On beha lf of the Board, I am pleased to present the annua l results of CR Power for the year ended 31 December 2011.
2011 was a challenging year for the power sector in China. Whilst the rapid rise in coal prices, the delay in tariff adjustments resulted in a substantial decline in profits of the coal-fired power generation units and many power plants incurred losses. Amidst the adverse external market environment, CR Power continued to further optimize its business model. In addition to accelerating the generation capacity and enhancing our coal production, we also focused our effor ts on developing and investing in our renewable energy projects. With the full implementation of our standardized lean management system, unleashing internal potential and continued efforts in solidifying cost control systems particularly under an extremely tense external environment, strengthening the capabilities within our own organization has enabled us to actively cope with changes and challenges brought for th by external macro - environment and national policies and continue to promote the healthy and sustainable development of CR Power.
2011 marked the 10th anniversary of the founding of CR Power. During this decade, we faced and overcame different economic and industry cycles and rapid changes in the global economic environment. These externalities posed tremendous challenges on our business operations, but on the other hand, boosted the endurance and optimised the business model and capabilities of CR Power. The Board believes that our 2011 annual results is a good representation of CR Power’s high resistance to risk, which is attributable to our diversified source of earnings generated from our investment in coal-fired power, coal and renewable energy business segments.
Since the listing of CR Power in November 2003, we have been reporting strong growth in profits for many years. However, in 2011, our financial performance was not as favourable. Despite the relatively weaker results, we have always believed that CR Power remains to be one of the strongest companies in the industr y with the highest return on invested capital, the most robust capital structure and the highest sustainability in China.
CR Power’s management team and staff devoted extra effort to cope with the adverse market environment. The Board believes that tough external conditions will enable CR Power to fur ther optimize our business model, promote our strategic development and organizational reform and strengthen our sustainability and profitability. CR Power is growing and emerging into an enterprise with in-depth business intelligence, effective strategies and innovative ideas to promote business sustainability. The characteristics of CR Power’s future growth are now more eminent.
CR Power recorded a consolidated turnover of HK$60,709 million in 2011, representing an increase of 25.0% compared to 2010. Profit attributable to owners of the Company was HK$4,451 million, representing a decrease of 9.2% compared with HK$4,904 million in 2010. Basic earnings per share was HK$0.95, representing a decrease of 9.5% compared with HK$1.05 for last year. The Board has resolved to declare a final dividend of HK$0.24 per share. Together with the interim dividend of HK$0.06 per share paid on
3 Oc tober 2011, the total dividend for the full year is HK$0.30 per share, representing a dividend payout ratio still at about 31.6%
despite a decrease in dividend per share over last year.
In 2011, CR Power made further progress in each of its business segments of coal-fired power, coal and clean energy. As at the end of 2011, the attributable operational generation capacity of CR Power increased by 2,872MW or 14.8% to 22,230MW compared to the end of 2010.
We have obtained State approvals for the following coal-fired power projects: the Haifeng project (2x1,000MW) in Shanwei, Guangdong Province; the Cangnan project (2x1,000MW) in Wenzhou, Zhejiang Province; the Jiaozuo project (2x600MW ) in Jiaozuo, Henan Province and the coal-fired heat and power co-generation project (2x300MW) in Yichang, Hubei Province.
In 2011, we newly commissioned a 600MW coal-fired heat and power co-generation unit at Nanjing Thermal Plant, a 300MW coal- fired heat and power co-generation unit at Chemical I ndustry Park phase II, 2x600MW units at Heze Plant and a 600MW unit at Dengfeng phase II, with a total attributable newly commissioned installed capacity of 2,460MW.
In 2011, the average utilization hours of our 30 coal-fired power plants, which were fully operational between 2010 and 2011 was
6,121 hours, higher than the national average by 827 hours. On the one hand, these results are attributable to CR Power’s coal-fired power business strategy of focusing on provinces with rapid economic development and a rising power demand, and on the other hand due to our large capacity, high efficiency and lo w coal consumption generating units, thus maintaining certain market competitiveness.
