Angang Steel (tkr: 347 HK) - Useful Life of Fixed Assets

What do you do when you can't hit your target earnings?

In the case of Angang Steel (tkr: 347 HK), just change the depreciation schedule (read here and here for corporate announcement)!

Estimated Useful Life (years)

Category of fixed assets   Before revision    After revision

Buildings                  20                 30

Structures                 20                 30

Conductor facilities       15                 15

Machinery                  10                 15

Power equipment            11                 10

Reason for the change as follows:

"The Company has been endeavouring to enhance the value of its fixed assets in recent years by carrying out continuous renovation and upgrading and regular examination and maintenance of its production facilities. As a result, the actual useful life of certain fixed assets of the Company, in particular, the buildings, structures, machinery and equipment used in production, has been prolonged."

As mentioned with Nine Dragons (tkr: 2689 HK) here, having low (under) depreciation seems to be pretty common with capital intensive industries in China.  It is a quick and dirty way of increasing earnings and margins.  The need for maintenance capex exceeding depreciation is evident, but masked by what many companies claim to be 'growth capex'.

A quick tour of a steel mill (or paper mill) in China will convince anyone there is little chance any fixed asset gets its useful life 'prolonged' in China.

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ps. I have no idea why useful life of power equipment is shortened by one year.  Seems awfully precise.