Hangzhou Steam Turbine Co., Ltd. Annual Report 2013 Summary Stock Code: 200771 Stock ID: Hangqilun B Announcement No. 2014-07 Hangzhou Steam Turbine Co., Ltd.
Annual Report 2013 Summary
1. Important Prompt
This is the summary abstracted from the complete version of Annual Report 2012, which is published
synchronously on the Internet at http://www.cninfo.com.cn. Please find the complete version for details of the annual report.
Company profile
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|Stock ID|Hangqilun B|Stock Code||200771|
|Stock Exchange listed in|Shenzhen Stock Exchange||||
|Stock ID changed|None||||
|Liaisons|Secretary of the Board||Representative of Stock Affairs||
|Name|Yu Changquan||Wang Gang||
|Tel.|0571-85780432||0571-85780198||
|Fax.|0571-85780433||0571-85780433||
|Email.|ychq@htc.cn||wg@htc.cn||

2. Financial highlights and change of shareholders
(1) Financial highlights
Are there any retrospective adjustment or restatement of financial information of previous year due to change of accounting policies or correcting of accounting errors?
No
||||||
|-|-|-|-|-|
||||Changed over last year||
||2013|2012||2011|
||||(%)||
|Turnover (RMB)|5,064,643,686.67|4,575,383,435.46|10.69%|4,547,818,300.02|
|Net profit attributable to shareholders of the listed|653,356,182.05|735,102,032.17|||
||||-11.12%|640,387,703.33|
|company (yuan)|||||
|Net profit attributable to the shareholders of the|||||
|listed company and after deducting of|616,839,211.83|672,749,403.19|-8.31%|622,172,047.42|
|non-recurring gain/loss(RMB)|||||
|Net Cash flow generated by business operation|369,664,531.93|777,689,632.25|||
||||-52.47%|518,123,433.30|
|(RMB)|||||
|Basic earnings per share (Yuan/share)|0.8665|0.9749|-11.12%|1.02|
|Diluted earnings per share (Yuan/share)|0.87|0.97|-11.12%|1.02|
|Weighted average net|||||
||16.13%|20.57%|Reduced by 4.44%|20.82%|
|income/asset ratio (%)|||||
||||Changed at end of||
||End of 2013|End of 2012|current year over end of|End of 2011|
||||last year (%)||
|Gross Assets (RMB)|7,645,648,806.43|7,447,716,037.95|2.66%|6,892,582,376.59|
|Net asset attributable to owners of the PLC|4,230,942,110.74|3,872,156,922.52|9.27%|3,315,262,942.01|

(2) The top 10 shareholders
|||||
|-|-|-|-|
|Total shareholders at the end of||Amount of shareholders at end of the 5th trading day||
||18,268||18,772|
|the report period||prior to the date of this annual report||

Hangzhou Steam Turbine Co., Ltd. Annual Report 2013 Summary
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|-|-|-|-|-|-|-|
|Top 10 Shareholders|||||||
||Properties|Share||Amount of|Frozen or pledged||
||||Amount of||||
|Name of the shareholder|of|proportion||unconditional|Status of|Amoun|
||||shares||||
||shareholder|(%)||shares held|shares|t|
|Hangzhou Steam Turbine Power Group Co., Ltd.|State-ownedlegal person|63.64%|479,824,800|479,824,800|||
|Li Minggong|Overseasnaturalperson|2.18%|5,969,974|0|||
|NORGES BANK|Overseaslegal person|1.6%|4,396,608|0|||
|GIC PRIVATE LIMITED|Overseaslegal person|1.23%|3,376,460|0|||
|BOCHK INVESTMENT FUNDS-BOCHK CHINAGOLDEN DRAGON FUND|Overseaslegal person|0.84%|2,301,344|0|||
|AUSTRALIANSUPER PTY LTD|Overseaslegal person|0.77%|2,108,321|0|||
|KGI ASIA LIMITED|Overseaslegal person|0.64%|1,766,489|0|||
|Xia Zulin|Domesticnaturalperson|0.63%|1,730,600|0|||
|VANGUARD TOTAL INTERNATIONAL STOCKINDEX FUND|Overseaslegal person|0.55%|1,502,536|0|||
|GSIC A/C MONETARY AUTHORITY OFSINGAPORE|Overseaslegal person|0.51%|1,402,404|0|||
|||(1) Hangzhou Steam Power Group Co., Ltd. is the state-owned|||||
|||shareholder of the Company, all of the other owners are B-share|||||
|||holders.|||||
|Notes to relationship or “action in concert” among the top ten||(2) There is no relationship between Hangzhou Steam Turbine|||||
|shareholders.||Power Group Co., Ltd. and other shareholders;|||||
|||(3) None of HSTG or other shareholders is “acting-in-concert” as|||||
|||described by “Administration Rules of Information Disclosure on|||||
|||Change of Shareholding Position”|||||
|Particulars about shareholders take part in financing and stock|||||||
|||Not applicable|||||
|financing business (if any)|||||||

(3) Chart of shareholding positions
Hangzhou State-owned Assets Supervisory& Administrative Committee
100%
Hangzhou Steam Turbine Power Group Co., Ltd.
