Changjiang Fertilizer holdings limited STAYING ON THE RIGHT PATH GROWING THROUGH ACQUISITION 按部就班 收购成长 ANNUAL REPORT 2010
Contents 02 06 07 08 10 12 17 27 31 32 34 72 74 81 A message from Chairman 执行主席致词 Corporate Profile 公司简介 Corporate Information 公司资料 Board of Directors 董事会 Key Management 高级管理层 Review of Operations 营运检讨报告 Corporate Governance 企业管理报告 Directors Report 董事会报告 Statement by Directors 董事声明 Independent Auditors Report 独立审计报告 Financial Statements 财务报表 Shareholdings Statistics 股东统计数字 Notice of Annual General Meeting 常年大会通告 Proxy Form 委任表格
Changjiang Fertilizer Holdings Limited Annual Report 2010 1
A message from Chairman With such positive top line growth, the Group s full year earnings increased by 25.5% from RMB79.0 million in FY2009 to RMB99.1 million in FY2010. FY2010: A year of growth As our first full year since listing, FY2010 has been a year of interesting developments, which I would like to sum up as follows: Growing through acquisitions Consistent with our ongoing strategy that is to grow through acquisition of readily available plants, we have been always actively looking out for ideal and suitable targets to boost our production capacity. Bearing this in mind, I am pleased to share that we have successfully acquired two plants in Hunan province during the financial year. Dear Shareholders, On behalf of the Board of Directors, I would like to present to you the annual report of Changjiang Fertilizer Holdings Limited ( Group or Changjiang Fertilizer ) for financial year ended 31 December 2010 ( FY2010 ). FY2010 at a glance This year, we reported a steady 38.6% growth in revenue to RMB428.4 million for FY2010, mainly driven by the additional revenue contributed by two plants acquired during the year. Currently held under the newly set up subsidiaries Changjiang Huafei (Hunan) Co, Ltd ( CJHF ) and Hunan Changjiang Huafei Hanshou Co, Ltd ( CJ Hanshou ), the two new plants recorded their maiden revenue of RMB84.2 million and RMB38.1 million respectively. In March 2010, the Group completed the acquisition of the production facilities from DaDi Chemical Co. Ltd, which is strategically located in Xiangyin County, Hunan Province in China. Priced at a consideration of RMB60 million, the plant s capacity is measured at 40,000 tons upon and becomes operational almost immediately after the acquisition. The plant currently operates under CJFH in Xiangyin County, Hunan. Subsequently in September 2010, Changjiang Fertilizer acquired another plant from Handan Chemical Co. Ltd with a purchase consideration of RMB75 million. Funded by internal funds and borrowings, the facility became the third plant owned by the Group and boosted the annual production by 50,000 tons or 33.6% of the current production capacity upon acquisition. As a result, these successful acquisitions led to the enhanced capabilities of 200,000 tons of anhydrous ammonia per annum for the Group as at end FY2010. Going forward, the Group s immediate plan is to expand 2 Changjiang Fertilizer Holdings Limited Annual Report 2010
the capacity of the existing plant, Jincheng Shiye, from 109,000 tons to 135,000 tons in 2011. In the coming months, we also intend to streamline the operations and elevate the production efficiency of acquired plants to optimum level, as part of the efforts to maximize our profitability. Backed by this same strategy of acquire, refit/upgrade and expand, the Group expects to achieve greater economies of scale and is set to grow Changjiang Fertilizer s market share within China. Looking Ahead nitrogenous fertilizer market and the strong emphasis on energy-saving and environmental friendly plants, which is in line with the Group s vision and strategy. On the corporate front, we hope to acquire up to one to two plants every year all the way up to 2013, with a minimum target size of 30,000 tons of anhydrous ammonia per annum and equipment in good working condition. Being the most value-adding and cost efficient method, we believe this paves the way for Changjiang Fertilizer to penetrate into the domestic markets for greater market share in Hunan province, China. Under the macro environment, the agriculture sector has always been the sector of focus for the PRC government, with rice remaining the key staple food in the world s largest nation by population. As such, the sector is continuously supported by favorable governmental policies such as the Zhongyang Sannong policy ( 中央三农政策 ) that offers various measures to increase the productivity of agricultural activities. Among these measures, we benefited from the VAT exemptions for Changjiang s products such as nitrogenous fertilizers and ammonia solution; and enjoy a subsidized electricity rate which is at least 40% lower than the average rate. At the meantime, the Group will continue to focus on streamlining the production and processes to enhance the production efficiency of the Group as a whole, especially for the newly acquired plants. We expect a positive year ahead for FY2011. A Word of Appreciation Last but not least, I would like to take this opportunity to express my heartfelt appreciation to the management team and all our employees for their hard work and dedication; and to our customers, suppliers, bankers and business partners for their continuous support. Thank you! Coupled with the ongoing economic stimulus measures introduced by the PRC government since 2008, average rural income has improved over the years, which effectively strengthens the farmers purchasing powers. This in turn spells favor for demand for our products in the mid to long term. Zhu Cheng Bao Group Executive Chairman and CEO Other encouraging signs we have witnessed include the recently announced 12th five-year plan (2011-2015) for China. Under the plan, one notable proposal is the industry consolidation within the highly fragmented Changjiang Fertilizer Holdings Limited Annual Report 2010 3
主席致词 配合这正面的顶线增长, 本集团的全年净利润增加了 25.5%, 由 2009 财年的人民币 7 千 900 万元涨至 2010 财年的人民币 9 千 910 万元 2010 财年 : 充满增长力的一年 作为我们自上市以来的首个完整财年, 让我为 2010 财年中的重大发展做个总结 : 通过收购, 快速增长符合我们一贯的发展策略, 意即通过收购现有厂房来促进成长, 我们一直都在积极寻找合适 理想的具体目标来提升我们的产能 以这为前提, 我很高兴与大家分享集团在本年度成功在湖南省内收购的两家厂房的成果 2010 年 3 月, 本集团完成从大地化工有限公司位于湖南省湘阴县生产设施的战略性收购 该厂房的产能为 40,000 吨, 以人民币 6 千万元成交, 并在收购后立即为集团带来成效 该厂目前由处于湖南省湘阴县的 CJFH 经营 亲爱的股东, 我谨代表董事会, 向大家呈现长江化肥控股有限公司 ( 集团 或 长江化肥 ) 截至 2010 年 12 月 31 日止财政年度 ( 2010 财年 ) 的财务报告 回望 2010 财年今年, 本集团 2010 财年收益为人民币 4.28 亿元, 与 2009 财年相比之下持有 38.6% 的稳定增长, 主要是源自集团在本年度新投产的两个厂房所做出的收益贡献 该厂房目前为集团新设立的两家子公司, 即长江化肥 ( 湖南 ) 有限公司 ( CJHF ) 和湖南长江化肥汉寿有限公司 ( CJ Hanshou ) 分别持有, 并在首次贡献中个别刷下人民币 8 千 420 万元和人民币 3 千 810 万元的收益 随后在 2010 年 9 月, 长江化肥再以人民币 7 千 500 万元的购价, 从汉氮化工有限公司收购另一家厂房 通过内部资金和贷款为资金来源, 该设施成为本集团拥有的第三家厂房, 成功为集团注入 5 万吨 ( 相等于 33.6% 增幅 ) 的生产能力 这些战略性收购可说是大大增强集团的能力, 至今年度产能高达 20 万吨的合成氨 接下来, 集团的当务之急是要在 2011 年内扩充旗下金成实业的现有厂房, 从 109,000 吨增至 135,000 吨的产量 在未来数个月内, 我们还计划简化操作和提高新厂房运作效率以达最佳水平, 为公司盈利率带来最大增长空间 4 Changjiang Fertilizer Holdings Limited Annual Report 2010
