E-Commodities Holdings Limited — Annual Report 2010

Mar 6, 2011

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

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WINSWAY COKING COAL HOLDINGS LIMITED 永暉焦煤股份有限公司

(Incorporated in the British Virgin Islands with limited liability)

(Stock Code: 1733)

ANNUAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2010

FINANCIAL HIGHLIGHTS

• Turnover of the Group in 2010 was HK$9,272 million, representing an increase of HK$3,989 million or 75.51% over 2009.

• Profit attributable to equity shareholders of the Company in 2010 was HK$929 million, representing an increase of HK$414 million or 80.39% over 2009.

• Diluted earnings per share were HK$0.346.

• The Board recommends a final dividend of HK$0.061 per share for the year ended 31 December 2010.

The board (the “Board”) of directors (“Directors”) of Winsway Coking Coal Holdings Limited (the “Company”) is pleased to present the annual results of the Company and its subsidiaries (the “Group”, “Winsway”, “we” or “us”) for the year ended 31 December 2010 together with comparative figures in 2009.

The Board recommends the payment of a final dividend of HK$0.061 per share for the year ended 31 December 2010.

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CONSOLIDATED INCOME STATEMENT

for the year ended 31 December 2010

(Expressed in Hong Kong dollars)

Note Continuing operations Turnover 4 Cost of sales Gross profit Other revenue Distribution costs Administrative expenses Other operating expenses, net Profit from operating activities Finance income Finance costs Net financial costs Share of losses of jointly controlled entity Profit before taxation Income tax 5(a) Profit from continuing operations Discontinued operations Loss from discontinued operations (net of income tax) Gain on sale of discontinued operations (net of income tax) Profit for the year	2010 HK$’000 9,271,665 (7,154,115) 2,117,550 25,972 (471,487) (358,533) (11,166) 1,302,336 65,825 (179,928) (114,103) (8,080) 1,180,153 (251,390) 928,763 — — 928,763	2009 HK$’000 5,283,216 (4,322,158) 961,058 8,902 (268,945) (103,974) (730) 596,311 7,041 (42,034) (34,993) — 561,318 (70,367) 490,951 (9,246) 33,550 515,255

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Note Attributable to: Equity shareholders of the Company Non-controlling interests Profit for the year Earnings per share(HK$) 6 Total operations — Basic — Diluted Continuing operations — Basic — Diluted Discontinued operations — Basic — Diluted	2010 HK$’000 928,826 (63) 928,763 0.352 0.346 0.352 0.346 — —	2009 HK$’000 515,255 —
		515,255
		0.250 0.250
		0.238 0.238
		0.012 0.012

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2010

(Expressed in Hong Kong dollars)

Profit for the year Other comprehensive income for the year: Exchange differences on translation of financial statements of overseas subsidiaries and jointly controlled entity (net of income tax) Total comprehensive income for the year Attributable to: Equity shareholders of the Company Non-controlling interests Total comprehensive income for the year	2010 HK$’000 928,763 45,164 973,927 971,957 1,970 973,927	2009 HK$’000 515,255 167
		515,422
		515,422 —
		515,422

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 31 December 2010

(Expressed in Hong Kong dollars)

Note Non-current assets Property, plant and equipment, net Construction in progress Lease prepayments Intangible assets Interest in a jointly controlled entity Other investments in equity securities Deferred tax assets 5(b) Total non-current assets Current assets Inventories Trade and other receivables 7 Restricted bank deposits Cash and cash equivalents Total current assets Current liabilities Secured bank and other loans Trade and other payables 8 Income tax payable 5(b) Total current liabilities Net current assets Total assets less current liabilities	2010 HK$’000 473,927 281,879 204,784 237 362,956 89,054 48,262 1,461,099 1,972,557 2,450,881 344,062 2,894,421 7,661,921 1,010,109 1,317,368 90,708 2,418,185 5,243,736 6,704,835	2009 HK$’000 447,008 41,204 8,822 75 — 16,354 34,334
		547,797
		1,190,419 1,840,260 642,536 277,300
		3,950,515
		1,589,466 1,729,028 35,709
		3,354,203
		596,312
		1,144,109

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Note Non-current liabilities Secured bank and other loans Deferred income Total non-current liabilities NET ASSETS CAPITAL AND RESERVES Share capital Reserves Total equity attributable to equity shareholders of the Company Non-controlling interests TOTAL EQUITY	2010 HK$’000 62,577 97,389 159,966 6,544,869 5,014,339 1,454,489 6,468,828 76,041 6,544,869	2009 HK$’000 — —
		—
		1,144,109
		383,522 760,587
		1,144,109 —
		1,144,109

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Notes:

1. CORPORATE INFORMATION AND GROUP REORGANISATION

The Company was incorporated in the British Virgin Islands (the “BVI”) on 17 September 2007 with limited liability under the Business Companies Act of the British Virgin Islands (2004). At the date of incorporation, the Company was named as “China Bestcway Resources Holdings Limited”. The name of the Company was subsequently changed to “China Bestway Resources Holdings Limited” and “Winsway Coking Coal Holdings Limited” on 28 January 2008 and 29 July 2009 respectively. The Company and its subsidiaries are principally engaged in the processing and trading of coking coals and investment holding in a jointly controlled entity developing in coal mills. The consolidated financial statements of the Company for the year ended 31 December 2010 comprise the Company and its subsidiaries.

Pursuant to a group reorganisation completed on 9 August 2010 (the “Reorganisation”) to rationalise the group structure for the public listing of the Company’s shares on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”), the Company became the holding company of the companies now comprising the Group. Details of the Reorganisation are set out in the prospectus of the Company dated 27 September 2010. The Company’s shares were listed on the Stock Exchange on 11 October 2010.

The Group is regarded as a continuing group resulting from the Reorganisation under common control. The assets and liabilities of the Company and its subsidiaries under common control have been accounted for at historical costs and the consolidated financial statements of the Company prior to the Reorganisation have been presented to include the results of operations and the assets and liabilities of the Company and its subsidiaries on a combined basis.