63.64%
Hangzhou Steam Turbine Co., Ltd.
Hangzhou Steam Turbine Co., Ltd. Annual Report 2013 Summary 3. Management analyze
I. Business overview
The world economy was recovering slowly in 2013 under the shadow of recession. Growth of new economies and development countries were slowing down as well. Chinese economy was growing at a steady pace though. Equipment industry of the country had to face the impact of declining demand and structural reformation. TheCompany’s management has been aware of the change of business environment and deployed the business operation by focusing on quality lifting, innovative technologies, refining business processes, enforcing IT management, market exploring, and controlling of production costs. As the result, the Company consolidated its leading position in the whole industry with a steady growth in business turnover.
II. Analysis of main business
In the report period, the Company has realized business turnover of RMB5,064,643,700, an increase of10.69% YoY; total profit of RMB865,970,200, a decrease of14.50% YoY; net profit of RMB734,823,600, a decrease of14.69% YoY; net profit attributable to the shareholders of the Company of RMB653,356,200, a decrease of11.12%. Decrease of the total profit was caused by decrease of investment gains from share equity disposing, and decrease of gross profit ratio of steam turbine products.
III. Reviewing of business in report period
1) Exploring and cultivating of market
In the report period, the domestic industrial steam turbine market was still in over supply and severe competition. The Company has been reinforcing prospective research, combining marketing forces, and stayed at the leading position against its technical and reputation superiority. Following with the market trend, the Company was focusing on the developing of 10 million ton scale petrol refining, million ton scale petrol chemistry, and large scale coal chemistry projects. A number of contracts in these areas were obtained in the period. In the power plant industry, the Company has significant increase in orders of steam turbines for boiler water pump and air-blower driver. As for the thermal power area, theCompany’s market shares in Shandong, Zhejiang, and Jiangsu were consolidated. Great achievements were realized as the first in the country such as the 100K class air separation device driving turbine and million class full capacity boiler water pump driving turbine. As for the gas turbine market, the Company has received orders for three sets of gas turbine. Air compressor products were launched steadily, the market was not in a positive situation though. Pressure and risks were expected to rise.
In the report period, the Company was stepping to the global market. But with the slow development of the new markets and constant rising of RMB, the global market was depressed in 2013. The Company has been doing its best to collect market information through its overseas offices, and seeking opportunities to co-operate with well-known engineering entities. Overseas orders decreased comparing with previous year. In term of geographic distribution, the Company has engaged contracts in Pakistan amounted to RMB150 million, which was showing a great potential in this area. In term of product lines, the Company won the project in Saudi Arabia, which indicates the Company has entered the high-end market in Middle East. TheCompany’s global market approach was upgraded thereon.
In the report period, the Company has been enhancing its service providing approach. Manufacturer service is regarded as the only pathway to future market. The Company has been doing great effort to establish service segments and service offices. A client communication meeting was held in Shandong to promote vertical development of customer service. By connecting the remote diagnostic system with the frequency spectrum system, the onsite vibration problem has been resolved. This technical service has been included in the service package along with delivery of products. An internet-based service product line has taken into shape. The service providing pattern of life-circle service and part store has been widely accepted by costumers.
