Company Information During the reporting period, there were multiple changes in the company's Board of Directors and various committee members, including the resignation and appointment of several executive, non-executive, and independent non-executive directors - During the reporting period, there were multiple changes in the company's Board of Directors and various committee members, including the resignation and appointment of several executive, non-executive, and independent non-executive directors5 Chairman's Statement The company's existing coal mining business's financial performance was significantly impacted by challenges including tightening regulations, resource depletion, and increased capital investment in China's coal industry - The company's existing coal mining business's financial performance was significantly impacted by challenges including tightening regulations, resource depletion, and increased capital investment in China's coal industry10 - To achieve business diversification, the Group invested in a copper mine in Laos in 2024, officially entering the Southeast Asian mining sector. Despite challenges encountered in the new business, the Board still considers diversification crucial for long-term development10 - Moving forward, the Group will continue to focus on enhancing operational and capital efficiency, and actively seek new business opportunities in the energy and mining sectors to enhance shareholder value10 Financial Highlights Annual Financial Summary In FY2024, the company's revenue decreased by 3.7% year-on-year to HK$181 million, while gross profit increased by 3.5% to HK$67.47 million. However, the loss attributable to owners of the company significantly expanded by 113.9% to HK$50.77 million, primarily due to impairment of non-financial assets and increased administrative expenses. Both total assets and total liabilities decreased, and cash balance declined by 23.0% Summary of FY2024 Operating Results and Financial Position | Metric | 2024 (HK$ Thousand) | 2023 (HK$ Thousand) | Change Rate | | :--- | :--- | :--- | :--- | | Operating Results | | | | | Revenue | 180,934 | 187,960 | -3.7% | | Gross Profit | 67,469 | 65,211 | 3.5% | | Loss for the year attributable to owners of the Company | (50,768) | (23,734) | 113.9% | | Loss per share - Basic | (25.50) HK cents | (14.62) HK cents | 74.4% | | Financial Position | | | | | Total Assets | 284,673 | 307,225 | -7.3% | | Total Liabilities | 96,423 | 109,737 | -12.1% | | Bank and cash balances | 73,412 | 95,359 | -23.0% | | Equity attributable to owners of the Company | 144,163 | 138,598 | 4.0% | Five-Year Financial Summary Over the past five years, the company's revenue fluctuated between HK$130 million and HK$190 million, with 2024 revenue at HK$181 million. In terms of operating profit, the company achieved profitability in 2021 and 2022 but recorded operating losses in 2020, 2023, and 2024, with the 2024 operating loss expanding to HK$66.81 million. Net profit attributable to owners of the company also showed significant fluctuations, with a loss of HK$50.77 million recorded in 2024, marking the second-largest loss in the past five years. Net assets remained relatively stable within the HK$180 million to HK$200 million range over the five-year period Five-Year Performance Summary (As at December 31) | Metric (HK$ Thousand) | 2024 | 2023 | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | 180,934 | 187,960 | 191,180 | 183,016 | 133,012 | | Operating (Loss) / Profit | (66,805) | (32,009) | 34,072 | 31,628 | (67,193) | | Loss / (Profit) for the year | (63,783) | (33,610) | 26,100 | 31,975 | (62,876) | | Attributable to owners of the Company | (50,768) | (23,734) | 10,237 | 14,372 | (42,505) | Five-Year Summary of Assets, Liabilities and Equity (As at December 31) | Metric (HK$ Thousand) | 2024 | 2023 | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Assets | 284,673 | 307,225 | 305,350 | 259,999 | 263,299 | | Total Liabilities | 96,423 | 109,737 | 111,940 | 81,224 | 78,623 | | Net Assets | 188,250 | 197,488 | 193,410 | 178,775 | 184,676 | | Equity attributable to owners of the Company | 144,163 | 138,598 | 123,125 | 119,128 | 105,497 | Management Discussion and Analysis Business and Financial Review In FY2024, the Group's revenue decreased by 3.7% year-on-year to HK$181 million, and the loss attributable to owners of the company expanded from HK$23.73 million to HK$50.77 million. The primary reasons for the expanded loss include: an impairment loss of approximately HK$26 million recognized on non-financial assets of the coal mining business; an increase in operating costs of approximately HK$28 million due to compliance with green mining policies; and an increase in administrative expenses of approximately HK$11 million due to the acquisition of a copper mine in Laos and exploration of other investment opportunities - The primary reasons for the expanded loss in 2024 are threefold: (i) an impairment loss of approximately HK$26 million on non-financial assets of the coal mining business; (ii) an increase in operating costs of approximately HK$28 million due to compliance with China's green mining construction policies; and (iii) an increase in administrative expenses of approximately HK$11 million due to the acquisition of a copper mine in Laos and exploration of potential investment opportunities17 Coal Mining Business and Impairment Assessment The Group's core coal business is located in Inner Mongolia, with an annual production capacity of 1.2 million tonnes, and