Hu An Cable Holdings Ltd.

Hu An Cable Holdings Ltd. ("Hu An Cable" or the "Company") and its subsidiaries (collectively, the "Group") is among the top 10 wire and cable manufacturers in China. It is principally engaged in the manufacture and sale of various electrical wires and cables under two brands – ShenHuan (申環) and Hu'an (滬安).

With its products widely used in the power generation, power distribution, railway transportation and construction sectors, Hu An Cable is one of the few approved suppliers to various state-owned enterprises such as State Grid Corporation of China (國家電網), China Southern Power Grid (中國南方電網), China Guodian Corporation (中國國電集團公司), China Huadian Corporation (中國華電集團公司), China Power Investment Corporation (中國電力投資集團公司), China Petroleum & Chemical Corporation (中國石油化工股份有限公司), China National Petroleum Corporation (中國石油天然氣集團公司), China Railway Group (中國中鐵股份有限公司), etc.

The Group is strategically located in Yixing, Jiangsu, otherwise known as the largest wire and cable hub of China. Hu An Cable's production facilities are fully integrated to support the whole production process from copper/aluminum smelting to insulation materials processing and finished products of cables and wires.

In November 2012, Hu An Cable set up a new wholly owned subsidiary, Hu An Electric (Singapore) Pte Ltd. ("HAE") in Singapore. HAE is mainly engaged in the sale of wires and cables to the high-growth markets in Southeast Asia, Central Asia, South America, Africa and Middle East. Riding on the new wave of developments in Southeast Asian countries, we have accumulated good clientele from places such as Singapore, Indonesia, Philippines, and Vietnam.

Hu An Cable sells over 18,000 types of products under three categories – (i) cables and wires, (ii) copper rods, and (iii) aluminum rods and plastic cable materials, with a sales mix of about 82.4%:12.4%:5.2% respectively for the year 2013.

The Group currently has an annual production capacity of about 344,600km of cables and wires, among which 33,000km is for mid voltage (6Kv-35Kv) power cables and 3,500km is for high voltage (110Kv-220Kv) power cables, as well as 12,380 pieces of cable accessories. The Group has commenced trial run of two production lines for ultra-high voltage (220Kv-500Kv) power cables in the second half of year 2013.

The Group's production facilities for copper rods, the key raw material for producing cables and wires, include one vertical copper melting furnace production line with an annual production capacity of 75,000 tons.

Hu An Cable has been committed to R&D of new products and materials and improvement in product quality to meet stringent customer requirements. As a testament, the Group's products have been certified by various international standard bodies such as the International Electrotechnical Commission ("IEC"), the Prufstelle Testing and Certification Institute ("VDE") and the Lloyd's Register. Hu An Cable is also accredited by the Conformity Assessment Services Co Ltd (中國檢驗認證集團質量認證有限公司) with ISO10012:2003, ISO 9001:2008 and ISO14001:2004. In April 2008, Hu An Cable's ShenHuan brand was awarded the "China Renowned Trademark" (中國馳名商標) by The State Administration for Industry and Commerce of the People's Republic of China (國家工商行政管理總局).

Hu An Cable was listed on the Mainboard of the Singapore Exchange on 8 February 2010 and was subsequently dual listed on the Mainboard of the Taiwan Stock Exchange through the issuance of depository receipts on 28 October 2010.



Chairman's Statement



Riding on China's intention for rapid urbanisation, we devote our investments in R&D for higher grade cables and wires to better position ourselves as a quality brand name in the increasingly competitive market.

Dear Shareholders,

On behalf of the Board of Directors, I am pleased to present to you the Annual Report for the financial year ended 31 December 2013 ("FY2013")

The year in review

The beginning of 2013 was challenging for the Chinese power cable industry as China's modest economic growth weighed heavily on national electricity consumption, adversely impacting investment in power infrastructure. The environment gradually picked up with China placing emphasis on the construction and upgrading of national power infrastructure to encourage rapid urbanization.

Our revenue for FY2013 grew 27.3% from RMB2.2 billion to RMB2.8 billion with our gross profit margin increasing 1.7 percentage points to 15.8%. This is mainly attributable to an increase in sales of cables and wires, which has higher profit margins as compared to our other business segments. Nevertheless, our net profit shrank 18.8% to RMB62.6 million due mainly to the increase in allowance for doubtful debt and research and developments ("R&D") expenses.

Over the past year, we have enhanced our relationships with large state-owned enterprises ("SOE") through our new high-end products like high/ultra-high voltage power cables. As China continues on its path of urbanisation, market demand for power cable will increase alongside new power distribution and transmission network projects. With the rising living standard in the Chinese market, quality of products is being increasingly emphasized. Thus, we see the importance in investing in R&D to improve our market competitiveness with higher-end products.

Launch Of New Products And Production Facilities

We believe in marking our presence in that market through quality products and forward R&D. In order to keep up with the ever-evolving market demands in China, we have put in much effort into improving our R&D. In 2013, we have obtained 10 new patents and developed 38 new products.

