Kinetic Development Group Limited - Interim / Quarterly Report 2021

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2021

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INTERIM REPORT

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(Incorporated in the Cayman Islands with limited liability) Stock Code: 1277

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Corporate Information	02
Chairman’s Statement	03
Management Discussion and Analysis	05
Consolidated Statement of Profit or Loss	14
and Other Comprehensive Income
Consolidated Statement of Financial Position	15
Consolidated Statement of Changes in Equity	17
Interim Condensed Consolidated Statement	18
of Cash Flows
Notes to the Unaudited Interim Financial Report	19
Other Information	35

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Corporate Information

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BOARD OF DIRECTORS

HEADQUARTERS AND PRINCIPAL PLACE OF BUSINESS IN THE PRC

Executive Directors

Dafanpu Coal Mine Majiata Village, Xuejiawan Town Zhunge’er Banner, Ordos City Inner Mongolia, China

Mr. Zhang Li (Chairman) Mr. Ju Wenzhong (Chief Executive Officer) Mr. Zhang Liang, Johnson

Non-executive Director

Ms. Zhang Lin

Independent Non-executive Directors

Ms. Liu Peilian Mr. Zheng Ercheng Ms. Xue Hui

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

Unit B, 20th Floor Two Chinachem Plaza 68 Connaught Road Central Hong Kong

AUDITOR

AUDIT COMMITTEE

Ms. Liu Peilian (Chairman) Mr. Zheng Ercheng Ms. Zhang Lin

REMUNERATION COMMITTEE

Ms. Xue Hui (Chairman) Ms. Liu Peilian Ms. Zhang Lin

NOMINATION COMMITTEE

Mr. Zhang Li (Chairman) Mr. Zheng Ercheng Ms. Xue Hui

KPMG 8th Floor Prince’s Building 10 Chater Road Central Hong Kong

HONG KONG SHARE REGISTRAR

Computershare Hong Kong Investor Services Limited Shops 1712–16, 17th Floor Hopewell Centre, 183 Queen’s Road East Wanchai, Hong Kong

PRINCIPAL BANKER

Ping An Bank Co., Ltd.

AUTHORISED REPRESENTATIVES

Mr. Ju Wenzhong Ms. Cheng Lucy

STOCK CODE

1277

COMPANY SECRETARY

Ms. Cheng Lucy

WEBSITE OF THE COMPANY

www.kineticme.com

REGISTERED OFFICE

Windward 3 Regatta Office Park, P.O. Box 1350 Grand Cayman KY1-1108, Cayman Islands

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

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Chairman’s Statement

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On behalf of the board of directors (the “Directors”) (the “Board”) of Kinetic Mines and Energy Limited (the “Company”), I am pleased to report the interim results of the Company, together with its subsidiaries (the “Group”), for the six months ended 30 June 2021.

In the first half of 2021, the global economy sustained the momentum for recovery amid fluctuations, with, however, an apparently differentiated and unbalanced landscape. Underpinned by appropriate prevention and control measures for the pandemic, China achieved an economic rebound ahead of foreign countries. In the first half of the year, the PRC Government continued to consolidate and expand the economic outcomes of social development and implemented macro-economic policies accurately, leading to stable domestic economic development with an upward trend. According to the National Bureau of Statistics of China (“NBSC”), the gross domestic product of the PRC reached approximately RMB53.2 trillion in the first half of 2021, representing a year-on-year increase of approximately 12.7% and an average two-year increase of approximately 5.3%.

In the first half of 2021, while the safe production and environmental protection policies suppressed the growth of domestic coal production capacity and the growth of coal import volume was under constant pressure, the demand for electricity consumption was continuously enormous. All these resulted in a prominent mismatch between the supply and demand in the domestic coal market. During the period, coal prices remained high with oscillations, demonstrating a trend of “long-term increase with occasional fall” in general and reaching high heights repeatedly.

As a leading integrated coal enterprise in China, the Group’s business activities cover coal production, washing, loading, transportation and trading. In the first half of 2021, the Group actively responded to corresponding government policies and realized high-quality and high-paced growth on the back of accurate adaptation to the market conditions. For the six months ended 30 June 2021, the Group’s revenue reached approximately RMB2,285.8 million, representing a growth of approximately 76.2% year-on-year. The Group’s profit attributable to shareholders of the Company amounted to approximately RMB922.3 million, up approximately 164.5% year-on-year. The Group’s gross profit margin for the reporting period was approximately 56.7%, which remained much higher than the average level in the industry.

During the reporting period, the Group continued to promote the construction of safe, efficient and green mines and enhance enterprise efficiency by utilizing flexible and diversified purchase and sales strategies. In terms of coal production, the Group continued to implement automated production management and commenced the operation of the coal mine integrated automation platform, which greatly improved its production efficiency. In terms of operation management, the Group continued to implement refined management, put into place stringent safety measures, and established a sound risk management and control mechanism, which lowered sales risks effectively in market fluctuations. In terms of coal sales, the Group maximized its integrated sales efficiency by employing a scientific approach to analyze and anticipate market trends as well as actively adjusting its sales policies. In addition, capitalizing on its high-quality self-produced coals “Kinetic 2”, the Group proactively reinforced and developed various sales channels, fostering the comprehensive development of Free on Board, Delivered Ex Quay, local sales and other approaches. The Group continued to strengthen its brand’s downstream influence. For the six months ended 30 June 2021, the sales volume of the Group’s commercial coal grew by approximately 23.7% as compared with the same period last year. In terms of sustainable development, following its inclusion in the first batch of green mines in China in January 2020, the Group’s Dafanpu Coal Mine successfully passed the acceptance of the green mines list in China in July of this year, which proves the Group’s comprehensive capability in respect of environmental protection in mines.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Chairman’s Statement

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Looking forward to the second half of 2021, the global economy is expected to sustain the momentum for recovery. However, uncertainties including the deterioration of the pandemic, tension between major countries and policy control still exist. The complex external environment cause unpredictability to the economic development in China. In terms of the coal industry, the economic recovery will drive the demand for coal, but the limited growth in supply will result in a shortage, resulting in longstanding high coal prices and sustaining high profits in the industry. Furthermore, safety and quality will become the major focus of industry development, in which high quality coal enterprises are expected to be benefited.

In the future, the Group will uphold the principle of high-quality growth, manage with refinement and sustain stable development. The Group will also capture market opportunities, leverage on its core competitiveness and actively identify quality projects to strive for outstanding returns for the society and shareholders.

Finally, on behalf of the Board, I would like to take this opportunity to express my sincere gratitude to our shareholders, business partners, management members and employees for their continued dedication and unwavering support.

Zhang Li

Chairman and Executive Director

19 August 2021

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Management Discussion and Analysis

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OVERVIEW

Market Review

In the first half of 2021, while the global economy progressively recovered as the pandemic situation gradually improved, it also faced tremendous challenges under the impact of uncertainties such as rising inflation and escalation of political and economic tensions. Confronting complex and fast-changing domestic and international environments, the PRC government continued to consolidate and expand the pandemic prevention and control measures as well as the economic outcomes of social development, and implemented macro-economic policies accurately. The economy achieved solid and stable development with an upward trend, while major economic indicators sustained strong growth. According to the data from the NBSC, the gross domestic product of the PRC reached approximately RMB53.2 trillion in the first half of 2021, representing a year-on-year increase of approximately 12.7% and an average two-year increase of approximately 5.3%. Sizable nationwide industrial enterprises achieved operating income of approximately RMB59.3 trillion, representing a yearon-year increase of approximately 27.9% and an average two-year increase of approximately 20.6%. Sizable nationwide industrial enterprises achieved a total profit of approximately RMB4.2 trillion, up approximately 66.9% year-on-year.