凭借这一收购 整修 / 升级再扩张的策略, 本集团预期实现更大的规模经济, 为长江化肥增长中国市场份额打下重要的基础 展望未来在宏观环境下, 农业一向是受中华人民共和国政府推动的重点领域之一, 尤其是全国人民重要主食 - 大米 因此, 农业活动继续受惠于政府以提升生产率为旨所推出的有利措施, 如中央三农政策 在该政策各种措施当中, 我们的产品如氮肥和氨水受益于增值税免税优惠, 并享有至少低于市价 40% 的电力补贴 感恩的话最后, 我想借此机会表达对公司管理团队和全体员工的辛勤工作和奉献精神, 并为我们的客户 供应商 银行及商业伙伴的不断支持, 致上最衷心的感恩 谢谢! 朱成保集团执行主席兼首席执行官 同时, 中央政府自 2008 年以来持续推出的各个刺激经济措施, 也成功让农民平均收入有所改善并有效增强农民的购买能力 此动向确实对于我们产品在中至长期的需求非常有利 近日来刚宣布的中国第 12 届五年计划 (2011-2015 年 ), 也是让我们备受鼓舞的迹象之一 根据该计划所提出的建议当中, 政府提倡将高度分散的氮肥行业进行整合及极力强调对节能和环保厂房的重视, 与本集团的远景和战略是吻合的 在企业方面, 我们希望从现在至 2013 年期间, 每年收购至少一至两家厂房, 目标设定在不少于 3 万吨合成氨的年度产能, 而且设备必须处于良好状态 我们相信这是最为集团增值和促进成本效益的方法, 并可为长江化肥铺路, 提升国内市场渗透度及取得中国湖南省中更大的市场份额 同时, 本集团将继续把重点放在简化生产程序, 尤其是对新添的厂房, 以提高整体生产效率 我们预计未来 2011 财年会是正面 积极的一年 Changjiang Fertilizer Holdings Limited Annual Report 2010 5
Corporate Profile Changjiang Fertilizer Holdings Limited ( CJFH or The Group ) was listed on the main board of the Singapore Exchange Securities Trading Limited (SGX-ST) on 13 October 2009 by way of the Scheme of Arrangement in relation to Zhonguo Jilong Limited. The group manufactures and produces nitrogenous fertiliser for use in rice paddy, liquid ammonia, ammonia solution and methanol, with production facilities strategically located in Miluo City, Hunan Province in the People s Republic of China (PRC). and increased the production capacity of its plant to 109,000 tonnes per annum. In March 2010, the group successfully acquired a second plant located in Xiangyin County, Hunan Province, PRC, which has a production capacity of 40,000 tonnes per annum. Subsequently in September 2010, Changjiang Fertilizer acquired another plant in Hanshou County, Hunan Province, PRC, which has a production capacity of 50,000 tonnes per annum. CJFH started out with one plant purchased in November 2002 with an actual capacity output of 10,000 tonnes of anhydrous ammonia per annum (intermediary product in the production of our main products). The group has been expanding the production capacity of the plant through upgrades and refitting between 2004 and 2006. In 2006, the group performed a major upgrade on the plant which increased its production capacity to 99,000 tonnes per annum. This upgrade also allowed the plant to vary its production and offer the production of Methanol for commercial sales. In 2008 and 2009, the group performed a further enhancement As of the date of printing, the group has approximately total annual production capacity of 200,000 tonnes of anhydrous ammonia. Our products are sold in the PRC and our customers are mostly distributors, who on-sell our products to their customers, including retailers and farmers. Our distributors distribution network covers Hunan, Hubei, Guangdong, Guangxi and Jiangxi. The table below summarizes our current products and the theoretical production ratio: Table 1. Production Ratio 1 Ton of Anhydrous Ammonia Equivalent To Production Ratio (Tons) Nitrogenous Fertilizer (Ammonium Bicarbonate) 4.25 Liquid Ammonia 1.00 Ammonia Solution 5.88 Methanol 0.91 6 Changjiang Fertilizer Holdings Limited Annual Report 2010
Corporate Information Board Of Directors Zhu Cheng Bao (Executive Chairman and CEO) Zhu Xue Cheng (Executive Director) Joel Leong Kum Hoe (Executive Director and CFO) See Yen Tarn (Lead Independent Director) Guo Zhen Kai (Independent Director) Aloysius Wee Meng Seng (Independent Director) Audit Committee See Yen Tarn (Chairman) Aloysius Wee Meng Seng Guo Zhen Kai Principal place of business 30 th Floor, 359 Jiatian International New City North Tower, Changsha City, Hunan Province, PRC 410000 Share Registrar Boardroom Corporate & Advisory Services Pte. Ltd. 50 Raffles Place, #32-01, Singapore Land Tower, Singapore 048623 Nominating Committee Aloysius Wee Meng Seng (Chairman) See Yen Tarn Zhu Cheng Bao Remuneration Committee See Yen Tarn (Chairman) Aloysius Wee Meng Seng Guo Zhen Kai Registered Office 11 Collyer Quay, #12-03, The Arcade, Singapore 049317 Auditor Nexia TS Public Accounting Corporation Public Accountants and Certified Public Accountants 5 Shenton Way, #16-00, UIC Building, Singapore 068808 Director-in-charge: Henry SK Tan (since financial year ended 31 December 2008) Principal Bankers Agricultural Bank of China Industrial Bank, China Company Secretary Ng Joo Khin Changjiang Fertilizer Holdings Limited Annual Report 2010 7
Board of Directors from left to right: Zhu Xue Cheng, See Yen Tarn, Zhu Cheng Bao, Joel Leong Kum Hoe, Aloysius Wee Meng Seng, Guo Zhen Kai Zhu Cheng Bao Executive Chairman and CEO Zhu Cheng Bao is our Executive Chairman and CEO. Since 2001, when he established Jincheng Shiye, the operating subsidiary of our Group, he has been responsible for the overall business, investment and operational strategies for our Group, as well as the overall management of our Group. Prior to that, from 1992 to 2001, he established Dongting Precision Casting Factory and from 1989 to 1992, he was employed as a factory manager by the Miluo Xintang Village Agricultural Equipment Factory. In each case, he was responsible for the general management of the operations of the factory. He has received a higher diploma in law from the Hunan Provincial Party School. Zhu Xue Cheng Executive Director Zhu Xue Cheng is our Executive Director, responsible for sales and marketing. He joined Jincheng Shiye in 2002, the principal operating subsidiary of our Group, where he has been responsible for sales and marketing. From 1995 to 2002, he was with Donting Precision Casting Factory where he took on the position of assistant factory manager mainly responsible for sales. Prior to 1995, Mr Zhu was a sergeant with the PRC navy where he served from 1992 to 1995. He graduated from Hunan Provincial Party School with a higher diploma in economics and management. Joel Leong Kum Hoe Executive Director and CFO Joel Leong Kum Hoe, is our Executive Director and Chief Financial Officer. He joined our Group since June 2008 where he is primarily responsible for the formulation and implementation of the Group s financial policies and budgeting. He also takes charge of the coordination and maintenance of the Group s accounting and internal control systems, cash flow management, project financing and compliance with audit and statutory requirements. Prior to joining our Group, he was working as a freelance management consultant since January 2008. From July 2007 to January 2008, he was employed as the chief financial officer of Rowlsey Limited. From April 2002 to May 2007, 8 Changjiang Fertilizer Holdings Limited Annual Report 2010
