.20) dividend
per share already paid at the interim, the total
dividend per share for the year will be HK$1.40.
In 2007, we continued to focus on developing our
three core businesses – special steel manufacturing,
iron ore mining and property development in
mainland China – and increased our investments
in them. We also continued to divest our non-core
businesses. This included the listings of CITIC 1616
and Dah Chong Hong. By listing these companies
as separate entities, we are further demonstrating
our focus on our core businesses. In addition, this
helped to further unlock the true value of our Group
as a whole.
Now let me report on our businesses, which all
performed well in 2007. Detailed descriptions of them
can be found in the ‘Business Review’ section of our
summary financial report.
Special Steel
CITIC Pacific’s special steel business has expanded
rapidly in recent years, and has become the main
growth driver for our recurring earnings. Profit
contribution from this business was HK$2,242 million
in 2007, an increase of 68% from 2006.
Jiangyin Xingcheng Special Steel’s new production
line was completed and full production began in 2007.
The equipment and technology employed by this line
are the most advanced of their type in not just China,
but globally. Its products are of high quality and will
be highly competitive. Profitability is expected to rise
as a result.
Xin Yegang and Daye Special Steel continued their
solid performance and increased profits. A newly
constructed 900,000 tonne coking plant was
completed in 2007 and is already profitable. A
production line for the manufacturing of steel tubes
with a diameter of 460mm is being constructed and
is progressing well. Once completed, it will become a
new contributor to Xin Yegang’s profit growth.
Since becoming a member of CITIC Pacific in the
second half of 2006, Shijiazhuang Steel has been
integrated into our special steel operation. In 2007, its
productivity improved and profit grew significantly.
Located in Northern China, Shijiazhuang Steel will
cooperate with and complement Jiangyin Xingcheng
Special Steel in Eastern China and Xin Yegang / Daye
Special Steel in Central China. Together they form
an ‘iron triangle,’ ideally located to cover the primary
special steel markets in the major industrial regions
of China.
CITIC Pacific Special Steel, through its three
production bases, will continue to increase
investment, improve its product mix, and expand
its production capacity to further solidify its leading
position in the production of special steel in China
and globally.
We recently acquired a 30% interest in a coal mine
located in Shandong Province. Once built, the
mine will be capable of producing up to six million
tonnes per annum of high quality coal for use in the
production of coking coal. Surging demand in recent
years for iron ore and coke, which are key raw
materials needed in the steel manufacturing process,
resulted in a tight supply and a significant increase in
their prices. To ensure the supply of these important
raw materials, we invested in iron ore mining, coking
coal mining and coke production facilities. After the
completion of our iron ore mine in Australia in the
next two years, we will have a secure supply of iron ore
Chairman’s Letter
to Shareholders
Chairman’s Letter to Shareholders
CITIC Pacific Summary Financial Report 2007
and coke for our steel business. As such, our overall
competitive advantage will be further enhanced.
These investments are strategically important to the
expansion of our special steel business.
Iron Ore Mining
Progress is being made at our iron ore mine in the
Pilbara region of Western Australia. We obtained
the right to mine an additional one billion tonnes of
ore after the reserve was proven, increasing our total
mining rights to two billion tonnes. This large scale
magnetite ore project has world class technologies
and is capable of producing 27.6 million tonnes of
products per annum. Production is expected to begin
in 2009 – 2010.
Our mine, upon completion, will provide a long-term
stable supply of iron ore to our steel plants and to
other steel manufacturers in China. CITIC Pacific also
holds options to purchase the mining rights up to an
additional four billion tonnes.
To transport the ore, we purchased twelve 115,000
dwt bulk carriers. These ships are specially designed
with wide bodies, and can travel from Australia to the
Yangtze River and dock at our own port in Jiangyin
Xingcheng Special Steel without the need to transship.
This will lower transportation costs and improve
efficiency. We are also studying the possibility of
building an ore piling facility in the Yangtze River
area to establish an iron ore logistics system.
Property Development
Property development in mainland China is one of
our core businesses. The Chinese government recently
implemented measures to prevent the overheating of
the property market and sharp increases in property
prices. We believe that in the long-term, with the
continuing development of the Chinese economy,
market demand for quality properties will remain
strong. We have confidence in the long-term
prospects of the property market in mainland China
and we will continue to seek opportunities to increase
our land bank.