In the first half of 2021, affected by factors such as the constraints on supply caused by safety supervision and environmental protection policies, the disappearance of the economic value of imported coal and the strong demand for electricity during the economic recovery period, domestic coal supply and demand continued to mismatch, whereas supply shortage continued. On the supply side, the total national coal supply was relatively stable in the first half of the year, with apparent contraction in coal imports. According to the data from the NBSC, the raw coal output of China’s sizable nationwide industrial enterprises amounted to approximately 1.95 billion tonnes in the first half of 2021, with a year-on-year increase of approximately 6.4% and an average two-year growth of approximately 3.5%. China imported approximately 140 million tonnes of coal during the same period, with a year-on-year decrease of approximately 19.7%. During the same period, the demand side showed a buoyant and upward trend in general amid continuous domestic economic recovery and sustained a rapid growth in the demand for downstream electricity production. According to data from the NBSC, the nationwide power generation in the first half of the year was approximately 3,871.7 billion kWh, with a year-on-year increase of approximately 13.7% and an average two-year growth of approximately 5.9%.

In the first half of 2021, coal prices demonstrated an overall N-shape trend, with the average price shifting significantly upward as compared to the previous year, reaching a high height in the recent 10 years. The high coal prices drove the industry’s overall growth in performance in the first half of the year. According to the data released by the NBSC, the principal business income of large-scale enterprises from the coal mining and coal washing industries in China amounted to approximately RMB1,215.95 billion in the first half of 2021, which was up approximately 30.9% year-on-year; while the total profit amounted to approximately RMB206.88 billion, which was up approximately 113.8% year-on-year.

In conclusion, due to the mismatch between coal supply and demand in the first half of 2021, coal prices continued to hike, leading to a doubled profit in the coal industry in general and an optimistic industry sentiment.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Management Discussion and Analysis

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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.

During the reporting period, the Group kept abreast of the trend in the coal market with scientific approach and continued to boost development of end customers by using its own low-sulphur, high-quality brand products “Kinetic 2”. Through a combination of approaches such as Free on Board, Delivered Ex Quay and local sales, the downstream influence of the Group’s brand “Kinetic 2” was effectively extended. In addition to self-produced coal, the Group also further improved its railway transportation capacity and optimized its product structure through its purchased coal business. In the first half of the year, the Group exceeded its target in sales volume and revenue. For the six months ended 30 June 2021, the Group recorded a total revenue of approximately RMB2,285.8 million, representing an increase of approximately 76.2% as compared with the same period last year.

During the reporting period, coal prices remained high amid fluctuations. The Group made stringent evaluation of coal prices, and secured mid-to-long term sales profit by a combination of spot sales at port and presales at high coal prices to avoid market risks effectively. In May of this year, the Group established the sales risk control team, responsible for formulating risk control plans and safeguarding the Group’s business operation in the fast-changing market environment. In the first half of the year, the average selling price of the Group’s 5,000 Kcal low-sulphur eco thermal coal per tonne amounted to approximately RMB664, representing an increase of approximately 38.6% year-on-year.

During the reporting period, the Group continued to implement refined management, formulated and optimized the systems in various operational aspects, and strived to control various management expenses and costs. For the six months ended 30 June 2021, the Group achieved a gross profit margin of approximately 56.7%, maintaining an above-average standard in the industry.

Combining the above business strategies, the Group’s business was able to achieve a breakthrough in the first half of the year, bringing considerable profit for the shareholders. For the six months ended 30 June 2021, the Group achieved a consolidated net profit of approximately RMB922.3 million, up approximately 164.5% year-on-year. The Group’s EBITDA reached approximately RMB1,349.3 million, up approximately 145.0% year-on-year.

Furthermore, the Group has always been adhering to safe and efficient production. During the period, the coal mine integrated automation platform was put into operation and no accident involving personal injury occurred. The Group’s Dafanpu Coal Mine in Inner Mongolia maintained the highest accolades of “Class A Coal Mine”, “National Class 1 Safe Production Standardized Mine” and “National Premium Safe and Efficient Mine” for six consecutive years. The Group has been highly recognized by the public for its unsparing contributions to social responsibilities and environmental policies. In July of this year, the Group’s Dafanpu Coal Mine successfully passed the acceptance of the green mines list in China, which fully reflected the Group’s comprehensive ability in the mining industry in terms of sustainable development.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Management Discussion and Analysis

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Future Prospects

Looking forward to the second half of 2021, the development of the pandemic remains as the most major uncertainty, which, coupled with the increasing geo-political risks, is expected to disturb the recovery of the global economy. The World Economic Outlook Report released by the International Monetary Fund in April 2021 predicted that the global economy will increase by 6% in 2021, but the path of recovery will be differentiated and involve significant uncertainty. The PRC government is expected to maintain healthy and sound macroeconomic policies, continue its support for the real economy and stimulate domestic driving force, with a view to attaining a stable recovery of the domestic economy.

In terms of the coal market, supply is anticipated to catch up gradually under the supply guarantee policy, but the shortage of supply is not expected to change overnight. Underpinned by the increasing demand for coal upon domestic economic recovery, the coal industry is expected to sustain a boom. In addition, it is expected that safety and environmental protection will remain a stern focus for coal mines, which highlights quality development in the industry. Under this background, the position of high-quality coal companies in the industry is expected to be further enhanced under the influence of favourable factors such as increase in output and effective cost control, and the high coal prices will drive the rapid growth of their annual performance.

Looking forward to the second half of 2021, the Group will continue to adhere to its development philosophy of dual emphasis on safety and efficiency, further implement refined operation strategy and maintain and develop diversified sales models in light of market trends with the competitive advantages of its high-standard and high-quality products. The Group will also flexibly adjust the pace and strategy of sales, so as to effectively enhance the Group’s operating efficiency. Meanwhile, the Group will pursue strategic mergers and acquisitions as the opportunities arise, strive for breakthroughs and create greater value for the society and shareholders. The Group will also adhere to its environmental and social responsibilities to make contributions to the sustainable development of the coal industry.

FINANCIAL REVIEW

Revenue

Revenue of the Group increased from approximately RMB1,297.0 million for the six months ended 30 June 2020 to approximately RMB2,285.8 million for the six months ended 30 June 2021, representing an increase of approximately 76.2% as compared with the corresponding period last year.

The increase in the Group’s revenue was mainly due to the increase in both the Group’s sales volume and selling price of the coal. The Group’s sales volume of coal for the six months ended 30 June 2021 increased by approximately 23.7% as compared with the corresponding period last year, and the average selling price of the Group’s 5,000 kcal coal products increased by approximately 38.6% for the six months ended 30 June 2021 as compared with the same period last year.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Management Discussion and Analysis

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Cost of Sales

For the six months ended 30 June 2021, the Group incurred cost of sales of RMB990.6 million as compared to the Group’s cost of sales of RMB786.4 million for the six months ended 30 June 2020. The cost of sales of the Group mainly comprised transportation costs, salaries of coal mine workers, costs of supplementary materials, fuel and electricity, depreciation, amortisation and surcharges of mining operations. The increase in the Group’s cost of sales was mainly attributable to the increase in sales volume.

