Kinetic Development Group Limited - Annual Report 2021

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Kinetic Development Group Limited 力量發展集團有限公司 (Incorporated in the Cayman Islands with limited liability) (Stock Code: 1277)

AUDITED ANNUAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2021

Reference is made to the announcement of the Company dated 31 March 2022 (“ Announcement ”) regarding the Company’s unaudited annual consolidated results (“ Unaudited Results ”) for the year ended 31 December 2021. Terms used herein shall have the same meanings as those defined in the Announcement unless the context requires otherwise.

Further to the publication of the Unaudited Results, the Board of the Company is pleased to announce the audited annual results of the Group for the year ended 31 December 2021, together with the comparative figures for the year ended 31 December 2020.

After the audit conducted by the Group’s independent auditor, KPMG, there are no significant changes in the consolidated financial statements and relevant notes to the consolidated financial statements of the Group. As at the date of this announcement, the audited annual results for the year ended 31 December 2021 have been reviewed by the audit committee and approved by the Board.

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FINANCIAL HIGHLIGHTS

	Year ended 31 December	Year ended 31 December
	2021	2020	Change
	*RMB’ million*	RMB’ million
Revenue	5,580.7	2,961.4	+88.4%
Gross profit	3,604.2	1,282.2	+181.1%
Gross profit margin	64.6%	43.3%	+21.3 p.p.
Profit attributable to equity shareholders
of the Company	2,468.6	814.8	+203.0%
Net profit margin	44.2%	27.5%	+16.7 p.p.
Earnings per share
— Basic and Diluted	29.28 RMB cents	9.67 RMB cents	+202.8%
Interim dividend per share	5.5 HK cents	1.5 HK cents
Proposed final dividend per share	6.5 HK cents	4.0 HK cents

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CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the year ended 31 December 2021

Note REVENUE 5 Cost of sales Gross profit Other incomes and losses, net 6 Losses on fair value changes of financial assets Selling expenses Administrative expenses PROFIT FROM OPERATIONS Share of profits of an associate Finance costs 8 PROFIT BEFORE TAXATION 7 Income tax expense 9 PROFIT FOR THE YEAR Other comprehensive income for the year that may be reclassified subsequently to profit or loss: Exchange differences on translation of financial statements of operations outside Mainland China	2021 *RMB’000* 5,580,702 (1,976,544) 3,604,158 145,036 (134,648) (8,441) (190,910) 3,415,195 19,060 (11,959) 3,422,296 (954,737) 2,467,559 9,013	2020 RMB’000 2,961,404 (1,679,187) 1,282,217 69,306 – (8,049) (125,383) 1,218,091 23,187 (13,122) 1,228,156 (413,360) 814,796 25,457

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Note TOTAL COMPREHENSIVE INCOME FOR THE YEAR Profit for the year attributable to: Equity shareholders of the Company Non-controlling interests Total comprehensive income for the year attributable to: Equity shareholders of the Company Non-controlling interests Basic and diluted earnings per share attributable to equity shareholders of the Company (RMB cents) 10	2021 *RMB’000* 2,476,572 2,468,626 (1,067) 2,467,559 2,477,639 (1,067) 2,476,572 29.28	2020 RMB’000 840,253

		814,796 –
		814,796

		840,253 –
		840,253

		9.67

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2021

Note NON-CURRENT ASSETS Property, plant and equipment Right-of-use assets Intangible assets Interest in an associate Goodwill Deferred tax assets Other non-current assets 11 Total non-current assets CURRENT ASSETS Financial assets at fair value through profit or loss Inventories Trade and other receivables 12 Pledged and restricted deposits Cash at bank Current portion of other non-current assets Total current assets CURRENT LIABILITIES Trade and other payables 13 Contract liabilities 14 Bank loans 15 Income tax payable Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES	2021 *RMB’000* 1,247,473 25,640 537,815 84,346 8,027 23,346 896,555 2,823,202 269,382 63,442 236,351 155,595 2,387,239 107,000 3,219,009 329,560 118,557 275,695 667,460 1,391,272 1,827,737 4,650,939	2020 RMB’000 1,219,320 19,778 568,634 86,154 – 2,581 68,145
		1,964,612
		465,787 73,027 108,681 57,003 877,745 125,795
		1,708,038
		263,953 139,224 210,410 241,063
		854,650
		853,388
		2,818,000

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NON-CURRENT LIABILITIES Accrual for reclamation costs Lease liabilities Long-term payables Deferred tax liabilities Total non-current liabilities Net assets EQUITY Share capital Reserves Total equity attributable to equity shareholders of the Company Non-controlling interests Total equity	2021 *RMB’000* 5,438 2,268 26,391 44,800 78,897 4,572,042 54,293 4,521,535 4,575,828 (3,786) 4,572,042	2020 RMB’000 4,899 – 25,001 28,380
		58,280
		2,759,720

		54,293 2,705,427
		2,759,720
		–
		2,759,720

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NOTES TO THE FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED FINANCIAL STATEMENTS

1 CORPORATE AND GROUP INFORMATION

The Company was incorporated as an exempted company with limited liability in the Cayman Islands on 27 July 2010 under the Companies Law, Chapter 22 (Law 3 of 1961, as consolidated and revised). The Company’s registered office address is Windward 3, Regatta Office Park, P.O. Box 1350, Grand Cayman KY1–1108 Cayman Islands. The Company and its subsidiaries (collectively referred to as the “ Group ”) are mainly engaged in the extraction and sale of coal products. There has been no significant change in the Group’s principal activities during the year.

In the opinion of the directors, the holding company and the ultimate holding company of the Company is King Lok Holdings Limited, which was incorporated in the British Virgin Islands with limited liability.