he was the chief financial officer of Juken Technology Group where he was instrumental in the company s successful listing on the SGX-ST in July 2003. In 1997, Mr Leong was initially employed as a management accountant with Infineon Technologies (Asia Pacific) Pte. Ltd. and was subsequently promoted as a regional audit manager. From 1995 to 1997, he was an internal auditor with the Singapore Technologies Group. Prior to 1995, he was an auditor with KPMG Peat Marwick (now KPMG). Mr Leong obtained a Bachelor s (Honours) degree in Accountancy from the Nanyang Technological University of Singapore. He is a currently a non-practising member of the Institute of Certified Public Accountants of Singapore. Guo Zhen Kai Independent Director Guo Zhen Kai is our Non-Executive Director and was appointed to our Group on 28 August 2009. He has over 30 years of experience in the chemicals and chemical fertilizer industry. Presently, he is senior engineer and the supervisor of the consultancy department of the Hunan Chemical Fertilizer Industry General Corporation ( 湖南省化肥工业总公司 ), where he was employed since 2007. Prior to that, from 2002 to 2006, he was general manager of the Hunan Yiyang Changfeng Fertilizer Co., Ltd. ( 湖南益阳长丰化肥有限公司 ), and senior engineer/vice-general manager of the Hunan Chemical Fertilizer Industry General Corporation ( 湖南省化肥工业总公司 ) from 1987 to 2001. Prior to that, he was an Engineer with the China Changsha Chemistry and Machinery Factory ( 中国长沙化工机械厂 ) from 1985 to 1986, and a supervisor of the technical department with the China Hunan Yiyang Nitrogenous Fertilizer Factory ( 中国湖南益阳氨肥厂 ) from 1977 to 1984. He holds a Bachelor of Chemical Engineering degree from the Hunan University of the PRC. See Yen Tarn Lead Independent Director See Yen Tarn is our Lead Independent Director and was appointed to our Group on 28 August 2009. Mr See is presently the Group Chief Executive Officer of CSC Holdings Limited, a foundation engineering group of companies listed on the SGX-ST. Between 1989 and 2000, he was the chief financial officer and executive director of Tuan Sing Holdings Limited (a company listed on the SGX-ST). Subsequently, he was as appointed the deputy executive chairman of Tuan Sing Holdings Limited from 2000 to 2001. Prior to joining CSC Holdings Limited, Mr. See was also the Chief Financial Officer of Longcheer Holdings Limited between 2004 and 2006. He holds a Bachelor of Accountancy from the National University of Singapore. He is also a Chartered Accountant from England and Wales. Aloysius Wee Meng Seng Independent Director Aloysius Wee Meng Seng is our Independent Director and was appointed to our Group on 28 August2009. Mr Wee is an advocate and solicitor of the Supreme Court of Singapore. He heads the China Practice Group of Central Chambers Law Corporation and manages a team of three China lawyers and two China paralegals, where he has been a partner since 2002. Prior to this, he was a partner with W T Woon & Company from 2000 to 2002 and from 1997 to 1999, he was a team leader (civil litigation and corporate matters) with Ng Yap & Partners. He started the practice of law as an associate with Donaldson & Burkinshaw from 1995 to 1996. At present, Mr Wee is appointed as Singapore Law Consultant to Beijing Da Cheng Law Offices, one of the largest law firms in China with its headquarters in Beijing and 15 branches across major cities in China. He is also a member of the Licensing Executives Society International, the Legal Adviser to the Muscular Dystrophy Association (Singapore) and a Board Member of the Board of Governors for Tay Leck Teck Foundation, a charitable organisation. He holds an Honours Degree in Law and Economics from the University of Kent at Canterbury, United Kingdom. Our Directors, Zhu Cheng Bao and Zhu Xue Cheng, are brothers. Our Executive Officer, Peng Liang, is the brother in law of Zhu Cheng Bao and Zhu Xue Cheng. Changjiang Fertilizer Holdings Limited Annual Report 2010 9
Key Management Bin Xiao Min Bin Xiao Min is our Vice President - Accounting and Finance. He joined our Group in 2004, and is responsible for the finance and accounting functions of our Group. Prior to joining us, from 1995 to 2004, he was employed by Hunan Xianghua Quyuan Wine Making Co., Ltd. as a general manager, where he was responsible for the overall management of company, and from 1980 to 1995, he was employed as a vice-general manager by Hunan Xianghua Quyuan Wine Making Co., Ltd, responsible for the finance and accounting functions as well as sales and supply management. He holds a diploma in Economic Management from the Yueyang District Staff and Worker s College. He is accredited as an accountant by the Hunan Province Human Resources Department. Xu Zhen Xu Zhen is our Vice President - Strategic Development, Administration and Human Resource. He joined our Group in 2007, and is responsible for the administration and human resource functions of our Group. In addition, he assists our Chairman and Chief Executive Officer with strategic planning and development. Prior to joining our Group, from 2004 to 2007, he was employed as a financial contoller by Hunan Canva Bioscience & Technology Development Co., Ltd., and from 1992 to 2004, he was employed by Lanxing Yueyang 6906 Factory, a factory manufacturing electronic communication equipments. In both positions, he was in charge of finance and management. He obtained a diploma in Finance and Accounting from Yue Yang University and a degree in Business Administration from the Dongbei University of Finance and Economics. Cao Hui Cao Hui is our Director of Production and Technical Support. Since joining our Group in 2002, he has been responsible for overseeing the production and technical support aspects of our Group s business operations. Prior to that, from 1986 to 2002, he was employed at Miluo City Nitrogenous Fertilizer Factory where he started as a technician and was subsequently promoted to the position of a supervisor in 1995. In 2000, he was promoted to deputy head of the production and technical department in charge of overseeing production and technical support. He obtained a diploma in Enterprise Management from the Yueyang District Staff and Worker s College, and a diploma in Chemical Engineering from the Zhuzhou Chemical Industry School. He is presently working towards obtaining a degree in Business Administration from the East China Normal University. He is accredited as an engineer (chemical engineering) by the Hunan Province Human Resources Department. Peng Liang Peng Liang is our Head of Operations. He joined our Group in 2002, where he was mainly in charge of procurement of machinery and facility parts. Prior to joining our Group, he was employed by Qu Yuan Administration Management District San Fen Chang as a supervisor and site manager, mainly in charge of freshwater aquafarming and terrestrial farming. Peng Liang obtained an advanced diploma in Enterprise Management from Yueyang District Staff and Tertiary Technical Institute. He is accredited as an economist by the Hunan Province Human Resources Department. Peng Liang is the brother-in-law of Zhu Cheng Bao and Zhu Xue Cheng. 10 Changjiang Fertilizer Holdings Limited Annual Report 2010