Gross Profit and Gross Profit Margin

For the six months ended 30 June 2021, the Group recorded a gross profit of approximately RMB1,295.2 million and a gross profit margin of approximately 56.7% as compared to the gross profit of approximately RMB510.7 million and the gross profit margin of approximately 39.4% for the six months ended 30 June 2020.

The increase in Group’s gross profit margin for the six months ended 30 June 2021 was mainly attributable to the increase in the average selling price of the Group’s coal products over the same period last year.

Selling Expenses

The selling expenses of the Group was approximately RMB4.5 million for the six months ended 30 June 2021 and it increased by approximately 2.6% as compared with the same period in 2020. The Group’s selling expenses mainly comprised salaries of sales staff and marketing related expenses.

Administrative Expenses

The Group’s administrative expenses increased from approximately RMB74.7 million for the six months ended 30 June 2020 to approximately RMB80.1 million for the six months ended 30 June 2021. The increase in the Group’s administrative expenses was mainly attributable to the increase in staff cost during the reporting period. The Group’s 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 RMB8.2 million for the six months ended 30 June 2020 to approximately RMB3.8 million for the six months ended 30 June 2021. The decrease in the Group’s finance costs was mainly attributable to decrease in average borrowing balance and decrease in interest rate during the period.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Management Discussion and Analysis

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Income Tax

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

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Six months ended 30 June
2021 2020
RMB’000 RMB’000
Current tax – Mainland China 344,044 133,873
Deferred income tax
Origination of temporary differences 17,655 2,870
Total tax expense for the period 361,699 136,743
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(a) Pursuant to the rules and regulations of the Cayman Islands and the British Virgin Islands (“BVI”), the Company and its subsidiary, Blue Gems Worldwide Limited are not subject to any income tax in the Cayman Islands and BVI respectively.
(b) PRC corporate income tax was provided at a rate of 25% (2020: 25%) on the taxable income as reported in the statutory accounts of the companies comprising the Group, which were prepared in accordance with the relevant PRC accounting standards, 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 the period, the Group provided for and paid withholding tax subject to a tax rate of 10%.

Profit for the Period

As a result of the foregoing, the Group recorded a consolidated net profit of approximately RMB922.3 million for the six months ended 30 June 2021 (six months ended 30 June 2020: consolidated net profit of approximately RMB348.7 million).

Interim Dividends

The Board proposed an interim dividend of 5.5 HK cents per share, payable to the shareholders of the Company on or before 29 October 2021. The dates for closure of register of members of the Company for ascertaining shareholders’ entitlement to receive the proposed interim dividend will be further announced. The total amount of the interim dividend to be distributed is estimated to be approximately HKD463,650,000 (six months ended 30 June 2020: HKD126,450,000).

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Management Discussion and Analysis

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Interim Condensed Consolidated Statement of Cash Flows

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Six months ended 30 June
2021 2020
RMB’000 RMB’000
Net cash generated from operating activities 1,357,650 429,152
INVESTING ACTIVITIES
Dividends received from an associate 20,867 –
Interest received 15,279 23,408
Payments for property, plant and equipment and other non-current assets (150,462) (40,350)
–
Loan granted to a related party (57,000)
Receipt of repayment of loan to a third party 74,000 23,000
–
Redemption of financial assets at fair value through profit or loss 62,330
–
Increase in time deposits (1,481,700)
Net cash used in investing activities (1,459,686) (50,942)
FINANCING ACTIVITIES
New bank loans 278,065 228,360
Repayments of bank loans (207,398) (364,356)
Decrease in pledged deposits 57,003 267,073
Increase in pledged deposits (98,202) (57,090)
Dividends paid (280,577) (226,543)
Interest paid (2,267) (6,894)
Net cash used in financing activities (253,376) (159,450)
NET (DECREASE)/INCREASE IN CASH (355,412) 218,760
Cash and cash equivalents at 1 January 877,745 497,192
Effect of foreign exchange rate changes 198 (1,299)
Cash and cash equivalents at 30 June 522,531 714,653
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Net Cash Generated from Operating Activities

The Group’s net cash generated from operating activities for the six months ended 30 June 2021 was RMB1,357.7 million, primarily due to profit before taxation of RMB1,284.0 million, adjusted for interest expenses on bank loans of RMB3.8 million, depreciation of RMB45.9 million, amortisation of RMB15.5 million, decrease of inventories of RMB17.7 million and income tax paid RMB222.0 million.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Management Discussion and Analysis

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OTHER FINANCIAL INFORMATION

Liquidity and Financial Resources

For the six months ended 30 June 2021, the Group’s cash at bank was mainly used for the development of the Group’s Dafanpu Coal Mine, 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 was approximately –7.6% as at 30 June 2021 as compared to the Group’s gearing ratio of approximately –31.9% as at 31 December 2020. 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 30 June 2021, the Group’s cash at bank, amounting to approximately RMB522.5 million, were denominated in Renminbi (96.7%) and Hong Kong dollars (3.3%).

As at 30 June 2021 and 31 December 2020, the Group’s bank loans were repayable within one year. The Group’s secured bank loans were as follows:

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30 June 31 December
2021 2020
RMB’000 RMB’000
Bank loan repayable:
Within one year or on demand 280,577 210,410
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As at 30 June 2021, the Group’s bank loans amounting to approximately RMB280,577,000 are secured by the Group’s pledged deposits amounting to RMB98,202,000 (As at 31 December 2020, the Group’s bank loans amounting to approximately RMB210,410,000 are secured by the Group’s pledged deposits amounting to approximately RMB52,603,000).

As at 30 June 2021, Mr. Zhang Li and Mr. Zhang Liang, Johnson have guaranteed the Group’s bank loans amounting to approximately RMB280,577,000 (31 December 2020: approximately RMB210,410,000).

Contingent Liabilities

The Group had no material contingent liability as at 30 June 2021.

Capital Expenditures and Commitments

The Group incurred capital expenditure of approximately RMB20.5 million for the six months ended 30 June 2021, which was mainly used in the purchase of machinery and equipment of the Dafanpu Coal Mine.

The Group’s capital commitments as at 30 June 2021 amounted to approximately RMB6.8 million which will be mainly used in the purchase of machinery and equipment of the Dafanpu Coal Mine.

Other Commitments

According to the Group’s production plan in the coming few years, the underground extraction activities will go into corresponding agricultural land area currently occupied by various domestic households. As such, management of the Group have been liaising with those affected households for relocation request and provide monetary compensation. As of 30 June 2021, the Group estimated the aggregate future compensation payable for such purpose to be approximately RMB20,713,000 and corresponding payments are still in negotiation.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Management Discussion and Analysis

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Charge on Assets

As at 30 June 2021, the Group’s aggregate bank loans from Hong Kong amounting to approximately RMB280.6 million are secured by the Group’s pledged deposits in Hong Kong amounting to approximately RMB98.2 million.

Events after the Reporting Period

After the end of the reporting period, the Board of Directors proposed an interim dividend, further details are disclosed in Note 19 to the unaudited interim financial report. Save as above, the Group had no significant non-adjusting events subsequent to 30 June 2021.

Financial Instruments

The Group did not have any hedging contracts or financial derivatives for the six months ended 30 June 2021.

Operating Segment Information

The Group’s revenue and results for the six months ended 30 June 2021 and 2020 were derived from the extraction and sales of coal products, which is considered as a single reportable segment in a manner consistent with the way in which information is reported internally to the Group’s chief operating decision maker for allocation of resources and performance assessment.

