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Dear shareholders:

On behalf of the Board of Directors, I would like to present to the shareholders the annual report of the Group for the year ended 31 December 2022, and report to the shareholders on the performance and operation of the Group for the year under review.

In 2022, the Chinese and even the global economy suffered a blow due to unexpected factors such as the variants of COVID-19 with stronger transmission power. The triple pressures of shrinking demand, disrupted supply and weakening expectations, coupled with the turmoil in the external environment, have caused significant negative impacts on the domestic economy. The cumulative real estate investment has declined further, and new construction areas fell by nearly 50%. On the other hand, the Chinese government boosted investment in infrastructure construction, withstood the pressure, co-ordinated pandemic prevention and control with economic and social development, balanced development and security, and achieved stable economic performance. To conclude, the annual gross domestic product increased of 3.0% YoY in 2022 did not come easily.

Affected by the slowdown on the demand side, domestic coking coal’s downstream industry, China’s steel sector faced a relatively sluggish trend in 2022, resulting in a slight decline in output. Crude steel output was approximately 1.01 billion tonnes in 2022, a decrease of 2.1% YoY. Pig iron was approximately 0.86 billion tonnes, a decrease of 0.8% YoY. In terms of coking coal supply, efforts to domestic guarantee thermal coal supply in 2022 have been strengthened, resulting in a 0.8% increase in overall domestic supply of clean coking coal. In terms of the imports, China imported nearly 64 million tonnes of coking coal, an increase of 16.7% YoY. Mongolia and Russia became the leading importers, accounting for more than 70% of the total import volume. The price of coking coal showed a trend of “up first and down after” and fluctuated. Due to the low base effect in the first half of 2021, the overall price of clean coking coal in 2022 increased by more than 10% YoY.

Thanks to the efforts of all our employees in seizing every opportunity in the market, we achieved record-breaking profit in 2022 once again, bringing returns the unwavering support of the shareholders over the years. During the year under review, the Group produced 5.25 million tonnes of raw coking coal, a YoY increase of 2% and reaching our annual approved production capacity. The sales volume of clean coking coal reached 3.32 million tonnes, an increase of 1% YoY, with self-produced clean coking coal sales volume increase of approximately 4% YoY. The average selling price (inclusive of VAT) of clean coking coal, the Group’s main product, reached RMB2,402/ tonne, representing an increase of 19% YoY. For the year ended 31 December 2022, the Group’s sales revenue amounted to HK$8.2 billion, an increase of 16% YoY. The gross profit margin reached 64%, an increase of 2 percentage points compared to 2021. The Group’s net profit hit HK$3.3 billion, an increase of 8% YoY, with the net profit attributable to shareholders amounting to HK$2.7 billion, an increase of 7% YoY. These achievements have brought considerable returns to our shareholders. The Group is always in a stable financial position with abundant funds, which provides a solid foundation for the Group’s future development.

After China adjusted pandemic measures at the end of 2022, the economy is expected to return to normal in 2023. The China Securities Regulatory Commission has announced that real estate companies are now able to refinance. The Central Bank and the China Banking and Insurance Regulatory Commission jointly issued 16 financial measures to support steady and healthy development of the real estate market. At the same time, we believe domestic infrastructure will continue developing constantly. Although the global pandemic has shown signs of easing and developing economies have returned to a relatively stable situation, the world is still changing, and global economic growth will further slowdown, particularly in Europe and the United States where recession risks are increasing. Affected by incidents such as Silicon Valley Bank and Credit Suisse, the international economic situation has become more complex and changing, and uncertainties have further increased. Geopolitical conflicts will likely persist, leading a harm to the global energy supply chain. The domestic economic recovery is still in the early stage. Since the willingness of consumers to purchase housing and capital reinvestment remains sluggish, the policy stimulus aimed at the real estate industry has not yet seen obvious achievements. Indicators such as land purchase, new construction, and sales area continue to remain low level and are still in a downward trend.

In 2023, China’s economy will adhere to the general tone of prioritising stability while pursuing progress and solidly promoting Chinese-style modernisation. The recovery of market demand is expected to be relatively strong. However, due to the “Dual Carbon” goal, the steel output is still expected to have room for a slight decline in 2023. On the coking coal supply side, domestic coal mines are expected to increase their output slightly, driven by the high-profit margins and strict environmental protection and safety policies. For imports, Mongolian and Russian coal will remain the dominant forces in the import market and are expected to continue growing. However, the import of Australian coal may be a critical uncertain factor. Therefore, due to the unclear demand trend and the general increase in coking coal supply, the price of coking coal is likely to fluctuate significantly depending on changes in the balance of supply and demand.

In 2023, the Group’s Xingwu Coal Mine is going to undergo a transition of upper and lower coal seams. With the safe production as the prerequisite, we will work to facilitate a smooth production transition, and further improve quality and efficiency. We will adjust production and operation in a timely and effective manner according to market development.

I would like to extend my heartfelt 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 2022 final dividend of 28 Hong Kong cents per ordinary share to share the Group’s remarkable operating results in 2022 with our shareholders. We will persistently strive to create long-term and stable returns for our shareholders, society, and all employees.

Ding Rucai


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