actual production and sales in 2024 were approximately 0.9 million tonnes, consistent with the previous year. However, as the mine has been operating for about 15 years, shallow coal resources are largely depleted, and new government policies promoting intelligent and green mine construction are expected to lead to significant increases in ongoing capital expenditure and operating costs. Based on this, the company recognized an impairment loss of approximately HK$25.96 million on the non-financial assets of its coal mining business - The Inner Mongolia coal mine has been operating for approximately 15 years, with shallow coal resources largely depleted. Deep-level mining faces geological challenges, requiring replacement of old machinery and investment in more advanced equipment, which is expected to lead to significant increases in capital expenditure and operating costs20 - Based on the impairment assessment, the company recognized an impairment loss of approximately HK$25.96 million on the non-financial assets of the coal mining business segment for the year ended December 31, 202420 Key Assumptions for Impairment Assessment of Coal Mining Cash-Generating Unit | Key Assumption | December 31, 2024 | | :--- | :--- | | Forecast Annual Coal Output | 900,000 tonnes | | Average Unit Selling Price per Tonne of Coal | 2025: RMB 191 | | Inflation Rate | 2.5% | | Pre-tax Discount Rate | 16.58% | Capital Market Activities To raise funds for business operations and development, the company undertook two major capital market activities in 2024. First, a placement of new shares was completed in March, with approximately 323 million shares placed at HK$0.185 per share, raising net proceeds of approximately HK$59.1 million. Second, a share consolidation was completed in October, merging every ten shares with a par value of HK$0.01 into one consolidated share with a par value of HK$0.1 - On March 4, 2024, the company completed the placement of 322,692,000 new shares at a placement price of HK$0.185 per share, raising net proceeds of approximately HK$59.1 million, primarily for business operations and development2829 - On October 25, 2024, the company completed a "ten-into-one" share consolidation, changing its issued share capital from approximately 2.046 billion shares (par value HK$0.01) to approximately 205 million shares (par value HK$0.1)30 Investment in Copper Mine in Laos The Group advanced its investment in a copper mine in Laos in 2024, ultimately completing the acquisition of a 52% equity stake in the target company, Taishan Jiujiu, in August. This copper mine has a mining area of approximately 24 square kilometers and copper reserves exceeding 100,000 tonnes. However, since early 2025, the local management and business partners have been slow to respond and uncooperative with the company's requests, preventing the Group from exercising control over the company. Consequently, the Group recognized its investment in Taishan Jiujiu as an associate and accounted for it using the equity method. The company plans to continue communication while reserving the option to take legal action to protect its shareholder rights - On August 26, 2024, the Group completed the acquisition of a 52% equity stake in Taishan Jiujiu Mining Co., Ltd. in Laos, which owns a copper mine with estimated copper reserves exceeding 100,000 tonnes34 - Since early 2025, due to the uncooperative local management and business partners of Taishan Jiujiu, the Group believes it currently cannot exercise control over Taishan Jiujiu but retains significant influence36 - Based on the current inability to exercise control, the Group recognized its investment in Taishan Jiujiu as an associate and accounted for it using the equity method, in accordance with Hong Kong Accounting Standard 2836 Use of Proceeds from Past Fundraising Activities As of December 31, 2024, the net proceeds from the convertible bonds issued in 2022 and the new share placement in 2024 have been fully utilized. Approximately HK$39.8 million from the convertible bonds was primarily used to strengthen mining operations and invest in the Laos copper mine. Approximately HK$59.1 million from the new share placement was mainly allocated to the Laos copper mine and other potential mining investments, enhancement of existing mining machinery, and general working capital Summary of Use of Proceeds from Fundraising (As at December 31, 2024) | Fundraising Activity | Net Proceeds (HK$ Thousand) | Amount Used (HK$ Thousand) | Primary Use | | :--- | :--- | :--- | :--- | | 2022 Convertible Bonds | 39,800 | 39,800 | Strengthening mining operations, Laos copper mine investment, working capital | | 2024 New Share Placement | 59,101 | 59,101 | Laos copper mine and potential investments, strengthening mining machinery, working capital | Liquidity and Financial Resources As of the end of 2024, the Group's financial position showed total bank and cash balances of approximately HK$73.57 million, a year-on-year decrease. The Group had no borrowings, resulting in a zero gearing ratio. The current ratio was 1.52, slightly lower than last year's 1.56, but still at a healthy level. The Board will continue to closely monitor the financial position to support future operations and new business development Key Financial Indicators as at December 31, 2024 | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Total bank and cash balances | Approx. HK$73,565,000 | HK$103,938,000 | | Borrowings | Nil | Nil | | Gearing ratio | Zero | Zero | | Current ratio | Approx. 