Changjiang Fertilizer Holdings Limited Annual Report 2010 11
Review of Operations REVENUE AND PROFITABILITY The increase in revenue of RMB119.2 million or 38.6% from RMB309.2 million for FY2009 to RMB428.4 million for FY2010 was mainly driven by the sales contribution of the Group s two newly incorporated subsidiaries in Hunan, which commenced production during the financial year. Changjiang Huafei (Hunan) Co, Ltd, located in Xiangyin County, commenced operations in May 2010 and contributed sales of RMB84.2 million. Hunan Changjiang Huafei Hanshou Co, Ltd, located in Hanshou County, commenced operations in October 2010 and contributed sales of RMB38.1 million. Average selling prices of our products were as follows: RMB per ton For the year ended 31/12/2010 31/12/2009 Increase / (decrease)% Nitrogenous fertilizer 655 624 5.0% Liquid ammonia 2,504 2,197 14.0% Ammonia solution 529 473 11.8% Methanol 2,339 2,133 9.7% As compared to FY2009, average selling prices of all of our products in FY2010 have increased in the range of 5.0% to 14.0% as shown in the table above. The increase was due mainly to higher demand for our products as a result of increasing domestic consumption of agricultural goods in China. Sales volume of our products was as follows: Sales Volume For the year ended ton 31/12/2010 31/12/2009 Increase / (decrease)% Nitrogenous fertilizer 415,191 322,208 28.9% Liquid ammonia 21,325 14,385 48.2% Ammonia solution 135,454 121,699 11.3% Methanol 13,365 9,249 44.5% As compared to FY2009, sales volume of all our products in FY2010 has increased in the range of 11.3% to 48.2%, as shown in the table above. The increase in sales volume was due mainly to additional production capacities contributed by our 2 newly incorporated subsidiaries as explained earlier. 12 Changjiang Fertilizer Holdings Limited Annual Report 2010
Gross Profit and Gross Margin Our gross profit increased by RMB29.2 million or 31.5% from RMB92.9 million for FY2009 to RMB122.1 million for FY2010 as a result of the 38.6% increase in sales. However, our gross profit margin decreased marginally from 30.0% for FY2009 to 28.5% for FY2010 mainly due to the increase in cost of sales. Profit Attributable to Shareholders Overall, profit attributable to shareholders increased by RMB20.2 million or 25.5% from RMB79.0 million for FY2009 to RMB99.1 million for FY2010. The increase was mainly attributed to higher revenue in FY2010. SEGMENTAL REVIEW For the year ended Revenue by 31/12/2010 31/12/2009 Products RMB 000 % RMB 000 % Nitrogenous fertilizer 272,061 63.5 200,202 64.8 Ammonia(1) 125,104 29.2 89,251 28.9 Methanol 31,266 7.3 19,728 6.3 Total 428,431 100.0 309,181 100.0 Note:- (1) Ammonia comprises ammonia solution and liquid ammonia. Nitrogenous Fertilizer The revenue contribution from nitrogenous fertilizer grew by RMB71.9 million or 35.9% from RMB200.2 million in FY2009 to RMB272.1 million in FY2010, as a result of a 28.9% and 5.0% year-on-year increase in sales volume and average selling price respectively. Gross profit margin for FY2010 remains stable at 30.9%, as compared to 31.0% for FY2009. Ammonia A combination of significantly higher average selling prices and greater sales volume particularly for liquid ammonia had helped to increase the revenue contribution from ammonia products by RMB35.9 million or 40.2% from RMB89.3 million in FY2009 to RMB 125.1 million in FY2010. Gross profit margin for FY2010 declined slightly from 31.0% for FY2009 to 28.1% for FY2010. Methanol The revenue contribution from methanol increased by RMB11.5 million or 58.5% from RMB 19,7 million in FY2009 to RMB31.3 million in FY2010, due mainly to a substantial 44.5% year-on-year increase in sales volume. Average selling price over the same period was also up by 9.7%. However, in terms of gross profit margin, there was a 6.0% decrease from 15.7% for FY2009 to 9.7% for FY2010. FINANCIAL POSITION Non-current assets Our non-current assets comprise mainly property, plant and equipment of RMB295.3 million as at 31 December 2010. The increase of RMB124.2 million in property, plant and equipment from RMB171.1 million as at 31 Changjiang Fertilizer Holdings Limited Annual Report 2010 13
Review of Operations December 2009 to RMB295.3 million as at 31 December 2010 was due mainly to acquisition of property, plant and equipment of RMB38.5 million by existing plant and acquisition of property, plant and equipment of RMB102.1 million by the two new subsidiaries. As of 31 December 2010, our land use rights have net book value of RMB53.2 million, as compared to that of RMB14.1 million as of 31 December 2009. The increase is mainly due to the acquisition of RMB39.9 million of land use rights for the operation of the second and third plant by the new subsidiaries in Xiangyin and Hanshou county. Deposit for property, plant and equipment amounted to RMB24.9 million as at 31 December 2010. The increase in deposit for property, plant and equipment of RMB24.9 million as compared to 31 December 2009 was due to the RMB10.4 million and RMB14.5 million deposits placed for the construction of production capacity equipment for the second and third plant in Xiangyin and Hanshou respectively. Current assets As at 31 December 2010, our total current assets were valued at RMB152.6 million. The decrease in current assets of RMB84.0 million or 35.3% from RMB236.6 million as at 31 December 2009 to RMB152.6 million as at 31 December 2010 was mainly due to the RMB62.2 million decrease in cash and bank balances. As at 31 December 2010, trade and other receivables were valued at RMB64.8 million. The decrease in trade receivables of RMB12.6 million