"For a long time, China's capital market has focused more on financing in its institutional design, and has not paid enough attention to the protection of the rights and interests of small and medium-sized investors, forming an unbalanced pattern of strong financiers and weak investors." Xiao Gang, Chairman of the China Securities Regulatory Commission, pointed out in October 2013, "We must improve the investment return mechanism. We must guide listed companies to actively return to investors." The philosophy of XCMG Group Construction Machinery Co., Ltd. is: good corporate governance is the key guarantee for the company's sustainable development and long-term prosperity, among which actively rewarding investors is very important. Good shareholder returns are the lifeline, and XCMG is committed to building the most rewarding first blue-chip stock in China's construction machinery field.

Net profit increased 62 times

XCMG's returns to shareholders are mainly reflected in sustained high-speed performance growth and long-term reasonable profit distribution. Listed on the A-share market in 1996, XCMG's operating revenue rose from 704 million yuan in 1996 to 32.132 billion yuan in 2012, an increase of 44 times; net profit changed from 39 million yuan in 1996 to 2.466 billion yuan in 2012, an increase of 62 times; market value grew from 1.1 billion yuan at the beginning of listing to 23.7 billion yuan at the end of 2012, an increase of 20 times; cumulative cash dividends to shareholders exceeded 1.3 billion yuan. Since financing and returns interact with each other, favoring one over the other for a long time will break the balance between the two, making both unsustainable. XCMG insists on distributing dividends to shareholders at an appropriate ratio, which not only rewards shareholders in the short term but also ensures long-term sustained returns for shareholders.

XCMG has four major characteristics regarding shareholder returns.

First, it has a strong sense of return in business management. XCMG has always adhered to the core values of shouldering great responsibilities, walking the broad path, and achieving greatness, and practically practices work philosophies such as integrity and win-win, creating value, rewarding shareholders, and giving back to society.

Second, it has a dialectical and correct understanding of profit distribution. Dividends from listed companies are an important form of realizing investor returns. Only under the principle and premise of achieving a balanced unity of company development, corporate value, and shareholder interests can it provide sustained and stable returns to shareholders and thereby gain long-term support from shareholders.

Third, improving profitability is the foundation and ability for the company to sustain dividends. XCMG's growing performance not only enhances corporate value but also lays the foundation for sustained dividends.

Fourth, XCMG is guided by enhancing corporate value and has established a long-term, sustained, and flexible dividend policy based on its own business development. Specific measures are: first, provide institutional guarantees for dividends, such as clarifying the profit distribution policy in the company's articles of association, actively adopting cash dividend distribution, and emphasizing the continuity and stability of the policy; second, flexibly adjust the dividend ratio and frequency according to its own development stage and external environment, and reasonably adjust the priority order of fund use. On the one hand, under the premise of ensuring normal business activities and future development needs, the company will appropriately increase the cash dividend ratio and increase the number of dividends to reward shareholders; on the other hand, when high-quality project reserves are sufficient, it will invest more retained earnings in project construction, enhance company profitability through prudent investment and project operations, thereby boosting stock prices and bringing value appreciation to shareholders.

The emphasis on shareholder returns has won XCMG positive responses from the outside world. In 2011, XCMG was selected into the "CCTV Finance 50" index and won the "Top Ten Return Companies" award.

Continuously improving corporate governance

As Li Weian, President of Dongbei University of Finance and Economics and Dean of the China Corporate Governance Research Institute of Nankai University, pointed out: in mature capital markets, investors holding stocks of listed companies with good corporate governance quality can bring them investment returns exceeding the market average, namely the governance premium. From 1996 to 2012, how did XCMG achieve shareholder returns such as a 62-fold increase in net profit and a 20-fold increase in market value? Only excellent corporate governance can create good and sustainable returns for investors and other stakeholders. XCMG has long been committed to improving its corporate governance level.

The board of directors is the core of corporate governance and the source of corporate value. XCMG has always attached great importance to improving the construction of the board of directors and enhancing the efficiency of board operations. Directors can understand and continuously pay attention to the company's production and operation conditions, financial conditions, and major events that have occurred or may occur and their impacts, actively investigate and obtain information required for decision-making, and ensure efficient operation and scientific decision-making of the board. A independent director once spoke highly of the board's work: "Among several listed companies where I serve as an independent director, XCMG's board of directors is the most standardized." Under XCMG's board of directors, there are four specialized working bodies: the Strategy Committee, the Remuneration and Assessment Committee, the Audit Committee, and the Nomination Committee. These four specialized working bodies are respectively responsible for researching and proposing suggestions on the company's long-term development strategy and major investment decisions, formulating assessment standards for directors and senior executives and conducting assessments and formulating, reviewing the company's remuneration policies and plans for directors and senior executives, communicating, supervising, and verifying the company's internal and external audits, and proposing suggestions on the candidates, selection standards, and procedures for the company's directors and senior executives. These four specialized working bodies are responsible to the board of directors, with both independent division of labor and mutual integration, reflecting the professionalism and high efficiency of decision-making in formulating specific company policies, and making significant contributions to the company's operations. Regarding the effectiveness of XCMG's board of directors, in addition to performance and shareholder returns, one example is that the company's board of directors has won the Golden Roundtable Award for Chinese Listed Company Boards three times.