The coal-fired power industry suffered relatively huge losses in 2011 as a result of the rapidly deteriorating business environment. In response to this, the Chinese government raised on-grid tariffs for power plants in cer tain provinces firstly between April and May 2011, and from 1 December 2011 onwards, they broadened the scope of the tariff hikes to a wider geographical region. The on- grid tariffs for coal-fired power plants in provinces such as Henan, Hunan, Hebei, Shandong, Hubei, Liaoning, Inner Mongolia and Anhui were raised twice during the year, while the other power plants only had their on-grid tariffs raised on 1 December 2011.
Although the on-grid tariffs for coal-fired power plants were finally adjusted in 2011, this could not offset against the significant increase in operating costs due to soaring coal prices throughout the year. In 2011, the coal prices in China presented a wavering upward trend. During the first quarter of the year, domestic coal supply and demand were balanced and prices were relatively stable. During the second quar ter of the year, there were high fluctuations in the supply and demand for coal in the coastal regions due to the Daqin line maintenance, drought in the southern regions and decrease in coal imports, shortage of electricity in certain places and active replenishment of inventories by power plants. These factors raised market expectations and created an upward trend for coal supply, demand as well as price. At the end of the third quarter, domestic coal consumption peak period began and coal prices continued to rise. Coal prices only displayed a downward trend af ter mid-November.
In 2011, the average standard coal cost for CR Power ’s power plants increased by 13.7%. To deal with the significant yearly increase in coal prices and acting on our social responsibilities and objective of energy saving and emission reduction, we have always been committed to lowering energy consumption. In 2011, the net generation standard coal consumption rate for our consolidated power plants was 325.99g/kWh, representing a decrease of 4.60g/kWh or 1.4% as compared to 330.59g/kWh in 2010. Thus, the increase in CR Power’s unit fuel cost was less than the average standard coal cost, but still reached 11.0%.
In response to the the sharp rise in coal prices in recent years and to stabilize CR Power ’s supply chain and production cost, we continue to str ive towards pursuing our business strategy of moving upstream. In 2011, CR Power ’s subsidiar y and associate coal mines produced a total of approximately 16.37 million tonnes of coal, representing an increase of 43.3% as compared to 11.42 million tonnes of coal produced in 2010. Throughout the year, whilst actively developing new high quality resources and projects, we also carefully monitored and managed the safety of the production and operations of our coal mines, especially in our consolidated coal mines in Lüliang and Taiyuan, Shanxi Province. We also actively pursued technological improvements and construction of coal mines to enhance and ensure a high level of safety and at the same time restore production and realize profits.
In March 2011, we successfully acquired a 56% equity interest in Daning Coal Mine located in Jincheng, Shanxi Province for a total consideration of approximately US$669 million. The Daning Coal mine has an annual designed production capacity of 4 million tonnes. Through our efforts, Daning Coal M ine restored production in September 2011.
Despite achieving a produc tion level of 16.37 million tonnes of coal in 2011, which represents an increase of 43.3% as compared to
11.42 million tonnes in 2010, the production volume was lower than originally planned due mainly to exter nal factors such as changes in governmental policies, granting of licenses, local relations and geological conditions, as well as other factors such as diverted focus of the coal business management team to mergers and acquisitions, construction and production work. As a result of this, we thoroughly assessed CR Power’s execution capabilities in the coal business and concluded that there w ere certain deficiencies in infrastructure, marketing and operational management as well as in team building which will need to be improved to a great extent in order to fulfill the expectations of the market and our shareholders.
Within CR Power’s renewable energy sector, we actively developed the wind power business and engaged in scientific management to effectively carry out site selections, wind measuring as well as infrastructure, operational and maintenance works. As at the end of 2011, our attributable operational wind power generation capacity reached 1,234MW, representing an increase of 91.0% as compared to 646MW as at the end of 2010. O ur wind farms are mainly located in Guangdong, Shandong, Hebei, Liaoning, Inner Mongolia and Gansu provinces.
