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Extraordinary Announcement

Announcement on Resolution of the Twenty Second Meeting of the Sixth Board of Di

2011-03-0111290次
Stock Codes: 600801, 900933  Stock Abbreviations: Huaxin Cement, Huaxin B Share  Ref: Lin 2011-004
 
Huaxin Cement Co., Ltd.
Announcement on Resolution of the Twenty Second Meeting
of the Sixth Board of Directors
 
The Board of Directors of the Company and its members guarantee that there is no false or misleading statement or material omission in this announcement and shall be severally and jointly liable for the truthfulness, accuracy and completeness of its contents.

The Twenty Second Meeting of the Sixth Board of Directors of Huaxin Cement Co., Ltd. (hereinafter called “the Company”) was convened on February 27, 2011 in circular resolution.  All the 9 Directors have reviewed the proposal of this Meeting.  The Company has sent the Meeting Notification to all the Directors on February 20, 2011 by personal courier service or by fax.  The Meeting was in compliance with the provisions contained in relevant laws, rules and regulations and the Articles of Association of the Company, so it was legitimate and valid.
 
Through reviewing and voting, this Board Meeting adopted the Report on Utilization of the Funds Raised from Previous Offering (voting result: Affirmative: 9; Negative: 0; Abstention: 0).
 
Please refer to the Annex for detailed Report on Utilization of the Funds Raised from Previous Offering.
 
It is herewith announced.
 
 
 
 
 
 
 
 
 
 
 
Huaxin Cement Co., Ltd.
Board of Directors
March 1, 2011
                                                                                                                   
 
 
Annex :
 
Report on Utilization of the Funds Raised from Previous Offering
 
I. Utilization of the Funds Raised from Previous Offering
 
Pursuant to the Notice on Approving Huaxin Cement Co., Ltd.’s Application for Non-Public Offering of Stocks ZJXK [2008] No. 22 issued by the CSRC on January 3, 2008, Huaxin Cement Co., Ltd. (hereinafter referred to as “the Company”) was approved to make targeted placement of common shares in amount of 75.2 million Yuan to its original shareholder HOLCHIN B.V. at the price of 26.95 Yuan per share.  The Company raised 2,026,640,000 Yuan, and net of offering expense in amount of 19,789,800 Yuan, the net amount of the raised funds was 2,006,850,200 Yuan (hereinafter referred to as “the funds raised from previous offering”).  The Company received the aforesaid funds on January 29, 2008, in respect of which Wuhan Zhonghuan CPA Co., Ltd. had issued the Report on Capital Verification ZHYZ (2008) No. 015.
 
As of December 31, 2010, the raised funds have been used up and the related special accounts have been closed.
 
II. Actual Utilization of the Funds Raised from Previous Offering
 
Based on the Statement of Huaxin Cement Co., Ltd. on Non-public Offering of A Shares to Foreign Strategic Investor (hereinafter referred to as “the Statement of Offering”) and the Announcement on Resolutions of the Twenty Second Meeting of the Fifth Board of Directors (hereinafter referred to as “the Announcement”) issued by the Company in February 2008, the Company planned to invest 1,390,825,000 Yuan of the raised funds in the following five projects, namely Xiangfan 4,000 t/d clinker cement production line, Zhaotong 4,000 t/d clinker cement production line, Wuhan 2,000,000 t/y cement grinding station, Yangxin Phase II 4,800 t/d clinker cement production line, and Xianning 4,000 t/d clinker cement production line; and use 616,025,200 Yuan of the raised funds to reduce debts of the Company.
 
As of December 31, 2008, the actual amount of the raised funds invested in the projects and the actual amount of the raised funds used for reducing debts of the Company totaled 2,006,850,200 Yuan, the same as the committed investment amount as follows.
 
 

1. Utilization of the Funds Raised from Previous Offering as of December 31, 2010
Yuan
 
Net proceeds of the raised funds : 2,006,850,200 Yuan
Total amount of the raised funds with  its purpose changed: None
Percentage of total amount of the raised funds with its purpose changed: None
 
Cumulative raised funds utilized: 2,006,850,200 Yuan
Total amount of the raised funds used between January 29, 2008 and December 31, 2008: 2,006,850,200 Yuan 
 
Investment projects
Total investment amount of the raised funds
Cumulative investment amount of the raised funds as of December 31, 2010
Date on which the
project is available
for intended use 
Item No.
Committed investment project
Actual investment project
Committed
investment amount *
Actual
investment amount
Committed
investment amount *
Actual investment amount
 
Difference between actual investment amount and committed investment amount
1
Xiangfan 4,000 t/d clinker cement production line
Xiangfan 4,000 t/d clinker cement production line
 399,430,000 
     399,430,000 
 399,430,000 
     399,430,000 
 