2 BASIS OF PREPARATION

The financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“ HKFRSs ”) (which include all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“ HKASs ”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (“ HKICPA ”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention except for the assets and liabilities are stated at their fair value as explained in the accounting policies set out in the full set of the annual report. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“ Listing Rules ”). These financial statements are presented in RMB and all values are rounded to the nearest thousand except when otherwise indicated.

The HKICPA has issued certain amendments to HKFRSs that are first effective or available for early adoption for the current accounting period of the Group. Note 3 provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group for the current and prior accounting periods reflected in these financial statements.

The preparation of financial statements in conformity with HKFRSs 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.

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As at 31 December 2021, the Group has undertaken two proposed acquisitions which constituted major transactions under Listing Rules with estimated total consideration of approximately RMB2 billion. Subsequent to the completion of these proposed acquisitions, the Group expects to incur capital expenditures of at least RMB3 billion in total to develop relevant mining projects before their commercial operation. In addition, the Group has also been contemplating to expand existing business through actively seeking potential mining project targets or diversifying its business by stepping into new business other than mining. The Group needs to seek financing from banks or other financial institutions in order to fund the proposed acquisitions and future capital expenditure.

The Group’s ability to fund the above-mentioned acquisitions and capital expenditures heavily relies on its future operating cash inflows and its ability to finance through bank loans which may be affected by the government macro-control policy. The scale of the expected capital expenditure and possible mismatch of future cash flow projections indicate the existence of a material uncertainty which may cast significant doubt on the Group’s ability to continue as a going concern.

The directors assessed the Group’s ability to continue as a going concern, taking into account (i) the Group’s current cash at bank balances; (ii) the expecting operating cash flows of the Group for at least the next twelve months from the end of the current reporting period; and (iii) the Group’s capital expenditure forecast for at least the next twelve months from the end of the current reporting period, with the potential gap to be satisfied by external borrowings. The directors are of the opinion that the Group will carefully monitor its liquidity position and assuming that the Group is able to obtain borrowings from bank or other financial institutions when needed to meet its liabilities as and when they fall due for at least the next twelve months, it is appropriate to prepare these financial statements are prepared on a going concern basis. These financial statements do not include any adjustments that might be necessary should the Group be unable to continue as a going concern.

3 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

The Group has applied the following amendments to HKFRSs issued by the HKICPA to these financial statements for the current accounting period:

Amendments to HKFRS 9, HKAS 39, HKFRS 7, HKFRS 4 and HKFRS 16, Interest rate benchmark reform — phase 2

The amendments provide targeted reliefs from (i) accounting for changes in the basis for determining contractual cash flows of financial assets, financial liabilities and lease liabilities as modifications, and (ii) discontinuing hedge accounting when an interest rate benchmark is replaced by an alternative benchmark rate as a result of the reform of interbank offered rates (“ IBOR reform ”).

Amendment to HKFRS 16, Covid-19-related rent concessions beyond 30 June 2021

The Group previously applied the practical expedient in HKFRS 16 such that as lessee it was not required to assess whether rent concessions occurring as a direct consequence of the COVID-19 pandemic were lease modifications, if the eligibility conditions are met. One of these conditions requires the reduction in lease payments affect only payments originally due on or before a specified time limit. The 2021 amendment extends this time limit from 30 June 2021 to 30 June 2022.

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None of the amendments to HKFRSs have had material effect on how the Group’s results and financial position for the current or prior periods have been prepared or presented. The Group has not applied any new standards or interpretation that is not effective for the current accounting period except for the amendment to HKFRS 16, Covid-19-Related Rent Concessions beyond 30 June 2021 .

4 OPERATING SEGMENT INFORMATION

Management has determined operating segments with reference to the reports reviewed by the chief operating decision maker of the Group that are used to assess the performance and allocate resources.

The chief operating decision maker of the Group assesses the performance and allocates the resources of the Group as a whole, as all of the Group’s activities are considered to be primarily dependent on the performance of the extraction and sale of coal products. Therefore, the Group’s management considers that there is only one operating segment under the requirements of HKFRS 8, Operating Segments . In this regard, no segment information is presented for the year.

No geographic information is shown as the Group’s operating results are entirely derived from its business activities in the People’s Republic of China (the “ PRC ”).

5 REVENUE

The principal activities of the Group are the extraction and sale of coal products. Revenue represents the sale value of goods supplied to customers, excluding value added taxes or any trade discounts.

Revenue from contracts with customers Sale of coal products Others	2021 *RMB’000* 5,580,133 569 5,580,702	2020 RMB’000 2,961,404 –
		2,961,404

Revenue from major customers amounting to over 10% of the revenue of the Group is as follows:

Revenue from contracts with customers Customer A Timing of revenue recognition Goods transferred at a point in time	2021 2020 *RMB’000* RMB’000 670,443 390,433 2021 2020 *RMB’000* RMB’000 5,580,702 2,961,404

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Performance obligations

Information about the Group’s performance obligations is summarised below:

Sale of coal and other products

The performance obligation is satisfied upon delivery of the coal and other products and certain residual payment, representing 10% to 20% of transaction amounts, is generally due within 30 to 90 days from delivery.