In 2011, the average utilization hours for our wind farms were 2,126 hours, representing a decrease of 118 hours as compared to
2,244 hours in 2010, mainly due to the lower volume of power generation resulting from the slight reduction in wind speed in some regions and seasonal effects on some newly commenced operations. The utilization rate of our turbines in our wind farms was
98.9%, representing an increase of 1.6 percentage points as compared to 2010. As at the end of 2011, our contracted wind power projects for future development had a total capacity of 30,000 MW, meanwhile, 2,970 MW were granted preliminary approval.
CR Power places great emphasis on production safety and strives to create and maintain a culture that “safety creates value”. We create our safe production sy stem by establishing a managemen t system t o improve management measures, strengthen management and staff training, sampling or carrying out planned production safety inspections with reference to international and domestic industrial standards.
In 2011, we focused on improving the production safety organizational structure as well as the production safety management system. We also further strengthened production safety supervision and management and further implemented production safety responsibilities. CR Power established a production safety management committee chaired by the President and set up an office in the company headquarters for this purpose. A production safet y management committee, chaired by the general manager, was also set up for each project to be responsible for research, planning and implementing major safety management matters.
The performance of the President, management and project managers will be directly linked to their respective produc tion safety responsibilities, and this will be incorporat ed into each of their per formance contracts, thus effectiv ely delegating safety responsibilities to the people.
In 2011, we fur ther improved and pr epared safety, health and environmental managemen t standards and emergenc y plans, standardized the safety award and penalty system, conducted safety and site emergency training, organized and carried out activities such as specialized safet y inspections and joint and mutual safet y inspections.
In 2011, our coal-fired power, coal and renewable energy businesses completed safety trainings with 37,000 att endees, 51,000 attendees and 343 attendees respectively. Production safet y will always be our top priority.
CARE FOR STAFF
CR Power encourages the pursuits of staff growth alongside the growth of the Company and strives to create a challenging, yet harmonious and happy working environment and career platform for its staff, aiming to establish a mutual relationship between staff and the organization, as well as between the staff themselves.
As at the end of 2011, the Company and its subsidiaries had a total of approximately 36,400 employees, of which about 6,400 were female employees, accounting for 17.6%. We strongly believe that the success of CR Power depends largely on the energy, dedication, loyalty and competenc y of our staff in order to implement our strategies and create values. In 2011, we further improved the staff training system and arranged staff training activities with an attendance level of over 38,000.
Under such an adverse market environment, our staff have inevitably been increasingly more hardworking and under greater pressure. On behalf of the Board, I would like to express my sincere gratitude and full respect to all the staff members for their contributions and dedication to CR Power in 2011.
On top of achieving high profitability, CR Power simultaneously places great emphasis on fulfilling its social responsibilities alongside its corporate development. CR Power actively participates in public welfare and promotes “care and responsibility” and advocates that “love and actions speak louder than words”. Our constructive actions, care for the general public, contributions to both the communities as well as to the wider country truly reflects CR Power’s sense and fulfillment of responsibility.
To ease the increasingly serious shortage of power in Tibet, CR Power donated one 180MW gas generator unit and undertook all the required work including the project feasibility study, design, equipment transport and construction with a total investment of approximately RMB800 million. This projec t was the world’s first ever installation of a 180MW heavy gas generator at an elevation of more than 3,600m. Under unfavorable construction conditions in the highlands and lack of oxygen, builders voluntarily gave up their holidays to overcome the severe altitude sickness and successfully completed grid connection and trial run and commenced power generation in just 99 days. On 4 July 2011, the power plant in Lhasa passed the 100-hour combined cycle trial run and was fully commissioned 43 days ahead of schedule. On 19 August 2011, the power plant was officially transferred to the local government to manage.
In 2011, CR Power actively participated in a project called “China Resources Hope Town”. The China Resources Hope Town in Xibaipo, Hebei Province was completed on 31 October 2011, and the Hope Towns in Shaoshan, Hunan Province and Wanning, Hainan Province commenced construction in January 2011 and are currently in steady progress.