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2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS

The consolidated financial statements have been prepared in accordance with all applicable International Financial Reporting Standards (“IFRSs”), which collective term includes all applicable individual International Financial Reporting Standards, International Accounting Standards (“IASs”) and Interpretations issued by the International Accounting Standards Board (“IASB”) and the disclosure requirements of the Hong Kong Companies Ordinance. The financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange.

The financial statements for the year ended 31 December 2010 comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interest in a jointly controlled entity.

The measurement basis used in the preparation of the financial statements is the historical cost basis except that the following assets and liabilities are stated at their fair value:

• Convertible notes;

• Preferred shares; and

• Share-based payments.

The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The consolidated financial statements are presented in Hong Kong dollars (“HK$”), which is different from the functional currency of the Company and its subsidiaries. The Company’s functional currency is United Stated dollars (“US$”). As the Company is a listed company in Hong Kong, the directors of the Company consider that it is appropriate to present the consolidated financial statements in HK$.

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3. CHANGES IN ACCOUNTING POLICIES

(a) Change in presentation currency

During the current year, the Group has changed its presentation currency for the preparation of its financial statements from Renminbi (“RMB”) to Hong Kong dollars (“HK$”). The Board of Directors considers the change will result in a more appropriate presentation of the Group’s transactions in the financial statements. Whereas the change in presentation currency of the Company was applied retrospectively in accordance with IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”, the comparative figures as at 31 December 2009 and for the year ended 31 December 2009 have also been restated to the change in presentation currency to HK$ accordingly.

The change in presentation currency has no significant impact on the financial position of the Group as at 31 December 2009 and 2010, or the results and cash flows of the Group for the year ended 31 December 2009 and 2010.

(b) Revised IFRSs, amendments to IFRSs and new interpretations

The IASB has issued two revised IFRSs, a number of amendments to IFRSs and two new interpretations that are first effective for the current accounting period of the Group and the Company. Of these, the following developments are relevant to the Group’s financial statements:

• IFRS 3 (revised 2008), Business combinations

• Amendments to IAS 27, Consolidated and separate financial statements

• Amendments to IAS 31, Interest in joint ventures

• Improvements to IFRSs (2009)

The amendment to IFRS 3 and IAS 31 have had no material impact on the Group’s financial statements as the amendment and the Interpretation’s conclusions were consistent with policies already adopted by the Group. Other change in accounting policies which is relevant to the Group’s financial statements is as follows:

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• As a result of the amendment to IAS 17, Leases, arising from the “Improvements to IFRSs (2009)” omnibus standard, the Group has re-evaluated the classification of its interests in leasehold land as to whether, in the Group’s judgement, the lease transfers substantially all the risks and rewards of ownership of the land such that the Group is in a position economically similar to that of a purchaser. The Group has concluded that the classification of such leases as operating leases continues to be appropriate. This change in accounting policy has no material impact on the current or previous periods as the lease premiums in respect of all such leases are fully paid and are being amortised over the remaining length of the lease term.

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period.

4 TURNOVER

The Group is principally engaged in the processing and trading of coking coal. Turnover represents the sales value of goods sold, net of value added tax and other sales taxes and is after any trade discounts. The amount of each significant category of revenue recognised in turnover during the year is as follows:

Cleaned coking coals Raw coking coals Hard coals Others	Continuing operations 2010 2009 HK$’000 HK$’000 4,284,114 1,787,133 789,320 207,712 4,155,712 3,215,877 42,519 72,494 9,271,665 5,283,216	Continuing operations 2010 2009 HK$’000 HK$’000 4,284,114 1,787,133 789,320 207,712 4,155,712 3,215,877 42,519 72,494 9,271,665 5,283,216
		5,283,216

The Group’s customer base is diversified and includes only one customer (2009: Nil) with whom transactions have exceeded 10% of the Group revenues.

In 2010 revenue from sales of coking coal to this customer, including sales to entities which are known to the Group to be under common control with this customer, amounted to approximately HK$1,219 million (2009: Nil) and arose in the PRC in which the processing and trading of coking coal division is active.

— 10 —

5(a) INCOME TAX IN THE CONSOLIDATED INCOME STATEMENT

(1) Taxation in the consolidated income statement represents:

Current tax Provision for the year Deferred tax Origination and reversal of temporary differences	Continuing operations 2010 2009 HK$’000 HK$’000 263,971 62,527 (12,581) 7,840 251,390 70,367	Discontinued operations 2010 2009 HK$’000 HK$’000 — (52) — — — (52)	Total 2010 2009 HK$’000 HK$’000 263,971 62,475 (12,581) 7,840 251,390 70,315	Total 2010 2009 HK$’000 HK$’000 263,971 62,475 (12,581) 7,840 251,390 70,315
				70,315

Pursuant to the rules and regulations of the BVI, the Group is not subject to any income tax in the BVI.

No provision has been made for Hong Kong Profits Tax as the Group did not have any assessable profits subject to Hong Kong Profits Tax during the year.

The provision for PRC current income tax is based on a statutory rate of 25% (2009: 25%) of the assessable profit as determined in accordance with the relevant income tax rules and regulations of the PRC.

Taxation for overseas subsidiaries is charged at the appropriate current rates of taxation ruling in the relevant countries.