6 OTHER INCOMES AND LOSSES, NET

Government grants Foreign exchange differences, net Interest income Gains/(losses) on disposal of property, plant and equipment Net gain on redemption of financial assets at fair value through profit or loss Donation Others	2021 *RMB’000* 133,191 (7,866) 33,500 312 573 (10,030) (4,644) 145,036	2020 RMB’000 50,585 (18,819) 37,231 (3,911) – – 4,220
		69,306

7 PROFIT BEFORE TAXATION

The Group’s profit before taxation is arrived at after charging:

Cost of inventories sold Transportation and storage costs Depreciation Amortisation of intangible assets Amortisation of right-of-use assets Auditor’s remuneration — Annual audit service — Non-audit service — Other audit-related service Staff costs (including directors’ remuneration): Salaries, wages, bonuses and benefits Contribution to defined contribution plans	2021 *RMB’000* 752,957 1,223,587 1,976,544 91,690 30,819 573 4,300 300 1,000 228,898 10,108 239,006	2020 RMB’000 561,869 1,117,318
		1,679,187 89,274 25,988 438 2,150 250 – 179,649 900
		180,549

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Cost of inventories sold for the year ended 31 December 2021 included RMB244,452,000 (2020: RMB202,894,000) relating to staff costs, depreciation and amortisation of intangible assets and right-of-use assets, which are included in the respective amounts disclosed separately above for each of these types of expenses.

8 FINANCE COSTS

An analysis of finance costs is as follows:

Interest expenses Unwinding of discount INCOME TAX EXPENSE Current tax — Mainland China Deferred income tax Reversal and origination of temporary differences Total tax expense for the year	2021 *RMB’000* 8,949 3,010 11,959 2021 *RMB’000* 959,082 (4,345) 954,737	2020 RMB’000 8,850 4,272
		13,122

		2020 RMB’000 380,918 32,442
		413,360

9 INCOME TAX EXPENSE
(a) Pursuant to the rules and regulations of the Cayman Islands and the British Virgin Islands (“ BVI ”), the Company and its subsidiaries, Blue Gems Worldwide Limited and Porus Power Limited, are not subject to any income tax in the Cayman Islands and BVI, respectively.
(b) PRC corporate income tax (“ CIT ”) was provided at a rate of 25% (2020: 25%) on the taxable income of the companies comprising the Group, as adjusted for income and expense items which are not assessable or deductible for income tax purposes.
(c) Pursuant to the PRC Corporate Income Tax Law, a 10% withholding tax is levied on dividends declared to foreign investors from the foreign investment enterprises established in Mainland China. The requirement is effective from 1 January 2008 and applies to earnings after 31 December 2007. A lower withholding tax rate may be applied if certain criteria are met. The Group is therefore liable for withholding taxes on dividends distributed by those subsidiaries established in Mainland China in respect of earnings generated from 1 January 2008. During this year, the Group provided for and paid withholding tax subject to a tax rate of 10%.

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(d) Reconciliation between income tax expense and profit before taxation at applicable tax rate is as follows:

Profit before taxation Tax on profit before taxation, calculated at the rates applicable to the results in the jurisdictions concerned Effect of non-deductible expenses Adjustments in respect of current tax of previous periods Effect of non-taxable income Effect of withholding tax on the distributable profits of the Group’s PRC subsidiaries Tax losses not recognised as deferred tax assets Income tax expense	2021 *RMB’000* 3,422,296 857,265 5,088 356 (4,765) 89,420 7,373 954,737	2020 RMB’000 1,228,156 304,908 2,844 29 (5,797) 100,080 11,296 413,360

10 EARNINGS PER SHARE

The calculation of basic earnings per share for the year ended 31 December 2021 is based on the profit for the year attributable to equity shareholders of the Company of RMB2,468,626,000 and the 8,430,000,000 shares in issue during the year.

The calculation of basic earnings per share for the year ended 31 December 2020 is based on the profit for the year of RMB814,796,000 and the 8,430,000,000 shares in issue during the year.

There were no dilutive potential ordinary shares during the years ended 31 December 2021 and 2020, and therefore, diluted earnings per share is the same as the basic earnings per share.

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11 OTHER NON-CURRENT ASSETS

Note Prepayment for the proposed acquisitions to — Related parties — Third parties (a) Loans granted to — A related party — A third party Others Total Less: Current portion of loans granted to — A related party — A third party Other non-current assets	As at 31 December 2021 2020 *RMB’000* RMB’000 735,700 – 150,000 – 885,700 – 107,000 107,000 – 86,940 107,000 193,940 10,855 – 1,003,555 193,940 107,000 50,000 – 75,795 107,000 125,795 896,555 68,145	As at 31 December 2021 2020 *RMB’000* RMB’000 735,700 – 150,000 – 885,700 – 107,000 107,000 – 86,940 107,000 193,940 10,855 – 1,003,555 193,940 107,000 50,000 – 75,795 107,000 125,795 896,555 68,145
		–
		107,000 86,940
		193,940
		–
		193,940
		50,000 75,795
		125,795
		68,145

Note:

(a) In 2021, for the purpose of the proposed acquisition of Ningxia Sunshine Mining Co., Ltd. (“ Ningxia Sunshine ”), the Group has paid refundable security deposits of RMB100,000,000 and RMB50,000,000 to Shougang Group Co., Ltd. (“ Shougang ”) and China Sunshine Investment Co., Limited (“ China Sunshine ”), which hold 51% and 49% equity interests of Ningxia Sunshine respectively. In January 2022, the Group signed an equity transfer agreement with China Sunshine to acquire its 49% interests in Ningxia Sunshine with a total consideration of RMB385,607,250. The equity transfer agreement with Shougang is still under negotiation.

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12 TRADE AND OTHER RECEIVABLES

	As at 31 December	As at 31 December
	2021	2020
	*RMB’000*	RMB’000
Trade debtors	4,774	4,151
Other receivables
— Government subsidy receivables	125,590	30,668
— Prepayments and deposits	99,776	62,228
— Others	6,211	11,634
	236,351	108,681

An aging analysis of the trade debtors as at the end of the reporting period, based on		the invoice dat
and net of provisions, is as follows:
	As at 31 December
	2021	2020
	*RMB’000*	RMB’000
Within 6 months	4,774	4,151

An aging analysis of the trade debtors as at the end of the reporting period, based on the invoice date and net of provisions, is as follows:

Trade debtors are generally due within 30 to 90 days from the date of billing.

