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Email This Print This Chairman Statement

(Extracted from the Auunal Report 2015)

Dear Shareholders,

On behalf of the Board of Directors (the "Board") of Delong Holdings Limited ("Delong", and together with its subsidiaries, the "Group"), I present to you our annual report for the financial year ended 31 December 2015 ("FY2015").

Without a doubt, FY2015 was a tumultuous year for the steel-making industry. China's economy grew at the slowest rate in 25 years and conditions in the People's Republic of China (the "PRC") and global steel industries remained weak. The PRC registered a gross domestic product ("GDP") growth of 6.9% in 2015, well below 7.3% achieved in the prior year, affirming a multiyear slowdown in the world's second largest economy. The slowing PRC economy further cooled demand in an already weakening commodities market, with the steel industry faring poorly as a result of softening steel prices as well as persistent overcapacity and environmental concerns. According to data from the World Steel Association, crude steel output in China fell 2.3% to 808.3 million tonnes in 2015, contracting for the first time in almost 35 years.

Under these challenging circumstances which significantly affected selling prices of our core hot-rolled coil ("HRC") products, the Group reported a 27.0% decline in revenue to RMB7.0 billion in FY2015, from RMB9.5 billion a year ago. Consequentially, the Group slipped into losses, ending the financial year with a net loss after tax and noncontrolling interest of RMB392.8 million, compared to a net profit of RMB100.9 million in FY2014.

Details of our FY2015 financial performance are outlined below.


For the year in review, the Group's overall sales volume increased by 1.0% to approximately 3.39 million tonnes of steel products, compared to 3.36 million tonnes a year ago. On a breakdown basis, HRC sales rose from 2.92 million tonnes in FY2014 to 3.39 million tonnes in FY2015, while the sale of steel billets correspondingly decreased to 1,096 tonnes in FY2015 compared to 437,331 tonnes in the prior year. The change in product mix was largely due to production upgrades at Aoyu Steel, Delong's second manufacturing plant, which has equipped it with HRC manufacturing capabilities since mid-2014. However, the marginally higher sales volume was offset by a significant drop in steel product prices, resulting in the overall decrease of RMB2.5 billion in topline performance.

Cost of sales in FY2015 decreased 21.8% in FY2015 to RMB6.9 billion, compared to RMB8.9 billion a year ago, due mainly to significantly lower prices of key raw materials such as iron and coking coal. However, the lower cost of sales was insufficient to compensate for the differences in selling prices, resulting in a 96.8% decrease in gross profit to RMB21.0 million in FY2015, compared to RMB660.1 million in FY2014. Correspondingly, the Group's gross profit margin slipped to 0.3% in FY2015 compared to 6.9% in the prior financial year.

Distribution and marketing expenses increased by RMB13.2 million to RMB69.0 million during the year, from RMB55.8 million in FY2014. This was due mainly to higher transportation costs associated with the delivery of HRC products at Aoyu Steel to customers in the PRC. On the other hand, the Group was able to rein in administrative expenses to RMB266.3 million in FY2015, a decrease of RMB36.3 million compared to RMB302.6 million in FY2014. The decrease was partially due to the Group's successful cost containment efforts, a reduction in headcount as well as lower sewage and environmental impact assessment fees incurred during the review year.

Finance expenses was RMB178.5 million in FY2015, representing a RMB50.4 million decrease from RMB228.9 million in the prior year, due mainly to lower interest rates on banking borrowings.

As a result of the above, and taking into account taxation and noncontrolling interest, the Group reported a net loss of RMB392.8 million in FY2015.


With the PRC steel industry shrouded in uncertainty, the Group's focus remained on ensuring reliability and smooth operations of its existing production facilities and at the same time, selectively target and harness suitable opportunities that can sustainably support Delong's long-term growth. In March 2015, the Group carried out a major maintenance exercise for one of the blast furnaces at one of its PRC production plants. The 85-day maintenance exercise was necessary to enhance the furnace's safety and technical features and was completed with full operations resumed in mid-2015.

2015 was also marked by a milestone development as the Group's 55%-owned steel manufacturing plant in Thailand commenced operations in the third quarter, delivering its first batch of HRC products in September. The Thailand plant, our first overseas steel producing facility, is progressively ramping up production to become a new growth engine for Delong.

Subsequent to the year end, we also undertook a successful five-intoone ordinary share consolidation exercise, which was approved by shareholders and completed in February 2016.


The outlook for the global economy as a whole remains uncertain heading into 2016, worsened by expectations that the PRC's growth will decelerate further in 2016. Prospects for the steel sector remained gloomy, with industry watchers such as the World Steel Assocation projecting a further 2.0% decline in Chinese steel demand in 2016. To address overcapacity concerns, the PRC State Council had in early 2016 unveiled plans to cut steel production by 100 million to 150 million tonnes over the next five years, over which may invariably create further uncertainties for industry players.

Mounting concerns over industrial pollution in the PRC and the ongoing haze issue will also continue to affect the steel industry in terms of production and steel transportation. To mitigate such challenges and to ensure the long-term sustainability of Delong's business operations, we are continually reviewing our current processes and facilities, and investing in necessary technological upgrades and enhancements to reduce emission, improve energy efficiency and recycling waste resource.

We are keeping a close watch on market movements in region and how the PRC's 13th Five-Year Plan will unfold, and will strategically invest in synergistic business opportunities to bolster our operations amid a slowing global economy. The group will also continue to be prudent, maintaining a tight control over processes and cost to ensure better margins and profitability.


In closing, as Chairman of the Board, I will like to take this opportunity to express my utmost appreciation to our shareholders, customers, bankers, business associates, suppliers and vendors for their unrelenting support of Delong. I will also like to thank our management and staff for their effort and dedication, and my fellow Board members for their counsel and support. We will continue to put in our best efforts to deliver value to all our stakeholders.

Ding Liguo
Executive Chairman