On behalf of the board of directors (the “Board”) of West China Cement Limited and its subsidiaries, I am pleased to present to our shareholders the annual report (including the audited consolidated financial statements) of the Group for the year ended 31 December 2023.

OVERVIEW

The Group’s cement production is geared towards the economic development of Western China, Mozambique, D.R. Congo and Ethiopia, Africa, driven by the Chinese Government’s “Western Development Policy” and the “Silk Road Economic Development Plan”. The Group aims to serve the development needs of Shaanxi, Xinjiang, Guizhou, Mozambique, D.R. Congo and Ethiopia, Africa supplying cement products to the infrastructure, urban and rural construction markets.

In 2023, as a result of the weak global economy recovery, high inflation as well as a complex and severe external international environment, the PRC economy recovery has been relatively slow as compared with that of 2022. The performance of the infrastructure investment was slowing down, while the property investment was deteriorating, leading to a decline in the demand of cement in PRC. On the other hand, in order to control the air pollution and preserve the blue sky, the environmental management of atmospheric pollution and the local environmental control remained stringent. As a result, the effect of various policies such as peak-shifting production halts and mine comprehensive regulations are more favorable to balance the supply and demand of the cement industry. Both Fixed Asset Investment and Real Estate Development Investment growth rates deteriorated, which overall led to a decline in the demand for cement products in Shaanxi Province. Fortunately, intense competition from the supply side is still a strong factor affecting the ASPs in Shaanxi Province, which continued to be balanced through the occasional peak-shifting production halts during low season periods under the stringent environmental policy. As a result of the greater margins contributed from the plants in Africa, the Group was able to maintain overall stable margins in 2023 even though under the abovementioned impact of low ASPs in PRC. Another important factor contributing to the Group’s stable margins was the maintenance of the costs at a stable level, which resulted from the Group’s successful implementation of efficiency enhancements and cost-cutting measures during the year.

Energy conservation and emission controls are increasingly important factors in the cement industry and the Group continues to work towards the highest industry standards in these areas. All of the Group’s production facilities are NSP lines, mostly situated in close proximity to limestone quarries and the Group uses conveyor belts at many of its plants in order to minimise transportation related emissions. The Group has constructed heat-recycling plants at over 80% of its production capacity, reducing approximately 30% of electricity consumption and decreasing CO2 emissions by approximately 22,000 tons per year per million tons of production. All of the Group’s plants in China have been installed with denitration (De-NOx) equipment, reducing nitrous oxide emissions by approximately 60% per ton of clinker produced, as well as Particulate Matter (PM) reduction equipment. The Group is also involved in hazardous and municipal waste incineration.

FINANCIAL RESULTS

In 2023, the Group saw a tough operating environment in China. The Group’s cement and clinker sales volumes have increased slightly from 19.3 million tons in 2022 to 20.5 million tons in 2023 and the Group has recorded a 12.8% increase in gross profit as compared to 2022. Moreover, the Group has also maintained strong cash flows, with stable EBITDA maintaining at approximately RMB3.1 billion and 2.9 billion in 2022 and 2023, respectively. The Group’s net gearing ratio has in turn increased from 55.9% in 2022 to 60.4% in 2023, as a result of the increase in borrowings for capacity development during the year. The ratio is still maintained at a low industry level to provide a healthy statement of financial positions in the Group.

DIVIDEND

Having considered the Group’s stable net profit for the year ended 31 December 2023, the Board has recommended payment of a final dividend of RMB2.3 cents per ordinary share for this financial year.

OPERATIONS

The Group focuses on strengthening its position in its core markets of Eastern and Southern Shaanxi Province, where it has constructed or acquired well-positioned plants. This has resulted in the Group enjoying a leading market position in Shaanxi Province and benefiting from barriers to entry caused by high transportation costs. The Group has maintained a strong market position in its Southern Shaanxi core markets, where high levels of market share coupled with good infrastructure demand have resulted in continued average selling price (“ASPs”) premiums and more stable margins. ASPs in Central Shaanxi have been increasing in recent years even under the continuing low demand scenario through the continuation of occasional peak-shifting production halts during low season periods under the stringent environmental policy. In 2023. Shaanxi Province as a whole has seen deteriorated Fixed Asset Investment and Real Estate Development Investment growth rates, which overall led to a decline in the demand for cement products in Shaanxi Province. Fortunately, intense competition from the supply side is still a strong factor affecting the ASPs in Shaanxi Province, which continued to be balanced through the occasional peak-shifting production halts during low season periods under the stringent environmental policy.