2) Technical innovation
In the report period, the Company has been promoting its innovation programs on state-of-art technologies. 10 product developing projects and 29 technical programs were launched in the year. Among these projects, there were technical researches to satisfy customer requirements, and also strategic technical development projects. A number of projects have been successfully accomplished or progressing smoothly. In aspect of technical process research, the Company has successfully developed main-spindle laser processing technology which was the first
Hangzhou Steam Turbine Co., Ltd. Annual Report 2013 Summary in the industry. Along with the expanding of industrial chain, the Company has launched research project regarding gas turbines. Waste heat thermal boiler by Zhongneng Co., air cooler by Auxiliary Co, were examples in successful expanding of theCompany’s industrial chain.
In the report period, the Company gained a number of awards and government subsidies. Among them were the 1 million ton per year ethylene device driving steam turbine, due line 1.4 million ton / year PTA steam turbine, and organic circulation low temperature waste heat power plant project. Government subsidies were awarded to the Company for its significant contributions to producing of national standard for the whole industry. 24 patents, including 9 invention patents and 11 application patents, and 4 copyright patents were filed in the report period. 10 patents, including 2 invention patents and 8 application patents were granted in the period.
In the report period, a number of strategic construction projects were launched. TheR&D Center was the one to reinforce long-term technical development system. It will provide the Company a number of capabilities in aspects of basic research, apply technology, product design, testing, information process, and operation monitoring. It will become the technical innovation platform of the Company. At present this project in the stage of designing bidding invitation. The Heavy Industry project is the other important project the Company launched in the year. Construction land has been obtained and currently the Heavy Industry Co. has been established to promote this project.
3) Transformation and upgrading of management
In the report period, the Company has been combining resources, enhancing supply chains, and regulating process control to meet with the requirements of complex product composition, short product circle, and frequent change of delivery term. PLM project was launched to upgrade information processing ability and form a unified data platform in the whole Company. The Company was nominated, among 49 best enterprises, the Chinese Government Quality Prize.
In the report period, the Company has been accelerating construction of internal control system not only in the headquarter, but also in the holding subsidiaries. Internal control was further improved especially regarding related transactions and performance assessment. Capital stock management, cost control, and management of receivable accounts, are also some of the key aspects the Company has reinforced to constrain the risks in business operation.
In the report period, the Company has conducted electing of the new terms of Board and Supervisory Committee. Three social responsibility reports were published to summarize the outcome of social responsibility works of the Company. A multi-layer employee training program was launched and cultivated a great number of technical manpower. Some of them were winners of national, provincial, or municipal awards. In the report period, the Company attached great importance to safety management and health care for employees. Energy saving approach has achieved1.4% of decrease in standard coal consuming (0.0071 ton / 10 thousand RMB of turnover). In the report period, the Company donated over RMB2.6 million to public welfare projects.
IV. Competition analyze
As the largest developing and manufacturing base of industrial steam turbine throughout the country, the Company has been in the territory with years of experiences, which provided obvious advantages from technical research to production, from marketing to customer services.
A complete technical innovation system was established. The Company has under its possession of national, provincial, and municipal grade technical centers, a doctorial workstation, and an academician workstation. Close co-operations were carried out with institutions and universities from throughout the country. As the main drafter of national standard on industrial steam turbine, the Company has the newest technical trend under its close observation. The Company is now providing nearly 600 different models of steam turbines to the customers and hold the newest technical system covering the product lines up to 150 MW.
Secondly, the company production model of “modular design, concurrent engineering” enabled the company to balance the production cost, delivery date and customer demands.
Thirdly, the Company has established strategic co-operations with main customers in the country. Further marketing approaches were carried on by involving itself in thecustomers’ value. A sound and steady image has been set up in the domestic steam turbine market. In the global market, the Company has acquired multiple important certifications and has established a primary global recognition.
Fourthly, the Company has its complete service providing system. The Company is not only capable to provide
Hangzhou Steam Turbine Co., Ltd. Annual Report 2013 Summary onsite 24-hour service for theCompany’s own products, but also accumulated rich experiences in technical maintenance and reengineering of othermanufacturers’ products.
Fifthly, the Company has cultivated a significant advantage in human resources. Great importance has been attached to construction of work teams with collection of high-end workforce in the areas of research& development, designing, technique, testing, and quality control. An excellent workforce provides a sound foundation to lift quality and services.