The allowances for trade receivables are estimated based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors and an assessment of both the current and forecast general economic conditions at the reporting date. As the directors of the Company are of opinion that the amount of expected credit losses is minimal, no loss allowance for trade and other receivables recognised as at 31 December 2021 under HKFRS 9.

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13 TRADE AND OTHER PAYABLES

Notes Taxes payable other than income tax Payables for construction (a) Other payables and accruals (b) Amounts due to related parties	As at 31 December 2021 2020 *RMB’000* RMB’000 188,046 76,711 85,312 83,996 52,206 95,190 3,996 8,056 329,560 263,953	As at 31 December 2021 2020 *RMB’000* RMB’000 188,046 76,711 85,312 83,996 52,206 95,190 3,996 8,056 329,560 263,953
		263,953

Notes:

(a) Payables for construction are non-interest bearing.

An aging analysis of the payables for construction as at the end of the reporting period, based on the invoice date, is as follows:

Within 1 year 1 to 2 years Over 2 years	As at 31 December 2021 2020 *RMB’000* RMB’000 44,953 38,929 13,545 23,060 26,814 22,007 85,312 83,996	As at 31 December 2021 2020 *RMB’000* RMB’000 44,953 38,929 13,545 23,060 26,814 22,007 85,312 83,996
		83,996

(b) Other payables and accruals are non-interest bearing, and are expected to be settled within one year or repayable on demand.

14 CONTRACT LIABILITIES

	As at 31 December	As at 31 December
	2021	2020
	*RMB’000*	RMB’000
Short-term advances received from customers
Sale of goods	118,557	139,224

For the year ended 31 December 2021, all of the contract liabilities balance at the beginning of the year was recognised as revenue.

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15 BANK LOANS

As at 31 December

Current Bank loan — secured	2021 *Effective interest* *rate (%)* *Maturity* *RMB’000* 1 month HIBOR plus 1.80% 2022 275,695	2020
		Effective interest rate (%) Maturity RMB’000 3 months HIBOR plus 1.75% 2021 210,410

As at 31 December 2021, the Group’s bank loans amounting to RMB275,695,000 are secured by the Group’s pledged deposits amounting to RMB96,493,000 (As at 31 December 2020, the Group’s bank loans amounting to RMB210,410,000 are secured by the Group’s pledged deposits amounting to RMB52,603,000).

As at 31 December 2021, Mr. Zhang Li and Mr. Zhang Liang, Johnson have guaranteed the Group’s bank loans amounting to RMB275,695,000 (31 December 2020: RMB210,410,000).

16 DIVIDENDS

Interim dividend — HKD5.5 cents (2020: HKD1.5 cents) per ordinary share Proposed final dividend — HKD6.5 cents (2020: HKD4 cents) per ordinary share	2021 *RMB’000* 380,953 448,004	2020 RMB’000 112,853 283,801

The proposed final dividend for the year is subject to the approval of the Company’s shareholders at the forthcoming annual general meeting.

17 EVENTS AFTER THE REPORTING PERIOD

(a) On 28 April 2022, the board of directors proposed a final dividend of HKD0.065 per share, payable to the shareholders of the Company. The total amount of the dividend to be distributed is estimated to be RMB448,004,000. The proposal of the distribution of final dividend is subject to the approval of the shareholders of the Company at the forthcoming annual general meeting of the Company.
(b) The proposed acquisitions by the Company are still in progress and the financial impact of the proposed acquisitions is under the review of the Company.

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MANAGEMENT DISCUSSION AND ANALYSIS

OVERVIEW

Market Review

In 2021, the global economy is gradually recovering from the tremendous impact of the COVID-19 epidemic, but the economic recovery is still constrained by the recurrence of the epidemic, energy shortage and high inflation. In the face of the complicated international environment and the instability of the epidemic, the Chinese government insisted on the general keynote of seeking progress in a stable manner, strengthening the cross-cycle adjustment of macroeconomic policies and increasing the support for the real economy, the national economy continued to recover and the economic growth rate was among the highest in the world’s major economies, achieving a good start for the “14[th] fiveyear” plan. According to the National Bureau of Statistics of China, China’s GDP in 2021 was approximately RMB114.4 trillion, representing an increase of approximately 8.1% year-on-year; industrial enterprises above the national scale achieved a business revenue of approximately RMB127.9 trillion, an year-on-year increase of approximately 19.4%; industrial enterprises above the national scale achieved a total profit of approximately RMB8,709.21 billion, an year-on-year increase of approximately 34.3%.

2021 was an extraordinary year for the coal industry. The domestic economy recovered rapidly, and coal demand remained strong. Due to the continuing implementation of policy on limitation on production capacity, the production volume lacked flexibility, and the supply and demand were seriously mismatched, resulting in a significant gap. The overall demand for coal increased significantly. With the continuous recovery of the domestic economy, the demand for downstream power generation maintained a high growth rate. According to the National Bureau of Statistics of China, the national industrial power generation above designated size in 2021 was approximately 8,112.2 billion kWh, representing a year-on-year increase of approximately 8.1%. On the supply side, China’s total coal supply and import volume increased, but the growth rate was lower than that of the demand side. According to the National Bureau of Statistics of China, in 2021, the production volume of industrial raw coal above designated size in China was approximately 4.07 billion tonnes, representing a year-on-year increase of approximately 4.7%. During the same year, China imported approximately 320 million tonnes of coal, representing a year-on-year increase of approximately 6.6%.