Moreover, as the Group’s revenue from the external customers and the majority of the Group’s assets were located in the PRC in both reporting periods of the six months ended 30 June 2021 and 2020, no geographical information was presented.

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 now 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 six months ended 30 June 2021.

(c) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulties 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 the Group has sufficient cash to support its business and operational activities.

Human Resources and Emolument Policy

As at 30 June 2021, the Group had a total of approximately 823 full-time employees in the Mainland China and Hong Kong, China. For the six months ended 30 June 2021, the total staff costs, including the directors’ emoluments, amounted to RMB130.6 million.

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

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Management Discussion and Analysis

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Remuneration Policy of Directors and Senior Management

The Directors and senior management receive compensation in the form of salaries and discretionary bonuses related to the performance of the Group. The Group also reimburses them for expenses which are necessarily and reasonably incurred for providing services to the Group or executing their functions in relation to the Group’s operations. The Group’s remuneration committee regularly reviews and determines the remuneration and compensation package of the Directors and senior management, by reference to, among other things, the market level of salaries paid by comparable companies, the respective responsibilities of the Directors and the performance of the Group.

Exploration, Development and Mining Production Activities

As at 30 June 2021, the Group’s outstanding capital commitments amounted to approximately RMB6.8 million, which will be mainly used in the purchase of machinery and equipment of the Dafanpu Coal Mine.

For the six months ended 30 June 2021, the Group incurred capital expenditures of approximately RMB20.5 million for the development and mining production activities of the Dafanpu Coal Mine. The capital expenditures were mainly used in the the purchase of machinery and equipment of the Dafanpu Coal Mine.

The Group did not conduct any exploration activities and did not incur any expense or capital expenditure in exploration activities during the six months ended 30 June 2021.

The breakdown of the Group’s expenses in relation to its mining production activities for the six months ended 30 June 2021 is summarised as follows:

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----- Start of picture text -----

For the six months
ended 30 June 2021
RMB’000
Cost items
Mining costs 203,046
Processing costs 60,579
Government surcharges 103,766
Transportation and storage costs 623,217
Cost of sales 990,608
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KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Consolidated Statement of Profi t or Loss and Other Comprehensive Income

For the six months ended 30 June 2021 – unaudited

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----- Start of picture text -----

Six months ended 30 June
2021 2020
Notes RMB’000 RMB’000
REVENUE 4 2,285,840 1,297,041
Cost of sales (990,608) (786,356)
Gross profit 1,295,232 510,685
Other incomes and losses, net 5 62,972 50,511
Selling expenses (4,541) (4,425)
Administrative expenses (80,147) (74,746)
PROFIT FROM OPERATIONS 1,273,516 482,025
Share of profits of an associate 14,344 11,572
Finance costs 7 (3,829) (8,190)
PROFIT BEFORE TAXATION 6 1,284,031 485,407
Income tax expense 8 (361,699) (136,743)
PROFIT FOR THE PERIOD ATTRIBUTABLE TO EQUITY
SHAREHOLDERS OF THE COMPANY 922,332 348,664
Other comprehensive income for the period that may be reclassified
subsequently to profit or loss:
Exchange differences on translation of financial statements of operations
outside Mainland China 4,515 (15,395)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 926,847 333,269
Attributable to:
Equity shareholders of the Company 926,847 333,269
Basic and diluted earnings per share attributable to equity
shareholders of the Company (RMB cents) 9 10.94 4.14
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The notes on pages 19 to 34 form part of this interim financial report. Details of dividends payable to equity shareholders of the Company are set out in Note 19.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Consolidated Statement of Financial Position

As at 30 June 2021 – unaudited

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30 June 31 December
2021 2020
Notes RMB’000 RMB’000
NON-CURRENT ASSETS
Property, plant and equipment 10 1,193,957 1,219,320
Right-of-use assets 11 21,893 19,778
Intangible assets 12 553,319 568,634
Interest in an associate 79,631 86,154
Deferred tax assets 175 2,581
Other non-current assets 100,308 68,145
Total non-current assets 1,949,283 1,964,612
CURRENT ASSETS
Financial assets at fair value through profit or loss 13 404,030 465,787
Inventories 14 55,327 73,027
Trade and other receivables 15 172,722 108,681
Time, pledged and restricted deposits 16 1,612,966 57,003
Cash at bank 16 522,531 877,745
Current portion of other non-current assets 21(b) 107,000 125,795
Total current assets 2,874,576 1,708,038
CURRENT LIABILITIES
Trade and other payables 17 279,714 263,953
Contract liabilities 419,245 139,224
Bank loans 18 280,577 210,410
Income tax payable 363,077 241,063
Total current liabilities 1,342,613 854,650
NET CURRENT ASSETS 1,531,963 853,388
TOTAL ASSETS LESS CURRENT LIABILITIES 3,481,246 2,818,000
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The notes on pages 19 to 34 form part of this interim financial report.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Consolidated Statement of Financial Position

As at 30 June 2021 – unaudited

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----- Start of picture text -----

30 June 31 December
2021 2020
RMB’000 RMB’000
NON-CURRENT LIABILITIES
Lease liabilities 762 –
Provision for reclamation costs 5,169 4,899
Long-term payables 25,696 25,001
Deferred tax liabilities 43,629 28,380
Total non-current liabilities 75,256 58,280
Net assets 3,405,990 2,759,720
EQUITY
Share capital 54,293 54,293
Reserves 3,351,697 2,705,427
Total equity 3,405,990 2,759,720
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The notes on pages 19 to 34 form part of this interim financial report.

16 KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Consolidated Statement of Changes in Equity

For the six months ended 30 June 2021 – unaudited

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----- Start of picture text -----

Share Share Other Statutory Exchange Retained Total
capital premium reserves reserves reserve earnings equity
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2020 54,293 483,907 141,831 561,699 (23,203) 1,040,336 2,258,863
– – – – –
Profit for the period 348,664 348,664
– – – – –
Other comprehensive income (15,395) (15,395)
Total comprehensive income for
– – – –
the period (15,395) 348,664 333,269
– – – – –
Dividend paid (226,543) (226,543)
Appropriation of maintenance and
– – – – –
production funds 93,377 (93,377)
Utilisation of maintenance and
– – – – –
production funds (11,379) 11,379
At 30 June 2020 54,293 483,907 141,831 643,697 (38,598) 1,080,459 2,365,589
At 1 January 2021 54,293 483,907 141,831 812,474 2,254 1,264,961 2,759,720
– – – – –
Profit for the period 922,332 922,332
– – – – –
Other comprehensive income 4,515 4,515
Total comprehensive income for
– – – –
the period 4,515 922,332 926,847
– – – – –
Dividend paid (280,577) (280,577)
Appropriation of maintenance and
– – – – –
production funds 122,756 (122,756)
Utilisation of maintenance and
– – – – –
production funds (22,149) 22,149
At 30 June 2021 54,293 483,907 141,831 913,081 6,769 1,806,109 3,405,990
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The notes on pages 19 to 34 form part of this interim financial report.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Interim Condensed Consolidated Statement of Cash Flows

For the six months ended 30 June 2021 – unaudited

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Six months ended 30 June
2021 2020
RMB’000 RMB’000
Net cash generated from operating activities 1,357,650 429,152
INVESTING ACTIVITIES
Dividends received from an associate 20,867 –
Interest received 15,279 23,408
Payments for property, plant and equipment and other non-current assets (150,462) (40,350)
–
Loan granted to a related party (57,000)
Receipt of the repayment of loan to a third party 74,000 23,000
–
Redemption of financial assets at fair value through profit or loss 62,330
–
Increase in time deposits (1,481,700)
Net cash used in investing activities (1,459,686) (50,942)
FINANCING ACTIVITIES
New bank loans 278,065 228,360
Repayments of bank loans (207,398) (364,356)
Decrease in pledged deposits 57,003 267,073
Increase in pledged deposits (98,202) (57,090)
Dividends paid (280,577) (226,543)
Interest paid (2,267) (6,894)
Net cash used in financing activities (253,376) (159,450)
NET (DECREASE)/INCREASE IN CASH (355,412) 218,760
Cash and cash equivalents at 1 January 877,745 497,192
Effect of foreign exchange rate changes 198 (1,299)
Cash and cash equivalents at 30 June 522,531 714,653
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The notes on pages 19 to 34 form part of this interim financial report.