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(2) Reconciliation between tax expense and accounting profit at applicable tax rates:

Profit before taxation Notional tax on profit before taxation, calculated at the rates applicable to profits in the countries concerned Tax effect of non-deductible expenses/ (non-taxable income) Tax effect of deferred tax assets on unrealised profits Tax effect of unused tax losses not recognised Actual tax expense	Continuing operations 2010 2009 HK$’000 HK$’000 1,180,153 561,318 226,014 57,992 945 4,563 12,705 7,812 11,726 — 251,390 70,367	Discontinued operations 2010 2009 HK$’000 HK$’000 — 24,252 — 1,073 — (1,125) — — — — — (52)	2010 HK$’000 1,180,153 226,014 945 12,705 11,726 251,390	Total 2009 HK$’000 585,570
				59,065 3,438 7,812 —
				70,315

5(b) INCOME TAX IN THE STATEMENT OF FINANCIAL POSITION

(1) Current taxation in the statement of financial position represents:

At 1 January Provision for the year Income tax paid Disposal of discontinued operations Exchange adjustments At 31 December	The Group 2010 2009 HK$’000 HK$’000 35,709 10,739 263,971 62,475 (211,275) (39,320) — 1,778 2,303 37 90,708 35,709	The Group 2010 2009 HK$’000 HK$’000 35,709 10,739 263,971 62,475 (211,275) (39,320) — 1,778 2,303 37 90,708 35,709
		35,709

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(2) Deferred tax assets and liabilities recognised:

The components of deferred tax assets/(liabilities) recognised in the consolidated statement of financial position and the movements during the year are as follows:

		The Group	The Group
			Unrealised
	Property,		profits on
	plant and	Government	intra-group
	equipment	grants	transactions	Total
	HK$’000	HK$’000	HK$’000	HK$’000
Deferred tax arising from:
At 1 January 2009	(2,148)	19,559	22,607	40,018
Credited/(charged) to
income statement	52	(80)	(7,812)	(7,840)
Disposal of discontinued
operations	2,099	—	—	2,099
Exchange adjustments	(3)	30	30	57
At 31 December 2009	—	19,509	14,825	34,334
At 1 January 2010	—	19,509	14,825	34,334
Credited/(charged) to
income statement	—	(124)	12,705	12,581
Exchange adjustments	—	414	933	1,347
At 31 December 2010	—	19,799	28,463	48,262

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6 EARNINGS PER SHARE

(a) Basic earnings per share

The calculation of basic earnings per share is based on the profit attributable to ordinary equity shareholders of the Company of HK$872,734,000 (2009: HK$515,254,805) and the weighted average of 2,480,152,375 ordinary shares (2009: 2,060,606,060 shares) in issue during the year.

Since the impact on earnings of conversion of redeemable convertible preferred shares to ordinary shares is greater than that on the weighted average number of ordinary shares during the year ended 31 December 2010, they are treated as anti-dilutive in the year. As a result, the calculation of diluted earnings per share does not assume conversion of redeemable convertible preferred shares during the year ended 31 December 2010.

The basic earnings per share is calculated as follows:

• (i) Profit attributable to ordinary equity shareholders of the Company (basic)

Profit attributable to equity shareholders of the Company Profit attributable to the holder of redeemable convertible preferred shares Profit attributable to ordinary equity shareholders of the Company (basic)	Continuing operations 2010 2009 HK$’000 HK$’000 928,826 490,951 (56,092) — 872,734 490,951	Discontinued operations 2010 2009 HK$’000 HK$’000 — 24,304 — — — 24,304	Total 2010 2009 HK$’000 HK$’000 928,826 515,255 (56,092) — 872,734 515,255	Total 2010 2009 HK$’000 HK$’000 928,826 515,255 (56,092) — 872,734 515,255
				515,255

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(ii) Weighted average number of ordinary shares (basic)

Issued ordinary shares at 1 January Effect of issue of ordinary shares under the public offering Effect of conversion of redeemable convertible preferred shares Effect of conversion of convertible bonds Effect of conversion of payable in connection with acquisition of the jointly controlled entity Weighted average number of ordinary shares (basic) as at 31 December	2010 ’000 2,060,606 222,411 97,634 94,786 4,715 2,480,152	2009 ’000 2,060,606 — — — —
		2,060,606

(b) Diluted earnings per share

There were no dilutive potential ordinary shares during the year ended 31 December 2009. The calculation of diluted earnings per share for the year ended 31 December 2010 is based on the profit attributable to ordinary equity shareholders of the company of HK$922,676,000 and the weighted average of 2,665,520,781 ordinary shares in issue during the year, calculated as follows:

(i) Profit attributable to ordinary equity shareholders of the Company (diluted)

Profit attributable to ordinary equity shareholders of the Company After tax effect interest expense on liability Component of convertible bonds Profit attributable to ordinary equity shareholders of the Company (diluted)	2010 HK$’000 872,734 49,942
	922,676

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(ii) Weighted average number of ordinary shares (diluted)

Weighted average number of ordinary shares as at 1 January Effect of deemed issue of shares under the Company’s share option scheme for nil consideration Effect of conversion of convertible bonds Weighted average number of ordinary shares (diluted) as at 31 December	2010 ’000 2,480,152 15,390 169,979
	2,665,521

7 TRADE AND OTHER RECEIVABLES

Trade receivables Bills receivable Receivables from import agents Amounts due from related parties Amounts due from subsidiary companies Advance payments to suppliers Loan to a third party company Deposits and other receivables	The Group 2010 2009 HK$’000 HK$’000 800,904 518,984 283,670 82,906 380,264 901,129 1,222 136,317 — — 432,561 144,886 311,328 — 240,932 56,038 2,450,881 1,840,260	The Company 2010 2009 HK$’000 HK$’000 — — — — — 144,146 — 136,010 2,280,751 295,265 — — 322,107 — — 1,129 2,602,858 576,550	The Company 2010 2009 HK$’000 HK$’000 — — — — — 144,146 — 136,010 2,280,751 295,265 — — 322,107 — — 1,129 2,602,858 576,550
			576,550

All of the trade and other receivables are expected to be recovered within one year.

The credit terms for trade debtors are generally within 90 days. Bills receivable are normally due within 90 days to 180 days from the date of issuing.

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At 31 December 2010, trade and bills receivable of the Group of HK$575,549,644 (2009: HK$321,997,689) were pledged as collateral for the Group’s borrowings.

At 31 December 2010, bills receivable of the Group of HK$791,301,472 (2009: Nil) were derecognised from the statement of financial position as the relevant bills have been discounted to banks on a non-recourse basis.