V. Development prospect
1. Industrial trend and competition
The industry steam turbine that our company produces varies according to the driving objects, two big classes can be divided into: industry driving steam turbine and industry electricity generating steam turbine. Industry driving steam turbine is mainly used in rotator machinery, compressor, air-blower, pump, squeezer, etc. So it is widely used in industrial fields, such as oil refining, chemical industry, chemical fertilizer, building materials, metallurgy, electricity, light industry, environmental protection, etc. It is the key power equipment in all kinds of large-scale commercial plants. Industry electricity generating steam turbine is for driving generator mainly, and offer heat energy at the same time. So it is widely used in the enterprise private station of every industrial department, regional cogeneration project of heat and power, and such fields as gas - the steam turbine unites the circulation hydropower station, hydropower station of the municipal refuse. In recent years, theCompany’s products were mainly used in residue thermal power plant area with metallurgy industry.
Since the start of the 12th five-year-plan, the national government was accelerating adjustment of economic structure and growth pattern, which brought the equipment industry significant influence and deep change. On the one hand, national government is pushing the equipment industry toward the direction of high quality development, and the industrial chain to the higher end of value, as well as the development of industrial service providing. On the other hand, the government is promoting integration of the whole industry both vertically and horizontally.
As for the steam turbine industry, the down-stream industries, such as metallurgy, construction material, and chemical industry, were suffering from over production. Their overall growth was slowing down in the first three years of the five-year-plan, and some of them was periodically declining. Prices and profit margins were depressing along with increased competition. Meanwhile, the steam turbine industry was in a fast technical reformation in the period of the 12th five-year-plan. The trend was leading to large-power, high-efficiency, high-capacity, and intellectual environment protection. Great breakthrough was achieved in a number of high-end field. Therefore the whole industry was technically upgraded comparing with the beginning of the 12th five-year-plan.
Competition pattern was completely changed under this circumstance. Enterprises with higher technical innovation, faster market responding, and broader product lines were leading the whole industry, while the weaker enterprises were depressed.
In recent years, manufacturers of industrial driving devices were expanding their production to steam turbine area. The original industrial division were altered frequently. Furthermore, famous global manufacturers were reinforcing their invasion of Chinese market, and brought greater competition in the high-end market. Pressure brought by high-rising costs and falling of sales prices was forcing the enterprises of the industry to accelerate their transformation and upgrading.
2. Development strategies
Facing the combination of opportunities and competitions, the Company will still following its of innovation strategy and diversification strategy. By constant developing of core technologies, the Company will keep itself as the leading role of the turbine industry. Tackling the opportunities brought by industrial transformation of down-stream industries, the Company will satisfy all needs of equipment upgrading of these industries. On the other hand, the Company will keep cultivating its industrial service products and be creative in business pattern. Great attention will also be paid to overseas markets to keep along with the recovery of global economy.
3. Business plan for 2014
2014 is a year with uncertainty and unbalance in the recovery of world economy. It is also a year that the country is promoting structural reformation national wide. For the down-stream industries are still in the process of productivity reducing, the Company will be facing a severe market situation. In 2014, the Company will keep
Hangzhou Steam Turbine Co., Ltd. Annual Report 2013 Summary targeting on the highest global standard and do its best to ensure a steady business operation.
(1) Led by technical innovation. As for the steam turbine technologies, the Company will carry forward the 100K class air-divide project, million class power plant full capacity water pump, and super scale back pressure thermal power generator set, and also development of large power low pressure turbine and researches on internal efficiency and systematic efficiency of steam turbine. Application development and technical cooperation about gas turbines will also be accelerated. IT system will be further upgraded, and the PLM phase I will be put into operation within the year.R&D investment will increase by10% YoY.
(2) Development supported by market exploring. Diversified marketing approach will be adopted to reinforce theCompany’s competition in large scale air separation and petrol chemical industry, and breakthrough in the areas of back pressure power generators. Keep following up with the trend of energy saving and energy recycling areas. Greater effort will be paid to marketing approach in global markets, especially petrol projects and chemical fertilizer projects. As for the gas turbine area, the Company will grasp the opportunities brought by productivity transformation of the steel making industry, especially CCPP power plants.
