Friday, June 5, 2020
Martin Hennecke
HKEx Stock Code : 00024 
Corporate Profile
Principally engaged in steel trading, steel processing, mineral resources and commercial property.

Business Review - For the year ended December 31, 2012

Steel Trading

In 2012, global crude steel productivity was approximately 1,548 million tons, in which China productivity accounted for 46.3%, reaching 716 million tons. Even if the production growth was slowing down, global crude steel productivity still hit a record high. The excess of supply over demand was unable to change.

Due to downfall of the world's economy, the European sovereign debt crisis triggered market panic. The international trade protectionism intensified. Macroeconomic austerity measures in China continued. Economic growth slowed down and demand shrank. That made both steel production enterprises and traders all faced severe challenges.

During the period under review, save for a temporary rise in the first quarter of 2012, China steel prices dropped almost throughout the year, up to 25% decline and slump continued for a long time, which was seldom seen over the years. Slower than expected recovery in peripheral economies; weak domestic currencies in markets such as the European Union, India and Vietnam including an almost 20% depreciation in India Rupees; rise in trade protectionism; and more anti dumping investigations and arbitrations against China, all led China's steel product exports squeezed and the whole industry comprehensively loss-making, a situation which was even worse than that of the financial tsunami in 2008.

The iron ore trading was drastically affected. Iron ore imports were stuck in China's major ports for several months, accumulating a high level stock of over 100 million tons iron ore. Affected by such huge stock of iron ore and the sale and purchase of steel products remaining weak, iron ore prices were dramatically dropped 40% from high to low.

Under such circumstances, the Group's sales volume was comparatively lower than that for last year. With decrease in steel transaction amount per ton at the same time, turnover dropped substantially. Relatively great loss making in execution of certain contracts under such volatile market dramatically affected the overall performance of this business segment.

Steel Processing

During the period under review, overall sales volume of the steel processing plant in Dongguan rose slightly compared with the same period last year. Inventories had been drastically reduced and cost was cut. However, due to export business to US and European markets remained fragile, the Group recorded a loss in this business segment.

Investment in Mineral Resources

Management restructuring was completed at the end of the year before for the Tai Xin minerals project, which the Group holds 70% of its equity interest. Heightening and reinforcement works of its tailing warehouse had been undertaken as required by the rectification opinion of the domestic safety supervision department. After successfully passing safety inspection, a safety production permit was obtained in the middle of 2012. The plant is at the preparatory stage to resume production.

On 31 August 2012, the Group accepted an offer and entered into an agreement to sell the entire equity interest in the Tai Xin minerals project held by the Group for a cash consideration of HK$250,000,000, details of which were specified in the relevant Company's circular dated 12 October 2012. As additional time is required for the purchaser to complete financing for the consideration, the completion date has been extended to shortly after 31 May 2013. Impairment losses on goodwill of approximately HK$394 million arising on acquisition of the Tai Xin minerals project was recorded at the year end.

Commercial Property Investment

The Group's integrated shopping mall located in Yangzhou, Jiangsu Province of China continues to provide stable rental yield. Further to the completion of renovation of basement, fourth and fifth floors of the mall in 2011, the Group had also successfully completed the refurbishment of third floor in the third quarter of 2012. Rental income had been raised substantially by 25% when retail space of third floor was re-leased. The entire shopping environment and collection of fashion have brought to shoppers a fresh new look and catered to meeting increasing demand of local shoppers' need.

During the period under review, the renowned retail property leasing business operator, in which the Group has made investment in its shares, has engaged contracts for leasing and operating retail areas over 380,000 square meters. Four retail properties, located respectively in Shanghai, Wuxi and Zhenjiang and having a total area around 130,000 square meters are already in operation. Other property projects with a total retail area of about 250,000 square meters are now under preparation and under leasing. These projects are located respectively in Beijing, Shenzhen, Shanghai and Changzhou. This retail leasing business operation has been able to attract a famous PRC private equity fund to become a strategic investor as well as a Singapore fund investor to become one particular project investor.

Business Outlook - For the year ended December 31, 2012

Looking forward to 2013, it will be still full of uncertainties for the business environment. Following relief to European debt crisis and US fiscal cliff expected to be resolved, the global economy is slowly recovering. The Chinese Government has launched variety of measures to stimulate economy since a year ago. A number of large-scale infrastructure projects have been approved. Market is significantly being revitalised. Aiming that the new management of Chinese Government comes to effect, the market is full of expectation on its measures on the stability and the growth.

Stepping into 2013, with the help of market rebound and inventory replenishment, demand on steel in China and the Southeast Asia has significantly been improved in recent months. Iron ore and steel prices have rebounded following more than six months' drop and transactions have become active.

In the coming year, the Group's aims are to work hard on our core businesses and to turn loss into profit.

In respect to the steel trading business, the Group will continue to extend our business globally, strengthen resource procurement and sales network in China and abroad, strictly control operating costs, strengthen end-user base, develop those higher stabilization business such as high-end products, in order to mitigate market risk and achieve better operating results.

In respect to the iron ore trading business, besides continuously execution of the existing long-term iron ore contract with FMG, the Group will continue to explore new mining cooperation opportunities in order to secure stable supply and strengthen the long-term services for steel users. As iron ore futures trading has more and more financial attributes, the Group will, on the basis of spot trading, maintain cautious in participating hedging business of iron ore for hedging risk.

In respect to the steel processing business, the Group will continue to cut costs, reduce inventory, strengthen marketing capability, striving to secure more contracts in order to turn loss into profit by increasing sales volume and gross profit per ton.

In terms of the Group's retail property investment, Yangzhou Times Square has established a profound landmark status in the local retail market. In 2013, the management team will continue to strengthen marketing and leasing programs of the shopping mall, upgrading the tenants' quality as well as the shopping environment of the common area on the first and second floors, aiming to consolidate the income growth of the mall. Meanwhile, the retail property located in Futian, Shenzhen having an area of 54,000 square meters is now under renovation and closing of lease agreements with a number of major chains of Hong Kong supermarket, food, beverages and cinema. The Shenzhen mall is expected to be opened by end of 2013 or in early 2014. Its opening has not only generated income but also brought in new opportunities for business expansion in the retail property leasing operation.

To conclude, the Group would turn a new page and, therefore, it will work very hard to boost operating revenue and to achieve the aim to turn loss into profit.

Source: Burwill Hold (00024) Annual Results Announcement
Chairman CHAN Shing Issued Capital (shares) 4,587M
Par Value HKD 0.1 Market Capitalisation (HKD) 541M
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