As the world's largest electrolytic aluminum company, Hongqiao in China has been acting constantly recently.

The global electrolytic aluminum giant first announced on March 18 that Zouping Hongxu Thermal Power Co., Ltd., an indirect wholly-owned subsidiary of the company, as the seller, entered into an asset transfer agreement with the buyer Shandong Guoxu new energy Co., Ltd., with a total transaction amount of 3 billion yuan.

Then on March 20, it released its performance in 2019: corporate sales revenue decreased by 6.61% to 85.4 billion yuan year on year, net profit increased by 12.72% to 6.095 billion yuan year on year; total assets reached 179.6 billion yuan, and total liabilities reached 113.6 billion yuan.

Under the trend of environmental protection and shutting down high energy consumption enterprises, Hongqiao, as a leading enterprise in the high power consumption industry such as electrolytic aluminum, is facing great pressure and needs to make changes. The annual revenue threshold of 100 billion yuan that was about to be reached at the beginning is also far away from Hongqiao.

Transfer of thermal power assets, energy transformation in progress

Founded in 1994, Hongqiao was founded by Zhang Shiping, the former richest man and legendary entrepreneur in Shandong Province. He was born in a poor family and graduated from junior high school. However, he created Shandong Weiqiao group, the world's largest aluminum enterprise and the largest textile enterprise.

In 2018, Zhang Shiping resigned as chairman of Weiqiao and handed over the stick to his 48 year old son Zhang Bo. On May 23, 2019, Zhang Shiping died of invalid treatment at the age of 73.

Under Weiqiao group, it has two Hong Kong listed companies, Hongqiao and Weiqiao textile. China Hongqiao is a leading manufacturer of aluminum products in the world, mainly engaged in the production and sales of liquid aluminum alloy, aluminum alloy ingot, aluminum alloy casting and rolling products and aluminum bus. In 2014, Hongqiao surpassed Rusal and became the largest aluminum producer in the world.

The electrolytic aluminum industry needs high power consumption, so Zhang Shiping created the enterprise development mode of spontaneous self supply and built a huge thermal power capacity. According to the public data, as of 2017, China's compliance capacity of Hongqiao electrolytic aluminum was at least 6.46 million tons, and the total installed capacity of its own thermal power plants reached 9.33gw.

Zouping Hongxu Thermal Power Co., Ltd. sold by Hongqiao is one of its many self provided thermal power assets. The latter was established in April 2016. The business scope of the company includes the production and sales of thermal power and electric power (excluding small thermal power).

According to the asset transfer agreement, Zouping Hongxu Thermal Power Co., Ltd. has conditionally agreed to sell the power unit with a total installed capacity of 1320mw and other related ancillary assets, with a total price of 3 billion yuan.

China Hongqiao said in the announcement that with the promotion of Yunnan Aluminum production base of the group, the demand for thermal power generation will further decline. On the premise of ensuring stable production and operation, through the disposal of relatively backward power generation capacity, it will help to further improve the thermal power operation efficiency, increase the proportion of clean energy, and further enhance the competitiveness of the group.

While disposing of relatively backward thermal power capacity, Hongqiao said it is also actively developing clean energy and building a new production base relying on local hydropower resources in Yunnan Province. This move also indicates that the world's largest electrolytic aluminum enterprise has started the internal energy transformation, from thermal power to new energy, hydropower and so on.

In fact, in recent years, the state has been increasingly strict in the supervision of its own thermal power plants, and a large number of backward production capacity has been shut down. Shandong Weiqiao group, as a large owner of its own power plant, has naturally become the focus of supervision. The first example of self provided power plant supervision in China is the decommissioning of 5.7 million kilowatts of coal-fired power units in Weiqiao, Shandong Province.

As the main listing body of Weiqiao electrolytic aluminum business in Shandong Province, Hongqiao is under great pressure.

With the revenue of 100 billion yuan gradually increasing, debt is still a problem

In the 2019 financial report, Hongqiao's performance is mixed.

In terms of sales revenue, China Hongqiao's annual revenue in 2019 is 85.4 billion yuan, down 6.61% year on year. It's been two years in a row. In 2017, Hongqiao's revenue reached a record high of 93.313 billion yuan, and it is ambitious to advance to 100 billion yuan. However, in 2018, its revenue did not increase but decreased. In 2019, it shrank again, falling below the 90 billion mark.

Fortunately, in 2019, Hongqiao achieved a year-on-year growth of 12.72% in net profit, which was 6.095 billion yuan. This is positive growth for two consecutive years since profit fell in 2017. Especially in the case of declining revenue, the growth of net profit shows the global power of Hongqiao.

It is understood that in 2019, the sales volume of Hongqiao aluminum alloy products reached 5.058 million tons, down 13.8% from 5.865 million tons in the same period of last year; the sales volume of aluminum alloy processing products reached about 623000 tons, up 26.4% from 493000 tons in the same period of last year. Increasing the delivery of high value-added aluminum alloy products is one of the reasons for Hongqiao to increase its profit margin.

In addition, in 2019, the sales volume of Hongqiao alumina reached about 5.277 million tons, an increase of about 29.0% over the same period of last year, about 4.09million tons. In the announcement, it said that the increase of alumina sales was mainly due to the group's grasp of market opportunities and development of domestic product market in the case of reduction of alumina for its own use, which led to the increase of alumina sales.

Another important information in Hongqiao's 2019 financial report is debt. According to the financial report, in 2019, Hongqiao's liabilities totaled 113.6 billion yuan, breaking through 100 billion yuan for three consecutive years. In 2017, when the revenue of Hongqiao reached its historical peak, the total debt of Hongqiao exceeded RMB 104.9 billion for the first time; in 2018, its total debt was RMB 114.1 billion; in 2019, it was still above RMB 100 billion.

According to alcan.com, in 2017-2019, the interest expenditure of Hongqiao in China was 4.1 billion yuan, 4.4 billion yuan and 5.2 billion yuan respectively, increasing year by year.

According to the first report card of "post Zhang Shiping era" of China Hongqiao, Zhang Bo, who took over his father's "handsome seal", was able to perform well in the aluminum industry of Hongqiao department alone, but the pressure and challenge were equally huge. The tightening of national environmental protection policies and the high debt of the company are the "minefields" for the company's development in the future.

It is worth looking forward to when Hongqiao, a global aluminum giant, will successfully hit the 100 billion target in the "post Zhang era".

Source: Huaxia energy network