In 2021, the overall coal price showed the trend of “high-rise and low-fall, high-level fluctuation”, and the price centre rose sharply compared with previous years, hitting a historical peak. The high coal prices in 2021 drove the growth of the overall efficiency of the industry. According to the data from the National Bureau of Statistics of China, in 2021, the national large-scale coal mining and washing enterprises achieved revenue from principal business of approximately RMB5,704.87 billion, representing a year-on-year increase of approximately 41.9%, and a total profit of approximately RMB1,039.08 billion, representing a year-on-year increase of approximately 190.7%.

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In conclusion, the mismatch between coal supply and demand in 2021 has resulted in a significant increase in coal prices in general, which has contributed to a significant increase in the overall profit of coal enterprises and resulted a boom in the industry.

BUSINESS REVIEW

As a leading integrated coal enterprise in China, the Group’s business activities operate through the whole coal industry chain, covering coal production, washing, loading, transportation and trading.

In 2021, the Group followed the market rules and continued to strengthen the development of end customers and new customers with its own low-sulfur and high-quality brand products “Kinetic 2”. The Group continued to carry out various purchase and sales modes such as port liquidation, site delivery and vehicle plate delivery, and timely carried out on-site sales during the overhaul of the Daqin Line, effectively extending the influence of “Kinetic 2” in the downstream. In 2021, the Group exceeded its sales volume and sales targets. For the year ended 31 December 2021, the Group recorded a total revenue of approximately RMB5,580.7 million, representing an increase of 88.4% as compared to the corresponding period of last year.

In 2021, coal prices repeatedly hit record high. The Group scientifically studied and assessed the market trend, combined the post-completion sales and pre-sales of ports under a high price environment, gave priority to high-quality customers with high performance and good reputation, and locked in the sales profits of medium and long-term at a high price. In May 2021, the Group established a sales risk control team to formulate a risk control plan to protect the Group’s business in a complex market environment. In 2021, the average selling price per tonne of the Group’s 5,000 kcal low-sulfur environmentally friendly thermal coal was approximately RMB813, representing a year-on-year increase of approximately 59.7%.

In 2021, the Group continued to implement refined management, formulated and improved various systems in various operation links, and strived to control various production and management costs. For the year ended 31 December 2021, the Group achieved a gross profit margin of approximately 64.6%, maintaining an above-average standard in the industry.

Based on the above business strategies, the Group has achieved breakthrough development in 2021, bringing considerable profit returns to shareholders. For the year ended 31 December 2021, the Group’s consolidated net profit attributable to shareholders of the Company amounted to approximately RMB2,468.6 million, representing a year-on-year increase of approximately 203.0%. The Group’s EBITDA amounted to approximately RMB3,557.3 million, representing a year-on-year increase of approximately 162.1%.

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In addition, the Group has always adhered to the concept of safe and efficient production, continued to promote the construction of automation platforms such as network infrastructure platform and integrated management and control platform, and there were no serious personal injury accidents throughout the year. The Group’s Dafanpu Coal Mine in Inner Mongolia has maintained the honour of “Class A Coal Mine” in Zhunge’ er for seven consecutive years, and has been rated as “Coal Industry Premium Safe and Efficient Mine” by the China National Coal Industry Association since 2014.

The Group also attaches great importance to environmental protection and sustainable development. In July 2021, the Dafanpu Coal Mine successfully passed the national green mine improvement acceptance, and continued to maintain the national green mine honor; In October of the same year, the Group successfully passed the green mine construction inspection by the Ordos Natural Resources Bureau, which fully demonstrated the Group’s comprehensive strength in sustainable development of the mining industry. In recent years, the Group has successfully established an ecological industrial chain integrating agricultural product planting, fruit wine production and livestock breeding in the mine reclamation area. On the basis of the steady growth of the principal business of coal, the Company will develop the ancillary business of agriculture and animal husbandry to seek more profit returns for shareholders.

Future Outlook

Looking forward to 2022, the new variants of COVID-19 and the escalation of geopolitical conflicts will continue to disrupt the economic recovery and the pressure of inflation continues to rise. The world economy will face many challenges. According to the Global Economic Prospects report issued by the World Bank in January 2022, it is expected that the global economic growth will decrease from 5.5% in 2021 to 4.1% in 2022, and the economic growth is entering a period of significant slowdown. The Chinese government is expected to adhere to the precise prevention and control of the pandemic, firmly implement the strategy of expanding domestic demand, maintain support for the real economy, and strive to stabilize the macro-economy.

In terms of coal market, it is expected that the relaxation of industrial power and real estate policies in 2022 will continue to support the demand for coal. As the effect of the coal supply guarantee policy gradually becomes apparent, the industry may show a pattern of growth in both supply and demand, and return to the balance between supply and demand from supply tension. It is expected that the coal price will drop, but the overall coal price will remain at a relatively high level. Coupled with the production expansion under the supply guarantee policy, the leading coal enterprises are expected to maintain growth.

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Looking forward to 2022, the Group will continue to implement the development concept of both safety and efficiency, further implement the refined operation strategy, strictly control coal quality from the source to the sales terminal, continue to optimize the diversified sales model, flexibly adjust the sales pace and strategy, and continue to improve the Group’s operating efficiency. At the same time, the Group will accelerate strategic mergers and acquisitions, seek progress while maintaining stability, grow bigger and stronger, and reward shareholders with excellent results.

FINANCIAL REVIEW

Revenue

Revenue of the Group increased from approximately RMB2,961.4 million for the year ended 31 December 2020 to approximately RMB5,580.7 million for the year ended 31 December 2021.

The increase in the Group’s revenue was mainly due to the increase in both the Group’s average selling price and sales volume of the coal products. The average selling price of the Group’s 5,000 kcal coal products increased by approximately 59.7% for the year ended 31 December 2021, and the Group’s sales volume of coal for the year ended 31 December 2021 increased by approximately 15.8% as compared with the year ended 31 December 2020.

