Venue: Suntec Singapore International Convention & Exhibition Centre.
Time & date: 10 am, 28 April.
AT THE XinRen Aluminum AGM yesterday, executive chairman Zeng Chaoyi said demand for aluminum is rising in China, boosting prices of its aluminum products. Mr Zeng also referred to investor sentiment being dampened recently towards S-chips and pledged to strengthen his own company’s internal controls.
Here is NextInsight's edited and translated version of his speech.
Esteemed shareholders and friends, greetings!
As you know, this is my first such opportunity to address shareholders since XinRen successfully listed on the SGX mainboard on October 27, 2010. Therefore, these events mark important milestones in the Group’s development and serve as stable platforms upon which to realize even brighter prospects going forward.
Thanks to a fully integrated and diversified industrial production chain, as well as being the lowest-cost producer among our three largest competitors, our Group is very proud to have become China’s largest private manufacturer of aluminum products.
We have not stood still and our Group’s operations now include upstream primary aluminum smelting, aluminum product processing, as well as downstream trade in aluminum sheet, strip and foil products.
As we all know, the amount of aluminum consumed by a country and said country’s rate of economic development have a close correlation.
Following on the global financial crisis in 2009, China last year witnessed stable and rapid economic growth, and the country’s aluminum industry also flourished, which helped our Group realize a 24.6% year-on-year increase in after-tax profit to 380 mln yuan.
Looking ahead, we are very optimistic on the aluminum industry's prospects.
China consistently consumes some 40% of the world’s aluminum output, with recent annual consumption growth rates of over 15% and expected to continue.
Industry experts expect that next year, China will transform into a net importer of aluminum. As the global economy continues to recover, thanks in large part to China’s continued strong GDP figures, demand in the PRC for aluminum is expected to drive up aluminum prices to pre-downturn levels, or to over 3,000 usd per ton from the current 2,600 usd level.
Some even predict that prices could surpass the 3,300 usd per ton level last seen in August 2008.
Regardless of exactly where prices settle, it is certain that the rising trend will be a driver for our Group’s performance going forward.
Given the expectations of continued strong growth in China and an ongoing global economic recovery, the Group is well-positioned in terms of development plans and expansion strategy to fully capitalize on growing business opportunities in the aluminum sector.
Our Jiangyin factory added 50,000 tons of aluminum plate production capacity by the end of 2010 which is primarily targeting the export market. This new line utilized 300 mln yuan in capital raised from our listing to expand our high-precision aluminum products production capacity, allowing us to double total capacity to 100,000 tons.
In 2010, the contribution of high-precision aluminum products to total revenue reached 9%, and after full utilization of our new production lines, we expect this to increase at an even faster pace.
On March 15, 2011, our Group incorporated a wholly-owned subsidiary in the PRC: Shuicheng County Xinxin Carbon Co Ltd.
Xinxin Carbon is mainly engaged in the production and sale of carbon products, corhart and coal chemical products, which will help supply raw material needs for the Group and help control upstream costs, as 12% of the Group’s raw material requirements are carbon anode-based.
Despite our Group's solid post-listing financial performance and healthy expansion, it seems that the market has not fully realized our value, judging by our current share price.
Our Group’s senior management is aware that the time elapsed since listing is not of a very long duration, but also realizes that the Group needs time to further enhance its channels of communication with the investment community, while also working to optimize overall business performance.
With respect to our share price performance, we recognize that we need more time to communicate with investors and build up trust and rapport with them.
We are aware of the issues that surround S-chips in general and we intend to enhance our internal controls while we expand our business.
XinRen has recently signed a MOU to acquire two smelting plants owned by management, a proposed transaction which is subject to shareholder and regulatory approval. With this transaction, we hope to provide more confidence and reassurance to investors.
In addition we are aware of the need to instill even more confidence in our Group and we propose to buy back the Group's shares when the time is appropriate.
We attach great importance to the interests of minority shareholders.
Due to the recent Group listing in Singapore and the transitional period involved, including utilizing proceeds for strategic capacity expansion and subsidy incorporation campaigns, we decided to withhold the distribution of a dividend for financial year 2010.
We trust that all investors in our Group, no matter how large or small the stake, understand that this decision was reached with the long term interests of XinRen in mind.
In closing, I would like to heartily thank all of our investors and friends for your support of our Group, and we sincerely appreciate your continued confidence in XinRen and wish you health and fortune going forward!
After the AGM, NextInsight spoke with executive director Liang Hongbo regarding the proposed interested party acquisition of two smelting plants from the management.
Mr Liang said XinRen is acquiring these assets at a steep 62% discount to its book value (S$224.9 million).
These assets are a major contributor to XinRen’s revenue: These two smelters for aluminum ingots and aluminum plates - Guizhou Liupanshui Shuangyuan Aluminum and Yichang Changjiang Aluminum - contributed 68% of its FY2010 revenue.
Aluminum smelting is classified as a ‘restricted industry’ in China, especially in relation to foreign ownership, but XinRen managed to get around this during its restructuring for a public listing in Singapore (Oct 2010 IPO: 55ct) by retaining ownership of the smelters as personal assets of the founding Zeng family.
XinRen crafted a deal with the Zeng family whereby these smelters would supply exclusively to the listing entity.
The management had deemed the business risk in such an arrangement to be acceptable, since the Zeng family owns 70.5% in Xinren as well as 100% in the two smelters.
However, subsequently investors voiced concerns about complications in financial accounting, higher taxes paid and unnecessary business risk that such an operating structure might bear.
As a result, on 4 April, XinRen entered into conditional sale and purchase agreements to acquire the two smelters for not more than Rmb 442.4 million (S$85.3 million) -- this represents about 17% of XinRen’s market capitalization.
This is a cash acquisition that neither impacts XinRen's profit and loss statement, NAV nor gearing, noted Mr Liang.
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