as at 31 December 2010 as compared to 31 December 2009 was mainly due to the increase in cash collection from the trade receivables. The decrease in advances to suppliers of RMB28.4 million as at 31 December 2010 as compared to 31 December 2009 was due mainly to lesser advances made to suppliers for procurement of raw materials. The increase in other receivables of RMB3.5 million as at 31 December 2010 as compared to 31 December 2009 was mainly due to the inclusion of RMB1.2 million of advance payment for electricity in the 2 newly incorporated subsidiaries. Current liabilities Our current liabilities comprise trade and other payables, income tax payable and short-term bank loans and deferred capital grant. As at 31 December 2010, total current liabilities were RMB115.0 million. The increase in current liabilities of RMB4.7 million or 4.3% from RMB110.3 million as at 31 December 2009 to RMB115.0 million as at 31 December 2010 was due mainly to the increase in trade and other payables of RMB4.8 million. Trade and other payables increased by RMB4.8 million from RMB10.5 million as at 31 December 2009 to RMB15.3 million as at 31 December 2010 mainly due to the RMB9.3 million increase in amount due to shareholder for shareholder loan granted to the company for the additional share capital investment in the subsidiary in Xiangyin. Income tax payable increased by RMB2.9 million from nil as at 31 December 2009 to RMB2.9 million as at 31 December 2010 due mainly to the provision of income tax on the derived profits of the operating subsidiaries. Non-current liabilities As at 31 December 2010, the balance for non-current liabilities was nil. 14 Changjiang Fertilizer Holdings Limited Annual Report 2010
Total shareholders equity Total shareholders equity as at 31 December 2010 amounted to RMB410.9 million and comprised of retained earnings of RMB250.3 million which relate mainly to profits derived by Jincheng Shiye and the two new subsidiaries, share capital of RMB216.7 million and statutory reserve of RM48.9 million offset by restructuring reserve of RMB102.8 million and translation reserve of RMB2.1 million. REVIEW OF CASH FLOW STATEMENT For FY2010, the Group has a net cash outflow of RMB57.2 million due mainly to cash outflows arising from acquisition of property, plant and equipment to increase production capacity in the existing plant and for the operation of the second plant in Xiangyin and third plant in Hanshou county. Net cash provided by operating activities The increase in net cash provided by operating activities for FY2010 of RMB116.5 million as compared to the same for FY2009 was due mainly to the increase in operating profit of RMB27.1 million in FY2010 as compared to FY2009 after adjustment for non-cash items and the increase of RMB100.3 million of cash provided by trade and other receivables and deferred listing expenses for FY2010 as compared to FY2009. Increase in cash of RMB5.3 million provided by trade and other payables for FY2010 as compared to the same for FY2009 was due mainly to the RMB9.3 million increase in amount due to shareholder for shareholder loan granted to the company for the additional share capital investment in the subsidiary in Xiangyin. The above-mentioned increase in net cash provided by operating activities was partially offset by the increase of RMB15.9 million of cash used in inventories for FY2010 as compared to the same for FY2009, due mainly to the increase in procurement of raw materials and the inclusion of RMB10.6 million of inventories by the two new subsidiaries. Net cash used in investing activities The increase in net cash used in investing activities for FY2010 of RMB177.1 million compared to the same for FY2009 was due mainly to the acquisition of land use rights and plant and equipment by the new plants in Xiangyin and Hanshou. In addition, there was also a small acquisition of plant and equipment by the existing plant at Jincheng Shiye during the year. Net cash used in financing activities The decrease in net cash provided by financing activities for FY2010 of RMB94.0 million compared to the same for FY2009 was due mainly to the net proceeds of RMB77.2 million raised from the compliance placement conducted in 4Q2009 as compared to nil in 4Q2010. Changjiang Fertilizer Holdings Limited Annual Report 2010 15
Financial highlights 500.0 revenue (RMB million) 428.4 400.0 300.0 220.1 279.9 309.2 200.0 100.0 87.0 - FY2006 FY2007 FY2008 FY2009 FY2010 100.0 80.0 net profit (RMB million) 79.9 79.0 99.1 60.0 54.6 40.0 20.0-6.7 FY2006 FY2007 FY2008 FY2009 FY2010 140.0 ebita (RMB million) 125.1 120.0 100.0 80.0 60.0 72.9 99.9 98.1 40.0 20.0-22.2 FY2006 FY2007 FY2008 FY2009 FY2010 16 Changjiang Fertilizer holdings limited it ANNuAl RePORt Rt 2010
Corporate Governance Report The Board of Directors (the Board ) of the Company (together with its subsidiaries, the Group ) is committed to maintaining a high standard of corporate governance to ensure greater transparency and to protect the interest of the Company s shareholders. The Board works with the Management in this objective and the Management is accountable to the Board. This report below describes the corporate governance principles applied by the Company with specifi c reference to the new Code of Corporate Governance 2005 ( the Code ). References to the principles of the Code are listed below. BOARD MATTERS PRINCIPLE 1: BOARD S CONDUCT OF ITS AFFAIRS The key roles of the Board are to: approve the Group s corporate and strategic directions and monitor the achievement of these objectives approve annual reports, periodic fi nancial announcements and accounts; review Management performance; conduct periodic reviews of the Group s internal control, risk management, fi nancial performance, compliance practices and resources allocation; approve annual budgets, major funding proposals, investment and divestment of proposals; and performance of Management; and assume responsibility for corporate governance of the Group. The Board conducts meetings on a quarterly basis to coincide with the announcement of the Group s quarterly and full year fi nancial results and as and when it deems necessary. The Articles of Association provides for board meetings to be conducted by way of teleconferencing or videoconferencing. The details of the number of Board meetings held in the year and the attendance of each Board member at those meetings and the meetings of the various committees are disclosed as follows Name Board Audit Committee No. of meetings held No. of meetings attended No. of meetings held No. of meetings attended Nomination Committee No. of meetings held No. of meetings attended Remuneration Committee No. of meetings held No. of meetings attended Zhu Cheng Bao 4 4 - - 1 1 - - Zhu Xue Cheng 4 4 - - - - - - Joel Leong Kum Hoe 4 4 - - - - - - Guo Zhen Kai 4 4 4 4 - - 1 1 See Yen Tarn 4 4 4 4 1 1 1 1 Aloysius Wee Meng Seng 4 4 4 4 1 1 1 1 Notes: 1. All the directors were re-appointed on the Annual General Meeting held on 26 April 2010. CHANGJIANG FERTILIZER HOLDINGS LIMITED ANNUAL REPORT 2010 17
