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Dear Shareholders,

On behalf of the Board, I am hereby delighted to present the annual result of the Group for the year ended 31 December 2018 and report to shareholders on the Group’s performance for the year under review.

Although the global economy was under recovery, the momentum of growth has been weakened and showed signs of differentiation in 2018. The global economy showed a strong growth at the beginning of 2018, however, the trend has been dampened by many factors such as the escalation of global trade disputes, geopolitical instability, the rise of Populism around the world, uncertainties in Brexit and the tightening of monetary policy of the USA. Economic growth in developed countries was approaching a ceiling while growth has been declining in some of developing countries or the emerging economies. These indicate that there is increasing risk of global economy slowdown.

Aside from the rapid changing global environment, China has been going through a massive economic restructuring at the same time. Chinese government is devoted in regulating the financial market, implementing supply-side structural reform and tightening environmental and safety policies. Accompany with the on-going Sino-US trade war which created a negative investment sentiment, it is inevitable that Chinese economy suffered from infrastructural investment and consumption growth decline and financial market turmoil in 2018. Despite under all these unfavorable circumstances, the Chinese government has implemented a number of effective measures which achieved GDP growth of 6.6% in 2018, higher than the target of 6.5%.

It has been almost 3 years for steel and coal industry undergoing the supply-side structural reform. Capacity reduction targets set out in the “Thirteenth Five-Year Plan” are basically completed in 2018. Supply-demand relationship in the industry has been improved and price has been stabilised. As a result, profitability of the industry has returned to a relatively healthy level. In June 2018, Chinese government announced its “Blue Sky Protection Campaign” which demands a stricter code for environmental protection. This affects production volume in coal mining in China significantly, however, this also tightens the supply of coal especially coking coal and hence the price of coking coal remains at a relatively high position.

Under the current market situation and as a result of our team’s effort, our Group is pleased to report that for the year ended 31 December 2018, the raw coking coal production volume of the Group was 4.07 million tonnes with a YOY increase of 2%; the clean coking coal production volume of the Group was 2.12 million tonnes and sale volume was 2.10 million tonnes with a YOY increase of 4% and 1% respectively. The average realised selling prices (VAT inclusive) of raw and clean coking coal were RMB 786/tonne and RMB 1,451/tonne with a YOY increase of 5% and 15% respectively. During the year under review, the Group’s revenue was HK$3.69 billion with a YOY increase of 6%. The gross profit margin was 52% and the net profit attributable to the Company’s shareholders was HK$1.1 billion for the year of 2018.

In addition, after several years of construction, lower seam construction in Jinjiazhuang Mine was completed and entered trial production phase in the end of 2018. In the year under review, the Group introduced auto-mining technology to Zhaiyadi Mine and received a positive result. It is expected that there is a significant reduction of underground workers and greatly improved occupational safety and production efficiency in the future. Our Group will continuously develop “Smart Mining Operation” in the future.

Looking towards 2019, we remain cautious about global economic growth. The International Monetary Fund downgraded the world economic growth to 3.5% this year and predicted that Chinese economy will further slowdown to 6.2% GDP growth. Chinese Government also downgraded its GDP growth rate to 6.0%-6.5%. There is a significant pressure on economic growth due to various political and economic disputes happening around the world such as Sino-US trade dispute blurred, uncertainty risk in UK due to Brexit, tightening monetary policy etc.. As Chinese’s economy is still under restructuring and in the process of industrial upgrading, its economy faces increasing downward pressure. However, we can see that the Chinese government has adjusted and eased some of the macroeconomic policies. It will cut the whole year’s tax by almost 2 trillion yuan which hopefully will improve enterprises’ profit margin. Infrastructural investment has been stabilized and rebounded up, many construction projects has been approved and carried out. For real-estate sector, Chinese government introduced “One City One Policy” instruction, meaning that local government can adjust their policies according to their local market situation. This helps stabilizing the real-estate market and benefits its long-term development. This shows that the downstream demand of steel industry will remain relatively stable in 2019.

As for coking coal sector, it will benefit from the steel industry and at the same time, Chinese government adjusted its coal import policy, and continue to tighten the environmental and safety regulations that will further limit the supply of coking coal in China. Without any unexpected factors, we remain optimistic on the coking coal price, and we believe that the coking coal price would remain at a relatively high level in 2019.

In 2019, our priority is to restore Jinjiazhuang Mine back to normal operation and restore its production capacity gradually back to the approved level. In order to enhance occupational safety, production efficiency, environmental protection and lower production cost, we will continue to explore different emerging technologies that can transform our operation to become “smarter”. Meanwhile, we will also explore all kinds of opportunities to expand our mineral resources in order to sustain Group’s development and to maximise returns for society, our shareholders and employees.

As a token of our appreciation for the continued support and kindness of our shareholders, the Board has proposed a final dividend of HK8.5 cents per ordinary share. Once more, I would like to express my heartfelt gratitude again to our shareholders, management team, employees and business partners for their support for the Group through the years!

Ding Rucai


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