(a) Ageing analysis

Included in trade receivables and receivables from import agents are trade debtors with the ageing analysis as follows:

Current More than 3 months past due	The Group 2010 2009 HK$’000 HK$’000 1,181,168 1,419,886 — 227 1,181,168 1,420,113	The Company 2010 2009 HK$’000 HK$’000 — 144,146 — — — 144,146	The Company 2010 2009 HK$’000 HK$’000 — 144,146 — — — 144,146
			144,146

(b) Impairment of trade and other receivables

No allowance of impairment loss was recorded in respect of trade and other receivables for the year ended 31 December 2010.

Receivables that were neither past due nor impaired relate to customers for whom there was no recent history of default.

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8 TRADE AND OTHER PAYABLES

Trade and bills payables Payables to import agents Amounts due to subsidiary companies Advances from customers Payables in connection with construction projects Payables for purchase of equipment Others	The Group 2010 2009 HK$’000 HK$’000 748,313 549,445 362,258 966,269 — — 33,167 59,698 12,770 22,440 12,817 40,099 148,043 91,077 1,317,368 1,729,028	The Company 2010 2009 HK$’000 HK$’000 — 149,154 — — — 294,492 — — — — — — 63,802 16,387 63,802 460,033	The Company 2010 2009 HK$’000 HK$’000 — 149,154 — — — 294,492 — — — — — — 63,802 16,387 63,802 460,033
			460,033

At 31 December 2010, bills payable amounting to HK$222,423,806 were secured by bank deposits placed in a bank with an aggregate carrying value of HK$42,453,721.

Trade and bills payables and payables to import agents are expected to be settled within one year or are repayable on demand. The maturity analysis of these payables is as follows:

	The	Group	The Company	The Company
	2010	2009	2010	2009
	HK$’000	HK$’000	HK$’000	HK$’000
Due within 1 month or on demand	888,147	1,229,474	—	149,154
Due after 1 month but within 3 months	—	286,240	—	—
Due after 3 months but within 6 months	222,424	—	—	—
	1,110,571	1,515,714	—	149,154

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9 DIVIDENDS

(i) Dividends payable to equity shareholders of the Company attributable to the year

	2010	2009
	HK$’000	HK$’000
Interim dividend declared on
16 September 2010 and paid of 12 cents
per ordinary share (2009: Nil)	243,703	—
Final dividends proposed after the end of
the reporting period of 6.1 cents per
ordinary share (2009: Nil)	231,084	—

The final dividend proposed after the end of the reporting period has not been recognised as a liability at the end of the reporting period.

(ii) Dividends on redeemable convertible preferred shares and interest on Convertible Bonds

Dividends of RMB43,901,331 (equivalent to HK$50,277,109) (2009: Nil) on the RCPS and interest of RMB42,614,571 (equivalent to HK$48,783,131) (2009: Nil) on the Convertible Bonds were declared on 16 September 2010, out of these amounts, HK$13,718,852 (2009: Nil) has been charged to the profit or loss as part of finance costs in relation to the liability portion.

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CHAIRMAN AND CEO’S STATEMENT

Dear shareholders and employees,

I would like to take this opportunity to thank all of you for your support and conviction in Winsway’s future growth. Our employees, many of whom need to work in inclement climate in Siberia and the Gobi, have demonstrated great commitment to the growth of our company. I would like to thank them for their dedication and wish them a fulfilling experience in the years to come.

2010 has been a milestone year for Winsway. Not only did the Company successfully become a public company listed on the Main Board of The Stock Exchange of Hong Kong Limited (“Hong Kong Stock Exchange”), we also achieved significant growth in our core business. Our growth benefited from several powerful underlying forces. The continued high single-digit growth of the Chinese economy fueled strong demand for steel. Structural shortages of coking coal globally have provided a strong floor for coking coal prices. Specifically, significant domestic supply and demand imbalance and deteriorating quality of domestic coking coal production has turned China from a net exporter of coking coal historically into a major importer of coking coal. Chinese steel makers also demand high-quality hard coking coal to improve production efficiency and to reduce emission of pollutants. All these factors, coupled with China’s desire to diversify its resource supply bases, will continue to provide strong momentum for our growth going forward.

In 2010, we embarked on a major expansion plan which will dramatically increase the border-crossing efficiency at the Ceke and Gants Mod stations at the Sino-Mongolian border crossings. It will also see the commencement of construction of several other border and inland facilities at or close to the SinoMongolian and Sino-Russian borders, as well as two port facilities for coal processing on the north-east coast of China. The build-out of this infrastructure is expected to be completed in tandem by the end of 2012, allowing us unparalleled capacity to service the entire land-locked resource bases of Mongolia and Russian Siberia as well as seaborne coking coal. Our planning of the construction of these infrastructure projects has been made after fully taking into account the potentially explosive increase of production from these regions in the near future. We believe what we do will significantly release the bottleneck which is the most severe hindrance to the development of these regions’ resources industry: logistics and infrastructure.

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Moreover, as stated in our initial public offering (“IPO”) presentation, as an integral part of our business plan we will pursue a cautious upstream strategy in order to fully utilize the integrated logistics service platform we have built. Given the acute structural shortage of high-quality coking coal globally and in China in particular and the quality deterioration of domestic coking coal production, we have a strong conviction about the increasing long-term value of coking coal. However, we do recognize the fact that without an expert mining partner, this strategy may bring more risks than we can manage. Hence, our partnership with Peabody Energy in Mongolia is a prime example of the necessary steps we have taken to mitigate these risks. In the future, it will be one of our priorities to secure stable upstream supplies through multiple channels.

The success of Winsway is a result of our parent company and affiliates’ decade-long experience operating in China’s northern borders and our employees’ hardened dedication. Equally important is the strong working relationship that we have forged with our partners: our suppliers from around the globe, our customers located in China’s various steel production centers and China’s efficient railway system. To them we owe our success and we pledge to continue to work with them in a mutually beneficial manner, creating value for their stakeholders as well as for our own. We believe in the eco-system that we have helped build over the past few years, in which all the parties rise and fall together. By becoming a public company, Winsway is confident to show our partners and the investor community at large that Winsway plays a major role in this eco-system in a sustainable and transparent manner.