Phase One (260,000 square metres) of our Shanghai
Lu Jia Zui New Financial District Project includes
two landmark office towers each with a gross floor
area of 100,000 square metres, a top quality hotel and
serviced apartments. All buildings will be on top of
a large retail podium. The project will also include
underground vehicular access, a large car park and
other related facilities. Completion of Phase One is
targeted for 2010. Preparation for Phase Two and
Three are ongoing. Demand for Grade A offices and
commercial properties in Shanghai remain strong.
This project has attracted the attention of large
institutions in China and internationally, and many
of them have expressed keen interests in buying or
leasing the buildings.
Our large residential and commercial development
in the Qingpu District in Shanghai is progressing well.
Units with a gross floor area of about 10,000 square
metres were launched for pre-sale at the end of 2007
and all units were quickly sold. Located at the junction
of Jiangsu Province, Zhejiang Province and Shanghai,
Qingpu enjoys convenient transportation and a nice
living environment and good potential for value
appreciation. The project also includes a five-star
hotel which will be managed by a well-known
international hotel group.
Progress is also being made at our residential
development project in the city center of Yangzhou
in Jiangsu Province. Pre-sale of 265 units in Phase One
began in the fourth quarter of 2007. As a result of the
positive response from the market, most of these units
were sold.
Chairman’s Letter to Shareholders
CITIC Pacific Summary Financial Report 2007
In our New Westgate Garden Phase One residential
development, with the exception of a few units, most
have been sold.
Our large integrated development project in Wanning
City in Hainan Province is going well. Phase One
will include four hotels and auxiliary facilities. These
hotels will be managed by internationally renowned
hotel groups. Construction of the hotels has begun.
Work has also commenced on a world class golf
course, a club house and other related facilities. Our
goal is to develop the project into a large integrated
community that is suitable for both tourists and
residents. As living standards rise, we believe that
demand will surely increase for high quality properties
that provide an excellent environment and unique
design. Our Hainan Island project has tremendous
potential and will meet this demand.
Our investment properties in Shanghai and Hong
Kong remain well let and have recorded good growth
in rental income.
Units in Phase 13 (Chianti) of our Discovery Bay
development in Hong Kong are mostly sold.
Foundation work for Phase 14 has been completed
and superstructure work will begin soon.
Other Businesses
Our aviation, power generation and cross harbour
tunnel businesses all performed well in 2007.
Benefiting from an increase in passengers, Cathay
Pacific’s profit for the full year rose a significant 72%
to reach HK$7,023 million, which is a historic high.
Phase IV (2x600MW) at our Ligang Power Station
began commercial operation recently. Together with
other units that are in operation, Ligang is now one
of the largest coal-fired power plants in China with a
total installed capacity of 3,800MW. The Eastern and
Western Harbour Tunnels in Hong Kong operated
smoothly and total tunnel profits as well as cash flow
increased compared with last year.
CITIC 1616 and Dah Chong Hong performed well
in 2007 and had good profit growth. Following their
listings, the ability of both companies to raise capital
was enhanced with the establishment of their own
capital markets platforms. This should be beneficial to
the long-term development of these two companies.
Looking to the Future
After years of hard work, our three core businesses –
special steel manufacturing, iron ore mining and
property development in mainland China are
becoming more mature. Our market leading position
in special steel will continue to improve, and we
expect this business to remain a major contributor to
our group’s recurring earnings in the next two years.
Once our iron ore mine in Australia is completed, it
will become a new source of earnings growth for us.
We are confident that our property projects in the
Yangtze River Delta area centered around Shanghai
and our land bank in Hainan Island are of high quality
and have excellent growth potential. Even though
the recent sub-prime problems have resulted in
uncertainties in other markets, we believe that the
Chinese economy will maintain its growth momentum
for the foreseeable future. We will be able to capture
opportunities and leverage our expertise to expand
and develop our core businesses to achieve higher
returns for our shareholders.
On behalf of all the directors, I would like to express
my sincere thanks to everyone at CITIC Pacific for
their hard work and contribution, and to our
investors, bankers and everyone else for their
continuing support.
Larry Yung Chi Kin
Chairman
Hong Kong, 17 March 2008