18 KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Notes to the Unaudited Interim Financial Report

For the six months ended 30 June 2021

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 of the Cayman Islands (as revised from time to time). 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 period.

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.

2.1 BASIS OF PREPARATION

This interim financial report has been prepared in accordance with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, including compliance with Hong Kong Accounting Standard (HKAS) 34, Interim financial reporting , issued by the Hong Kong Institute of Certified Public Accountants (HKICPA). It was authorised for issue on 19 August 2021.

The interim financial report has been prepared in accordance with the same accounting policies adopted in the 2020 annual financial statements, except for the accounting policy changes that are expected to be reflected in the 2021 annual financial statements. Details of any changes in accounting policies are set out in Note 2.2.

The preparation of interim financial report in conformity with HKAS 34 requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses on a year to date basis. Actual results may differ from these estimates.

This interim financial report contains condensed consolidated financial statements and selected explanatory notes. The notes include an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the 2020 annual financial statements. The condensed consolidated interim financial statements and notes thereon do not include all of the information required for a full set of financial statements prepared in accordance with HKFRSs.

The financial information relating to the financial year ended 31 December 2020 that is included in the interim financial report as comparative information does not constitute the Group’s annual financial statements for that financial year but is derived from those financial statements. The auditor has expressed an unqualified opinion on those financial statements in the report dated 22 March 2021.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Notes to the Unaudited Interim Financial Report

For the six months ended 30 June 2021

2.2 CHANGES IN ACCOUNTING POLICIES

The Group has applied the following amendments to HKFRSs issued by the HKICPA to this interim financial report for the current accounting period:

• Amendments to HKFRS 9, HKAS 39, HKFRS 7, HKFRS 4 and HKFRS 16, Interest Rate Benchmark Reform

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.

Other than the amendment to HKFRS 16, the Group has not applied amendments that is not yet effective for the current accounting period. The adoption of these amendments does not have any material impact on the financial position and financial results of the Group.

3. 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 sales 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 period.

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

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Notes to the Unaudited Interim Financial Report For the six months ended 30 June 2021

4. REVENUE

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

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----- Start of picture text -----

Six months ended 30 June
2021 2020
RMB’000 RMB’000
Revenue from contracts with customers
Sale of coal products 2,285,840 1,297,041
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5. OTHER INCOMES AND LOSSES, NET

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----- Start of picture text -----

Six months ended 30 June
2021 2020
RMB’000 RMB’000
Government grants 57,345 25,531
Foreign exchange differences, net (2,809) 6,414
Interest income 7,606 22,414
Others 830 (3,848)
62,972 50,511
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KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Notes to the Unaudited Interim Financial Report

For the six months ended 30 June 2021

6. PROFIT BEFORE TAXATION

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

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----- Start of picture text -----

Six months ended 30 June
2021 2020
RMB’000 RMB’000
Cost of sales
– Transportation and storage costs 623,217 526,973
– Cost of inventories sold 367,391 259,383
990,608 786,356
Depreciation 45,897 43,510
Amortisation of intangible assets 15,315 13,365
Amortisation of right-of-use assets 231 218
Staff costs:
Salaries, wages, bonuses and benefits 126,195 106,090
Contribution to defined contribution plans 4,414 860
130,609 106,950
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Cost of inventories sold for the six months ended 30 June 2021 included RMB124,968,000 (six months ended 30 June 2020: RMB102,962,000) relating to staff costs, depreciation and amortisation, which amounts are also included in the respective amounts disclosed separately above for each of these types of expenses.

7. FINANCE COSTS

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----- Start of picture text -----

Six months ended 30 June
2021 2020
RMB’000 RMB’000
Interest expenses 2,324 6,054
Unwinding of discount 1,505 2,136
3,829 8,190
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KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Notes to the Unaudited Interim Financial Report

For the six months ended 30 June 2021

8. INCOME TAX EXPENSE

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

==> picture [462 x 150] intentionally omitted <==

(a) Pursuant to the rules and regulations of the Cayman Islands and the BVI, the Company and its subsidiary, Blue Gems Worldwide Limited are not subject to any income tax in the Cayman Islands and BVI respectively.
(b) PRC corporate income tax was provided at a rate of 25% (2020: 25%) on the taxable income as reported in the statutory accounts of the companies comprising the Group, which were prepared in accordance with the relevant PRC accounting standards, 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 the period, the Group provided for and paid withholding tax subject to a tax rate of 10%.

9. BASIC AND DILUTED EARNINGS PER SHARE

The calculation of basic earnings per share for the six months ended 30 June 2021 is based on the profit for the period of RMB922,332,000 and the 8,430,000,000 shares in issue during the period.

The calculation of basic earnings per share for the six months ended 30 June 2020 is based on the profit for the period of RMB348,664,000 and the 8,430,000,000 shares in issue during the period.

There were no dilutive potential ordinary shares during the six-month periods ended 30 June 2021 and 2020, and therefore, diluted earnings per share is the same as the basic earnings per share.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Notes to the Unaudited Interim Financial Report

For the six months ended 30 June 2021

10. PROPERTY, PLANT AND EQUIPMENT

==> picture [462 x 136] intentionally omitted <==

----- Start of picture text -----

Carrying
amount
RMB’000
At 1 January 2021 1,219,320
Additions 20,534
Depreciation (45,897)
At 30 June 2021 1,193,957
----- End of picture text -----

The Group is in the process of applying for the title of certificates of certain properties with a carrying value of RMB285,047,000 (31 December 2020: RMB288,248,000) as at 30 June 2021. The directors of the Company are of the opinion that the use of and the conduct of operating activities at the properties referred to above are not affected by the fact that the Group has not yet obtained the relevant property title certificates.

11. RIGHT-OF-USE ASSETS

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----- Start of picture text -----

Carrying
amount
RMB’000
At 1 January 2021 19,778
Additions 2,346
Amortisation during the period (231)
At 30 June 2021 21,893
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12. INTANGIBLE ASSETS

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----- Start of picture text -----

Carrying
amount
RMB’000
At 1 January 2021 568,634
Amortised during the period (15,315)
At 30 June 2021 553,319
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24 KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Notes to the Unaudited Interim Financial Report

For the six months ended 30 June 2021

13. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

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----- Start of picture text -----

30 June 31 December
2021 2020
RMB’000 RMB’000
Trust wealth management investments 404,030 465,787
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On 25 December 2020, the Group entered into a subscription agreement with Northern International Trust Co., Ltd. (“Northern Trust”) to subscribe a trust wealth management investment amounting to RMB252,530,000 for a period of 1 year, which is redeemable on demand. Northern Trust’s investment portfolio is on money market instruments, fixedincome securities and other investment products.