-
October 2006
2
Zhaotong 4,000 t/d clinker cement production line
Zhaotong 4,000 t/d clinker cement production line
     200,982,000
     200,982,000
     200,982,000
     200,982,000
 
-
September 2006
3
Wuhan 2,000,000 t/y cement grinding station
Wuhan 2,000,000 t/y cement grinding station
      182,889,000
      182,889,000
      182,889,000
      182,889,000
 
-
November 2007
4
Yangxin Phase II 4,800 t/d clinker cement production line
Yangxin Phase II 4,800 t/d clinker cement production line
    253,704,000 
    253,704,000 
    253,704,000 
    253,704,000 
 
-
January 2007
5
Xianning 4,000 t/d clinker cement production line
Xianning 4,000 t/d clinker cement production line
    353,820,000
    353,820,000
    353,820,000
    353,820,000
 
-
December 2007
6
Reducing debts of the Company
Reducing debts of the Company
     616,025,200
     616,025,200
     616,025,200
     616,025,200
 
-
 
 
Total
 
2,006,850,200
2,006,850,200
2,006,850,200
2,006,850,200
 
-
 
 
* There is no difference in the committed investment amount before and after the fund raising.

Before the Company and its subsidiaries (hereinafter referred to as “the Group”) received the funds raised from previous offering on January 29, 2008, the Group had made preliminary investment in the following projects with self-raised funds and borrowings: Xiangfan 4,000 t/d clinker cement production line, Zhaotong 4,000 t/d clinker cement production line, Wuhan 2,000,000 t/y cement grinding station, Yangxin Phase II 4,800 t/d clinker cement production line, and Xianning 4,000 t/d clinker cement production line.  As of December 31, 2007, the five aforesaid projects had been completed and put into production.
 
As of December 31, 2010, the funds raised from previous offering in amount of 2,006,850,200 Yuan had been used up, including 1,390,825,000 Yuan used to replace the preliminary investment with self-raised funds and borrowings, and 616,025,200 Yuan used to reduce the debts of the Company.
 
2. Profit of Projects Invested by the Funds Raised from Previous Offering
 
Independent accounting was maintained for the following three projects: Zhaotong 4,000 t/d clinker cement production line (hereinafter referred to as “Zhaotong project”), Wuhan 2,000,000 t/y cement grinding station (hereinafter referred to as “Wuhan grinding station”), and Xianning 4,000 t/d clinker cement production line (hereinafter referred to as “Xianning project”).  The Company did not maintain independent accounting for Yangxin Phase II 4,800 t/d clinker cement production line (hereinafter referred to as “Yangxin project Phase II”).  As of June 30, 2009, Xiangfan 4,000 t/d clinker cement production line (hereinafter referred to as “Xiangfan project phase I”) is an independent accounting entity.  After Xiangfan Phase II 4,000 t/d clinker cement production line was put into production in July 2009, the Company did not maintain independent accounting for Xiangfan phase I project.
 
When calculating the actual profit of independent accounting entities, the raw material cost was accounted for as such materials were purchased from a third party by the Group, and period expenses were net of those payable to related parties under the Group, so as to maintain consistency with the profit disclosed in the Statement of Offering.
 
For investment projects for which the Company did not maintain independent accounting, the Company calculates profit of the project (pre-tax profit) on the following basis:
 
(1) Sales revenue and sales cost: sales revenue and sales cost of the project were attributed to products produced by the project, and the raw material cost in the sales cost is calculated as the Group purchased such material from a third party;
 
(2) Period expense: sales expense and administration expense attributable to the project is calculated at the percentage of its sales revenue in total sales revenue; financial expense is calculated in proportion to the capital engaged by the project, excluding expenses payable to related parties under the Group;
 
(3) For the purpose of profit estimation, income tax is not taken into consideration.

As of December 31, 2010, profit of projects invested by the funds raised from previous offering is as follows:
 
In RMB Yuan
Actual investment projects
Cumulative capacity utilization rate of  the investment projects as of December 31, 2010 *
Committed profit **
Actual profit / (loss) for the previous three years
Cumulative profit realized as of December 31, 2010
Whether estimated profit is achieved
Item No.
Project name
 
 
2008
2009
2010***
Xiangfan 4,000 t/d clinker cement production line
84.84%
87,940,000
58,737,800
74,614,400
       63,570,709
               252,062,109
Note (1)
2
Zhaotong 4,000 t/d clinker cement production line
80.11%
107,660,000
113,847,500
176,250,200
 155,397,281
               467,040,181
Note (2)
3
Wuhan 2,000,000 t/y cement grinding station
20.11%
28,040,000
(17,797,000)
(23,592,100)
     (14,331,544)
               (59,416,644)
Note (3)
4
Yangxin Phase II 4,800 t/d clinker cement production line
75.77%
75,350,000
34,672,000
33,900,100
       27,856,496
               128,002,696
Note (4)
5
Xianning 4,000 t/d clinker cement production line
82.43%
87,000,000
29,600,500
52,276,200
       47,133,206
               131,594,006
Note (5)
 
Total
 
385,990,000
219,060,800
313,448,800
     279,626,148
               919,282,348
 
 
*   Cumulative capacity utilization rate of the investment projects refers to the actual net overall equipment utilization rate of the investment project for the period from when the investment project is available for intended use to December 31, 2010.  Net overall equipment utilization rate is a standard indicator for assessing utilization of capacity of cement industry.  For Wuhan 2,000,000 t/y cement grinding station, it refers to the net overall equipment utilization rate of the cement grinding equipment; and in case of other projects, it refers to the net overall utilization rate of capacity of the kiln.
 
