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 2022.

OVERVIEW

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 2022, the COVID-19 pandemic continuously impacted the operating environment adversely and the PRC government continued to closely coordinate the pandemic prevention and control as well as the economic work. The performance of infrastructure investment continued to improve, maintaining the continuous solid support in the demand of cement, even though there was a little adverse impact resulted from the decline in the property investment. As a result of the continuous high raw materials and coal prices maintained during the year, ASPs in Shaanxi, Guizhou and Xinjiang were also increasing to cover the increasing costs. Moreover, the Group has continued to implement efficiency enhancements and cost control measures and has been able to maintain a comparatively stable cost during the year. In addition to the greater margins from Mozambique, the Group’s overall margins remained stable in 2022.

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 2022, the Group saw a tough operating environment in China. The Group’s cement and clinker sales volumes have decreased slightly from 20.3 million tons in 2021 to 19.3 million tons in 2022 and the Group has recorded a 8.2% decrease in gross profit as compared to 2021. However, the Group has still maintained strong cash flows, with stable EBITDA maintaining at approximately RMB3.2 billion in both 2021 and 2022. The Group’s net gearing ratio has in turn increased from 42.3% in 2021 to 55.9% in 2022, 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 2022, the Board has recommended payment of a final dividend of RMB6.7 cents per ordinary share for this financial year.

OPERATIONS

In 2022, Shaanxi Province as a whole has seen an improved Fixed Asset Investment (“FAI”) growth rate and a declined Real Estate Development Investment (“RDI”) growth rate in 2022. The FAI growth rate improved during the year as a result of the government’s economic stimulating policies. However, the declined RDI growth rate has overall led to a decline in demand for cement products from all producers in the 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

Operation at the Group’s plant in Xinjiang have been declining in 2022. During the year, sales volume in Xinjiang have decreased as a result of the decrease in the infrastructure projects and the downtrend of the real estate market. In Guizhou, the Group has also recorded a declined sales volume and an increased cement ASPs. As a result of the strategic change to the production of special cement, the ASPs was improved because of the sales of more special cement at higher ASPs during the year. 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 as a result of the new capacity entering the market successfully in prior year.

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 cement ASP is currently sold at approximately USD150 per ton. The Great Lakes plant was commissioned in December 2022.

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 RMB748 per ton.

In 2022, the economy was still under the impact of the COVID-19 outbreak, the overall sales volume in PRC were declining. However, the Group was able to keep stable margins even under the continuous high raw materials and coal prices through the maintenance of the other 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 2022. 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 2022, 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 2023, the central government will adhere to the keynote of seeking progress in a stable manner. It will complete, refine and thoroughly execute the new development concept by accelerating the construction of a new development pattern and furthering the opening-up reforms on all fronts, so as to promote high-quality development with an emphasize on the structural reform on the supply side. It will also efficiently coordinate pandemic prevention and control with economic and social development, advancing the implementation of a package of economic stabilization policies in a pursuit to stabilize the macroeconomic, so as to maintain the economic operation in a reasonable range. In terms of infrastructure, the government will actively expand the effective investment to strengthen infrastructure construction on all counts, thereby accelerating the construction of major projects under the 14th Five-Year Plan, which will provide certain support to the cement demand. As for real estate, despite the city-based policies the state adopted to promote the healthy cycle and development of the real estate industry, it is still difficult to reverse the downward trend of real estate investment in the short term, which will have an adverse impact on the market demand on cement. At the same time, the PRC will continue to strengthen the comprehensive management of the ecological environment and promote carbon peaking and carbon neutral work in a orderly manner, while the peak-shifting production halts for the cement industry will become a norm for a longer period, bringing positive effects to the issues of supply contraction and elimination of excess capacity.

In terms of investment and development, the Company will adhere to the 14th Five-Year Plan and our annual investment plan to make solid progression in various investments and developments, with an aim to achieve high-quality development under the principle of effective investment. First, we will focus on strengthening and enhancing our major cement business, with new drivers for business growth being created by accelerating the investment and implementation of projects along the upstream and downstream of the industrial chain, such as those of aggregates and commercial cement. Second, we will promote the international development strategy on a steady pace, where we will formulate and improve the plan for medium-to-long-term overseas development, as well as improve the operation and management mechanism of overseas projects, so as to actively build a diversified cooperation model. Third, we will promote energy conservation and carbon reduction in an orderly manner, while making investments in the upcoming digital and intelligent industry, so as to speed up the application of intelligent and information technology, thereby consolidating and enhancing the Company’s core competitiveness.

In terms of operation and management, the Group will pay close attention to changes in the macro-economy at home and abroad in coordinating and executing its production, operation, and management. First, the Group will conduct further analysis and studies on the market conditions, reasonably control the pace of production and sales, deepen strategic cooperation with major customers and enhance its control on the end-user arket, so as to maintain a reasonably market share. Second, the Group will continue to trace and control the source of raw materials and fuel, deepen strategic cooperation with large coal enterprises, actively explore sourcing channels and strive to increase the proportion of direct supply of raw materials and fuel, so as to reduce overall procurement costs. Third, the Group will keep implementing the green development strategy, step up investments in energy conservation and environmental protection with a focus on the dual carbon policy goals, properly execute the technological reform on energy conservation and consumption reduction, and enhance the research on carbon reduction technologies, thereby accelerating industrial transformation and upgrading. Fourth, the Group will further promote the strategy to strengthening our enterprise with talents, where we will make continuous optimization and improvement to the employee incentive mechanisms, so as to stimulate talent innovation and creativity in an attempt to maintain high-quality development for our Company

On behalf of the Board, I would like to take this opportunity to thank our management, employees, bankers and advisors for their efforts in 2022. 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
27 March 2023