West China Cement - Preliminary Results 2007

RNS Number:1236R
West China Cement Limited
31 March 2008

For Immediate Release

WEST CHINA CEMENT LIMITED

Full Year 2007 Preliminary Results

Strongest results to date lay foundations for significant future growth

31 March 2008: West China Cement (WCC), the producer and distributor of cement
based in the western Chinese province of Shaanxi, whose shares are quoted on the
London Stock Exchange's AIM market, today announced its preliminary results for
the year ended 31 December 2007.

Key financial highlights

• Revenues increased to Rmb 526 million (£37.6 million) from Rmb 307
million (£21.9 million) - up 71 per cent

• Record post-tax profit of Rmb 150 million (£10.7 million), a 69 per
cent increase over 2006

Key operational highlights

• The two new production lines at the Lantian plant were both completed
on time and operated to capacity by the end of 2007

• Tonnage produced for the year totalled 2.42 million tonnes, with the
new lines at Lantian contributing 0.98 million tonnes

• Construction of a new plant in Ankang, South East Shaanxi commenced
during the year as planned. Construction is targeted for completion in 2009,
bringing the total capacity of all WCC plants to 5.3 million tonnes in 2009

• The Ankang plant will have a capacity of 1.8 million tones and is
located in a region which is poorly served by cement producers. The Chinese
Government has cited the western provinces of the country as in need of
development, particularly in infrastructure, to match the development of the
east, therefore providing multiple opportunities for WCC

Jimin Zhang, Chief Executive Officer of WCC, said:

"Today's results show that WCC delivered on its promises in 2007 and achieved
record operating results. Growth in revenues and profits has been achieved
despite rising energy costs and adverse weather conditions.

"The Government of China's decision to focus on the Shaanxi Province for
development is an exciting opportunity for the company. This will involve the
rapid building of roads, railways, power plants, airports and a metro system in
Xi'an - all large projects requiring cement. The Shaanxi Province five year plan
estimates cement demand at 25 million tonnes in 2006 rising to 40 million tonnes
by 2010."

For further information please contact:

West China Cement Limited

Robert Robertson +44 118 974 4636

Capital MS&L

Nick Donaldson/Ashleigh Lezard +44 207 255 5197

NCB Stockbrokers Limited

Christopher Caldwell +44 207 071 5234

Chairman's review

West China Cement (WCC) delivered on its promises in 2007, with another notable
year in the Group's growth. Post-tax profit increased by 69 per cent to RMB 150
million (£10.7 million) and revenues grew to RMB 526 million (£37.6 million).
This reflected maiden contributions from the two new production lines at
Lantian, to the South East of Xi'an.

Demand for cement in Shaanxi was robust in 2007, with the prices of our various
products increasing in the range of 2 per cent to 4 per cent. Very heavy rain
and resultant flooding affected both production and demand for a large part of
the second half of the year. Against this background it is pleasing to report
volumes in line with expectations, with a total tonnage for the year of 2.42
million tonnes, with the new lines at Lantian contributing 0.98 million tonnes.
Inflationary pressures were evident, particularly in coal prices. As a result,
WCC's gross margin decreased marginally from 34.8 per cent to 33.4 per cent. Our
new Lantian lines were commissioned in March and July at the budgeted capital
cost of RMB 470 million (£33.6milion). After the normal start-up curve and the
weather related hiatus, both plants were operating at capacity by the year end.

Completion of the Lantian plant brings WCC's total capacity to 3.5 million
tonnes, of which 2 million tonnes is from Lantian and the balance is from the
North of Xi'an at Pucheng. Construction is underway on a further plant at
Ankang, an area which to date has been poorly served by cement producers, to
supply the market in the south-east of the Shaanxi province. The capital cost of
the Ankang plant is targeted to be RMB 640 million (£45.7 million) net of tax
credits but before financing costs. The plant will have a capacity of 1.8
million tonnes and completion is targeted for early 2009. This is a challenging
and exciting project for WCC which will significantly benefit construction
projects in the region.