(3) Development accelerated by high-quality engineering projects. Customer requirements will be adequately satisfied by the Company by enforce process management and supply chain management. Quality control will be put at the priority to provide products with best quality. Satisfying of the requirement of global high-end markets. Increase the ability in remote monitoring and controlling technologies to enhance remote service providing. (4) Development reinforced by upgrading of management. Interim assessment will be carried out against the 12th five-year-plan. Construction of the Heavy Industry project andR&D center will be promoted, proactive planning will be performed on each project, and provide good foundation for future developing. Internal control system and budget management system will be improved toward perfection, especially inventory management and retrieving of accounts. Cost control and HR development are also the key approaches in the new year.
4. Risks
(1) Market risks
Along with the constant decline of domestic fixed asset investment, development of the steam turbine market was slowing down. More competition and decreasing of gross profit ratio are expectable, and will bring certain pressure to theCompany’s market share and competition. However the Company will do all its best in aspects of technical innovation, market exploring, quality lifting, service upgrading, and value adding, to neutralize the negative impact of the market.
(2) Contract risks
Under the impact of macro environment, the Company was suffering from frequent variation of contracts and delay or suspension of projects. These brought great influence on theCompany’s production process and greater cost risks. The Company is further reinforcing the execution of contracts and credit management to reduce the risks to the lowest limit.
(3) Financial risks
Receivable accounts were inclining constantly these years, which brought bad influence to theCompany’s financial efficiency. Growth of export business brought exchange rate risks as well. The Company will do the best to enhance financial risk management, especially retrieving of receivable accounts, to ensure healthy development. Some of the holding subsidiaries of the Company will be subject to reassessment for the qualification of high-tech enterprises in 2014. Possibility of failure in the reassessment will brought risks of higher tax. Application works will be carried forward by the Company basing on related regulations.
4. Issues involve with financial reports
(1) Statement on changes of accounting policies, accounting estimations, and accounting basis comparing with the last fiscal year
Not applicable
(2) Statement on correcting of material accounting error and retrospective adjustment
Not applicable
Hangzhou Steam Turbine Co., Ltd. Annual Report 2013 Summary (3) Statement on change of consolidation range comparing with the previous fiscal year
1. Subsidiaries newly included in the consolidated financial statements
Particulars about subsidiaries added by means of direct incorporation or investment:
(1) The Packaged Tech Co. invested along with Huang Zemin and Wu Zhiyan to incorporate Xinjiang Hangzhou Steam Turbine Packaged Technology Development Co., Ltd. It was registered on January 6, 2013 with RMB20 million, in which RMB10.20 million was invested by the Packaged Tech Co. with51% of shares. It was included in the consolidating range since the date of incorporation as long as the Company has substantial control power over it.
(2) The Company invested to establish Steam Turbine Heavy Industry Co., Ltd., which was registered on October 25, 2013 with the Business License No. 330100000187883. The company has registered capital of RMB360 million, which was wholly invested by the Company. Therefore it was included in the consolidation range since incorporation for the Company has complete control power over it.
(3) Zhongneng Co. invested to establish PT. HANGZHOU CHINEN TURBINE INDONESIA in Indonesia. It was registered on December 21, 2012 with registered capital of 24 billion Indonesia Rupiah. Zhongneng input USD1.75 million in June 2013 and took70% of the share equity of the company and therefore holds the control power. It was included in the consolidation range.
2. Subsidiaries excluded in the consolidated accounts in the report term
According to the Share Equity Transferring Agreement engaged among the Company, Hangzhou Steam Turbine Power Technologies Co., Ltd., and Hangzhou Steam Turbine Engineering Co., Ltd. on January 24, 2013, the Company has sold the70% share equity in Hangzhou Steam Turbine Power Group Packaged Engineering Co., Ltd. to Hangzhou Steam Turbine Engineering Co., Ltd. with consideration of RMB30,940,000.00. The payment has been received on February 19, 2013, and related procedures were completed. Therefore it is not included in the consolidation range since January 2013.
(4) Statement of the Board on the “Non-standardauditors’ report” issued by the CPA on the current report period
Not applicable
Hangzhou Steam Turbine Co., Ltd.
Chairman Nie Zhonghai
March 29, 2014