Operations at the Group’s plant in Xinjiang have been stable in 2023. During the year, sales volume in Xinjiang have increased as a result of the increase in the infrastructure projects. In Guizhou, the Group has recorded an increased sales volume but a decreased cement ASPs. The imbalance between demand and supply in Guizhou was even exacerbated by the continuation of decreasing demand scenario. The sales volumes at the Huaxi Plant have already been better than other locations in Guizhou due to its location being in close proximity to Guiyang City and the Guiyang — Anshun (“Gui-An”) New Area.

The Group built a cement plant in Mozambique, a “window” country in South Africa, in close compliance with the “Belt and Road” development policy of the PRC and to seize the opportunity brought by the “Go Global” policy to maximize the cement production capacity. The Mozambique plant was commissioned in December 2020. During the year, both sales volume and ASPs in Mozambique have increased.

The Great Lakes plant is a production line with a capacity of 3500-ton clinker and cement per day and approximately 1.50 million tons of cement per year, equipped with limestone mines, coal mines, power stations and wharfs. The Great Lakes plant is located in the city of Kalemie in the eastern region of D.R. Congo. Our cement sales cover Kalemie and neighboring countries and regions such as Rwanda, Burundi and western Tanzania. These market areas are relatively undeveloped and there is no large-scaled cement production line. With Lake Tanganyika as the center, the area where the plant is situated has a large population density and high population growth, which can ensure a certain market demand for cement. In addition to the potential of the civilian market, there are a large amount of unexploited mineral resources in the underneath and surrounding areas of Lake Tanganyika, which, once developed in the future, will directly drive related infrastructure and economic development, generating significant demand for cement. All markets covered can be reached mainly by water transportation from the lake, supported by truck transportation on land. The Great Lakes plant was commissioned in December 2022. During the year, the Group had to build four cargo ships to deliver the cement and clinker across the lake to the markets in other countries, the sales of cement was therefore significantly impacted by this transportation issue. As a result, the Group has recorded cement ASPs at approximately USD180 per ton and sales volume of 167,000 tons.

Given the strategic layout in the African market, the Group is optimistic about the long-term development of the Ethiopian market. In 2022, the Group acquired National Cement plant with a capacity of 1.3 million tons of cement per year, the plant was then upgraded and commissioned in November 2022. During the year, the Group has recorded cement ASPs at approximately USD125 per ton and sales volume of 1.36 million tons.

In 2023, as a result of the weak global economy recovery, high inflation as well as a complex and severe external international environment, the PRC economy recovery has been relatively slow as compared with that of 2022, the overall cement ASPs and margins in PRC were declining. The Group was still able to keep stable margins as a result of the greater margins contributed from the plants in Africa and the maintenance of the costs at a comparatively stable level. This resulted from the Group’s consolidation of the long-term cooperation in procurement of coal, maintaining reasonable procurement pace to control the cost of raw materials and the implementation of efficiency enhancements as well as cost control measures during the year.

ENVIRONMENTAL PROTECTION SOLUTIONS & SAFETY

The Group’s work in energy conservation, emission controls and environmental protection solutions have continued to be a major focus in 2023. The Group has already completed the installation of de-nitration (“De-NOx”) equipment at all of the Group’s plants in China. This equipment reduces nitrogen oxide (“NOx”) emissions by approximately 60% per ton of clinker produced, bringing NOx emissions to within the new standards stipulated by the Cement Industrial Air Pollution Emissions Standards. Modifications of production lines to meet particulate matter (“PM”) emission standards have been completed, resulting in all of the Group’s plants in China having been upgraded to meet new PM emission standards as well. Moreover, the Group has effectively reduced the emission of dust through the technical renovation of the kiln- head and kiln-end dust collectors and also further reduced the emission of nitrogen oxide and the consumption of ammonia water through the implementation of de-nitration spray guns and automated technological innovation.