I mentioned at the half year ended 30 June 2007 that we intended to finance
Ankang from a combination of internally generated funds and bank debt, and that
we were looking at financing options to expand the company's cement capacity
further towards our medium term target of 8 to 10 million tonnes. The credit
squeeze which began in the second half of 2007 and which in China took the form
of a cessation of bank lending, together with the nervousness of financial
markets generally, render some of these financing options less favourable. Our
Ankang project remains nevertheless very attractive and the Board is actively
pursuing financing options so that it can be completed on schedule. If financing
is not available on acceptable terms, we will consider slowing the project down,
for completion at the end rather than start of 2009.

In view of the exciting growth opportunities which WCC faces, the Board has
resolved not to recommend a dividend for 2007.

The Chinese cement market has continued to benefit from a combination of strong
growth in demand and rationalisation which have been the drivers of the industry
since 2006. The sustained strong demand has been driven by central and local
government infrastructure projects, as set out in the People's Republic of China
(PRC) Government's 11th Five Year Plan (2006 until 2010), and is further
under-pinned in Shaanxi by its "Develop the West" policy; these together have
led to above average fixed asset investment growth in WCC's home province.
Cement demand in Shaanxi province has grown from 28 million tonnes in 2006 to 31
million tonnes in 2007 and we expect demand to grow to 35 million tonnes in
2008. This favourable scenario is supported by the ongoing closure of old,
backward and polluting cement capacity which is driven by Government directives
focusing on energy consumption, economies of scale and environmental
improvement. It is estimated that over 70 million tonnes of backward capacity
was closed down in the PRC in 2007; our estimates point to over 2.6 million
tonnes of old capacity being closed in Shaanxi Province in 2007 and over 3.5
million slated for closure in 2008. These factors all point to continued growth
and favourable pricing in the Shaanxi cement market through 2008 and beyond.

2008 promises to be another important year for WCC, with existing plants
forecast to operate close to capacity, and the continued construction of the
Ankang plant. As was well publicised in the West, there was a recurrence of
freak weather conditions in the early part of 2008, with heavy snow disrupting
the country and the construction industry in particular. We used this period to
carry out as much maintenance as possible and it is our ambition to make up any
production backlog over the year, provided weather conditions are more or less
normal. Underlying cement demand remains robust.

I would like to thank all WCC's staff and workforce for their exceptional hard
work. The company has continued to grow at a rapid pace, and all are to be
congratulated on achieving this while maintaining high standards of safe and
environmentally sound practice.

Robert Robertson

Non-Executive Chairman

Chief Executive Officer's overview

WCC had another remarkable year in 2007. Our development was assisted by the
completion of the new lines at the Lantian plant after our successful admission
to London's AIM market in December 2006, which raised £22 million for the
company. The new lines at Lantian increase our capacity from 1.5 million tonnes
to 3.5 million tonnes.

Financial results

For 2007, WCC is reporting its strongest ever operating results: revenues of Rmb
526 million (£37.6 million) (2006: Rmb 307 million) and post tax profit of Rmb
150 million (£10.7 million) (2006: Rmb 89 million). Our earnings per share
improved from Rmb 2.00 (14p) per share to Rmb 2.35 (17p) per share.

While the higher cost of coal has added pressure on production costs, we have
successfully limited this impact such that the fall in operating profit margin
was relatively modest. In addition, despite the adverse weather conditions
during August - October 2007, we met our target rates of production as well as
profit. In 2007, we achieved an operating profit margin of 33.2 per cent
compared to 34.3 per cent in 2006.

Business review

Production

In 2007, production at our Pucheng plant decreased slightly from 1.46 million
tonnes to 1.44 million. Although output and sales were badly affected by the
heavy rains suffered in August - October 2007, our production and sales team
largely made up the shortfall in the last two months of the year. As a result
Pucheng achieved its target for the year.

The two production lines in our Lantian plant were completed and operations
commenced on schedule. Lantian Line One started production at the end of March
and Lantian Line Two at the end of July. Target production levels were achieved
within two months of opening and Lantian achieved a total production of 0.98
million tonnes in 2007.