Since 2008, we have participated in the China Foundation for Youth Entrepreneurship and Employment for three consecutive years. The objective of this foundation is to support and give guidance to the youth in successful entrepreneurship and employment and assisting them in starting venture projects through various effective means.
In November 2011, the fourth distribution ceremony for 2010 Hebei Provincial China Resourc es Education Fund was held in Shijiazhuang. As planned, we awarded RMB3 million on an annual basis and plan to fund 10,000 impoverished university students from 2007 for 10 years.
In 2011, we organized and prepared the first “CR Power Sustainable Development Report”, covering corporate governance, value creation, green growth, care for staff and community contributions. We also incorporated social responsibility work into the Company’s routine agenda. Currently, the headquarters of CR Power, CR Coal and CR New Energy have initially established a regular system for social responsibility work. Our goal is to fur ther improve the social responsibility management system in order to promote better corporate management, achieve sustainable development and continue to actively contribute to the community.
The Board of CR Power aims to improve continuously our corporate governance practices with an objective of creating shareholder value. We endeavour to improve our transparency and accoun tability and promote honesty and integrity and fair treatment to shareholders, staff, customers and other stakeholders of the Company. See page 56 to 70 of this annual report for a detailed report about our corporate governance.
CHANGE OF DIRECTORS
On 29 April 2011, Mr. Wang Shuai Ting resigned as the Chairman of the Board and an Executive Director of CR Power and the positions held in a number of committees among the Board of Directors. His resignation is mainly due to his appointment in another impor tant role in a large state-owned enterprise. Meanwhile, Mr. Song Lin assumed the role as Chairman of the Board, but resigned during the year due to numerous business commitments. On 21 October 2011, I replaced Mr. Song Lin to serve as the Chairman of the Board.
Mr. Song is the founder of CR Power. He served as the Chairman of the Board for 10 years since the establishment of CR Power and has made invaluable contributions to the development and growth of the Company. We would like to thank Mr. Song for his guidance and help throughout the years and would like to express our gratitude for his outstanding contributions to the development and growth of CR Power.
Mr. Wang is the pioneer of CR Power. He served as the President and Chief Executive Offic er of CR Power for many years since its establishment and made invaluable contributions to its development and growth. We appreciate Mr. Wang for his great contributions to the development and advancement of CR Power over the years and would like to express our thanks for his leadership and guidance to the Board during his time as the Chairman of the Board of CR Power.
It gives me much pride of being the Chairman of the Board of CR Power and I acknowledge the important mission I take on. I will spare no efforts and will devote myself in contributing to CR Power’s future development to ensure I gain the trust and support of our shareholders and staff.
We are currently undergoing and modernizing CR Power ’s business. Sustainability in business development has become an emerging commercial trend and will soon be the primary factor for businesses in order to gain long term competitiveness. We are currently facing drastic changes in the external market environment thus inevitably requiring CR Power to consider revisiting and rebuilding its business model. We are repositioning ourselves from a single coal-fired power business into an integrated energy producing company. The growth and evolution of our staff, our culture and management also play a large par t of the reshaping of CR Power. This refinement will hopefully spread an everlasting vibrant energy within the Company.
On behalf of the Board, I would like to take this opportunity to thank our dedicated management team and all the members of the Board for their contributions to the Company during the past 12 months and my gratitude also goes to all the staff of CR Power for their great efforts in the past year under this adverse market environment. It is precisely because of this strong dedication and effort that allows me to confidently believe that CR Power is growing and building towards its emergence as an enterprise with in-depth business intelligence, effective strategies, creative and innovative ideas to promote business sustainability which will enable us to cope with and overcome future challenges both internally and externally.
Inspired by the admirable vision of becoming a “world class enterprise, most respected enterprise and best employer”, we believe that CR Power will undoubtedly enjoy a bright future ahead.
Zhou Jun Qing
Hong Kong, 19 March 2012