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Business Performance
The f i nanc i a l ser v i ces segment cont r i buted
HK$21.9 billion to our profit during the review period,
with CITIC Bank accounting for 83% of the total.
This compares with the HK$33.3 billion achieved in
the same period last year. The profit of our 16.7%
owned associate company, CITIC Securities, declined
significantly due to a lacklustre A share market.
At CITIC-Prudential, premium income grew but
investment income declined, affecting its profitability.
CITIC Trust, on the other hand, performed well.
CITIC Bank recorded revenue growth of 12% while
profit grew more slowly, reflecting increased
provisions made for non-performing loans. In recent
years, CITIC Bank has done well focusing on growing
non-interest income, which increased by more
than 20% in the first half of 2016 compared with
the same period last year. With the new normal of
slower economic growth in China, the asset quality of
Chinese banks is under pressure as they face growing
non-performing loans. We are likely to see continued
erosion of banks’ profitability and capital in the near
term. Improving asset quality is a painful process,
but in the longer term this process will result in a
healthier banking system. In this environment, CITIC
Bank continues to work on ensuring that its asset
quality and overall risk management systems are
best-in-class.
As for our non-financial businesses, the resources
and energy sector remained challenged by low
commodity prices. Sino Iron, our magnetite iron
ore project in Western Australia, made great strides
with the commissioning of the last two of its six
concentrator lines in late May. Of course, these
remain testing times for Sino Iron and the sector
in general, as commodity prices are still low. It will
be some time before we reach full capacity, but we
are encouraged by recent progress. To place the
project on a sustainable footing, our focus will be on
increasing production rates, reducing operating costs,
driving greater efficiencies and resolving outstanding
legal issues to protect the interest of all stakeholders.
In manufacturing, overall demand for steel remained
weak; however, our special steel business continued
to outperform the market. Profit for the half year rose
14% compared with the same period in 2015. CITIC
Pacific Special Steel’s achievement can be attributed
simply to good management. Its procurement
strategy, for example, ensured that the overall cost
of raw materials was much lower than the market,
enhancing our margin. Export volume also rose by
17% as a result of increased marketing efforts.
In the first six months of 2016, increased demand for
Dicastal’s products together with stronger marketing
efforts contributed to higher sales growth, with a
17% rise in the number of wheels sold over the same
period in 2015. Profit margin improved as a result
of greater production efficiencies made possible
by its highly automated facilities, better product
mix as well as a decline in production costs such
as gas. CITIC Dicastal registered an impressive 48%
increase in profit as compared with the same period
last year. To meet the rising demand in China for its
casting products, Dicastal is working to have its KSM
Chengdu plant up and running in early 2017.
Profit at CITIC Heavy Industries declined significantly
in this reporting period as the company continued
to experience a slowdown in its traditional customer
segments of construction materials, mining and
coal. In this challenging environment, CITIC Heavy
Industries has been redoubling efforts to transform
itself from a pure equipment manufacturer to a
total solutions provider. This is paying off as close
to 50% of the new contracts signed in the first half
of the year were Engineering, Procurement and
Construction contracts. In addition, demand has
increased for the special purpose robots built by
newly-acquired Tangshan Kaicheng, which are being
used in firefighting, rescue operations and other
emergencies.
Our engineering contracting business recorded profit
of HK$1.1 billion, which included the reversal of a
provision taken previously on a project in Algeria.
Although most of CITIC Construction’s contracts
are signed in US dollar, the project in Venezuela
was contracted to receive a small portion of the
payment in the country’s local currency. Therefore,
the depreciation of the Venezuelan bolivar in the first
half of the year affected CITIC Construction’s profit.
During the period, four major contracts were signed
including a US$936 million contract for a Kazakhstan
highway reconstruction project.
HALF-YEAR REPORT 2016
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