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Stable growth despite volatility

Howard Kwong

Shanghai Prime Machinery, a top mainland precision industrial parts and components manufacturer, enjoyed stable growth in its core businesses despite the adverse economic climate.

Among the challenges were the rapid rise and subsequent fall of raw material costs, a cut in the export tax rebate and increasing labour costs last year, but the group implemented several key measures to expand markets and sales, manage cash flow and mitigate exchange losses.

'These measures withstood multiple and complicated challenges and hardships faced by the group in 2008,' said Hu Kang, president and executive director of the company.

Last year, the Shanghai-based machine manufacturer's revenue was 3.25 billion yuan (HK$3.69 billion), an increase of 12 per cent compared with 2.9 billion yuan in 2007. The profit attributable to shareholders was 241 million yuan.

The group is involved in the design and sale of four core businesses - turbine blades, precision bearings, numerical control machine cutting tools and fasteners.

Turnover in the turbine blade business last year was 797 million yuan, which was the highest increase - 24 per cent - over 2007, among the other core businesses.

However, the gross profit margin was 29 per cent, a drop of 5 per cent compared with 2007, due to product mix adjustment and a rise in the cost of raw materials.

The company is a major supplier of turbine blades for power stations. Components include large steam turbine blades, gas turbine blades, semi-finished blades, nuclear power turbine blades and aerospace precision forgings.

The manufacturing project team was set up to strengthen the technology level and production capacity of high-end turbine blades, such as large nuclear power generation turbine blades and 1,000 megawatt ultra-super-critical large last-stage steam turbine blades.

Mr Hu said demand in the domestic turbine blade market remained stable because it benefited from the central government's policies, which supported nuclear power, aviation industries and infrastructure construction.

The group diversified into the domestic market for aviation blade forgings. The trial production of large blades for aircraft engines was completed last year.

Wuxi Turbine Blade, a division of Shanghai Prime Machinery, expanded blade production by reaching an agreement with the Committee of Wuxi Huishan Economic Development Zone in January last year to build a plant for making machinery and components.

Bearings are another key business. The group repairs bearings and offers maintenance services for the Ministry of Railways.

The company focused on producing more hi-tech parts, such as speed-lifting railway bearings, for heavy cargo trains last year. Mr Hu said the company held firm to the principle of sustainable development and had developed environmentally friendly energy products, such as wind power generator bearings.

The bearing business revenue reached 429 million yuan, a 9 per cent rise over 2007.

The top contributor to the group's revenue is its fastener business, which reached 1.55 billion yuan. Export sales of fasteners were 1.39 billion yuan, representing 90 per cent of the total turnover generated from this business.

The group raised its overall gross profit margin last year by carrying out real-time price adjustments, shortening delivery lead time and better monitoring orders.

An automatic logistics system was used to lower the overall inventory level of its supply chain.

The aim is to transform from a products supplying enterprise to a professional fastener service provider.

The Council of the European Commission announced an anti-dumping duty - 69.9 per cent is charged on imports of certain mainland-made iron or steel fasteners - and this will dramatically shrink export volumes in the European market. Therefore, the group will develop other markets to reduce the negative impact of the regulation.

Domestic industrial demand this year is expected to decline amid a more complex and erratic macroeconomic situation. The mainland's demand for electricity from coal-fired power plants is expected to fall in the coming years which will mean a reduction in railway transport.

However, Chen Hui, vice-president of the group, said stimulus packages, especially the 4 trillion yuan investment plan, announced by the central government, would boost domestic demand and expand investments in the railway, energy and aviation industries to withstand the global financial meltdown.

The parts and components industry is listed as one of the four key development industries in the plan for restructuring and reviving the equipment manufacturing industry issued by the State Council, and this will provide new development opportunities.