Dear shareholders:

On behalf of the Board of Directors, I would like to present to the shareholders of the Company (the “Shareholder”) the annual report of the Group for the year ended 31 December 2023 and report to the Shareholders the performance of the Group for 2023 and the outlook for 2024.

In early 2023, with the gradual easing of COVID-19, the restrictions on domestic pandemic management were loosened, leading to an optimistic outlook for economic growth for the year. Nevertheless, domestic demand did not strengthen as expected due to the accumulated impact of deep-seated contradictions over the three years of COVID-19, along with new challenges and issues. Particularly troubling was the resurgence of liquidity issues among real estate companies, further weakening the real estate market after a modest rebound, which significantly impacted the domestic economy. On the supply side, coal imports surged after the impacts of the pandemic gradually diminished, with both total coal imports and coking coal imports reaching historical highs in 2023. Coal prices rose briefly in the first half of the year, then declined.

Fortunately, starting in July, the central government rolled out a series of economic support measures aimed at stabilising the fundamentals of the economy, leading to a gradual rebound. These measures were not just focused on providing short-term stimulation but were part of a long-term strategic vision, which required firm determination and greater patience. In the second half of the year, the macroeconomics showed signs of recovery, with the Gross Domestic Product (“GDP”) achieving a commendable growth rate of 5.2%. While the real estate sector remained sluggish, the steel industry benefited from the strong growth in domestic manufacturing and support from export growth, keeping the production levels at steel mills high. At the same time, the safety situation in coal mine production remained strict. In the second half of the year, especially towards the end of the year, there was a noticeable increase in serious accidents, resulting in stricter national safety inspections and punishments. The coal supply, especially coking coal, became tight. The price of coking coal showed a V-shaped trend in 2023, with prices rebounding towards the end of the year.

Facing the difficult situation of a declining macroeconomic environment and the overall downturn in the coking coal market, the Group has consistently maintained a strategic focus to achieve budget targets, fully pushing forward initiatives to improve quality, reduce manpower, enhance production, and increase efficiency. Through the collective efforts of the Group, the upper coal seam of Xingwu Coal Mine successfully extended its mining to the end of 2023. Thus, achieving an annual raw coking coal output once again at 5.25 million tonnes, reaching the approved production capacity and the same as the previous year. The production of clean coking coal also achieved the same result as last year at 3.25 million tonnes. But the sales volume of clean coking coal affected by coal in transit, has dropped 7% to 3.10 million tonnes. The average realised selling price (including VAT) of the Group’s clean coking coal was RMB1,932/tonnes, representing a 20% decrease YoY and in line with the market trend. For the year ended 31 December 2023, the Group’s sales revenue amounted to HK$5.89 billion, a decrease of 28% YoY with the dual impact of the coal price and RMB foreign exchange rate drop. The gross profit margin was 59%, a decrease of 5 percentage points compared to 2022. The net profit of 2023 reached HK$2.3 billion, where net profit attributable to Shareholders amounted to HK$1.89 billion, a decrease of 30% YoY. The Company's financial condition remains solid, with plenty of funds to fully support further development.

In 2024, macroenvironments remain complex and variable, with volatility and uncertainty still hot topics worldwide. This year, many countries are holding elections, geopolitical conflicts continue, and the risks of low inflation or even deflation threaten economies worldwide. In China, the foundations for economic recovery are not solid, characterised by insufficient effective demand, weak social expectations, and numerous risks and hidden dangers. Domestic economic circulation faces obstacles, while international circulation encounters disruptions. The International Monetary Fund (“IMF”) recently forecasted a relatively cautious view of China's economic growth at 4.6%.

The central government has made it clear that it will intensify macroeconomic control efforts, coordinate the expansion of domestic demand, and deepen supply-side structural reforms to continuously promote qualitative and effective improvement as well as reasonable quantitative growth of the economy. The GDP growth target for 2024 has been set at around 5%. Given the relatively high base last year, this target reflects the central government's confidence and determination in economic development. The economy and export data released for January and February indicate that the economy is gradually stabilising and overseas demand is recovering. With domestic policy support, the real estate sector has the potential to rebound from its low point, and domestic infrastructure investment and manufacturing exports will continue to be important drivers of steel demand in 2024. Domestic coking coal supply, especially high-quality coking coal, will continue to be relatively tight. Therefore, we remain cautiously optimistic about the price trend of coking coal within the year.

In 2024, we will continue to process the completion of the trial production phase of the production from the upper coal seam to the lower coal seam of Xingwu Coal Mine. We will ensure a smooth transition to minimise the impact on annual raw coal production. At the same time, we will accelerate our efforts to improve the working quality and prioritise the efficiency, and intelligent development, periodically reviewing and adjusting our production and business strategies.

I would like to extend my heart felt appreciation to the management team and all employees for their dedication to the Group. I would also like to express my gratitude to the Shareholders for their consideration and support to the Group. The Board of Directors recommends a 2023 final dividend of 18 Hong Kong cents per ordinary share to share the Group’s operating results of the year with our Shareholders. We will continuously strive to create long-term and stable value returns for our Shareholders, society, and all employees.

Ding Rucai
Chairman