Cost of Sales

For the year ended 31 December 2021, the Group incurred cost of sales of approximately RMB1,976.5 million as compared to the cost of sales of approximately RMB1,679.2 million for the year ended 31 December 2020. The cost of sales of the Group mainly comprised salaries of coal mine workers, costs of supplementary materials, fuel and electricity, depreciation, amortisation, surcharges of mining operations and transportation costs.

Gross Profit and Gross Profit Margin

For the year ended 31 December 2021, the Group recorded a gross profit of approximately RMB3,604.2 million and a gross profit margin of 64.6% which increased from the gross profit of approximately RMB1,282.2 million and the gross profit margin of approximately 43.3% for the year ended 31 December 2020. The increase in gross profit margin for the year ended 31 December 2021 was mainly due to the combined effect of the increase in sales price and sales volume.

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Other Incomes and Losses, Net

The net amount of other incomes and losses of the Group increased from approximately RMB69.3 million for the year ended 31 December 2020 to approximately RMB145.0 million for the year ended 31 December 2021. This was mainly attributable to the increase of approximately RMB82.6 million in government grants and approximately RMB10 million in donation, combined with the decrease of approximately RMB11 million in foreign exchange losses and approximately RMB3.7 million in interest income.

For the years ended 31 December 2021 and 2020, the Group’s net amount of other incomes and losses mainly comprised government grants, net foreign exchange differences, gains or losses on disposal of property, plant and equipment, interest income and donation.

Selling Expenses

Selling expenses of the Group increased from approximately RMB8.0 million for the year ended 31 December 2020 to approximately RMB8.4 million for the year ended 31 December 2021, which was primarily because of the increase in marketing related expenses. The selling expenses mainly comprised salaries of sales staff and marketing related expenses.

Administrative Expenses

The Group’s administrative expenses increased from approximately RMB125.4 million for the year ended 31 December 2020 to approximately RMB190.9 million for the year ended 31 December 2021. This was mainly attributable to the increase in staff cost during the reporting period. The administrative expenses mainly comprised salaries and related personnel expenses of the administrative, finance and human resources departments, consultancy fees and other incidental administrative expenses.

Finance Costs

The Group’s finance costs decreased from approximately RMB13.1 million for the year ended 31 December 2020 to approximately RMB12.0 million for the year ended 31 December 2021. The decrease in the Group’s finance costs was mainly attributable to the settlement of long-term payables.

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Income Tax Expense

The major components of income tax expense in the consolidated statement of profit or loss and other comprehensive income are:

Current tax — Mainland China Deferred income tax Reversal and origination of temporary differences Total income tax expense for the year	2021 *RMB’000* 959,082 (4,345) 954,737	2020 RMB’000 380,918 32,442
		413,360

(a) Pursuant to the rules and regulations of the Cayman Islands and BVI, the Company and its subsidiaries, Blue Gems Worldwide Limited and Porus Power Limited, are not subject to any income tax in the Cayman Islands and BVI, respectively.
(b) PRC CIT was provided at a rate of 25% (2020: 25%) on the taxable income of the companies comprising the Group, as adjusted for income and expense items which are not assessable or deductible for income tax purposes.
(c) Pursuant to the PRC Corporate Income Tax Law, a 10% withholding tax is levied on dividends declared to foreign investors from the foreign investment enterprises established in Mainland China. The requirement is effective from 1 January 2008 and applies to earnings after 31 December 2007. A lower withholding tax rate may be applied if certain criteria are met. The Group is therefore liable for withholding taxes on dividends distributed by those subsidiaries established in Mainland China in respect of earnings generated from 1 January 2008. During this year, the Group provided for and paid withholding tax subject to a tax rate of 10%.

Profit for the Year

As a result of the foregoing, the Group recorded a consolidated net profit attributable to equity shareholders of the Company of approximately RMB2,468.6 million for the year ended 31 December 2021, which increased substantially from the consolidated net profit attributable to equity shareholders of the Company of approximately RMB814.8 million for the year ended 31 December 2020. Net profit margin increased from 27.5% in 2020 to 44.2% in 2021.

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Consolidated Cash Flow

Net Cash Generated from Operating Activities

The Group’s net cash generated from operating activities for the year ended 31 December 2021 was approximately RMB3,030.2 million, primarily due to profit before taxation of approximately RMB3,422.3 million, adjusted for depreciation of approximately RMB91.7 million, amortization of intangible assets and right-of-use assets of approximately RMB31.4 million, an increase in trade and other receivables of RMB120.4 million, an increase in trade and other payables and contract liabilities of approximately RMB85.4 million, losses on fair value changes of financial assets of approximately RMB134.6 million, income tax paid of approximately RMB532.6 million and other items including interest expenses, interest income, share of profits of an associate, gains on disposal of property, plant and equipment, changes in inventories and restricted deposits.

Net Cash Used in Investing Activities

The Group’s net cash used in investing activities for the year ended 31 December 2021 was approximately RMB873.8 million, primarily due to payments for property, plant and equipment and other non-current assets of approximately RMB180.7 million, the increase and decrease in time deposits of approximately RMB1,481.7 million and prepayment for the proposed acquisitions of RMB885.7 million.

Net Cash Used in Financing Activities

The Group’s net cash used in financing activities for the year ended 31 December 2021 was approximately RMB641.0 million, which was primarily due to dividend payment of approximately RMB661.5 million and the net increase in the Group’s bank loans of approximately RMB70.7 million.

Cash at Bank

As at 31 December 2021, the Group’s cash at bank was approximately RMB2,387.2 million, as compared with approximately RMB877.7 million at 31 December 2020, mainly attributable to an increase in the cash at bank by approximately RMB1,515.4 million and the exchange loss of approximately RMB5.9 million.

