China’s troubled Shanshui Cement posts huge losses

PUBLISHED : Friday, 01 April, 2016, 7:11pm
UPDATED : Friday, 01 April, 2016, 7:11pm

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China Shanshui Cement Group, whose subsidiaries are suing Jinan city’s mayor in the yearlong fight for control between its previous and existing boards, posted a net loss of 6.7 billion yuan (HK$8 billion) for last year.

Much of the loss was on account of a write-down on goodwill value – booked in previous years on assets it paid more than their net value to acquire – to 14 million yuan from 2.35 billion yuan in 2014.

This was “due to forecasted less satisfactory [profitability] ... in the foreseeable future and overpayment in the acquisitions of certain cement plants in the past”, the Jinan, Shandong province-based firm said in a filing to Hong Kong’s stock exchange.

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Shanshui is China’s seventh-largest cement maker. The nation’s cement demand fell 5 per cent last year due to a marked slowdown in construction. Its external auditor KPMG would not give an opinion on the fairness of its financial statements, saying the current directors could not ensure that accounting records have been properly maintained, since there was no handover by the former board of directors who were all ousted early December.

The firm’s bottom line was also hit by an 86 per cent jump in administrative expenses to 2.32 billion yuan, partly due to surging legal costs as it is a defendant or plaintiff in various Hong Kong High Court law suits involving its major shareholders, its former management staff and its parent’s minority shareholders.

The legal bills could rise this year as it has commenced legal action against Jinan mayor Yang Luyu and deputy mayor Su Shuwei in Hong Kong, alleging them of alleged conspiracy with ousted China Shanshui directors to conceal its Shandong subsidiary’s company seals and litigation records and obstructing the new board’s attempt to gain access to its Jinan plant.

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Revenue dropped 28.4 per cent to 11.17 billion yuan, on the back of lower cement demand and prices as a result of a slowdown in real estate investment.

Gross profit margin halved to 11 per cent from 21.5 per cent in 2014.

Finance costs surged 40 per cent to 1.6 billion yuan as it had to obtain more costly debt financing to retire some of its debt.

Total debt net of cash and bank deposits amounted to 386 per cent of shareholders’ equity at the end of last year, up from 140 per cent a year earlier.

Its shares have been suspended for almost a year due to a protracted fight between the original top management and that of new controlling shareholder and Henan province-based former rival Tianrui Group.