Mechanisms are also a focus of the company. XCMG's standard is marketization, that is, decision-making and management are all done according to market rules, and everything revolves around the market. For example, in terms of talent, XCMG attaches great importance to talent, adheres to the concept that "talent is the most valuable asset in an enterprise," and vigorously builds an excellent entrepreneur group. The company strengthens education and training for entrepreneurs in terms of business philosophy, management expertise, management skills, business decision-making, values, professional ethics, etc., making them high-quality business operators; the company actively innovates selection mechanisms, broadens talent growth channels, and adopts methods such as organizational assessment and open recruitment to select excellent talents to leadership positions, training them in work and growing and maturing through training. Now a group of entrepreneurs with a strong sense of career and responsibility, modern management knowledge, and strong innovation awareness has become one of the company's core competitiveness. The proper corporate governance, especially the construction of the board of directors, has promoted forward-looking and scientific strategic decision-making, thus providing a key guarantee for XCMG to always maintain its leading position in China's construction machinery industry. In traditional business sectors, the company has always focused on construction machinery and special vehicles, making products stronger, better, and more solid; in new business sectors, the company continuously develops new business sectors through XCMG's technology center and technology system, and continues to expand its product line.

In terms of talent cultivation, the company introduces, cultivates, and uses various talents and talents at all levels, enabling them to develop rapidly in the company and enhancing the company's technical and scientific research capabilities. In terms of independent innovation, XCMG always regards innovation as the internal driving force of the enterprise and the key to sustainable development. The company aims to build a "technology-leading" enterprise, vigorously carries out the construction of innovative and learning-oriented enterprises, continuously improves the learning and innovation capabilities of employees, and continuously enhances the company's sustainable competitiveness.

XCMG has always insisted on investing 5% of annual sales revenue in scientific research and development, and continuously improving the national technology center and technological innovation system. The company's technology is in a leading position among peers. Since 2010, it has won the second prize of the National Science and Technology Progress Award for three consecutive years; it has mastered more than 100 core technologies and obtained more than 1,000 authorized valid patents; the output value rate of new products reaches 55%, and the sales rate of new products with independent intellectual property rights exceeds 95%.

In terms of international layout, XCMG is one of the construction machinery manufacturers with business all over the world, with a strong overseas distribution network. The company's products are now sold to more than 140 different countries and regions. The latest progress is: in 2013, the company made breakthroughs in overseas market expansion and global layout. The Brazil comprehensive base started trial production, and the first batch of main machines achieved Brazilian manufacturing and rolled off the assembly line; a joint venture with Germany's Schwing was established as XCMG Schwing, introducing its advanced product technology and production technology, improving the company's product technology and quality level, and also rapidly enhancing XCMG's comprehensive competitiveness. The company has taken substantial steps in internationalization. All of these benefit from the scientific decision-making of the company's board of directors. XCMG has explored a path suitable for its own development.

In terms of forward-looking and scientific strategic decision-making of the board of directors, capital operations are particularly worth mentioning. In 2009, XCMG completed the injection of major assets of XCMG Group, changing the previous state of a large group with a small listed company, and enabling the listed company to achieve a qualitative leap. In 2010, it made a targeted additional issuance of A-shares to 8 investors including Youngor, raising 5 billion yuan, which from the perspective of net assets was equivalent to recreating a listed company, providing strong financial support for the company's development. In October 2011, XCMG established an investment company. By building an investment platform and cultivating a professional investment team, it continuously increases new profit growth points and lays a solid foundation for the company's future "capital + operation" dual-wheel drive. In 2011 and 2012, XCMG issued 4.5 billion yuan of corporate bonds, with issuance interest rates far lower than bank loan rates over the same period, saving hundreds of millions of yuan in financial expenses.

In September 2013, XCMG received the "Approval on Approving XCMG Group Construction Machinery Co., Ltd. to Publicly Issue Convertible Corporate Bonds" issued by the CSRC, approving the company to publicly issue convertible corporate bonds with a total face value of 2.5 billion yuan to the public, with a term of 6 years. The coupon rate of the convertible bonds issued this time does not exceed 2.5%—XCMG's philosophy is that capital operations are an indispensable part of value creation for listed companies. The company should be dual-wheel driven, product operation plus capital operation. Capital operations can create a good amplification effect for enterprises, shareholders, and society.