Corporate Governance Report The Company provides its directors with background information about its history, mission and values. The Company also provides ongoing education on Board processes and best practices. The directors also have the opportunity to meet with Management to gain a better understanding of the business operations. Newly appointed directors are briefed by Management to ensure that they are familiar with the Group s business operations and practices. All newly appointed directors undergo an orientation programme which includes management presentations on the Group s businesses and strategic plans and objectives, and site visits. PRINCIPLE 2: BOARD COMPOSITION AND BALANCE The Board comprises six directors, three of whom are executive directors, and three are independent directors. The executive directors are Mr Zhu Cheng Bao, Zhu Xue Cheng and Joel Leong Kum Hoe. The non-executive directors are Mr See Yen Tarn, Aloysius Wee Meng Seng, and Mr Guo Zhen Kai, all of them are independent. The directors bring with them a wealth of expertise and experience in areas such as accounting, fi nance, law, business and management, industry knowledge and strategic planning. The profi les of the Directors are set out in the Board of Directors section of this Annual Report. To assist in the execution of its responsibilities and to comply with requirements, the Board has established the following sub-committees: Audit Committee, Nomination Committee and Remuneration Committee. These committees have terms of reference, which are reviewed on a regular basis. The effectiveness of each committee is also constantly monitored. The Board is of the view that its current composition is appropriate to facilitate effective decision making, taking into account the size, nature and scope of the Group s operations. As one third of the Board is independent, the Board has substantial independent elements to ensure objective judgment be exercised on corporate affairs. PRINCIPLE 3: CHAIRMAN AND CHIEF EXECUTIVE OFFICER Mr Zhu Cheng Bao is currently the Executive Chairman and the Chief Executive Offi cer ( CEO ) of the Company. As Chairman, Mr Zhu Cheng Bao is responsible for the workings of the Board and, together with the Audit Committee, to ensure the integrity and effectiveness of the governance process of the Board. As CEO, Mr Zhu Cheng Bao is responsible for the day-to-day management of the affairs of the Group. He takes a leading role in developing and expanding the businesses of the Group and ensures that the Board is kept updated and informed of the Group s business. The role of the Chairman is not separate from that of the CEO. The Board is of the view, given the scope and nature of the Group and the strong element of independent presence on the Board, it is not necessary to separate the functions of Chairman and CEO. The independent directors exercise objective and important judgment on corporate matters, thus ensuring a balance of power and authority. Major decisions on signifi cant matters are made in consultation with the entire Board. To ensure that there is no concentration of power and authority vested in one individual, Mr See Yen Tarn has been appointed as the Lead Independent Director. The Lead Independent Director will be available to the shareholders where they have concerns which cannot be resolved through the normal channels of the Chairman or CEO, or where such contact is not possible or inappropriate. The Chairman and CEO lead the Board to ensure its effectiveness on all aspects of its role, ensures effective communication with shareholders, encourages constructive relations between the Board and Management, as well as between Board members. He also takes a lead role in promoting high standards of corporate governance. 18 CHANGJIANG FERTILIZER HOLDINGS LIMITED ANNUAL REPORT 2010
Corporate Governance Report PRINCIPLE 4: BOARD MEMBERSHIP The members of the Nomination Committee ( NC ) are as follows: Aloysius Wee Meng Seng See Yen Tarn Zhu Cheng Bao (Chairman) The Board has approved the written terms of reference of the NC, whose principal functions include the following: (i) (ii) (iii) (iv) review and recommend the nomination or re-nomination of the Directors having regard to their contribution and performance; determine on an annual basis whether or not a Director is independent; assess the performance of the Board and contribution of each Director to the effectiveness of the Board; and review and approve any new employment of related persons and the proposed terms of their employment. The NC will recommend a framework for the evaluation of the Board s and individual Director s performance for the approval of the Board. Each member of the NC will abstain from voting on any resolutions in respect of the assessment of his performance or re-nomination. The Company s Articles of Association requires not less than one-third of the directors to retire from offi ce by rotation at every AGM and all Directors to retire from offi ce at least once every three years. The retiring Directors are eligible for re-election at the meeting at which they retire. In addition, any new Director appointed during the year will have to retire at the annual general meeting following his appointment: he is eligible for re-election if he so desires. The NC has recommended to the Board that Mr Zhu Cheng Bao and Mr See Yen Tarn be nominated for reappointment at the forthcoming Annual General Meeting. The Board has accepted the NC s recommendation. PRINCIPLE 5: BOARD PERFORMANCE The fi duciary responsibilities of the Board include the following: conduct itself with proper due diligence and care; profess good faith; comply with applicable laws; and act in the best interests of the Company and its shareholders at all times. In addition, the Board is charged with key responsibilities of leading the Group and setting strategic directions. CHANGJIANG FERTILIZER HOLDINGS LIMITED ANNUAL REPORT 2010 19