On 28 December 2020, the Group entered into a subscription agreement with Beijing International Trust Co., Ltd. (“Beijing Trust”) to subscribe a trust wealth management investment amounting to RMB151,500,000 for a period of 10 years, which is redeemable on demand. Beijing Trust’s investment portfolio is mainly on standardized creditor’s rights assets and deposits.

On 30 December 2020, the Group entered into a subscription agreement with Guangdong Yuecai Trust Co., Ltd. (“Guangdong Trust”) to subscribe a trust wealth management investment amounting to RMB61,757,000, which is redeemable on demand. Guangdong Trust’s portfolio is mainly on creditor instruments and bank deposits. In February 2021, the investment has been fully redeemed.

14. INVENTORIES

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----- Start of picture text -----

30 June 31 December
2021 2020
RMB’000 RMB’000
Coal products 5,003 18,276
Raw materials, accessories and chemicals 50,324 54,751
55,327 73,027
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During the six months ended 30 June 2021, there were no write down of inventories.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Notes to the Unaudited Interim Financial Report

For the six months ended 30 June 2021

15. TRADE AND OTHER RECEIVABLES

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----- Start of picture text -----

30 June 31 December
2021 2020
RMB’000 RMB’000
Trade debtors 8,862 4,151
Other receivables 62,120 42,302
Prepayments and deposits 101,740 62,228
172,722 108,681
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As at the end of the reporting period, the aging analysis of trade debtors, based on the invoice date and net of provisions is as follows:

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----- Start of picture text -----

30 June 31 December
2021 2020
RMB’000 RMB’000
Within 6 months 8,862 4,151
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Trade debtors are generally due within 30 to 90 days from the date of billing.

The allowances for trade and other 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 30 June 2021 under HKFRS 9.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Notes to the Unaudited Interim Financial Report

For the six months ended 30 June 2021

16. CASH AT BANK AND TIME, PLEDGED AND RESTRICTED DEPOSITS

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----- Start of picture text -----

30 June 31 December
2021 2020
RMB’000 RMB’000
Cash and bank balances 522,531 877,745
Restricted deposits 33,064 4,400
Pledged deposits 98,202 52,603
–
Time deposits 1,481,700
2,135,497 934,748
Less:
Pledged for bank loans 98,202 52,603
Restricted deposits 33,064 4,400
–
Time deposits 1,481,700
Cash and cash equivalents 522,531 877,745
----- End of picture text -----

As at 30 June 2021, the Group’s bank balances of approximately RMB33,064,000 (31 December 2021: nil) were deposited with reputable banks with no recent history of default as a mine environment restoration guarantee fund pursuant to the related government regulations.

As at 30 June 2021, the Group’s bank balances of RMB98,202,000 (31 December 2020: RMB52,603,000) were deposited as guarantee fund for the Group to obtain bank loan of RMB280,577,000 (31 December 2020: RMB210,410,000).

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Notes to the Unaudited Interim Financial Report

For the six months ended 30 June 2021

17. TRADE AND OTHER PAYABLES

==> picture [462 x 131] intentionally omitted <==

----- Start of picture text -----

30 June 31 December
2021 2020
Notes RMB’000 RMB’000
Payables for material and construction (a) 97,476 83,996
Other payables and accruals (b) 174,683 171,901
Amounts due to related parties 21(c) 7,555 8,056
279,714 263,953
----- End of picture text -----

Notes:

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

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

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----- Start of picture text -----

30 June 31 December
2021 2020
RMB’000 RMB’000
Within 1 year 62,773 38,929
1 to 2 years 12,239 23,060
Over 2 years 22,464 22,007
97,476 83,996
----- End of picture text -----

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

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Notes to the Unaudited Interim Financial Report

For the six months ended 30 June 2021

18. BANK LOANS

As at 30 June 2021 and 31 December 2020, the Group’s bank loans were repayable within 1 year.

==> picture [462 x 86] intentionally omitted <==

----- Start of picture text -----

30 June 31 December
2021 2020
RMB’000 RMB’000
Current:
Bank loans – secured 280,577 210,410
----- End of picture text -----

As at 30 June 2021, the Group’s bank loans amounting to RMB280,577,000 are secured by the Group’s pledged deposits amounting to RMB98,202,000 (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 30 June 2021, Mr. Zhang Li and Mr. Zhang Liang, Johnson have guaranteed the Group’s bank loans amounting to RMB280,577,000 (31 December 2020: RMB210,410,000).

19. DIVIDENDS

The Board of Directors proposed an interim dividend of 5.5 HK cents per share, payable to shareholders of the Company on or before 29 October 2021. The dates for closure of register of members of the Company for ascertaining shareholders’ entitlement to receive the proposed interim dividend will be further announced. The total amount of the interim dividend to be distributed is estimated to be approximately HKD463,650,000 (six months ended 30 June 2020: HKD126,450,000).

20. COMMITMENTS

(a) Capital commitments

Capital commitments outstanding as at 30 June 2021 not provided for in the interim financial report were as follows:

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----- Start of picture text -----

30 June 31 December
2021 2020
RMB’000 RMB’000
Authorised and contracted for construction and purchase of
mining machinery 6,829 6,096
----- End of picture text -----

(b) Other commitment

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Notes to the Unaudited Interim Financial Report

For the six months ended 30 June 2021

21. RELATED PARTY TRANSACTIONS AND BALANCES

During the six months ended 30 June 2021, transactions with the following parties are considered as related party transactions.

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----- Start of picture text -----

Name of party Relationship
Mr. Zhang Li Executive Director
Mr. Zhang Liang, Johnson Executive Director
Beijing R&F City Real Estate Development Co., Ltd. (“R&F City”) Controlled by Mr. Zhang Li
(北京富力城房地產開發有限公司)
Shenhua Zhunneng Xiaojia Shayan Coal Storage and Delivery Limited (“Xiaojia JV”) An associate of the Group
(神華准能肖家沙�煤炭集運有限責任公司)
Guizhou Liliang Energy Co., Ltd. (“Guizhou Liliang”) (貴州力量能源有限公司) Controlled by Mr. Zhang Li
----- End of picture text -----*

The English translation of the company name is for reference only. The official name of the company is in Chinese.

(a) Transactions

Apart from the transaction disclosed in Note 21(b), particulars of significant transactions between the Group and the above related parties are as follows:

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----- Start of picture text -----

Six months ended 30 June
2021 2020
RMB’000 RMB’000
Loading service from Xiaojia JV 63,915 50,746
----- End of picture text -----

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Notes to the Unaudited Interim Financial Report

For the six months ended 30 June 2021

21. RELATED PARTY TRANSACTIONS AND BALANCES (Cont’d)

(b) Amounts due from related parties

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----- Start of picture text -----

30 June 31 December
2021 2020
RMB’000 RMB’000
Other non-current assets (including current portion) 107,000 107,000
Trade and other receivables 7,375 5,382
114,375 112,382
----- End of picture text -----

The Group had provided advanced payment amounting to RMB2,100,000 for Guizhou Liliang, which is controlled by Mr. Zhang Li, in 2018. As at 30 June 2021, the balance receivable from Guizhou Liliang amounted to RMB2,100,000 (31 December 2020: RMB2,100,000).