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OTHER FINANCIAL INFORMATION

Liquidity and Financial Resources

Sufficiency of net current assets and working capital

The table below sets out the Group’s current assets, current liabilities and net current assets as at 31 December 2021:

CURRENT ASSETS Financial assets at fair value through profit or loss Inventories Trade and other receivables Pledged and restricted deposits Cash at bank Current portion of other non-current assets Total current assets CURRENT LIABILITIES Trade and other payables Contract liabilities Bank loans Income tax payable Total current liabilities NET CURRENT ASSETS	At at 31 December 2021 2020 *RMB’000* RMB’000 269,382 465,787 63,442 73,027 236,351 108,681 155,595 57,003 2,387,239 877,745 107,000 125,795 3,219,009 1,708,038 329,560 263,953 118,557 139,224 275,695 210,410 667,460 241,063 1,391,272 854,650 1,827,737 853,388	At at 31 December 2021 2020 *RMB’000* RMB’000 269,382 465,787 63,442 73,027 236,351 108,681 155,595 57,003 2,387,239 877,745 107,000 125,795 3,219,009 1,708,038 329,560 263,953 118,557 139,224 275,695 210,410 667,460 241,063 1,391,272 854,650 1,827,737 853,388
		1,708,038
		263,953 139,224 210,410 241,063
		854,650
		853,388

As at 31 December 2021 and 31 December 2020, the net current assets of the Group amounted to approximately RMB1,827.7 million and RMB853.4 million, respectively. In light of our current liquidity position and our projected cash inflows generated from operations, the Directors believe that the Group has sufficient working capital for our present requirements and for the next 12 months.

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For the year ended 31 December 2021, the Group’s cash at bank were mainly used for the development of the Group’s Dafanpu Coal Mine and other potential projects, as well as repaying the debts of the Group and funding the Group’s working capital. The Group financed its funding requirements mainly through a combination of interest-bearing bank loans and cash generated from operating activities. The Group’s gearing ratio decreased from -31.9% as at 31 December 2020 to -85.8% as at 31 December 2021. This ratio is calculated as net debt divided by capital plus net debt. Net debt is calculated as total borrowings less cash at bank. Capital is equivalent to the total equity.

As at 31 December 2021, the Group’s cash at bank, amounting to approximately RMB2,387.2 million, were denominated in RMB (99.6%) and Hong Kong dollars (0.4%).

As at 31 December 2021 and 31 December 2020, the Group’s bank loans were repayable within 1 year or on demand. The Group’s secured bank loans were as follows:

Current Bank loan — secured	As at 31 December 2021 2020 *RMB’000* RMB’000 275,695 210,410

As at 31 December 2021, Mr. Zhang Li and Mr. Zhang Liang, Johnson have guaranteed the Group’s bank loans amounting to RMB275,695,000 (31 December 2020: RMB210,410,000).

Capital Expenditures

The Group incurred capital expenditures of approximately RMB1,022.9 million for the year ended 31 December 2021, which were mainly related to acquisition, construction of buildings and the purchase of machinery and equipment of the Dafanpu Coal Mine and other projects. These capital expenditures were fully financed by internal resources.

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Off-balance Sheet Arrangement

The Group did not have any outstanding derivative financial instruments and off-balance sheet guarantees for outstanding loans. The Group did not engage in trading activities involving non-exchange traded contracts.

Capital Commitments

The Group’s capital commitments as at 31 December 2021 amounted to approximately RMB644.8 million which were mainly related to acquisition, construction of buildings and the purchase of machinery and equipment of the Dafanpu Coal Mine and other projects.

Other Commitments

According to the Group’s production plan in the coming few years, the underground extraction activities will expand into corresponding agricultural land area currently occupied by various domestic households. As such, during the year ended 31 December 2021, management of the Group has liaised with those affected households for relocation and provided monetary compensation. As of 31 December 2021, the Group estimated the aggregate future compensation payable for such purpose to be approximately RMB20.7 million and corresponding payments are still in negotiation.

Charge on Assets

As at 31 December 2021, the Group’s bank loans amounted to RMB275,695,000 are secured by the Group’s pledged deposits of RMB96,493,000.

Contingent Liabilities

As at 31 December 2021, the Group had no material contingent liability.

Events after the Reporting Period

The details of the events after the reporting period are disclosed in Note 17 to the information extracted from the consolidated financial statements. Save as disclosed in this announcement, the Group had no significant non-adjusting events subsequent to 31 December 2021.

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Financial Risk Management

(a) Interest Rate Risk

The Group’s interest rate risk arises primarily from the bank loan with a floating interest rate. The bank loan with a floating interest rate exposes the Group to cash flow interest rate risk and borrowings issued at fixed rates exposes the Group to fair value interest rate risk. The Group did not account for any fixed rate financial liabilities at fair value through profit or loss, and the Group did not use derivative financial instruments to hedge its debt obligations. Therefore, a change in interest rates at the end of the reporting period would affect profit or loss. The Board will continue to closely monitor the Group’s loan portfolio in order to manage the Group’s interest rate risk exposure.

(b) Foreign Currency Risk

The Company and its subsidiaries comprising the Group are not exposed to significant foreign currency risk since their transactions and balances are principally denominated in their respective functional currencies. The Group did not enter into any financial instruments to hedge against foreign currency risk for the year ended 31 December 2021.

(c) Liquidity Risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities. The Group utilises cash flow forecast and other relevant information to monitor its liquidity requirements and to ensure that the Group has sufficient cash to support its business and operational activities.

Human Resources and Emolument Policy

As at 31 December 2021, the Group had a total of 1,062 full-time employees in Mainland China and Hong Kong. For the year ended 31 December 2021, the total staff costs, including the directors’ emoluments, amounted to approximately RMB239.0 million.