We believe 2011 will witness yet another year of tremendous growth at Winsway. The end of the expansion at Ceke, Ganz Mod and Urad Zhongqi (aka Jinquan), together with the newly completed facilities at Erlianhaote and Jining will perfectly compliment the dramatic ramp-up in production from our Mongolian suppliers. A significant and essential supplement to our Mongolian coking coal procurement, Bayuquan and Longkou will both have significant capacity to accommodate our seaborne strategy. We hope what little we do here at Winsway will help China alleviate its unquenchable thirst for coking coal, help address the global coking coal supply-demand imbalance by effectively injecting more supply into the system, and help bridge the gap more efficiently between our trusted suppliers from around the world and our customers located throughout China’s steel production hubs. Most importantly, we hope that our shareholders, our suppliers, our customers and our employees will have a rewarding journey with us together in 2011 and beyond.

Sincerely yours,

Wang Xingchun

Chairman and CEO Winsway Coking Coal Holdings Limited

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND OPERATING RESULTS

The following discussions and analysis should be read in conjunction with the Group’s financial statements and the notes thereto. The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”).

I Overview

2010 witnessed another year of rapid growth for Winsway. Not only did we achieve significant increase in the Company’s topline and bottomline, we also reached a few significant strategic milestones, including our successful listing on the Hong Kong Stock Exchange and the consummation of our partnership with HOPU, China Minmetals, Silver Grant, ITOCHU, Marubeni and Peabody Energy as well as SouthGobi Resources.

In 2010, our revenue increased by 75.51% to HK$9,272 million from 2009’s HK$5,283 million. We sold a total of 4.72 million tonnes of Mongolian coal and 3.11 million tonnes of seaborne coal in 2010, representing an increase of 120.56% and 6.14% year-on-year, respectively. Our GAAP (generally accepted accounting principles) net profit increased from 2009’s HK$515 million to 2010’s HK$929 million, an increase of 80.39%. The net profit for 2010 is consistent with the profit forecast included in the prospectus dated 27 September 2010 issued by the Company in connection with our IPO (the “Prospectus”), which is HK$878 million (RMB 764 million). We incurred significant non-cash accounting expenses as a result of our newly implemented employee incentive plan, as well as one-off expenses, including pre-IPO investment-related expenses, IPO-related expenses and GAAP-based non-cash interest component of the pre-IPO convertible bonds and preferred shares. Excluding these one-off expenses (IPO expenses, HK$32 million; non-cash convertible bond interest expenses, HK$43 million; non-cash preferred shares interest expenses, HK$44 million) and non-cash employee stock option plan related expenses of HK$71 million, we achieved an adjusted non-GAAP 2010 net income of HK$1,119 million, an increase of 117.28% over 2009.

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Note (1): One-off/non-cash expenses included IPO-related expenses of HK$32 million, non-cash interest on the convertible bonds and preferred shares of HK$87 million and expenses related to employee stock option plan of HK$71 million.

On a per-tonne basis, we achieved a unit GAAP net profit of HK$119 in 2010, in line with our operational target. If the abovementioned one-off/non-cash expenses are excluded, our per-tonne net profit would have been HK$143 in 2010.

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II The IPO and Subsequent Stock Performance

Winsway was successfully listed on the Main Board of the Hong Kong Stock Exchange on 11 October, 2010. Net proceeds from the IPO were HK$3.55 billion, 75%, 15% and 10% of which will be used for infrastructure-related capital expenditure, upstream asset acquisitions and general working capital purposes, respectively. In addition to providing significant liquidity and a meaningful capital access platform for our growth, the IPO put our internal and organizational control, corporate governance and business development process through a rigorous evaluation and streamlining process, which helped us institutionalize many best practices that are the bedrocks of companies with longevity and sustained profitability.

The listing brought in many world-class institutional investors as well as retail investors as our shareholders. We are keen to nurture and maintain these new relationships because we understand the importance of a loyal investor base for a public company. Most importantly, we understand a strong and supportive investor base is built upon consistent and prolonged earnings growth and high ethical and corporate governance standards.

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III Mongolian Procurement

In 2010, we procured a total of 6.47 million tonnes of Mongolian raw coal, representing a 71.62% increase in terms of raw Mongolian coal procurement over 2009 (3.77 million tonnes).

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Note: Coal purchased from Moveday was mined by Tavan Tolgoi Corporation (HK$401 million) and SouthGobi (HK$157 million).

We currently have four Mongolian suppliers. In addition to the 10-year strategic contract that we have with Tavan Tolgoi Trans Co., Ltd Company (“TTT”) and a 3-year strategic agreement with an unidentified Mongolian supplier, we successfully secured a 5-year strategic agreement with SouthGobi Resources Ltd. (“SouthGobi”) in December 2010. Under this strategic agreement, SouthGobi will provide a minimum of 2 million tonnes of coal to Winsway for the next five years and 3.2 million tonnes of raw coal to Winsway in 2011, specifically. This agreement further solidifies our position as one of the largest importers of Mongolian coal into China.

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Winsway will continue to service our Mongolian supplier base as many mining companies are planning to bring their production online in the near future, acting as the preferred bridge between them and the end user market located in coastal regions of China.

IV Seaborne Procurement

In 2010, our seaborne procurement volume was approximately 3.06 million tonnes, an 8.9% decrease over 2009. Our seaborne business is a significant compliment to our core Mongolia and Russia business. As one of the largest importers of seaborne coking coal into China, Winsway has established relationship with major coking coal suppliers from around the world in Australia, Russia, the United States, Canada, etc.

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V Infrastructure

Infrastructure building is at the heart of our business model and our infrastructure build-out achieved significant milestones in 2010. The construction of the two railway logistics loading stations at Ceke and Erlianhaote were completed and will be operational in early 2011. Several new washing plants are expected to become fully operational by the end of 2011, raising our aggregate capacity to approximately 23 million tonnes per annum. The following is a summary of the status of our fixed assets at each of our locations at the end of 2010.

