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Email This Print This Chairman's Statement

Extracted from the Annual Report 2016

Dear Shareholders,

We are pleased to share the results for the financial year ended 31 December 2016 ("FY2016"), where we were able to maintain our profitability despite volatility and challenges in the operating environment.

FY2016 was characterised by challenges such as the ongoing systematic cooldown of China's economy, lower average selling prices of LPG, and volatile oil prices. Ultimately, we mitigated the effects and capitalised on opportunities to record a net profit of RMB40.97 million for the year under review.

Business Review

The Group recorded a total revenue of RMB2.18 billion for FY2016, which was 13.8% higher than the RMB1.91 billion in the financial year ended 31 December 2015 ("FY2015"). The growth in revenue was largely due to higher domestic demand for our main product, LPG, which had a competitive pricing advantage over other alternative clean energy products available in the People's Republic of China. The total volume of LPG sold in FY2016 was 830,541 tonnes which was significantly higher than the 586,160 tonnes sold in FY2015. However, total sales were partially curtailed by the lower average selling prices of LPG. Prices fell by 19.7% to RMB2,625 per tonne in comparison to RMB3,267 per tonne in the previous financial year.

As we carefully managed variables such as the above to deliver the best in value, we have also grown our customer base and expanded our sales region. An example of our progress is the securing of a one-year sale contract with a customer in the Philippines for the supply of 10,000 tonnes of LPG per month. We are constantly exploring for markets and customers that help strengthen the sustainability of our business operations and enhance the stability of profitable returns.

For the year under review, we had continued to uphold prudent business risk management and implemented various measures to manage operational costs. As a result, we were able to maintain a positive gross profit margin of 7.18%.

After factoring in costs and taxes, our bottom line for the year amounted to RMB40.97 million. While still profitable, it was RMB10.95 million lower than the RMB51.92 million reported for FY2015.

Business Strategy

DThe Group has taken steady strides in refining its capabilities to deliver value and establish itself as a preferred source for LPG products domestically and in the region. We believe that there is much more to do and are already fine-tuning our strategies and initiatives to further build upon strong foundations.

We will continue to source for new customers domestically and abroad. On the local front, we will leverage on our market presence of approximately 40% to reach out to new customers. Abroad, we endeavour to expand geographically, thus diversifying our sources of income and building a more robust network that will soften the effects of demand fluctuation from any one region.

On a separate note, we will continue to leverage on macro events such as the volatile oil prices. The substantial decline of oil prices provided and continues to provide potential opportunities for better economic and business conditions for our primary market, China, and our Group in general, as evidenced by our favourable performance in the first nine months of 2016.

However, we have noted that there is still much uncertainty in respect of the state of the global economy in the financial year ending 31 December 2017 ("FY2017"). International oil prices are projected to remain volatile and the lower economic growth rate for China coupled with the weaker RMB are ongoing concerns. These are adverse external factors that continue to pose a significant challenge for our LPG business and the Group. Thus we will adopt a cautious stance with emphasis on flexibility to better respond to opportunities and challenges alike.

Outlook FY2017

While the upcoming financial year is projected to be challenging for most industries, we remain optimistic of our prospects. Our strategies and initiatives are tested and we are in constant pursuit of how to better our performance.

From a macro perspective, demand for LPG in China is expected to continue growing although at a slower rate of 10%. Ratings company, S&P Global Platts, projects China's demand for LPG to continue growing although in 2017 on the back of strong demand from petrochemical and industrial consumption. It reported that demand in 2016 was 24% and was primarily comprised of domestic production and net imports.

We believe that despite the aforementioned challenges, a balance of careful strategies and flexibility would enable us to surmount any obstacle.

Acknowledgements

On behalf of the board of directors of the Company, I would like to thank our customers, suppliers and business associates for their support. Also not to be forgotten are our dedicated staff, whose tireless efforts over the last year are much appreciated. Finally, I would like to thank our shareholders for their trust in us and understanding. We appreciate your continued support as we continue our endeavour to deliver value in the times ahead.

Liang Guo Zhan
Executive Chairman
Ouhua Energy Holdings Limited