1.52 | 1.56 | Outlook Looking ahead, tightening policies in China's coal mining industry continue to exert working capital pressure on the Group's coal business. Therefore, the Group will continue to explore investment opportunities in the mining and mineral sectors globally to broaden its business scope. Despite challenges in the Laos copper mine investment, the Group believes diversification is crucial for long-term growth. Moving forward, the Group will implement cost control and strengthen capital management, aiming to improve its financial position and create shareholder value - Facing capital pressure from tightening policies in China's coal industry, the Group will continue to seek global investment opportunities in the mining and mineral sectors to achieve business diversification49 - The Group will implement cost control measures and strengthen capital management to improve its financial position and is committed to enhancing shareholder value through business diversification49 Auditor's Qualified Opinion The auditor issued a qualified opinion on the Group's 2024 consolidated financial statements, primarily concerning the investment in Taishan Jiujiu Company in Laos. Due to insufficient audit evidence to confirm the company's significant influence over Taishan Jiujiu, the auditor could not determine the appropriateness of classifying it as an associate and accounting for it using the equity method. Management and the Audit Committee, however, believe that despite the current inability to exercise control, the Group's 52% equity stake and related statutory rights are sufficient to constitute significant influence. The company has developed an action plan to address this issue and prevent similar situations in the future - The auditor issued a qualified opinion on the 2024 financial statements due to insufficient audit evidence to determine the appropriateness of classifying the 52% equity investment in Taishan Jiujiu as an associate and accounting for it using the equity method5051 - A divergence exists between management and the auditor regarding accounting treatment: the auditor believes that without the ability to convene a general meeting, it is uncertain whether the company can exercise significant influence; management, however, asserts that its 52% equity stake and associated statutory rights inherently constitute significant influence555657 - The Audit Committee concurs with management's position, believing that classifying the investment as an associate is consistent with accounting standards after comprehensively considering substantive voting rights and statutory interests5859 Biographies of Directors and Senior Management Mr. Wu Yingji, the company's Executive Director, possesses over 20 years of experience in corporate finance and investment banking - Mr. Wu Yingji, the company's Executive Director, possesses over 20 years of experience in corporate finance and investment banking. Ms. Kuang Peixian, a Non-Executive Director, has over 20 years of experience in corporate mergers and acquisitions and asset management. Independent Non-Executive Directors and senior management possess extensive professional backgrounds in accounting, legal, and financial fields616263646566 Corporate Governance Report Corporate Governance Practices and the Board The company is committed to maintaining high standards of corporate governance. During the reporting period, the company complied with most provisions of the Corporate Governance Code, with a deviation concerning the vacant positions of Chairman and Chief Executive Officer. The Board is responsible for the Group's strategic direction and oversight, ensuring shareholder interests. The Board's composition is diverse, covering various professional backgrounds, genders, and age groups. High attendance at Board meetings during the year demonstrated active director participation - The company deviated from Corporate Governance Code Provision C.2.1, which stipulates that the roles of Chairman and Chief Executive Officer should be separate and not held by the same individual. Both positions are currently vacant, and the company is seeking suitable candidates69 Board Diversity Composition (As at December 31, 2024) | Diversity Aspect | Composition | | :--- | :--- | | Gender | Male 80% (4 persons), Female 20% (1 person) | | Age Group | 41-45 years (40%), 46-50 years (20%), 51-55 years (20%), 56-60 years (20%) | | Educational Background | Business Administration (40%), Accounting/Finance (20%), Engineering (20%), Law (20%) | Board Committees The Board has established a Nomination Committee, Remuneration Committee, and Audit Committee to assist in fulfilling its responsibilities. The Nomination Committee reviews the Board's structure and nominates director candidates. The Remuneration Committee is responsible for formulating remuneration policies for directors and senior management. The Audit Committee, composed of three independent non-executive directors, oversees financial reporting, risk management, and internal control systems. Each committee held multiple meetings during the year, fulfilling their respective terms of reference - The Nomination Committee comprises two independent non-executive directors and one non-executive director, responsible for reviewing the Board's structure, size, composition, and diversity, and assessing the independence of independent non-executive directors88 - The Remuneration Committee consists of two independent non-executive directors and one non-executive director, responsible