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VI Our Customers

We continue to receive strong support from our customers in 2010. Our customers include some of China’s largest steel mills and coke makers primarily located in northern, coastal and central regions of China. We have gradually moved our marketing efforts away from China’s northern borders to the coastal regions of China, where close to 60% of China’s steel production is concentrated, including the provinces of Hebei, Jiangsu, Shandong, Liaoning and the municipalities of Shanghai and Tianjin. Our products have reached markets as far away from the Sino-Mongolian border as Wuhan and Changsha, which are located in central China. In terms of sales, our top 5 customers are as follows:

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We have signed long-term strategic agreement with some of our customers as demonstrated by the table below:

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VII Peabody-Winsway Joint Venture

At the end of June 2010, Winsway purchased a 50% interest from Polo Resources Limited in the joint venture between Peabody Energy Corporation and Polo Resources Limited. For details of this investment, please refer to the paragraph headed “Business – Our Operation – Upstream investments” of the Prospectus.

Total operating expenses of the Peabody-Winsway Joint Venture (the “JV”) in 2010 were approximately HK$47 million, of which HK$8 million was borne by Winsway. A total of HK$72 million of exploration expenditures were capitalized and the remainder is expensed primarily for license maintenance fees and general corporate purposes. 2011 operating expenses are expected to increase over those of 2010, but as the JV will still be primarily engaged in exploration; the overall budget of the JV for 2011 will only be slightly higher than 2010. However, the JV is expected to enter into coal production in the next few years and may incur large amount of additional capital expenditure.

VIII Financial Review

a. Sales

In 2010, our sales revenue grew 75.51% from 2009, to reach an all time record of HK$9.27 billion. This is the result of continued strong demand for coking coal from our customers in China and our improved ability to offtake and transport more coal from around the world, particularly from the Sino-Mongolia border crossings to our major customers on the east coast of China.

Turnover Mongolian Coal Seaborne Coal Other Total	Years ended 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 1,101,960 1,994,845 5,073,434 — 3,215,877 4,115,712 11,898 72,494 42,519 1,113,858 5,283,216 9,271,665	Years ended 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 1,101,960 1,994,845 5,073,434 — 3,215,877 4,115,712 11,898 72,494 42,519 1,113,858 5,283,216 9,271,665
		9,271,665

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We sold a total of 7.83 million tonnes of coking coal in 2010, consisting of 4.72 million tonnes of Mongolian coal and 3.11 million tonnes of seaborne coal. We procured 6.47 million tonnes of Mongolian raw coal and 3.06 million tonnes of seaborne coal. 2010 witnessed significant increase of coking coal prices globally versus 2009. As a result, the average selling price of our coking coal products increased 14.31%, from HK$1,027 per tonne in 2009 to HK$1,174 per tonne in 2010.

Years ended 31 December

			Years ended 31 December	Years ended 31 December
	2008		2009		2010
		Average		Average		Average
	Total	selling price	Total sales	selling price	Total	selling price
	sales volume	(Per tonne)	volume	(Per tonne)	sales volume	(Per tonne)
	(Tonnes)	(HK$)	(Tonnes)	(HK$)	(Tonnes)	(HK$)
Mongolian coal	1,008,155	1,093	2,140,892	932	4,720,952	1,075
Seaborne coal	—	—	2,932,937	1,096	3,106,230	1,325
Total	1,008,155	1,093	5,073,829	1,027	7,827,182	1,174

b. Cost of Goods Sold (“COGS”)

The increase of COGS in 2010 tracked the increase of our sales revenue to reach a total of HK$7,154 million. COGS primarily consist of cost of raw coal purchased, transportation costs of Mongolian coal from the Sino-Mongolian border to our washing plants and washing-related expenses.

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The average purchase price of raw coal also increased as a result of the coking coal price increase in 2010 over 2009. The average purchase price of Mongolian raw coal increased 20.58%, from HK$413 per tonne in 2009 to HK$498 per tonne in 2010, while the average purchase price of seaborne coal increased 15.24%, from HK$971 per tonne in 2009 to HK$1,119 per tonne in 2010.

Years ended 31 December

			Years ended 31	December
	2008		2009		2010
		Average		Average		Average
	Total	purchase	Total	purchase	Total	purchase
	purchase	price	purchase	price	purchase	price
	volume	(Per tonne)	volume	(Per tonne)	volume	(Per tonne)
	(Tonnes)	(HK$)	(Tonnes)	(HK$)	(Tonnes)	(HK$)
Mongolian coal	1,267,990	475	3,771,636	413	6,472,246	498
Seaborne coal	—	—	3,361,228	971	3,062,230	1,119
Total	1,267,990	475	7,132,864	676	9,534,476	697

c. Gross Profit

2010 gross profit saw a 120.33% increase, from HK$961 million in 2009 to HK$2,118 million in 2010. Gross profit margin also improved from 18.2% in 2009 to 22.8% in 2010.

Mongolian coal Seaborne Coal Other Total gross profit	2008 Gross Profit Gross Profit Margin (HK$’000) (%) 488,914 44.4 — — 5,158 43.4 494,072 44.4	Years ended 31 December 2009 Gross Profit Gross Profit Margin (HK$’000) (%) 552,446 27.7 399,187 12.4 9,425 13.0 961,058 18.2	2010 Gross Profit Gross Profit Margin (HK$’000) (%) 1,541,769 30.4 559,508 13.6 16,273 38.3 2,117,550 22.8

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d. Administrative Expenses

Administrative expenses increased from HK$104 million in 2009 to HK$359 million in 2010. Administrative expenses as a percentage of revenue increased to 3.87% in 2010 from 1.97% in 2009. This was a result of increased headcount and the dramatic increase of our operational coverage from two Sino-Mongolian border crossings to multiple operational facilities throughout China. Due to our increased seaborne activities, we also opened offices in Brisbane, Singapore, as well as Hong Kong.

