The Group posted a considerably improved performance during the year, with operating results lifted by higher oil and commodities prices in 2017 when compared to 2016.
The pressures posed to the Group’s operations in previous years from low oil and commodities prices were alleviated to some degree, as oil and commodities prices continued their rally from 4Q 2016 into 2017. Consequently, practically all of the Group’s businesses achieved an enhanced return from normal operations, the exception being the Group’s Portland Aluminium Smelter (the “PAS”) which continued to deal with the adverse effects of the power outage in late 2016 and operated at a reduced capacity for much of the year. The Group’s investment in Alumina Limited (“AWC”) continued to make a substantial contribution to the Group. In addition, the Group’s investments in its joint venture and associates reported better results, thereby adding to the Group’s overall accomplishments for the year.
The Group’s overall performance also continued to be aided by ongoing cost and expenditure control initiatives and efforts across its business segments, and the curtailment of non-essential capital expenditure.
During the year, the Group’s revenue increased 21.9% year-on-year to HK$3,602.9 million. EBITDA increased by 16.4% to HK$2,100.4 million and profit attributable to shareholders rose 42.8% to HK$518.3 million over 2016. As of 31 December 2017, the Group’s total assets amounted to HK$14,132.9 million and equity attributable to shareholders was HK$6,064.2 million.
The Group’s crude oil business saw a significantly improved operating result for the year, primarily the result of a higher average crude oil realised price and the implementation of ongoing cost control measures.
Both the Seram Block in Indonesia and the Yuedong oilfield in China achieved a turnaround in operating results and the Group recorded a higher share of profit in respect of its interest in CITIC Canada Energy Limited, a joint venture established with JSC KazMunaiGas Exploration Production, through which the Group owns, manages and operates the Karazhanbas oilfield in Kazakhstan.
The Group achieved stable production comparable to 2016, helped by implementing a series of optimal maintenance plans to minimise the negative influence on production caused by the continuing natural decline of existing wells. The Group’s average daily oil production was 49,980 barrels (100% basis) for the year, comparable to 50,580 barrels (100% basis) for 2016.
No new wells were drilled in the Seram Block and the Yuedong oilfield during the year due to current cost control programs. The Seram Block recorded an average daily production of 2,820 barrels (100% basis), representing a drop of 25% when compared to 2016. The Yuedong oilfield maintained an average daily production of 7,960 barrels (100% basis) which was comparable to 2016.
The Karazhanbas oilfield was the largest contributor to the Group’s overall oil production, reaching an average daily production of 39,200 barrels (100% basis) which was comparable to 2016.
Following the release of a lower oil reserves estimate for the Yuedong oilfield, an impairment loss was provided in respect of certain oil and gas properties. As to the Karazhanbas oilfield, since there was a change to the business model, a write-back of a prior year provision for impairment loss was made in respect of certain oil and gas properties.
As indicated earlier, the PAS was the only part of the Group’s business that did not report a profit during the year, as operations continued to be adversely affected by the effects of the power outage in late 2016. In January 2017, the Group secured financial support from the State Government of Victoria and the Commonwealth Government of Australia under four year agreements to assist in funding the restart and restoration of the PAS’s production capacity and ongoing operations. Pre-outage production capacity and operations were not fully restored until 4Q 2017, so the PAS was unable to benefit fully from significantly improved aluminium selling prices. As a result, the PAS recorded a loss for the year.
During the year, the Group reassessed its investment in AWC. On 30 June 2017, the Group reclassified its equity interest in AWC from a financial asset at fair value through profit or loss to an investment in an associate. As a result, the Group recorded a significant fair value gain prior to reclassification and a share of profit using the equity method after reclassification in respect of its interest in AWC.
CITIC Dameng Holdings Limited (“CDH”) achieved a turnaround in its results with an increase in both average selling prices and sales volumes of major manganese products, driven by stronger demand from a re-energised steel sector. As a result, the Group recorded a share of profit for the year with respect to its interest in CDH.
Despite the operation of the Group’s coal segment being affected by inclement weather in 2Q 2017, sales volume increased when compared to 2016. Benefiting from higher average coal selling price driven by reduced output from China, the segment recorded a better profit than in 2016.
The Group’s import and export of commodities business improved during the year as the Group increased its marketing efforts. Attributable to an increase in sales volume, the segment recorded better results when compared to 2016.
During the year, the Group arranged two term loan facilities, the proceeds of which were used to refinance its existing debt and finance its general corporate funding requirements.
The Group believes that oil and commodities prices will at least remain steady at current levels, which should continue to benefit and support the Group’s business. These market conditions will be augmented by the Group’s ongoing efforts to control its costs on a sustainable basis.
A priority of the Group this year will be to seek to extend the production sharing contract for the Seram Block, which is due to expire in October 2019, and to develop plans to continue exploration of the Lofin area. The Group shall also endeavour in promoting application of new technologies to improve productivity in the Yuedong oilfield and plans to add new wells in the oilfield under a managed drilling program.
The Group will also continue to strengthen its business portfolio by targeting quality investment opportunities. The ongoing support from CITIC Limited will drive the Group to achieve its objectives.
The Group believes its actions will effectively create reasonable return for shareholders in a changing marketplace.
In March 2017, Mr. Chan Kin was appointed as a non-executive director of the Company. The Board would like to express its warm welcome to Mr. Chan on his joining the Board.
I, on behalf of the Board, would like to extend my sincere appreciation to my fellow directors, management and all of my colleagues for their work, energy, concerted effort and dedication in delivering our strategy in the challenging market conditions. I would also like to express our heartfelt gratitude to our shareholders, customers, suppliers, bankers and business associates for their enduring support throughout the year.
The Group is implementing a number of initiatives and will look for the most effective strategy to achieve its goals and sustainable growth. I look forward to the continuous support from our shareholders.