On 13 December 2019, the Group entered into a loan agreement with Guizhou Liliang, which is controlled by Mr. Zhang Li, in the principal amount of RMB50,000,000 for a term of 2 years. The annual interest rate is 4.233%, 2% above the 1-year loan market quoted interest rate announced by the National Interbank Funding Center, and the interest shall be paid annually.

On 22 June 2020, the Group entered into a loan agreement with Guizhou Liliang, which is controlled by Mr. Zhang Li, in the principal amount of RMB57,000,000 for a term of 2 years. The annual interest rate is 3.927%, 2% above the 1-year loan market quoted interest rate announced by the National Interbank Funding Center, and the interest shall be paid annually.

As at 30 June 2021, the principal of loan receivable was RMB107,000,000 recorded in current portion of other non-current assets (31 December 2020: RMB57,000,000 in other non-current assets and RMB50,000,000 in current portion), and the interest receivable was RMB5,275,000 recorded in trade and other receivables (31 December 2020: RMB3,282,000). The interest income on these loans for the period ended 30 June 2021 was RMB1,993,000 (six months ended 30 June 2020: RMB1,049,000).

(c) Amounts due to related parties

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30 June 31 December
2021 2020
RMB’000 RMB’000
Xiaojia JV 3,546 3,357
R&F City 4,009 4,009
7,555 7,366
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Amounts due to related parties are unsecured, interest-free and repayable on demand.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Notes to the Unaudited Interim Financial Report

For the six months ended 30 June 2021

21. RELATED PARTY TRANSACTIONS AND BALANCES (Cont’d)

(d) Key management personnel remuneration of the Group

Remuneration for directors and key management personnel of the Group is as follows:

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Six months ended 30 June
2021 2020
RMB’000 RMB’000
Short-term employee benefits 12,571 11,702
Contribution to defined contribution retirement plan 297 214
12,868 11,916
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(e) Financial guarantees

As at 30 June 2021, the Group’s bank loans totaling to RMB280,577,000 was jointly guaranteed by Mr. Zhang Li and Mr. Zhang Liang, Johnson (31 December 2020: RMB210,410,000).

22. FAIR VALUE MEASUREMENT

Fair value hierarchy

The following table presents the fair value of the Group’s financial instruments measured at the end of the reporting period on a recurring basis, categorized into three-level fair value hierarchy as defined in HKFRS 13, Fair value measurement. The level into which a fair value is classified is determined with reference to the observability and significance of the inputs used in the valuation technique as follows:

Level 1 – based on quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly
Level 3 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Notes to the Unaudited Interim Financial Report

For the six months ended 30 June 2021

22. FAIR VALUE MEASUREMENT (Cont’d)

During the six months ended 30 June 2021, there were no transfers between Level 1 and Level 2, or transfers into or out of Level 3.

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Fair value measurements as at
Fair value at
30 June 30 June 2021 categorised into
2021 Level 1 Level 2 Level 3
RMB’000 RMB’000 RMB’000 RMB’000
Recurring fair value measurements
Assets:
– –
Trust wealth management investments 404,030 404,030
Fair value measurements as at
Fair value at
31 December 31 December 2020 categorised into
2020 Level 1 Level 2 Level 3
RMB’000 RMB’000 RMB’000 RMB’000
Recurring fair value measurements
Assets:
– –
Trust wealth management investments 465,787 465,787
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The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These techniques maximise the use of relevant observable inputs and minimise the use of unobservable inputs. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.

If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. During the six months ended 30 June 2021, there were no material charges on the fair value of the trust wealth management investments.

Except for the above mentioned, there are no other financial assets or liabilities measured at fair value at the end of the reporting period.

The carrying amounts of the Group’s financial instruments carried at amortised cost were not materially different from their fair values as at 30 June 2021. The following methods and assumptions were used to estimate the fair values:

The fair values of cash and bank deposits, financial assets included in trade and other receivables, financial liabilities included in trade and other payables and interest-bearing bank loans approximate to their carrying amounts largely due to the short-term maturities of these instruments.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Notes to the Unaudited Interim Financial Report

For the six months ended 30 June 2021

23. IMPACT OF COVID-19 PANDEMIC

The COVID-19 pandemic since early 2020 has brought about additional uncertainties in the Group’s operating environment and has impacted the Group’s operations and financial position. The Group has been closely monitoring the impact of the developments on the Group’s businesses and has put in place responsive measures. These responsive measures include safeguarding production to ensure the coal market supply in accordance with the arrangement of government authorities while maintaining strict disease monitoring and control and safety production measures, negotiating with customers on delivery schedule, and continuously monitoring the operations of our customers. As far as the Group’s businesses are concerned, the COVID-19 pandemic did not have material negative impact on the Group’s operation, the Group will keep its responsive measures under review as the situation evolves.

24. EVENTS AFTER REPORTING PERIOD

After the end of the reporting period, the Board of Directors proposed an interim dividend, further details are disclosed in Note 19. Save as above, the Group had no significant non-adjusting events subsequent to 30 June 2021.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Other Information

CORPORATE GOVERNANCE

Corporate Governance Code

As the Company believes that good corporate governance is essential to the shareholders of the Company, the Board is committed to maintaining a high standard of corporate governance practices by placing 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 as set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) (the “Listing Rules”) for the six months ended 30 June 2021.

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 Listing Rules as its own code of conduct regarding directors’ securities transactions.

All the directors of the Company have confirmed, following specific enquiries 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 for the six months ended 30 June 2021.

Relevant employees who are likely to be in possession of inside information of the Group are also subject to compliance with the 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 identified by the Company.

Audit Committee

The audit committee of the Company comprises two independent non-executive directors, namely Ms. Liu Peilian and Mr. Zheng Ercheng and one non-executive director, Ms. Zhang Lin. Ms. Liu Peilian is the chairman of the Audit Committee, who possesses the appropriate professional qualification on accounting or related financial management expertise. The principal duties of the Audit Committee include the review and supervision of the Group’s financial reporting process and internal control system. The Audit Committee has reviewed the interim results of the Group for the six months ended 30 June 2021.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

During the six months ended 30 June 2021, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company’s listed securities.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Other Information

DISCLOSURE OF INTERESTS

Directors’ and Chief Executive’s Interests and Short Positions in the Shares, Underlying Shares and Debentures

As at 30 June 2021, the interests and short positions of the Directors and chief executive of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the “SFO”)) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO), or which were required to be recorded in the register required to be kept by the Company under section 352 of the SFO, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code were as follows:

Long position in the ordinary shares of the Company

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Approximate
Number of percentage of
Name of Directors Capacity/Type of interest ordinary shares shareholding
(Note 1)
Mr. Zhang Li Beneficial interests 943,314,000 11.19%
Interest of spouse (Note 2) 2,800,000 0.03%
Mr. Zhang Liang, Johnson Interest in a controlled corporation (Note 3) 5,307,450,000 62.96%
Mr. Ju Wenzhong Beneficial interests 353,659 0.004%
Ms. Xue Hui Beneficial interests 3,860,055 0.05%
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Note 1: The calculation is based on the total number of issued ordinary shares of the Company of 8,430,000,000 shares as at 30 June 2021.
Note 2: Madam Liao Dong Fen is the spouse of Mr. Zhang Li. Mr. Zhang Li is therefore deemed to be interested in the 2,800,000 ordinary shares of the Company held by Madam Liao Dong Fen according to the SFO.
Note 3: King Lok Holdings Limited is wholly-owned and controlled by Mr. Zhang Liang, Johnson and Mr. Zhang Liang, Johnson is therefore deemed to be interested in the ordinary shares of the Company held by King Lok Holdings Limited.