A pre-IPO employee stock option plan was adopted in June 2010. A total of 107,945,000 options were granted to Directors and management. A total of HK$71 million of noncash accounting expenses were incurred as a result which contributed to the increase in administrative expenses. Also, HK$32 million of expenses were incurred for our IPO. If these one-off or non-cash expenses are excluded, our 2010 administrative expenses would have been HK$256 million versus HK$104 million in 2009.

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e. Net Finance Costs

Net finance costs increased from HK$35 million in 2009 to HK$114 million in 2010. Finance expenses consist of actual cash interest payments on bank loans and discounted bills as well as non-cash interest expenses of non-equity securities. The large increase in finance expenses is primarily attributed to the non-cash interest component of the preIPO convertible bonds and preferred shares amounting to HK$87 million purely due to IFRS accounting treatment. As these securities were converted into ordinary shares upon the IPO, there will not be any such one-off non-cash accounting expenses going forward. Excluding these one-off and non-cash interest expenses, our 2010 net finance costs would have been HK$27 million.

Interest income Foreign exchange gain, net Finance income Interest on secured bank and other loans Interest on discounted bills Interest on liability component of convertible bonds Interest on liability component of redeemable convertible preferred shares Total interest expense Foreign exchange loss, net Finance costs Net finance costs	Continuing operations Years ended 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 (1,013) (7,041) (18,768) (4,010) — (47,057) (5,023) (7,041) (65,825) 1,284 20,343 37,661 2,450 20,353 41,642 — — 49,942 — — 50,683 3,734 40,696 179,928 — 1,338 — 3,734 42,034 179,928 (1,289) 34,993 114,103

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• f. Net Profit and Earnings per Share (“EPS”)

Net profit increased 80.39% from HK$515 million in 2009 to HK$929 million in 2010. This translates into a per tonne net profit of HK$119 versus HK$101 in 2009. If oneoff expenses such as pre-IPO and IPO-related expenses as well as non-cash accounting expenses are excluded, our adjusted non-GAAP net income would have been HK$1,119 million as demonstrated by the table below. This translates into a per tonne net profit of HK$143.

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Note: The weighted average number of shares diluted through 2010 is 2.67 billion, and share count at 2010 year end is 3.79 billion.

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g. Working Capital

Our accounts receivable turnover days, accounts payable turnover days and inventory turnover days for 2010 were 33 days, 30 days and 80 days, respectively. As a result, on average we needed approximately 83 days or the equivalent of approximately HK$1,902 million of working capital throughout 2010. Compared with figures in 2009, these figures are slightly higher, providing visibility of working capital needs for the management. In addition, Winsway’s strong debt capacity and credit are expected to be able to finance our future growth and working capital needs.

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h. Property, Plant and Equipment (“PP&E”)

The aggregate of fixed assets and construction in progress totaled HK$756 million at the end of 2010, a 54.81% increase over 2009. New fixed assets included new railway logistics facilities, border crossing facilities, washing plants, etc.

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i. Indebtedness and Liquidity

The total bank and other loans at the end of 2010 amounted to HK$1,073 million, a 32.51% decrease over 2009. The range of interest rates per annum for bank loans and other loans is from 1.42% to 7.46%, while the range in 2009 was from 0.90% to 6.78%, reflecting the fact that we are in a rising interest rate environment and the fact that we secured some long-term facilities in 2010. As of 31 December 2010, untapped credit line available to the Company is HK$4,587 million.

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j. Contingent Liability

As at 31 December 2010, the Group did not have any material contingent liabilities or guarantees.

• k. Pledge of Assets

At 31 December 2010, bank and other loans amounting to HK$435,394,838 (2009: HK$808,447,990) were secured by bank deposits placed in banks with an aggregate carrying value of HK$261,616,015 (2009: HK$642,535,903).

At 31 December 2010, bank and other loans amounting to HK$219,964,410 (2009: HK$459,019,419) were secured by coking coal inventories of the Group with an aggregate carrying value of HK$182,707,200 (2009: HK$303,926,434).

At 31 December 2010, bank and other loans amounting to HK$533,567,004 (2009: HK$321,997,689) were secured by trade and bills receivables with an aggregate carrying value of HK$575,549,644 (2009: HK$321,997,689).

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At 31 December 2010, bills payable amounting to HK$222,423,806 were secured by bank deposits placed in a bank with an aggregate carrying value of HK$42,453,721.

At 31 December 2010, bank and other loans amounting to HK$1,888,175 (2009: Nil) were secured by motor vehicles with an aggregate carrying value of HK$3,579,887 (2009: Nil).

At 31 December 2010, bank and other loans amounting to HK$23,614,000 (2009: Nil) were secured by land use right with an aggregate carrying value of HK$55,245,106 (2009: Nil).

• l. Operating Cash Flow

Our 2010 operating cash flow turned positive at HK$47 million versus a negative HK$353 million in 2009, primarily due to increasing net profit and prudent management of working capital.

• m. Capital Expenditure

Our 2010 capital expenditure amounted to HK$856 million, an increase of 345.93% over 2009. This is on track with our capital expenditure plan for the year. Our capital expenditure plan will continue well into 2012 as 75% of our IPO proceeds are allocated for fixed-asset investment.

• n. Financing Cash Flow

In 2010, Winsway paid off net HK$527 million of bank loans. We also raised HK$888 million and HK$3,547 million of equity through the pre-IPO private placements and the IPO, respectively.

IX Exposure to exchange rate fluctuations

Over 81% of the Group’s turnover in 2010 are denominated in Renminbi. The Group’s cost of coal purchased, accounting for over 90% of the total cost of sales in 2010, and some of our operating expenses are denominated in United States dollars (“US dollars”). Fluctuations in exchange rates may adversely affect the value of the Group’s net assets, earnings or any declared dividends as Renminbi is translated or converted into US dollars or Hong Kong dollars. Any unfavourable movement in the exchange rate may lead to an increase in the costs of the Group or a decline in sales, which could materially affect the Group’s results of operations. The Group did not enter into any agreements to hedge its exchange rate exposure in 2010.