Overcoming difficulties - adverse weather

Between August and October 2007 the Shaanxi province experienced one of the
worst rainy seasons seen in the last 100 over years. Repeated downpours during
the summer months seriously affected our cement production, transportation and
sales. After the rainy months, our management team and workforce strived to
recover the lost sales and to limit the impact of the downtime, with our Pucheng
and Lantian plants swiftly resuming production to their maximum capacities.

Overcoming difficulties - increased costs

In 2007 increasing transport costs and coal prices impacted our cost base. We
responded to this with the selective use of technology and by implementing other
cost-saving measures. During the year we upgraded facilities so that
desulphurised gypsum could be utilised instead of natural gypsum as production
input; this initiative has reduced our production cost by Rmb 3-5 per tonne of
cement. In addition, WCC effectively reduced procurement costs through the
implementation of centralised raw materials purchasing. The impact of increased
fuel and coal prices was partially offset by these cost-saving measures.

Research and development

The Group is engaged with Xi'an University of Architecture and Technology in
research and development ("R&D") projects. An R&D centre has been set up on the
university campus. During the year, the R&D centre has improved WCC's raw
material mixing formula, increased the use of industry waste as raw material
input and reduced production costs. These R&D initiatives are designed to
support the continuous improvement of our products which, in turn, should enable
WCC to respond better to customer needs and demands.

Project pipeline

WCC has a strong pipeline of projects, which will assist the Group in delivering
organic growth and value creation to its stakeholders. The Group will continue
to invest in growth projects to ensure that it is well positioned to continue to
deliver growth well into the future, although financing development will be
dependent on some recovery in financial markets.

Ankang project

The project to build a plant serving a new market in the Southern Shaanxi region
was approved by the Board in 2007 and the construction work began immediately.
The total investment is expected to be Rmb 640 million net of tax credits, which
will include the construction of Asia's longest conveyor belt which would run
between WCC's factory and the neighbouring limestone quarry. This project is
another example of WCC's commitment to environmental protection, as the conveyor
belt will reduce the use of heavy trucks in limestone transportation, hence
reducing fuel usage and carbon dioxide emission.

Key challenges

In pursuing its strategy WCC, along with many of its peers in the cement
industry, faces a number of key challenges. The ability to respond to these
challenges successfully will play an important role in ensuring that WCC is well
placed to extract maximum benefit from all of its future growth options. The
Board has identified the following as being of particular importance:

Cost escalation

PRC is facing rapidly increasing inflationary pressures. Controlling cost
escalation will help ensure that WCC realises maximum value from its existing
operations. WCC is committed to an on-going programme of cost savings, which
includes: (1) increasing employee efficiency; (2) finding cheaper substitutes
for production input; (3) improving internal controls; and (4) recycling.

Energy

There is now more focus than ever on global energy demand. Energy is a key cost
element in cement production. WCC will continue to seek to improve its
production efficiency and consider further investment in waste heat recycling
projects. As well as reducing energy consumption and cost, there is also a high
possibility that the waste heat recycling projects will be able to generate
additional income for the Group through the sale of carbon credits under the PRC
Government sponsored Clean Development Mechanism. WCC is currently reviewing the
feasibility of this option.

Safety

WCC attaches great importance to the safety of its employees and works hard at
instilling and maintaining a safety orientated culture throughout the Group.
Safety measurement systems were enhanced during 2007, and key safety benchmarks
were measured and accessed monthly with lessons learnt from any incidents which
occurred. The Board reviews and discusses safety at work issues at each Board
meeting.

No major incidents occurred in 2007. WCC's operating subsidiaries were awarded
the "Advanced Enterprise in Safety Production 2007" by Shaanxi Supervision and
Administration Bureau for Safety Production.

Environment

Pollution is a key concern in the cement industry. The Chinese Government places
major emphasis on environmental issues and has closed down many cement plants
which do not meet the national environmental protection standards. All of WCC's
plants meet current national standards. In 2007 our Pucheng plant was named as
an "Advanced Enterprise in Environmental Protection" by the local government.
WCC is committed to ongoing efforts to reduce its impact on the environment.

