Managing Director and CEO’s Message
Chen Jiulin
Managing Director and CEO
China Aviation Oil (Singapore) Corporation Ltd
On behalf of the management of China Aviation Oil
(Singapore) Corporation Ltd (CAO) I am pleased to
present to you our inaugural annual report for the financial
year ended December 31, 2001. It was a year in which
CAO became a truly multi-national publicly listed
enterprise.
OUR VISION
Strategic and visionary management has been a key factor
in the company’s securing of a foothold in the jet fuel
procurement industry. We believe our Group is on a path
of sustainable growth and profitability. Our vision is to be
a dominant player in the global oil industry.
To realize this vision, CAO has developed a three-pronged
approach to growing our business. First, we will focus on
jet fuel procurement as our core competency. Second, we
will develop our international trading capability. Third, we
will undertake strategic investments in oil supply related
businesses.
By broadening the Group’s revenue base we will ensure
the Group is not dependent on jet fuel procurement alone.
The import quota will be lifted in 2004. This is likely to
further stimulate jet fuel imports if the price of imported
fuel remains at its current level of 10-20% cheaper than
domestic jet fuel from local refineries.
Given the optimistic demand, we will strengthen our sole
jet fuel procurement business by optimizing procurement
planning, bulk purchasing and bulk transportation to further
increase profits.
INTERNATIONAL TRADING
CAO succeeded in conducting international trade in gas
oil, diesel, fuel oil, crude oil and petro-chemical products.
At present, our customer base covers, in addition to China,
Korea, Singapore, Philipines, Malaysia, Thailand,
Indonesia, Taiwan, and the Middle East.
The Chinese Government has begun opening up the
petroleum products market by allowing 20% of goods to
be imported. This is a first step towards lifting the import
quota altogether in January 2004. This will allow CAO to
increase the volume of petroleum products imported into
China while at the same time maintaining the company’s
jet fuel procurement right.
PROCUREMENT – OUR CORE COMPETENCY
CAO has close to 100% market share for the procurement
of imported jet fuel for the civil aviation industry in China.
China has been a net oil importer since 1994 and currently
purchases one third of its jet fuel from the international
markets. Under the Chinese quota system, it is projected
that jet fuel imports will continue to grow more than 10%
annually for the next 10 years.
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CAO is well positioned to benefit from the growing
importation of petroleum products into China due to our
established networks and understanding of the Chinese
business environment.
The company already has the required capabilities
such as experienced traders, transport networks, credit
facilities, relationships with suppliers and risk management
procedures.
Annual Report 2001
In February 2002, the State Council of China decided
to reorganise our parent company, CAOSC along the
following lines:
–
China Aviation Oil Group Corporation (CAOGC),
a new entity that will report directly to the State
Council, will be formed on the basis of the existing
CAOSC.
–
The other major stakeholders in CAOGC will be the
three largest China airline groups, together with the
two largest China oil & gas conglomerates.
–
This newly formed CAOGC will be given direct import
and export licenses on aviation oil and aviation oil
supply equipment and facilities.
The Shanghai Pudong project is scheduled to be finalised
during the second half of 2002.
We are also planning strategic investments in Europe &
the USA, as stated in our prospectus. The long-term
objective is to equip CAO with a 24 hours seven days a
week global trading network, which will add value to our
shareholders over the long term, and increase our
international presence.
We welcome this reorganisation and are optimistic that it
will further enhance the sustainable competitive
advantages of the Group. While being the sole jet fuel
procurement arm for the new entity, CAOGC, we will seize
new opportunities to expand further.
STRATEGIC INVESTMENTS
Our plan to acquire a 33% interest in Shanghai Pudong
International Airport Aviation Fuel Supply Company Ltd
is proceeding well. This company owns and operates
refueling facilities at Shanghai Pudong International
Airport and has the exclusive right to supply jet fuel to
airlines at the airport. It is one of the most profitable airport
ground supply companies in China.
With its fixed customers and end-users we expect a high
return on investment with a net profit in excess of US$5
million a year.
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Managing Director and CEO’s Message
RISK MANAGEMENT
Because of the high risk and the unpredictability of oil
trading in the global market, CAO has adopted several
effective monitoring and controlling policies to reduce the
risk to the lowest possible level, mirroring other major
international oil companies.
CAO has set up a Risk Management Committee to monitor
and control the risk of both physical and paper trading
and financing. The risk management has a dedicated
Chairman and four other senior executive members. The
Committee examines a range of risk issues including
market risk, credit risk, liquidity risk, legal risk and
operational risk. The Committee imposes strict standards
of discipline on all trading activities.
Our longer-term vision remains for CAO to emerge as a
dominant player in the global oil industry.
ACKNOWLEDGEMENTS
In addition, CAO engaged Ernst and Young to develop a
comprehensive Risk Management Manual modeled on the
best industry practices used by the major international oil
companies.
CONCLUSION
Jet fuel procurement is the foundation of our business.
Our international trading activities leverage off the existing
jet fuel procurement business infrastructure and skills base.
We will strive to build a more diversified trading platform
to enhance our economies of scale and increase our
profitability.
Both the jet fuel procurement business and the international
trading business will be strengthened as investments are
made in additional oil supply businesses.
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As Managing Director I wish to pay tribute to both the
Board of Directors and the employees of CAO. I sincerely
appreciate the contribution they have made to our
tremendous progress during FY2001. I would also like to
thank our customers, creditors, business associates,
suppliers and shareholders, who have helped CAO to
achieve what it has to date.
Annual Report 2001
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