**  Committed profit refers to the estimated total average profit per annum after the project reaches full capacity as disclosed in the Statement of Offering.
 
*** Actual profit 2010 is based on the non-audited Financial Report 2010 formulated by the Company.
 
In general, the projects invested by the funds raised from previous offering have gone through the preliminary stage for equipment commissioning.  Due to short energy supply in China, raw coal price and electricity price greatly differed from the estimates in the feasibility study.  In addition, due to redundant construction in cement industry, overcapacity becomes a common problem in cement industry in 2010, which had significant negative impact on sales price of cement.  
 
(1)    Below is the comparison between the output, sales revenue and total profit of Xiangfan project for the recent three years and committed figures indicated in the Statement of Offering.

 
 
 
2008
2009
2010
Committed average sales volume/profit per annum
Difference between 2010 actual amount and committed amount
Output (’0,000 tons)
157.74
168.04
     161.36
 
Not applicable
Not applicable
Sales revenue (RMB ’0,000 Yuan)
42,749.90
37,818.82
47,619.24
33,168.00
14,451.24
Total profit (RMB ’0,000 Yuan)
5,873.78
7,461.44
6,357,07
8,794.00
(2,436.93)
 
Xiangfan project was put into production in October 2006.  Through market exploring, its profit increased dramatically in 2007.  
 
In 2008, Xiangfan project overcame the impact of snow disaster, put more efforts in market exploring, better utilized its capacity and started normal and stable production.  Its sales revenue realized in 2008 reached and exceeded the estimated figure disclosed in the Statement of Offering.  However, raw coal price and electricity price went up dramatically in comparison to the estimates in the feasibility study of the Statement of Offering, which had material adverse impact on profit of the project.
 
In 2009, as other new cement clinker production lines in regional market where Xiangfan project was located were put into operation in succession, supply began to surpass demand on local cement market, which exerted negative impact on sales price of cement products.  Despite the foregoing background, the project realized total profit of 74,614,400 Yuan in 2009.  This figure almost reach the expected profit disclosed in the Statement of Offering, the profitability has been improved gradually.
 
Since 2010, as other new cement clinker production lines in the region further released their capacity, supply seriously surpassed demand on local cement market.  Cement price in the first three quarters was consistently at a comparatively low level, which gravely exerted material adverse impact on profitability of the project.  The project realized total profit of 63,570,700 Yuan in 2010. 
 
As key projects including inner ring road and outer ring road of Xiangfan and Gucheng-Zhuxi Express came into the boom season of construction, demand for cement on local market will remain vigorous in future.  The Company plans to further enhance competitiveness of its products on regional market and improve profit of the project by exerting M&As within the region, improving its brand building and management expertise.
 
 
(2)    Zhaotong project was officially put into production in September 2006.  In 2007, it was successfully awarded the contracts of some key projects, which increased its output, and the project started profiting.  During the last three years, the brand awareness of the Company enhanced, thus the Company gradually consolidated its market position.  Variation of cement price in the region offset the adverse impact of increases in raw coal and electricity cost.  Therefore, the project realized profits of 113,850,000 Yuan, 176,250,200 Yuan and 155,397,300 Yuan respectively in 2008, 2009 and 2010, exceeding the expected profits disclosed in the Statement of Offering.  
 
(3)    Wuhan cement grinding station project was put into production in November 2007.  However, after its completion, the production line could not put into normal operation due to delay in relocation of residents living in the surrounding area and subsequent adjustment to planning of surrounding cities.  As of December 31, 2010, the cumulative capacity utilization rate was merely 20.11%, incurring loss on the project.
 
(4)    Comparison between the output, sales revenue and total profit of Yangxin project for the recent three years and the committed figures indicated in the Statement of Offering is set forth as follows:
 
 
2008
2009
 
2010
Committed  average sales volume/profit
per annum
Difference between
 2010 actual amount and committed amount
Output (’0,000 tons)
202.97
197.99
197.81
Not applicable
Not applicable
Sales revenue
(RMB ’0,000 Yuan)
53,093.83
49,191.12
52,614.95
40,253.00
12,361.95
Total profit
 (RMB ’0,000 Yuan)