We aim to minimise emissions and have committed capital investment into building
waste heat recycling plants in order to reduce energy usage. The construction of
the Lantian waste heat recycling plant started in October 2007 and is expected
to be completed by mid 2008. The total investment is Rmb 60 million and the
expected energy/ cost savings are approximately Rmb 13 million per annum. The
Board is considering similar projects investment in our other plants.

People

Our employees are essential to the long term success of the Group. We continue
to invest in the development of our people and strive to ensure that the Group
is well positioned to attract and retain the best talent in the region and
beyond.

Treasury risk management

The Group's principal treasury policy and decisions are set at Board level. The
Board delegates responsibility for managing financial risk to the Executive
Board. The treasury function is managed by the investment and corporate
development department. The accounting department provides an independent
control function to monitor and report on treasury activities.

The Group is exposed to liquidity risk arising from the need to finance its
growth strategy. The Group is exposed to interest rate, foreign exchange and
other market risks in the ordinary course of business.

Political, legal and regulatory

Businesses may be affected by any political and regulatory developments in the
PRC, although WCC can have no control over changes in local inflation, market
interest rates or fiscal policy, the Company actively monitors regulatory and
policy developments.

2008 prospects

China's rapid economic growth has driven development in the western part of
China. Current cement demand is strong, driven by continued urbanisation, robust
infrastructure investment and new rural construction. On the supply side, the
PRC Government is controlling the establishment of new cement plants and closing
down inefficient and polluting plants. This provides a good basis for strong
cement prices.

As a leading cement producer in Shaanxi and with its strategic location in the
heart of the region, I am confident that WCC will continue to produce excellent
results in the forthcoming years. Despite facing various challenges during 2007
such as increasing energy costs, adverse weather conditions and rising input
costs, the Group's growth and development remained robust. I am confident that
our people are prepared for and will overcome other challenges which they may
face in 2008. We will continue to seek to serve all our stakeholders in a
successful and profitable way.

We are committed to providing high returns to our stakeholders by: (1)
strengthening our production and safety management; (2) improving our
cost-saving management; (3) optimising our labour utilisation; (4) enhancing our
technology transformation; (5) adjusting our marketing strategies to respond to
changing market conditions; (6) striving to put Ankang into operation by early
2009; (7) continuing to seek optimal funding options; and finally (8) exploring
other growth avenues.

I would like to thank the Board of Directors, the management and all our
employees for their support over the past year.

Jimin Zhang

Chief Executive Officer

Consolidated Income Statement for the year ended December 31, 2007
2007 2006

RMB 000 RMB 000
Continuing Operations
Revenue 525,929 307,319
Cost of sales (350,165) (200,372)
Gross profit 175,764 106,947
Other operating income 38,803 20,265
Selling and distribution costs (9,796) (8,147)
Administrative expenses (30,151) (13,754)
Operating profit 174,620 105,311
Investment income 1,826 402
Finance costs (26,173) (19,405)
Profit before income tax 150,273 86,308
Income tax credit - 2,331
Profit for the year 150,273 88,639

Attributable to:
Equity holders of the company 150,273 88,639

Earnings per share
Basic (RMB per share) 2.35 2.00
Diluted (RMB per share) 2.34 2.00

Consolidated Balance Sheet at year ended December 31, 2007
2007 2006

RMB 000 RMB 000
Non-current assets
Intangible assets 57,236 7,759
Property, plant and equipment 944,927 627,376
Deferred tax asset 12,364 12,364
1,014,527 647,499
Current assets
Inventories 45,653 24,191
Trade and other receivables 111,062 45,765
Pledged deposits 24,336 2,568
Cash and cash equivalents 29,997 192,388
211,048 264,912

Total assets 1,225,575 912,411

Current liabilities
Trade and other payables 187,019 85,339
Tax liabilities - 5,147
Bank borrowings 23,000 150,404
Other borrowings - 22,127
Other liabilities 3,700 -
213,719 263,017
Net current (liabilities)/ assets (2,671) 1,895

Non-current liabilities
Bank borrowings 296,200 99,300
Other borrowings 18,415 26,846
Other liabilities 14,800 -
329,415 126,146