for advising the Board on remuneration policies for directors and senior management92 - The Audit Committee is composed of three independent non-executive directors, with the chairman possessing professional accounting qualifications, and its primary responsibilities include reviewing financial information, overseeing the financial reporting system, risk management, and internal control systems96 Risk Management and Internal Control The Board bears overall responsibility for maintaining effective risk management and internal control systems. The company has not established an internal audit department, instead engaging external professional firms to perform this function. Given the auditor's qualified opinion on the Laos investment project, the Board has recognized deficiencies in subsidiary oversight and will implement multiple measures to strengthen management, including increasing Board representation, enhancing access to financial records, improving reporting procedures, and providing additional training - The company has not established an internal audit department, deeming it more cost-effective to engage external independent professional firms to perform internal audit functions given the current business scale109 - In response to the auditor's qualified opinion, the Board will implement multiple measures to strengthen internal controls over subsidiaries and investee companies, including reviewing Board seats, enhancing access to financial records, improving reporting procedures, and providing training111114 Environmental, Social and Governance Report Environmental (ESG) The Group is committed to reducing the environmental impact of coal mining. In terms of emissions management, measures such as water spraying and dust control facilities are implemented to control coal dust, and exhaust gas emissions are monitored. Total greenhouse gas emissions increased in 2024 due to higher electricity consumption. Regarding resource use, electricity is the primary energy consumption, and the Group has adopted various energy-saving measures. In water resource management, water is conserved through methods like recycling mine water. Furthermore, the Group has identified and formulated measures to address climate change-related physical and transition risks Greenhouse Gas Emissions Performance | Greenhouse Gas Emission Type | Unit | FY2024 | FY2023 | | :--- | :--- | :--- | :--- | | Scope 1 (Direct Emissions) | tonnes of CO2e | 779.7 | 835.6 | | Scope 2 (Indirect Emissions) | tonnes of CO2e | 9,968.5 | 8,265.7 | | Total | tonnes of CO2e | 10,748.2 | 9,101.3 | | Intensity | tonnes of CO2e / thousand tonnes of coal production | 11.92 | 10.07 | Energy Consumption Performance | Energy Type | Unit | FY2024 | FY2023 | | :--- | :--- | :--- | :--- | | Direct Energy Consumption | MWh | 3,033.3 | 3,259.1 | | Indirect Energy Consumption (Electricity) | MWh | 14,711.5 | 13,548.1 | | Total | MWh | 17,744.8 | 16,807.2 | | Intensity | MWh / thousand tonnes of coal production | 19.67 | 18.59 | - The Group has identified physical risks (e.g., extreme weather) and transition risks (e.g., tightening climate-related legislation) posed by climate change, and has formulated corresponding response measures, including establishing early warning systems and promoting green and low-carbon transformation165166167 Social (ESG) In terms of social responsibility, the Group strictly adheres to labor regulations and provides equal employment opportunities. As of the end of 2024, the Group had 425 full-time employees, with employee turnover decreasing from 28.1% to 21.5%. The Group highly prioritizes occupational health and safety, aiming for zero work-related fatalities, a goal achieved over the past three years. Furthermore, the Group has established supply chain management procedures, promotes fair competition, and ensures product quality and safety in terms of product responsibility. The Group has also formulated anti-corruption policies and grievance procedures, providing relevant training to employees - As of the end of 2024, the Group had 425 full-time employees, a decrease from 466 in 2023. The overall employee turnover rate decreased from 28.1% in FY2023 to 21.5% in FY2024169174 - The Group achieved its goal of zero work-related fatalities over the past three years, including the reporting period. During the reporting period, the number of days lost due to 14 work-related accidents was 1,320 days, a decrease from 2,154 days last year177 - The Group prohibits the use of child or forced labor and ensures compliance through verification of identity documents and background checks185 - The Group has formulated anti-corruption policies and grievance procedures, and provided anti-corruption training to all newly appointed directors and all employees194195196 Directors' Report The Board does not recommend the payment of any final dividend for the year ended December 31, 2024 - The Board does not recommend the payment of any final dividend for the year ended December 31, 2024203 - As at December 31, 2024, the company's distributable reserves were approximately HK$155 million206 Revenue Contribution from Major Customers (For the year ended December 31, 2024) | Customer | Percentage of Total Revenue | | :--- | :--- | | Largest Customer | 36.4% | | Top Five Largest Customers Total | 74.3% | - The company adopted a share option scheme in June 2023, with a validity period of 10 years. As at December 31, 2024, no share options had been granted, exercised, lapsed, or cancelled under the