The Group’s emolument policies are formulated based on the performance and experience of employees and in line with the salary trends in Mainland China and Hong Kong. Other employee benefits include performance-related bonuses, insurance and medical coverage and share options. Appropriate training programs are also provided to employees in order to ensure continuous staff training and development of employees.

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OTHER INFORMATION

Final Dividend

On 28 April 2022, the Board proposed a final dividend of HKD0.065 per share, payable to the shareholders of the Company whose names appear on the register of members of the Company on 14 June 2022. It is expected that the final dividend will be paid in cash on or before Thursday, 30 June 2022. The total amount of the final dividend to be distributed is estimated to be HKD547,950,000. The proposed final dividend is subject to the approval of the shareholders of the Company at the forthcoming annual general meeting of the Company (the “ AGM ”).

Closure of Register of Members of the Company for Final Dividend

The register of members of the Company will be closed from Friday, 10 June 2022 to Tuesday, 14 June 2022 (both days inclusive), during which period no transfer of shares will be registered for the purpose of determining shareholders’ entitlement to the proposed final dividend. To qualify for the final dividend, all share transfer documents accompanied by the relevant share certificates must be lodged for registration with the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong no later than 4:30 p.m. on Thursday, 9 June 2022.

Closure of Register of Members of the Company for Attending the AGM

The register of members of the Company will be closed from Wednesday, 25 May 2022 to Monday, 30 May 2022 (both days inclusive), during which period no transfer of shares will be registered for the purpose of determining shareholders’ entitlement to attending and voting at the forthcoming AGM. In order to be entitled to attend and vote at the AGM, all share transfer documents accompanied by the relevant share certificates must be lodged for registration with the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong no later than 4:30 p.m. on Tuesday, 24 May 2022.

Purchase, Sale or Redemption of the Company’s Listed Securities

During the year ended 31 December 2021, neither the Company nor any of its subsidiaries, has purchased, sold or redeemed any of the Company’s listed securities.

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Directors’ and Relevant Employees’ Securities Transactions

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the “ Model Code ”) as set out in Appendix 10 of the Rules Governing the Listing of Securities (the “ Listing Rules ”) on The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) as its own code of conduct regarding directors’ securities transactions.

All Directors have confirmed, following specific enquiries made by the Company, that they have fully complied with the required standards set out in the Model Code and the Company’s code of conduct in the year ended 31 December 2021.

Relevant employees who are likely to be in possession of inside information of the Group are also subject to compliance with written guidelines on terms no less exacting than the required standards set out in the Model Code. Each of the relevant employees has been given a copy of the written guidelines.

No incident of non-compliance with these guidelines by the relevant employees was brought to the attention of the Company.

Corporate Governance Code

As the Company believes that good corporate governance can create value for the shareholders of the Company, the Board is committed to maintaining a high standard of corporate governance practices by putting strong emphasis on a quality Board, sound internal controls and effective accountability to the shareholders of the Company as a whole.

The Board is of the view that the Company has complied with the code provisions of the Corporate Governance Code and Corporate Governance Report as set out in Appendix 14 of the Listing Rules for the year ended 31 December 2021.

Audit Committee

The audit committee of the Company comprises two independent non-executive Directors, namely, Ms. Liu Peilian (Chairman) and Mr. Zheng Ercheng and a non-executive Director, namely, Ms. Zhang Lin. An audit committee meeting was held on 28 April 2022 to review the Company’s annual results and the audited consolidated financial statements for the year ended 31 December 2021.

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Scope of Work of Independent Auditor

The figures in respect of the Group’s consolidated statement of financial position, consolidated statement of profit or loss and other comprehensive income and the related notes thereto for the year ended 31 December 2021 as set out in the preliminary announcement have been agreed by the Group’s auditor, KPMG, Certified Public Accountants, to the amounts set out in the Group’s consolidated financial statements for the year. The work performed by KPMG in this respect did not constitute an assurance engagement and consequently no opinion or assurance conclusion has been expressed by KPMG on the preliminary announcement.

EXTRACT OF INDEPENDENT AUDITOR’S REPORT

The following is the extract of the independent auditor’s report on the Group’s consolidated financial statements for the year ended 31 December 2021:

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2021 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards (“ HKFRSs ”) issued by the Hong Kong Institute of Certified Public Accountants (“ HKICPA ”) and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

Material uncertainty related to going concern

We draw attention to Note 2.1 to the consolidated financial statements, which indicates that the Group determines to incur significant capital expenditure for its proposed acquisitions and its mining projects. The Group’s ability to fund the expenditure heavily relies on its ability to generate future operating cash inflows and obtain borrowings from banks or other financial institutions. As stated in Note 2.1, these facts or circumstances, along with other matters as set forth in Note 2.1, indicate that a material uncertainty exists which may cast significant doubt on the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

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Publication of the 2021 Annual Results and 2021 Annual Report on the websites of the Stock Exchange and the Company

This results announcement is published on the website of the Stock Exchange (http://www.hkexnews.hk) and the Company’s website (http://www.kineticme.com). The annual report for 2021 will be dispatched to the shareholders of the Company and published on the respective websites of the Stock Exchange and the Company in due course.

By Order of the Board Kinetic Development Group Limited Zhang Li Chairman and Executive Director

Hong Kong, 28 April 2022

As at the date of this announcement, the Board comprises seven directors, of whom three are executive directors, namely Mr. Zhang Li (Chairman), Mr. Zhang Liang, Johnson and Mr. Ju Wenzhong (Chief Executive Officer); one is a non-executive director, namely Ms. Zhang Lin and three are independent non-executive directors, namely Ms. Liu Peilian, Mr. Zheng Ercheng and Ms. Xue Hui.

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