Net assets 682,441 523,248
Equity
Share capital 93,482 97,542
Share premium 638,070 662,593
Reverse acquisition reserve (354,452) (354,452)
Share options reserve 5,228 4,646
Foreign currency translation reserve 37,471 550
Statutory reserve 36,420 20,463
Retained earnings 226,222 91,906
Equity attributable to equity holders of the company 682,441 523,248

Consolidated Cash Flow Statement for the year ended December 31, 2007
2007 2006
RMB 000 RMB 000
OPERATING ACTIVITIES
Operating profit 174,620 105,311
Adjustments for:
Depreciation of property, plant and equipment 44,829 28,813
Amortisation of land use rights 203 203
Allowances for doubtful debts (1,207) 3,055
Gain on disposal of property, plant and equipment 1,971 -
Share based payment 2,184 303
Operating cash flow before movements in working capital 222,600 137,685
Increase in inventories (21,462) (2,109)
(Increase)/ decrease in receivables (64,090) 21,650
Increase/ (decrease) in payables 96,533 5,074
Cash generated by operations 233,581 162,300
Other taxes refund/ (paid) - 1,000
Interest paid (26,173) (19,405)
NET CASH GENERATED FROM OPERATING ACTIVITIES 207,408 143,895

INVESTING ACTIVITIES
Interest received 1,826 402
Purchase of property, plant and equipment (364,351) (311,814)
Acquisition of land use rights (31,180) -
Proceeds on disposal of property, plant and equipment - 4,406
Decrease/ (increase) in cash pledged (21,768) 2,075
NET CASH USED IN INVESTING ACTIVITIES (415,473) (304,931)

FINANCING ACTIVITIES
Dividends paid - (512)
Net proceeds from/ (repayment of) bank borrowings 69,496 (8,125)
Proceeds from other borrowings (30,558) 37,915
Proceeds on issue of new shares (net) 6,508 305,013
Repayments to minority shareholders for capital - (1,000)
contribution
NET CASH GENERATED FROM FINANCING ACTIVITIES 45,446 333,291

NET INCREASE IN CASH AND CASH EQUIVALENTS (162,619) 172,255
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 192,388 19,583
Foreign exchange difference 228 550
CASH AND CASH EQUIVALENTS AT END OF YEAR 29,997 192,388

1. Principal accounting policies

The principal accounting policies applied in the preparation of these
consolidated statements are set out below. These policies have been consistently
applied to all the years presented, unless otherwise stated.

(a) Basis of preparation

The consolidated financial statements of West China Cement Limited and its
subsidiary undertakings (the "Group") and the individual financial statements of
West China Cement Limited (the "Company") have been prepared in accordance with
those International Financial Reporting Standards and Interpretations in force
("IFRS"), as adopted by the European Union, and those parts of the Companies
(Jersey) Law 1991 applicable to companies preparing financial statements under
IFRS.

The financial statements have been prepared under the historical cost convention
modified to include the revaluation of investment properties and properties
available for sale, if any.

(b) Basis of consolidation

The consolidated financial statements incorporate the financial statements of
the Company and its subsidiary undertakings using the acquisition method of
accounting. The results of the subsidiary undertakings acquired or disposed of
during the year are included in the consolidated income statement from the
effective date of acquisition or up to the effective date of disposal, as
appropriate.

(c) Foreign currencies

The functional currency of the subsidiary undertakings is Renminbi ("RMB"), and
the presentation currency of the Group is RMB. Transactions in currencies other
than RMB are recorded at the rates of exchange prevailing on the dates of the
transactions. At each balance sheet date, monetary assets and liabilities that
are denominated in foreign currencies are retranslated at the rates prevailing
on the balance sheet date, and gains or losses arising on retranslation are
included in the net profit for the year. Non-monetary assets and liabilities are
translated using historical rate, and exchange rate differences arising are
classified as equity and transferred to foreign currency translation reserve.

On consolidation, the assets and liabilities of foreign operations are
translated at the exchange rate prevailing on the balance sheet date. Income and
expense items are translated at the average exchange rates for the year unless
exchange rates fluctuate significantly. Exchange differences arising on a
monetary item that forms part of the Company's net investment in foreign
subsidiary undertakings are recognised in a separate component of equity in
foreign currency translation reserve. These differences are recognised in income
statement on disposal of the net investment.