scheme226228 Independent Auditor's Report Qualified Opinion The auditor issued a qualified opinion on the 2024 consolidated financial statements. The primary reason is the auditor's inability to obtain sufficient audit evidence to determine the appropriateness of classifying the Group's 52% equity investment in Taishan Jiujiu Company in Laos as an associate and accounting for it using the equity method. This uncertainty may have corresponding implications for the Group's consolidated financial performance, cash flows, and financial position - The auditor issued a qualified opinion, stating that due to insufficient audit evidence to confirm the company's significant influence over the Laos investee, it was unable to determine the appropriateness of accounting for the 52% equity stake as an interest in an associate245 - This qualified opinion pertains to the "interest in an associate" investment with a carrying amount of approximately HK$24.74 million as at December 31, 2024, and the share of results of an associate of approximately HK$1.67 million recognized in profit or loss during the year245 Key Audit Matters Aside from the matter leading to the qualified opinion, the key audit matter identified by the auditor is the "Impairment assessment of non-financial assets of the coal mining cash-generating unit." This was designated as a key audit matter because the impairment assessment involves significant management judgments and key assumptions (such as inflation rate, discount rate) regarding future cash flows, and has a material impact on the financial statements. The auditor has evaluated, discussed, and verified this matter - The key audit matter is the impairment assessment of non-financial assets (including property, plant and equipment, intangible assets, and right-of-use assets) of the coal mining cash-generating unit249 - This matter is key because the impairment assessment has a significant impact on the consolidated financial statements and involves significant management judgments and estimates regarding future cash flows, inflation rates, discount rates, etc., when using the value-in-use method249 Consolidated Financial Statements Consolidated Statement of Profit or Loss For the year ended December 31, 2024, the Group recorded revenue of HK$181 million, a 3.7% year-on-year decrease. Gross profit was HK$67.47 million, a 3.5% year-on-year increase. However, due to a significant increase in administrative expenses and the recognition of multiple asset impairment losses (totaling approximately HK$26 million), operating loss expanded from HK$32.01 million to HK$66.81 million. Ultimately, the loss for the year was HK$63.78 million, with the loss attributable to owners of the company being HK$50.77 million Summary of Consolidated Statement of Profit or Loss | Metric (HK$ Thousand) | 2024 | 2023 | | :--- | :--- | :--- | | Revenue | 180,934 | 187,960 | | Gross Profit | 67,469 | 65,211 | | Operating Loss | (66,805) | (32,009) | | Loss for the year | (63,783) | (33,610) | | Loss attributable to owners of the Company | (50,768) | (23,734) | Consolidated Statement of Financial Position As at December 31, 2024, the Group's total assets were HK$285 million, a 7.3% decrease from HK$307 million in the prior year. Total liabilities were HK$96.42 million, a 12.1% year-on-year decrease. Net assets stood at HK$188 million. Non-current assets saw the addition of an "interest in an associate" investment of approximately HK$24.74 million. Bank and cash balances within current assets decreased to HK$73.41 million Summary of Consolidated Statement of Financial Position | Metric (HK$ Thousand) | 2024 | 2023 | | :--- | :--- | :--- | | Total Assets | 284,673 | 307,225 | | Total Liabilities | 96,423 | 109,737 | | Net Assets | 188,250 | 197,488 | | Equity attributable to owners of the Company | 144,163 | 138,598 | Consolidated Statement of Cash Flows In FY2024, the Group's net cash outflow from operating activities was HK$0.62 million, compared to a net inflow of HK$6.33 million last year. Net cash outflow from investing activities surged to HK$77.8 million, primarily for acquiring an associate, providing loans to an associate, and purchasing property, plant, and equipment. Net cash inflow from financing activities was HK$58.67 million, mainly from the placement of new shares. The combined effect resulted in a net decrease in cash and cash equivalents of HK$19.76 million during the year, with an ending balance of HK$73.41 million Summary of Consolidated Statement of Cash Flows | Metric (HK$ Thousand) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash from operating activities | (620) | 6,325 | | Net cash used in investing activities | (77,804) | (26,527) | | Net cash from / (used in) financing activities | 58,666 | (945) | | Net change in cash and cash equivalents | (19,758) | (21,147) | | Cash and cash equivalents at December 31 | 73,412 | 95,359 | Notes to the Consolidated Financial Statements The notes to the financial statements provide detailed explanations and supplementary information on the Group's accounting policies, financial risk management, segment information, details of various assets and liabilities, related party transactions, and capital commitments. Key notes include critical assumptions for impairment assessment of non-financial assets (Note 17), accounting treatment and related risks for the investment in the Laos associate (Note 18), changes in share capital (Note 31), and financial information of major subsidiaries (Note 36)
弘海高新资源(00065) - 2025 - 年度财报