AR for 2008 - Abterra

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4 ABTERRA Annual Report 2008 “It has been a difficult year, but we weathered the financial storm pretty well.” CHAIRMAN’S STATEMENT Dear Shareholders, It has been a diffi cult year, but we weathered the fi nancial storm pretty well. Our dedicated talentpool, alongside the Company’s extensive network infrastructures, are the best affi rmation of my opening statement. It is especially at times like this that we take a step backward and conscientiously refl ect on our journey, from where we started to where we are now. When General Nice Resources (Hong Kong) Limited became a major shareholder of the Company back in October 2006, the Company had a turnover of S$54.0 million ended December 2006. On the same parameter, our revenue has grown more than 300% to S$217.5 million in December 2007; and for the half year ended December 2008, our turnover dipped imperceptibly to S$215.3 million. An arduous journey The Group’s turnover remains stable at S$215.3 million despite a global slowdown in trade activities and the resultant moderation of prices for coking coal, coke and iron ore. The insignifi cant dip in revenue can be attributable to a slight fall in total trade volume. The Group’s turnover for iron ore trading operations has plummeted 56% to S$39.9 million compared to approximately S$91.0 million for the 6 months period ended December 2007. However, the Group has posted higher turnover from its coke and coal trading operations of S$152.0 million, up 42% from S$107.0 million in the previous corresponding period. Turnover from trading operations of other minerals and metals increased more than 20% to S$23.5 million. This is where we expand our network bases in the mineral and metals industry, which is in line with our strategy to profi t from other minerals and metals available
ABTERRA Annual Report 2008 5 in the same coal and iron mines when we ultimately controls the entire supply chain. Yes, we could have done better than this. The interruptions to operations during the Olympics period and in the later part of the year, the fi nancial turmoil, have impeded our progress. As across the board, the fi nancial storm has certainly put us at a disadvantage. The tightening of credit lines has made it tougher for the Company to issue letters of credit to move our cargoes. Although we managed to resolve these issues, it took us longer than it would prior to the crisis. The credit crisis drew a line to the number of shipments we could potentially ship. That is one. Two, as our cargoes remained at the ports for a longer period, higher interest expenses was inevitable. Furthermore, prices of coking coal, coke and iron ore fell in the last quarter of 2008. Fortunately, we have seen a price increase from November 2008 to February 2009 and we expect prices to be buoyed by increasing steel demand driven by the Chinese stimulus package. This period we have reported approximately S$21.6 million on other operating expenses, mainly due to an impairment loss on the investment in an associate company and the allowance for doubtful debts made on trade receivables. In line with the Company’s conservative approach in this economic perplexity, these provisions were made as a precautionary measure and have no impact on the Company’s cash fl ow. As a result, the Group recorded a net loss of S$15.6 million for the six months period ended December 2008. Tianjin Lant Development Co. Ltd., which provides international logistics and transportation services in the handling of iron ore, coke and coking coal, reported a net profi t of approximately RMB5 million last year while Zuoquan Yongxing Coal Company Limited (“Zuoquan Yongxing”), a coal mine with an estimated reserves of 94 million metric ton and an annual production capacity of 300,000 metric tons, reported a net profi t of RMB29.0 million for the same year. Zuoquan Yongxing’s fi nancial achievement is all the more remarkable given that they were expected to breakeven due to the disruptions in the production process. Even though the Group expects operating conditions for the year ahead to remain challenging as the tightening of credit lines press on in the face of the economic turbulence, we are exploring various avenues to tide through this crisis. We have also explored various channels to reinforce our fundamentals to increase productivity and effi ciency to fuel growth when the market recovers. An affi rmation In line with our efforts to backward integrate the entire iron ore and coking coal production chain, we will complete the proposed acquisition of Taixing Jiaozhong Coal Industry Co. Ltd. (“Taixing Jiaozhong”) and Zuoquan Xinrui Metallurgy Mine Co. Ltd. (“Zuoquan Xinrui”) in the coming fi nancial year. Taixing Jiaozhong produces high quality coking coal with an annual capacity of 150,000 metric tons while Zuoquan Xinrui has two iron ore mines with a total mineable reserve of approximately 27.9 million metric tons and an annual capacity of 300,000 metric tons. Also, we are considering greater investments in coal and iron mines and to increase our stake in our existing mines. An opportunity While the fi nancial turmoil has certainly put us at a disadvantage, we see the current moderation in prices as an opportunity to increase our stake hold in our existing assets and also to buy coal and iron reserves. With the Chinese stimulus package kicked in with long term plans to boost infrastructural facilities within China, the Group, with its concrete network links in China spanning across the entire supply chain, would certainly fi t the bill and reap a profi t. Cash injections to develop these frameworks within China would boost demand for metallurgical coke and iron ore which are the raw materials in the production of steel. As these raw materials are scarce, a limited supply aroused by a surge in demand would push prices up. According to Bloomberg, local benchmark steel prices jumped 46 percent from November when the Chinese government announced the package. Thus, it is vital that Abterra reinforces its fundamentals to fuel its growth when massive orders kick in. An edge The onset of the economic crisis has presented the Group with an opportunity to make strategic value purchases along the supply chain, which is in line with our strategic plans to move upstream by vertically integrating our resources. We want to invest in mining facilities. We want to buy reserves. We want to mine, to wash-and-select, to provide logistic support, to deliver high quality products and to eventually control the entire production chain. The erosion of entry prices due to the current economic turbulence has lowered the risk to invest in these long term assets. This strategic advancement would position the Group at a favorable ground and in turn, generate greater investment returns when the economy recovers. While this is a great time to expand, we believe it is also crucial that we consolidate our basics and widen our client base to sharpen our competitive edge to get ourselves ready for the oncoming vigorous demand. Ultimately, we want to generate greater returns for you, the shareholders. Yours sincerely, Cai Sui Xin Executive Chairman 9 April 2009
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AR for 2008 - Abterra

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