China Metal Recycling profit up 85% to HK$887mn

Growth trend seen to continue as proposed JV between the company and Guangdong Materials Group would enhance and refine its collection network.

China Metal Recycling (Holdings) Limited (“CMR”), China’s largest scrap metal recycling company according to the China Association of Metal Scrap Utilisation, on Monday announced its annual results for the year ended 31 December 2010.

Driven by the continued strong demand for recycled metals in China, the increase in CMR’s market share and the expansion of its regional coverage, the Group has achieved record number of sales quantity, revenue and net profit all of which were up by 152.8%, 148.3% and 85.3% respectively compared to last year. Basic earnings per share attributable to owners of the Company increased 55.9% to HK84.61 cents. The Board recommended the payment of a final dividend of HK16 cents per ordinary share for the year ended 31 December 2010, according to a CMR report.

Mr. Jacky Chun, Chairman and CEO of CMR, said, “2010 was an excellent year for the Group as the spectacular growth momentum in the past few years continued. To further strengthen our national network for the Group’s long term sustainable growth, CMR’s China headquarters in Shanghai was established on 22 June 2010, hence marked our dedication in committing more resources and efforts towards further development of the Central, Eastern and Northern China markets. The Shanghai headquarter will also become the business hub of the Group and will further enhance the efficiency in management and co-operation with our business partners.”

Business Review
China has been the world’s largest metal consumption country and the momentum of high metals demand is expected to continue in the next few years. During the year under review, China’s crude steel products and copper semis production increased 9.3% and 11.7% to approximately 627 million tons and approximately 10.9 million tons.

The penetration of scrap metals consumption in China, however, was still low when compared with figures in the developed countries. Therefore, there exists a great potential for increasing penetration of recycled metals in China. CMR has benefited from the strong domestic demand. Sales volume of ferrous metals and non-ferrous metals were approximately 1,570,000 tons and 360,000 tons, respectively, accounting for 22.6% and 77.4% of the Group’s total revenue during the year.

Mr. Chun added, “As China’s economy and industrial activities grown in the past decades, scrap metal reserves have been built up in the society, e.g. ownership of 5 major home appliances (refrigerators, washing machines, air-conditioners, televisions and personal computers) and motor vehicles reached approximately 1.6 billion units and 190 million units respectively at the end of 2009. In the coming years, China’s scrap metal reserves are expected to be released into the market, providing ample room for development of CMR as well as the industry.”

During the reporting year, for CMR’s Eastern China operation, the completion and reshape of the acquired port in Jiangyin city is expected to contribute a substantial increase in processing capacity in the region. The ramp up of operations and increase in regional market share during the second half of 2010 have proven to be margins positive. For the Northern China operation, the formation of joint venture with Tianjin Pipe (Group) Corporation and 11 regional recyclers is the first-of-its-kind in the industry and would further expand CMR’s business coverage in the Northern China region. For the Central China operation, the site in Wuhan city commenced operation in October in 2010 with production capacity of 500,000 tons. The Group has signed a supply framework agreement with Wuhan Iron and Steel (Group) Corporation (“Wugang”) under which the Group will supply 250,000 tons of scrap steel to Wugang in 2011. 9 December 2010 marked another major milestone for CMR after its initial public offering as the Group successfully completed the issue of 90 million new shares. Net proceeds of approximately HK$691 million was raised for capital expenditure and potential acquisitions to continue the Group’s regional expansions and consolidations. This transaction generated strong demands internationally and the Group brought in many top-tier international institutional investors to support its long-term growth.

Outlook
Subsequent to year end on 15 March 2011, CMR entered into a non-binding memorandum of understanding with Guangdong Materials Group Corporation to set up a joint venture to engage in the business of recycling in the Southern China. The proposed joint venture would enable the Group to team up with one of the largest companies engaging in the recycling and dismantling of scrapped motor vehicles and the recycling and scrapping of vessels in the Guangdong Province, and to enhance and refine CMR’s collection network, therefore creating an integrated metal recycling system that combines the recycling and dismantling of scrap metals, electrical appliances, motor vehicles, vessels and aircrafts for the Group’s future growth.

Looking forward into 2011, the Group is dedicated to achieve the full year sales volume growth target of 40%.

Mr. Chun concluded, “With the State government’s target of establishing a comprehensive recycling system under the 12th Five-Year Plan, there exists a great potential for industry growth. We will continue our strategy of combining both organic and inorganic approaches of corporate development to maintain our relative first-mover advantage and reinforce our leadership position in the metal recycling industry in China. We are on track to become the consolidator in the industry while maintaining a high standard of corporate governance and high operational efficiency. With contributions from multiple regional operations, we are confident to complete the targets set and deliver more than spectacular returns to our shareholders.”