Save as disclosed above, as at 30 June 2021, there was no any other Directors or chief executive of the Company or any of their associates who had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO), or which were required to be recorded in the register required to be kept by the Company under section 352 of the SFO, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Other Information

DISCLOSURE OF INTERESTS (Cont’d)

Directors’ and Chief Executive’s Rights to Acquire Shares or Debentures

At no time during the six months ended 30 June 2021 was the Company, its subsidiaries, its associate, its fellow subsidiaries or its holding company a party to any arrangements to enable the Directors or chief executive of the Company (including their spouse and children under 18 years of age) to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.

Substantial Shareholders’ Interests and Short Positions in the Shares and Underlying Shares

So far as known to the Directors and chief executive of the Company, as at 30 June 2021, the persons or corporations (except the Directors or chief executive of the Company) who had interest or short positions in the shares and underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were required to be recorded in the register required to be kept by the Company under section 336 of the SFO were as follows:

Long position in the ordinary shares of the Company

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Approximate
Name of substantial Number of percentage of
shareholders Capacity/Type of interest ordinary shares shareholding
(Note 1)
Madam Liao Dong Fen Beneficial interests 2,800,000 0.03%
Interest of spouse (Note 2) 943,314,000 11.19%
King Lok Holdings Limited Beneficial interests (Note 3) 5,307,450,000 62.96%
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Note 1: The calculation is based on the total number of issued ordinary shares of the Company of 8,430,000,000 shares as at 30 June 2021.

Note 2: Madam Liao Dong Fen is the spouse of Mr. Zhang Li. Madam Liao Dong Fen is therefore deemed to be interested in the 943,314,000 ordinary shares of the Company held by Mr. Zhang Li according to the SFO.

Note 3: King Lok Holdings Limited is wholly-owned and controlled by Mr. Zhang Liang, Johnson.

Save as disclosed above, as at 30 June 2021, the Directors and chief executive of the Company were not aware of any other person or corporation (except the Directors or chief executive of the Company) who had any interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were required to be recorded in the register required to be kept by the Company under section 336 of the SFO.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

Other Information

DISCLOSURE OF INTERESTS (Cont’d)

Share Option Scheme

The Company has adopted a share option scheme on 6 March 2012 (the “Share Option Scheme”) for the purpose of providing incentives to participants to contribute to the Company and enabling the Company to recruit high-caliber employees and attract or retain talent that is valuable to the Group.

The maximum number of shares which may be issued upon exercise of all the options to be granted under the Share Option Scheme and any other share option scheme of the Company (if any) shall not in aggregate exceed 10% of the shares in issue as at 23 March 2012 (i.e. a maximum of 843,000,000 shares) unless refreshed. Moreover, no option may be granted to a participant if the total number of shares issued and to be issued upon exercise of the options granted and to be granted to that participant in any 12-month period would exceed 1% of the Company’s issued share capital from time to time.

An offer of the grant of an option may be accepted within 28 days from the date of offer and the amount payable on acceptance of such offer is HKD1.0. The subscription price in respect of any particular option is determined by the Board and shall be whichever is higher of:

(i) the closing price of the shares on the Stock Exchange as stated in the Stock Exchange daily quotations sheet on the offer date;
(ii) the average closing price of the shares on the Stock Exchange as stated in the Stock Exchange’s daily quotations sheets for the five trading days immediately preceding the offer date; or
(iii) the nominal value of the shares.

The Share Option Scheme shall be valid and effective for a period of 10 years from the listing date, after which period no further options will be offered.

For the six months ended 30 June 2021, no option was granted under the Share Option Scheme and a total of 843,000,000 shares (representing 10% of the existing issued share capital of the Company) may be issued upon exercise of all options which may be granted under the Share Option Scheme as at the date of this interim report.

DIRECTORS’ INTERESTS IN COMPETING BUSINESS

As at 30 June 2021, Mr. Zhang Li, the chairman and an executive Director, has controlling interest in Guizhou Liliang Energy Co., Ltd., which is principally engaged in mineral investment related business in Guizhou.

Save as disclosed above, during the six months ended 30 June 2021, none of the Directors or their close associates (as defined in the Listing Rules) has any other interests in any business apart from the Group’s business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

KINETIC MINES AND ENERGY LIMITED Interim Report 2021

AI assistant

Kinetic Development Group Limited — Interim / Quarterly Report 2021

49818_rns_2021-08-30_276fe3e3-3265-424f-b482-4f68960e5302.pdf

2021

CONTENTS

Corporate Information

BOARD OF DIRECTORS

HEADQUARTERS AND PRINCIPAL PLACE OF BUSINESS IN THE PRC

Executive Directors

Non-executive Director

Independent Non-executive Directors

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

AUDITOR

AUDIT COMMITTEE

REMUNERATION COMMITTEE

NOMINATION COMMITTEE

HONG KONG SHARE REGISTRAR

PRINCIPAL BANKER

AUTHORISED REPRESENTATIVES

STOCK CODE

COMPANY SECRETARY

WEBSITE OF THE COMPANY

REGISTERED OFFICE

Chairman’s Statement

Zhang Li

OVERVIEW

Market Review

Business Review

Future Prospects

FINANCIAL REVIEW

Revenue

Cost of Sales

Gross Profit and Gross Profit Margin

Selling Expenses

Administrative Expenses

Finance Costs

Income Tax

Profit for the Period

Interim Dividends

Interim Condensed Consolidated Statement of Cash Flows

Net Cash Generated from Operating Activities

OTHER FINANCIAL INFORMATION

Liquidity and Financial Resources

Contingent Liabilities

Capital Expenditures and Commitments

Other Commitments

Charge on Assets

Events after the Reporting Period

Financial Instruments

Operating Segment Information

Financial Risk Management

(a) Interest Rate Risk

(b) Foreign Currency Risk

(c) Liquidity risk

Human Resources and Emolument Policy

Remuneration Policy of Directors and Senior Management

Exploration, Development and Mining Production Activities

Consolidated Statement of Profi t or Loss and Other Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Interim Condensed Consolidated Statement of Cash Flows

Notes to the Unaudited Interim Financial Report

1. CORPORATE AND GROUP INFORMATION

2.1 BASIS OF PREPARATION

Notes to the Unaudited Interim Financial Report

2.2 CHANGES IN ACCOUNTING POLICIES

• Amendments to HKFRS 9, HKAS 39, HKFRS 7, HKFRS 4 and HKFRS 16, Interest Rate Benchmark Reform

• Amendment to HKFRS 16, Covid-19-Related Rent Concessions beyond 30 June 2021

3. OPERATING SEGMENT INFORMATION

4. REVENUE

5. OTHER INCOMES AND LOSSES, NET

6. PROFIT BEFORE TAXATION

7. FINANCE COSTS

8. INCOME TAX EXPENSE

9. BASIC AND DILUTED EARNINGS PER SHARE

10. PROPERTY, PLANT AND EQUIPMENT

11. RIGHT-OF-USE ASSETS

12. INTANGIBLE ASSETS

13. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Kinetic Development Group Limited Interim / Quarterly Report 2021