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X Final Dividends

The Board has resolved to recommend the payment of a final dividend of HK$0.061 per share, which translates into 25% of 2010 net profit.

XI Human Resources

• a. Employee Overview

The Group aims to set up a performance-oriented compensation and benefit system. Strictly following the PRC Labor Law and Labor Contract Law, the Group signs formal employment contracts with all employees and pays all mandatory social insurance schemes. In addition, the Group purchases supplementary commercial insurance for all employees.

As at 31 December 2010, there were 1,243 full-time employees in the Group (excluding 536 labour dispatch staff). Detailed category of employees is as follows:

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For the year ended 31 December 2010, the staff costs (including Directors’ remuneration in the form of salaries and other benefits) was approximately HK$214 million (2009: HK$38 million).

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For the year ended 31 December 2010, the Group complied with the relevant PRC labour laws and regulations, including contributing to social insurance schemes such as pension and medical schemes, and housing provident fund. In Hong Kong, the Group participated in a mandatory provident fund scheme for our employees in Hong Kong in accordance with the applicable Hong Kong laws and regulations.

b. Employee Education Overview

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c. Training Overview

Training is key to the Group as it helps improve employees’ working capabilities and management skills. The Group sponsored various internal and external training programs in 2010, and accumulatively 1,054 employees are covered by these with 5,745 training hours in total.

XII Subsequent Events

On 27 January 2011, Inner Mongolia Haotong Energy Joint Stock Co., Ltd. (“Inner Mongolia Haotong”), a wholly owned subsidiary of Winsway, established a joint venture company, Inner Mongolia Huayuan Logistic Company Limited (“Huayuan Logistics”), with Inner Mongolia Hutie Investment Center (“Hutie Center”), a subsidiary of Hohhot Railway Bureau and other 13 third-party shareholders. Huayuan Logistics will mainly engage in the business of coal and mineral products transportation logistics. Huayuan Logistics will purchase 3,300 C70 type rail trucks for the transportation of coal and mineral products inside and outside Inner Mongolia province. Winsway, as a joint venture partner of Hohhot Railway Bureau, will invest RMB66.78 million and will hold a 9% equity interest in Huayuan Logistics through Inner Mongolia Haotong as the second largest shareholder after Hohhot Railway Bureau, which will hold a 20% equity interest through Hutie Center. As a result, it is anticipated that Winsway’s railway transportation capacity quota will increase approximately by 1.2 million tonnes per year.

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SUPPLEMENTARY INFORMATION

Change in Presentation Currency

The Company procures coal from around the world and the cost of such procurement is denominated in US dollars. In addition, the shares of the Company have been listed on the Main Board of the Hong Kong Stock Exchange since October 2010 and are traded on the Hong Kong Stock Exchange in Hong Kong dollars. Given that the Hong Kong dollar is pegged to the US dollar and the Company is listed in Hong Kong, the Board resolved on 24 November 2010 that the presentation currency of the Company be changed from Renminbi to Hong Kong dollars, such change to take effect commencing with the financial statements of the Company for the financial year ended 31 December 2010.

Purchase, sale or redemption of the Company’s listed securities

Throughout the year ended 31 December 2010, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company’s listed securities.

Compliance with the Code on Corporate Governance Practices

Throughout the year ended 31 December 2010, the Company complied the code provisions under the Code on Corporate Governance Practices (the “CG Code”) contained in Appendix 14 to the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (“Listing Rules”), except for the Code Provision A.2.1 stipulated in the following paragraph.

Mr. Wang Xingchun is the Chairman and Chief Executive Officer of the Company. As explained in the Prospectus, with extensive experience in the coking coal industry, Mr. Wang is responsible for the Group’s overall strategic planning and the management of the Company’s business. The Board considers that vesting the roles of chairman and chief executive officer in the same person is beneficial to the business prospects and management of the Group. The balance of power and authority is ensured by the operation of the senior management and the Board, which comprises experienced and highcalibre individuals. The Board currently comprises five executive Directors (including Mr. Wang), three non-executive Directors and four independent non-executive Directors and therefore has a strong element of independence in its composition. Except for the aforesaid deviation from the CG Code, the Company fully complied with all the Code Provisions under the CG Code throughout the year ended 31 December 2010.

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Compliance with the Model Code for Securities Transactions by Directors of the Listed Issuers

The Company has adopted the Model Code for Securities Transactions by Directors of the Listed Issuers set out in Appendix 10 to the Listing Rules (the “Model Code”) as its own code of conduct for dealing in securities of the Company by the Directors. Having made specific enquiry of all the Directors of the Company, each Director confirmed that he/she has complied with the required standard set out in the Model Code throughout the year ended 31 December 2010.

Review of Annual Results

The audit committee of the Company has reviewed the annual results of the Group for the year ended 31 December 2010.

Final Dividend

The Board recommends the payment of a final dividend of HK$0.061 per share for the year ended 31 December 2010.

Disclosure of Information on the Hong Kong Stock Exchange’s Website

This annual results announcement is published on the websites of the Company (www.winsway.com) and the Hong Kong Stock Exchange (www.hkexnews.hk). The annual report of the Company for the year ended 31 December 2010 will be dispatched to shareholders of the Company and will be available on the above websites in due course.

By Order of the Board Winsway Coking Coal Holdings Limited Wang Xingchun Chairman

Hong Kong, 7 March 2011

As at the date of this announcement, the executive Directors of the Company are Mr. Wang Xingchun, Ms. Zhu Hongchan, Mr. Yasuhisa Yamamoto, Mr. Apolonius Struijk and Mr. Cui Yong, the nonexecutive Directors of the Company are Mr. Cui Guiyong, Mr. Liu Qingchun and Mr. Lu Chuan and the independent non-executive Directors are Mr. James Downing, Mr. Ng Yuk Keung, Mr. Wang Wenfu and Mr. George Jay Hambro.

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