On behalf of the Board of Directors (the "Board") and Management of Delong Holdings Limited ("Delong" or the "Group"), I am pleased to present to you the annual report of the Group for the financial year ended 31 December 2018 ("FY2018").
The operating landscape remained challenging in FY2018. Macro headwinds arising from global trade tensions, decelerating economic growth in the People's Republic of China (the "PRC") as well as the Chinese government's ongoing efforts to curtail steel production have continued to overshadow the growth in domestic steel demand.
During the year, Chinese authorities maintain its push for greater consolidation within the steel-making industry through initiatives such as eliminating obsolete capacity and smaller players. Within Hebei Province, where Delong's production facility is based, a three-year industry capacity reduction work plan for the period from 2018 to 2020 was introduced � aimed at keeping total annual provincial capacity within 200 million tonnes, the work plan targets a reduction of steelmaking capacity by 14 million tonnes per year in 2019 and 2020 respectively. Market players also face mounting pressure to meet environmental compliances as local authorities roll out stricter environmental policies. For instance, in June 2018, the State Council had announced the banning of new steel, coke, and primary aluminium capacity in the Beijing-Tianjin-Hebei and Yangtze River Delta regions.
In spite of the challenges, our business operations, underpinned by Delong's strong fundamentals as a leading steel hot-rolled coil ("HRC") manufacturer, delivered a stable performance in FY2018.
FY2018 revenue was RMB14.3 billion, an increase of 11.3% from RMB12.8 billion a year ago ("FY2017"). This revenue growth was supported by an increase in average selling prices for the Group's steel products amid tighter supplies following production cuts and driven by infrastructure and construction activities in the PRC.
Total sales quantity for FY2018 was approximately 3.9 million tonnes, a marginal increase of 3,553 tonnes from a year ago. On a breakdown basis, the Group sold 3,924,046 tonnes of HRC and 6,456 tonnes of steel billets as compared to 3,926,463 tonnes of HRC and 486 tonnes of steel billets in FY2017.
Cost of sales in FY2018 rose 18.2% to RMB11.9 billion, from RMB10.1 billion in FY2017, largely due to an overall increase to the prices of raw materials such as coke, coking coal and steel scrap. This in turn resulted in a lower gross profit of RMB2.3 billion in FY2018, 14.0% lower compared to RMB2.7 billion in FY2017. The Group's gross profit margin correspondingly decreased by 4.9 percentage points to 16.4% in FY2018, from 21.3% a year ago.
Distribution and marketing expenses narrowed by RMB54.5 million to RMB33.5 million during the year, from RMB88.0 million in FY2017. This was due mainly to a decrease in transportation costs following the cessation of operations at the Group's Aoyu Steel production facility since August 2017.
Administrative expenses increased to RMB402.7 million in FY2018, from RMB374.3 million a year ago, due mainly to an increase in research and development expenses incurred for product development, staff welfare as well as higher sewage and environmental impact assessment fees incurred in FY2018 to comply with the increasingly stringent environmental regulations. The increase was partially offset by the cessation of operations at Aoyu Steel.
Finance expenses increased by RMB10.1 million to RMB163.2 million in FY2018 compared to RMB153.1 million in FY2017, largely due to higher bank borrowings drawdown for working capital purposes and higher interest rates on bank borrowings in FY2018.
Accordingly, notwithstanding economic and operational volatility, the Group turned in a net profit after tax of RMB1.7 billion in FY2018, representing a net profit margin of 11.9%. This compares against a net profit after tax of RMB2.1 billion and net profit margin of 16.1% in FY2017.
Moving into 2019, market watchers expect China's slowing economic growth and a softer outlook in the property, automobile and energy sectors to impact demand and prices for steel products. On the supply front, the China Iron and Steel Association has reported that China will continue unabated in its effort to reduce overcapacity and combat industrial pollution, with a view towards reducing domestic steel capacity to less than 1 billion tonnes by 2025. While the aforesaid measures have yet to impact Delong's existing operations, the Board and Management will keep a vigilant watch on market developments that may impact its operations and commercial viability.
Looking forward, even while industry conditions remain difficult, Delong will endeavour to navigate through challenges and deliver profitable outcomes for our valued shareholders. Our efforts in keeping abreast of market and regulatory developments, as well as continual investments into technological upgrades and enhancements have been central to the Group's performance.
As a leading steel producer, it is also Delong's strategy to explore and evaluate earnings-accretive business opportunities for the long-term benefit of our shareholders. Such efforts include our strategic expansion into the Indonesian market via a 45%-owned joint-venture steel project, which is expected to generate an additional stream of income for Delong when operational in June 2019.
To further diversify incomes streams, the Group is also looking to opportunistically invest in quoted and/or unquoted securities, as well as the provision of seed and mezzanine capital to private companies with growth potential and undertaking business incubation. The Group has obtained the type 9 Licence by the Securities and Futures Commission of Hong Kong and will diversify into asset management business in due course.
In closing, I would like to extend my sincere appreciations to my fellow Directors for their support, valuable inputs and wise counsel; the Management and Staff of Delong for their loyalty, dedication and contributions to the Group.
To our customers, suppliers and business associates, I would like to express my sincere appreciation for their continuing support. Finally, I would like to specially thank our shareholders for the continued support and belief in Delong despite the challenging business environment.