During the year, the Group has increased the investment in environmental protection, carried out ultra-low emission remodeling at its environmental treatment facilities, established an early warning platform for pollutants exceeding standards, and strictly controlled the concentration of pollutant emissions, so as to achieve the management goal of limiting its pollutant emissions concentration well below the national emission standard. In addition, the Group also regularly invites external online monitoring experts to conduct system checks on the Company’s online monitoring equipment, and conduct comprehensive analyses of the equipment operation principle, monitoring principle and production system operation, so as to switch from equipment troubleshooting to fault prevention, thus reduce the equipment failure rate, improve the accuracy of online monitoring equipment measurements, and ensure that the real-time monitoring and control of pollutants meets the national emission standards. Moreover, all plants in China were already refurbished as garden like plants in the preliminary stage and the Group will further develop the garden like plants to meet the environmental policy requirements. Green limestone mine projects, including soil reclamation and mine re-greening, have been already commenced construction to comply with the environmental policy. The Group will continue to implement the green mine projects to reduce the pollution to the soil and mines during mining in order to comply with the government policy of “managing while mining” in the future.

The Group’s safety and environmental protection department continuously monitors and reviews safety procedures in accordance with evolving environmental and safety regulations in the PRC. In 2023, the Group has focused its EHS (Environmental, Health & Safety) efforts on revising and improving the safety emergency response plan by employing independent safety experts to strengthen the handling capacity of all employees in emergency accidents. Moreover, several handbooks and guidelines were revised significantly to improve the work safety measures as well as numerous safety related training courses were initiated to strengthen the staff’s safety awareness. In addition, the Group will continue to implement a “Sustainable Safety Development Project”, which involved continuous training for both management and on- site employees, on-site inspections and audits, stringent safety reports and on-going suggestions for safety improvements at all of the Group’s plants.

OUTLOOK

In 2024, the global economic environment is becoming more complex, and the domestic economic operation faces new difficulties and challenges. The central government will adhere to the keynote of seeking progress while maintaining stability, fully, accurately and comprehensively implement the new development concept, accelerate the construction of a new development pattern, increase macroeconomic policy control, and promote effective improvement in quality and reasonable growth in quantity.

In 2024, in terms of infrastructure, the government will further play a leading role in investment and accelerate the issuance and use of local government special bonds. Infrastructure investment is expected to continue its trend of growth and constantly provide important support for boosting cement demand. Real estate investment will remain low, adversely affecting cement market demand. However, the state emphasizes that it will adjust and optimize real estate policies in a timely manner, make good use of the policy toolbox for city-based policies, better meet residents’ rigid and improved housing needs, and increase the construction and supply of affordable housing. It will also actively and steadily promote the transformation of urban villages and the construction of “both leisure and emergency” public infrastructure in very large cities and megacities, and promote the gradual stabilization of the real estate market, so that the demand for cement on the real estate end may improve in 2024. At the same time, peak-shifting production in the cement industry will continue to be a norm, but its marginal effect on improving the supply-demand relationship will weaken.

In terms of investment and development, the Group will comprehensively coordinate the development of its main business and the extension of its upstream and downstream industrial chains, steadily promote its international development strategy, strengthen risk identification and control, establish and improve mid- and long-term overseas development plans, improve its overseas project operation and management mechanisms, and actively build a diversified cooperation model. In terms of operation and management, the Group will pay close attention to domestic and international macroeconomic situations, streamline management, and improve operational quality and efficiency. Firstly, we will thoroughly study market supply conditions and implement differentiated marketing strategies so as to stabilize prices, expand volume and increase efficiency on the basis of a stable market share; secondly, we will concentrate the raw materials, coordinate the both domestic and international markets, stabilize and expand direct supply channels and reduce comprehensive procurement cost; thirdly, we will strengthen the cost control of all staff, all elements, all value chains and all life cycles, strictly control all costs and expenses, and comprehensively reduce the company’s operating costs; fourthly, we will firmly establish the concept of green development and deploy ultra-low emission transformation of production lines in advance, while strengthen the cultivation of professional talents in the “dual carbon” field, carbon market policy research, and the research and application of carbon reduction and abatement technologies, so as to explore cost-effective carbon emission control paths; fifthly, we will accelerate the promotion and application of intelligent factory construction results and continuously improve the level of intelligent manufacturing; sixthly, we will further promote the strategy of strengthening the corporate through talent, make every effort to optimize the talent structure and integrate company resources to improve the quality of talent training, so as to add inexhaustible momentum to the Group’s high-quality and sustainable development.

On behalf of the Board, I would like to take this opportunity to thank our management, employees, bankers and advisors for their efforts in 2023. I would also like to thank our shareholders for their continuing support of our Group in the past and into the future.

Zhang Jimin
Chairman
18 March 2024