For the year ended 31 December 2007, the foreign operations' financial
statements have been translated from GBP or HKD to RMB at the following exchange
rates:

2007 2007 2006 2006

Year end rates Average rates Year end rates Average rates
RMB: GBP 14.5807 15.2213 15.3155 14.7060

RMB: HKD 0.9364 0.9746 1.0053 1.0276

2. Revenue

An analysis of the Group's revenue is as follows:
2007 2006

RMB 000 RMB 000
Revenue: Continuing operations
Sales of cement 525,929 307,319

Other operating income
VAT rebates 30,528 18,791
Rental income 91 93
Government incentives 5,180 720
Sundry income - 278
Exchange gain 23 383
Creditors written back 2,981 -
38,803 20,265
Investment income
Interest from deposits 1,534 402
Income from treasury management 292 -
1,826 402

Total revenue 566,558 327,986

Sales of cement represents the invoiced value of cement sold, net of value added
tax ("VAT") and other sales taxes and is after allowances for goods returned and
trade discounts.

The VAT rebates relate to a local government incentive to enterprises for
recycling industry waste as production input. Only certain approved products are
entitled to this rebate. The rebate is accounted for on an accruals basis.

Rental income represents parking income generated from the vacant land in front
of one of the production plants.

Government incentives include recycling incentives of RMB150,000 (2006:
RMB500,000), bulk cement sale incentive of RMB230,000 (2006: RMB220,000) and "
clean" project investment incentive of RMB4,800,000 (2006: Nil).

3. Income tax expense

The Group is subject to income tax on an entity basis on profits arising on or
derived from the jurisdictions in which members of the Group are domiciled and
operate.

2007 2006

RMB 000 RMB 000
PRC corporation tax
Tax refund - -
Deferred tax - (2,331)
- (2,331)

The tax movement for the year can be reconciled to the profit per the income
statement as follows:
2007 2006

RMB 000 RMB 000

Profit before income tax 150,273 86,308

Tax calculated on the above profit, at applicable PRC corporation tax rate of 0% - 12,946
(2006: 15%)
Tax refund - -
Effect of non deductible expenses - 317
Deferred tax temporary differences - (103)
Effect of tax benefit arising from purchasing the prescribed eligible plant and - (15,491)
equipment
Tax credit for the year - (2,331)

As foreign invested enterprises, Shaanxi Yaobai Special Cement Ltd ("SYSC") and
Xi'an Lantian Yaobai Cement Co. Ltd ("XLYC"), the two income generating
subsidiary undertakings, were entitled to preferential tax treatment whereby
they are allowed a two-year tax holiday followed by a three-year period in which
they are taxed at 50% of the normal PRC corporate income tax ("CIT") rate. SYSC
is exempted from CIT in year 2006 and 2007; XLYC is exempted from CIT in year
2007 and 2008.

Prior to July 2006, SYSC was locally owned hence revenue earned prior to
becoming a foreign invested enterprise was taxed at the applicable CIT rate of
15%.

4. Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to
equity holders of the Company by the weighted average number of ordinary shares
in issue during the year.
2007 2006
Profit/ (loss) attributable to equity holders of the Company (RMB 000) 150,273 88,639
Weighted average number of ordinary shares in issue (thousands) 63,979 44,344
Earnings per share (RMB per share) 2.35 2.00

Diluted earnings per share

The Company has one category of dilutive potential ordinary shares - share
options. Calculation is done to determine the number of shares that could have
been acquired at fair value based on the monetary value of the subscription
rights attached to outstanding share options. It is compared with the number of
shares that would have been issued assuming the exercise of the share options.
2007 2006
Profit attributable to equity holders of the Company (RMB 000) 150,273 88,639

Weighted average number of ordinary shares in issue (thousands) 63,979 44,344
Adjustment for share options (thousands) 365 59
Weighted average number of ordinary shares for diluted earnings (thousands) 64,344 44,403

Diluted Earnings per share (RMB per share) 2.34 2.00

This information is provided by RNS
The company news service from the London Stock Exchange
END

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