With the completion of our new plant, the Group's power cable production capacity especially in mid-to-high end products had increased by 66,000km or 24.0%. The Group currently has an annual production capacity of about 344,600km of cables and wires, among which 33,000km is for mid voltage (6Kv-35Kv) power cables and 3,500km is for high voltage (110Kv-220Kv) power cables, as well as 12,380 pieces of cable accessories. The Group has commenced trial run of two production lines for ultra-high voltage (220Kv-500Kv) power cables in 2H2013.

According to China's 12th five-year plan, total countrywide investment in the energy and power sector is slated to exceed RMB5.0 trillion by 2015. Equipped with higher production capacity and a wider product range, we believe our new plant has the resources and capability to ride on the higher growth of China's power and cable sector.

Overseas Expansion

Leveraging on our overseas listing status, we have received much interest from the overseas markets. Since the opening of our Singapore sales office, we have invested sales and marketing efforts in promoting our brand presence in high-growth economies in regions such as Southeast Asia, Central Asia, South America, Africa, and the Middle East. In 2013, we have accumulated a growing clientele from Southeast Asia, with business partners in Singapore, Indonesia, Vietnam, Philippines and etc.

We are optimistic about the demand for power supply infrastructure induced by rapid developments in these countries.

Retention For Future Growth

Given the opportunities available for growth and the Group's expansion plans, the Board of Directors decided to refrain from issuing dividends for FY2013. We believe the ultimate benefit from our investments in business expansion will start to flow in shortly and hope to reward shareholders for their support when it comes to fruition.

Appreciation

On behalf of the Board, I would like to extend my utmost appreciation to our management and staff, shareholders, business partners and customers for their dedication and commitment. Without your professionalism and loyalty, the Group would not be able to achieve what it has done so far. We will continue to put in our best efforts to deliver value to all our stakeholders.
Yours faithfully,

Dai Zhi Xiang
CEO and Executive Chairman

Operation Overview

Cables & Wires

The Group's revenue from the cables & wires business segment increased 52.5% year-on-year ("yoy") to RMB2.3 billion. Sales volume of wire products and cable products increased 42.3% and 41.7% respectively to 53,562.5 km and 59,828.0km.

China's demand for wire and cable products has been on a rise since its urbanization process requires for more development of energy and power infrastructures. As a result, our new plant, which focuses on mid-to-high end products, contributed additional sales of RMB412.1 million. The sales from low and mid voltage power cables increased by RMB374.6 million. Overseas sales from our Singapore trading company further contributed RMB14.2 million.

This segment remains our main revenue contributor and accounted for 82.4% of the Group's revenue for FY2013.

Copper Rods

Revenue from copper rods business segment decreased 25.7% yoy to RMB348.7 million as compared to last year.

To better utilize convenience and benefits of in-house production, the Group produced copper rods mainly for internal consumption for FY2013. Revenue contribution from this segment fell from 21.2% for FY2012 to 12.4% for FY2013.

Aluminum Rods & Plastic Cable Materials

Revenue from aluminum rods and plastic cable materials segment decreased 33.5% yoy to RMB147.9 million and accounted for 5.2% of the Group's revenue.

Financial Review

Financial Performance

The Group's overall sales increased 27.3% yoy from RMB2.2 billion for FY2012 to RMB2.8 billion for FY2013.

Sales mix for FY2013 further skewed towards high-margin cables and wires segment with a higher contribution of 82.4% for FY2013 as compared to 68.8% for FY2012. Sales contribution from copper rods fell from 21.2% for FY2012 to 12.4% for FY2013. Similarly, sales contribution from the aluminum rods and plastic cables materials decreased from 10.0% for FY2012 to 5.2% for FY2013.

The Group's gross profit rose 42.7% from RMB312.1 million to RMB445.4 million. Due to a favourable shift in product mix towards higher-margin cables and wires, the Group's gross profit margin improved from 14.1% to 15.8% for FY2013.

In 2013, the Group has delegated more investment in research and development activities to improve market competitiveness through high-end products. Consequently, its administrative and other expenses increased by 132.9% to RMB197.0 million for FY2013.

Finance expenses went up by 23.8% to RMB86.7 million for FY2013 mainly due to higher interest expenses from higher borrowing to meet more working capital requirements in the cables and wires business segment. More funding is required to facilitate higher sales of cables and wires to match the higher production capacity.

As a result of the above factors, the Group's net profit attributable to equity holders fell by 18.8% from RMB77.1 million for FY2012 to RMB62.6 million for FY2013.

Cash Flow Management

In tandem with the Group's top-line revenue performance, its operating profit before changes in working capital increased 24.5% yoy to RMB218.5 million for FY2013 (FY2012: RMB175.5 million).

Negative operating cash flow was mainly due to the increase in trade receivables, which was in line with the increased sales of cables and wires. The Group's working capital turnover days remained as 90 days in FY2013.

The Group generated net financing cash flow of RMB282.0 million through obtaining additional bank loans and a financial lease and issuing new ordinary shares in the second quarter.