Corporate Governance Report The Company holds the belief that the Group s performance and that of the Board are directly related. The Company assesses the Board s performance through its ability to steer the Group in the right direction and the support it renders to the Management. For the purpose of evaluating directors performance, the NC takes into consideration a number of factors including the directors attendance, participation and contributions at the main board, board committee meetings and other Company activities. The NC uses its best efforts to ensure that directors appointed to the Board possess the necessary background, experience, skills and knowledge in management, business and fi nance, critical to the Group s business; and that each director is able to contribute his perspective; thus allowing effective decisions to be made. The NC is of the opinion that the Board is able to exercise objective judgement on corporate affairs independently and no individual or small group of individuals dominate the Board s decision making process. PRINCIPLE 6: ACCESS TO INFORMATION In order to ensure that the Board is able to fulfi ll its responsibilities, Management regularly provides the Board with information about the Group. Board papers are prepared for each meeting of the Board and are circulated in advance of each meeting. The Board papers include suffi cient information from management on fi nancial, business and corporate issues to enable the directors to be properly briefed on issues to be considered at Board meetings. The members of the Board, in their individual capacity, also have access to complete information on a timely basis in the form and quality necessary for the discharge of their duties and responsibilities. All directors have separate and independent access to Management and the Company Secretary. The Company Secretary attends all Board and Board Committee meetings and is responsible to ensure compliance with the requirements of the Companies Act and those of the Listing Manual. Each director has the right to seek independent legal and other professional advice, at the Company s expense, concerning any aspect of the Group s operations or undertakings in order to fulfi ll their duties and responsibilities as directors. REMUNERATION MATTERS PRINCIPLE 7: PROCEDURES FOR DEVELOPING REMUNERATION POLICIES PRINCIPLE 8: LEVEL AND MIX OF REMUNERATION The members of the Remuneration Committee ( RC ) are as follows: See Yen Tarn Aloysius Wee Meng Seng Guo Zhen Kai (Chairman) 20 CHANGJIANG FERTILIZER HOLDINGS LIMITED ANNUAL REPORT 2010
Corporate Governance Report The RC recommends to the Board a framework of remuneration for the Directors and Executive Offi cers, including those employees related to the Executive Directors and controlling shareholders of the Group, and determine specifi c remuneration packages for each Executive Director. The recommendations of the RC on remuneration of Directors will be submitted for endorsement by the entire Board. All aspects of remuneration, including but not limited to directors fees, salaries, allowances, bonuses, options and benefi ts in kind shall be covered by the RC. Each member of the RC shall abstain from voting on any resolutions in respect of his remuneration package. The remuneration for executive directors comprises of both a fi xed and a variable component. The fi xed component includes a base salary and benefi ts while the variable component is in a form of performance based bonus which is payable on the achievement of the Group Profi t Before Tax s targets specifi ed in their separate service agreements entered. In setting the remuneration packages of the executive directors, the Company takes into account the performance of the group and that of the Executive Directors. All three executive directors service agreements were renewed with no change in their agreements for two years. Non-Executive Directors receive directors fees that are based on corporate and individual responsibilities. The directors fees comprise of a basic retainer fee as director and additional fees for serving on Board committees and are subject to approval by the shareholders at the AGM. The Company adopts a remuneration policy for staff comprising a fi xed component and a variable component. The fi xed component is in the form of a base salary while the variable component is in the form of a variable bonus that is linked to the Group s performance. PRINCIPLE 9: DISCLOSURE ON REMUNERATION 1. Directors remuneration Breakdown of Directors Remuneration (in percentage terms) for 2010 is as follows; Remuneration Band and Name of Director Above S$250,000 but below S$500,000 Fees % Salaries % Bonus % Zhu Cheng Bao - 78 22 100 Total % Below S$250,000 Zhu Xue Cheng - 85 15 100 Joel Leong Kum Hoe - 85 15 100 Guo Zhen Kai 100 - - 100 See Yen Tarn 100 - - 100 Aloysius Wee Meng Seng 100 - - 100 CHANGJIANG FERTILIZER HOLDINGS LIMITED ANNUAL REPORT 2010 21
Corporate Governance Report 2. Key Executives Remuneration The remuneration of the top fi ve executives of the Group for the fi nancial year ended 31 December 2010 is shown below in the following bands: Key Executives Salaries % Bonus % Other Benefits % Total % Below S$250,000 100 - - 100 Cao Hui 100 - - 100 Peng Liang (1) 100 - - 100 Xiong Tai Long 100 - - 100 Bin Xiao Min 100 - - 100 Xu Zhen 100 - - 100 Note: 1. Mr Peng Liang who is the Vice President-Procurement of Machineries and Facilities, is related to a director or the CEO. He is the brother-in-law of Zhu Cheng Bao and Zhu Xue Cheng. PRINCIPLE 10: ACCOUNTABILITY In presenting the annual fi nancial statements and quarterly announcements to shareholders, it is the aim of the Board to provide the shareholders with a balanced and comprehensible assessment of the Group s position and prospects. Management currently provides the Board with appropriately detailed operation reviews of the Group s performance, position and prospects on a regular basis. The Board will update the Shareholders on the operations and fi nancial position of the Company through quarterly and full year announcements as well as timely announcements of other matters as prescribed by the relevant rules and regulations. PRINCIPLE 11: AUDIT COMMITTEE The members of the Audit Committee ( AC ) are as follows: See Yen Tarn Aloysius Wee Meng Seng Guo Zhen Kai (Chairman) The AC assists the Board in discharging its responsibilities to safeguard the assets, maintain adequate accounting records and develop and maintain effective systems of internal control, with the overall objective of ensuring that Management creates and maintains an effective control environment in the Group. The AC meets periodically to perform the following functions: (i) review with the external auditors their audit plan, their evaluation of the system of internal accounting controls, their letter to management and the management s response; 22 CHANGJIANG FERTILIZER HOLDINGS LIMITED ANNUAL REPORT 2010