The net cash of RMB47.6 million was used for investing activities such as the construction of new plant and purchases of machinery and equipment in FY2013.

As a result, cash and cash equivalents increased from RMB234.1 million as at 31 December 2012 to RMB273.1 million.

Financial Position

The Group's shareholders' equity improved 13.1% to RMB1,310.0 million as at 31 December 2013, from RMB1,158.5 million as at 31 December 2012.

Net asset value per share decreased to RMB129.5 cents as at 31 December 2013, from RMB134.5 cents as at 31 December 2012, mainly due to an issuance of 150.0 million new shares in April 2013.

The Group's total liabilities were kept as 56.4% of its total assets as at 31 December 2013. Net gearing ratio increased to 20.5% as at 31 December 2013, from 9.0% as at 31 December 2012 due to higher amount of loans and borrowing.

Key Management



Xu Guo Chen
Vice President and General Manager of Shenhuan Cable Technology Co., Ltd.

Xu Guo Chen was appointed as our Group's Vice President on 10 February 2011. He is also concurrently the General Manager of our Group's subsidiaries, namely, Shenhuan Cable Technology Co., Ltd. and Wuxi Hu An Cable Research Centre Co., Ltd. ("Research Centre"), where he is responsible for their overall management. Mr Xu has over 20 years of experience in China communications cabling industry. He started his career as an engineer with Shanghai Guangxian Communications Engineering Co., Ltd from 1986 to 1992. He subsequently joined A&T optical fibers, between 1992 and 1993. From 1994 to 2000, Mr Xu was the Senior Business Manager and later the Sales Director of Lucent Technologies (China) Co., Ltd. (Shanghai). Between 2001 and 2002, Mr Xu was the Regional Sales Director of 3Com Asia Co., Ltd. (Shanghai branch). Between 2002 and 2007, he was the General Manager of the sales and marketing division of Hengtong Group. From 2007 to 2010, he was the Managing Director of Hengxin Technology Ltd., a public company listed on the SGX-ST which is engaged in the research, design, development, manufacture and sale of communications and technological products.

Mr Xu obtained his diploma in Mechanics from Shanghai Medical Instrument College in 1986.

Zhou Jian Jun
Vice President and General Manager of Wuxi Hu An Wire & Cable Co., Ltd.

Zhou Jian Jun was promoted as our Group's Vice President on 27 February 2012 and remained as the General Manager of Wuxi Hu An Wire & Cable Co., Ltd. ("Wuxi Hu An"). He is responsible for the Group's marketing and sales function as well as overall management and operations of Wuxi Hu An.

Mr Zhou joined our Group in September 2007 as Sales Manager of Wuxi Hu An. He was later promoted to Sales Deputy General Manager and was responsible for its sales and marketing functions and subsequently he was promoted as the General Manager of Wuxi Hu An on 27 February 2012. Mr Zhou has over 20 years of experience in management and operation. Between July 2002 and August 2007, he was the General Manager of Yixing Longteng Environment Protection Mechanical Equipment Co., Ltd. and was responsible for its overall business and management.

Mr Zhou holds a degree in finance and accounting from School of Management China University of Mining and Technology.

Xue Ru
Chief Financial Officer

Xue Ru was re-designated as our Group's Chief Financial Officer on 27 February 2012. She is responsible for the overall financial, accounting, compliance and reporting and internal control functions of our Group. She joined our Group in February 2010 as Finance Manager and was promoted to Financial Controller on 11 June 2010. She has more than 10 years experience in the management of finance and accounting operations. During the period of February 2002 to December 2009, she was the accountant and later Finance/ Admin Manager in charge of finance, accounting, administration and human resources management in Aztech Heat Exchangers Pte Ltd, a Singapore company engaged in the design, manufacture and repair of heat exchangers and pressure vessels.

Ms Xue holds a bachelor degree in economics from Nanjing University of Aeronautics and Astronautics and a Master of Business Administration (Finance) from National University of Singapore. She is a fellow member of the Association of Chartered Certified Accountant and a non-practicing member of the Institute of Singapore Chartered Accountants.

Huang Chao Ze
General Manager of Wuxi Shenhuan Electric Co., Ltd.

Huang Chao Ze was promoted as General Manager of Wuxi Shenhuan Electric Co., Ltd. ("Shenhuan Electric") on 5 March 2014. He is responsible for the overall management and operations of Shenhuan Electric.

Mr Huang joined Wuxi Hu An in May 2003 assisting in its warehouse management and was promoted as warehouse Manager subsequently. He was transferred to the purchasing division of Wuxi Hu An in July 2007 and was promoted as an Assistant Manager of the purchasing division in June 2009. He was further transferred to Shenhuan Electric in April 2010 acting as Deputy General Manager and responsible for the supply and marketing management of Shenhuan Electric.

Mr Huang holds a Diploma in Mechatronics from Donggang College, Huaihai Institute of Technology.


Group Structure



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