Corporate Governance Report (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) review the quarterly, half-yearly and annual fi nancial statements and results announcements of the Group before submission to the Board for approval, focusing in particular on changes in accounting policies and practices, major risk areas, signifi cant adjustments resulting from the audit, compliance with accounting standards and compliance with the SGX-ST Listing Manual and any other relevant statutory or regulatory requirements; review the internal control procedures implemented by the Group and ensure co-ordination between the external auditors and Management, and review the assistance given by Management to the auditors, and discuss problems and concerns, if any, arising from audits, and any matters which the auditors may wish to discuss (in the absence of Management, where necessary); review and discuss with the external auditors any suspected fraud or irregularity, or suspected infringement of any relevant laws, rules or regulations, which has or is likely to have a material impact on the Group s operating results or fi nancial position, and Management s response; consider and recommend the appointment or re-appointment of the external auditors and matters relating to the resignation or dismissal of the auditors; review interested person transactions (if any) falling within the scope of Chapter 9 of the SGX-ST Listing Manual; review potential confl icts of interest, if any; undertake such other reviews and projects as may be requested by the Board, and will report to the Board its fi ndings from time to time on matters arising and requiring the attention of the AC; and generally undertake such other functions and duties as may be required by statute or the SGX-ST Listing Manual, or by such amendments as may be made thereto from time to time. The AC is satisfi ed with the independence and objectivity of the external auditors and has confi rmed that there were no material provisions of non-audit services performed by external auditors during the fi nancial year. The AC has also reviewed and recommended the whistle blowing policy which provides for the mechanisms by which employees may, in confi dence, raise concerns about any possible corporate improprieties in matters of fi nancial reporting and other matters as well as to decide on any appropriate courses of action. The set of guidelines which was reviewed by the AC and approved by the Board, will be made available to all employees. The AC meets with the external and internal auditors without the presence of management, at least once a year. PRINCIPLE 12: INTERNAL CONTROLS The Board is responsible for ensuring that management maintains a sound system of internal controls to safeguard the Company s assets. The Board believes that in the absence of any evidence to the contrary and from due enquiry, the system of internal controls that has been maintained by the Company s management throughout the fi nancial year is adequate to meet the needs of the Company in its current business environment. CHANGJIANG FERTILIZER HOLDINGS LIMITED ANNUAL REPORT 2010 23
Corporate Governance Report The system of internal controls is designed to manage rather than eliminate the risk of failure to achieve business objectives. It can only provide reasonable and not absolute assurance against material misstatement or loss. The directors regularly review the effectiveness of all internal controls, including fi nancial, operational and compliance controls, and risk management. PRINCIPLE 13: INTERNAL AUDIT In accordance with the AC s recommendation, the Company has outsourced the internal audit function to a professional fi rm. The Internal Auditor reports directly to the AC Chairman on internal audit matters and to management on administrative matters. To ensure the adequacy of the internal audit function, the AC reviews approves, on an annual basis, the internal audit plans and the resources required to adequately perform this function. The Audit Committee has the responsibility to establish an independent internal audit function, review the internal audit program and ensure co-ordination between internal auditors, external auditors and Management, and ensure that the internal auditor meets or exceeds the standards set by nationally or internationally recognized professional bodies. PRINCIPLE 14: COMMUNICATION WITH SHAREHOLDERS PRINCIPLE 15: GREATER SHAREHOLDER PARTICIPATION The Board believes in timely communication of information to shareholders. It is the Company s policy that all shareholders should be timely informed of all major developments that impact the Company. Pertinent information is communicated to shareholders on a regular and timely basis through the following means: (i) (ii) (iii) results and annual reports are announced or issued within the mandatory period; material information are disclosed in a timely manner via SGXNET and the press; and company s annual general meetings. Shareholders can vote for resolutions or appoint up to two proxies to attend and vote at all general meetings on his/her behalf using a proxy form sent with the annual report. The participation of shareholders is encouraged at the Company s Annual General Meeting. The Annual General Meeting is the principal forum for dialogue with shareholders. There is an open question and answer session at which shareholders may raise questions or share their views regarding the proposed resolutions and the Company s businesses and affairs. The directors and the external auditors are in attendance at the Annual General Meeting. DEALINGS IN SECURITIES In line with Listing Rule 1207(18) on Dealings in Securities, the Group requires all directors and employees not to trade in the Company s securities during the period beginning one month before the date of the announcement of the full year and half-year results and two weeks before the date of the announcement of the quarterly results, and at any time they are in possession of unpublished material price sensitive information. In addition, directors and key executives are expected to observe insider trading laws at all times even when dealing in securities within the permitted trading period. 24 CHANGJIANG FERTILIZER HOLDINGS LIMITED ANNUAL REPORT 2010