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On behalf of the board of directors (the “Board” or the “Director(s)”) of China Agri-Products Exchange Limited (the “Company”, together with its subsidiaries, collectively the “Group”), I am pleased to present to our shareholders the annual report for the year ended 31 December 2018. During the year under review, the Group recorded a turnover of approximately HK$779 million (2017: approximately HK$790 million). Operating expenses reduced by 22% which was benefited from cost control measures during the year. The Group’s profit from operations before fair value changes and impairment improved from approximately HK$74 million in 2017 to approximately HK$127 million this year. Loss attributable to owners of the Company was approximately HK$213 million (2017: loss attributable to owners of the Company of approximately HK$341 million).

BUSINESS ENVIRONMENT

Year 2018 marked the 40th anniversary of economic reform and opening up of the People’s Republic of China (the “PRC”). The State Council of PRC issued the Strategic Plan for Rural Revitalization (2018-2022), proposing to step up the construction of rural logistics infrastructure, encourage enterprises in trade and transportation industries to expand the network of facilities in rural areas. The government also encouraged the acceleration of rural logistics networks and construction of rural area-oriented distribution centers in areas where necessary conditions are satisfied, thus providing more favourable policy conditions for revitalizing rural industries and advancing agricultural modernization.

The “One Belt, One Road” strategic deployment policy has also effectively strengthened exchanges among enterprises in the Mainland and countries and regions along the route, further expanded domestic and international markets, promoted integration with wholesale markets and purchasers within the ASEAN region, and stimulated the trading of agricultural products. The Hong Kong-Zhuhai-Macau Bridge officially opened to traffic in October 2018, which would not only strengthen the links among Hong Kong, Macau and Zhuhai, but also greatly improve the flow of people, logistics and capital in the Pearl River Delta, thus linking up the Pearl River Delta with ASEAN countries, thereby promoting the growth of domestic and international sales of agricultural products, which would bring huge business opportunities to the agricultural produce exchange markets of the Group.

BUSINESS REVIEW

During the year, the Group continued to integrate external and internal resources, strengthen cost control and enhance operational efficiency, all of which currently have achieved initial success. The Group continued to implement a series of improvement projects in relation to supplier management, customer relations and product quality management to enhance the Group’s corporate image. In addition, the Group actively implemented asset-light operation strategy and diversified businesses to increase revenue sources, enhance brand advantage and strengthen overall competitive edge. In response to the national “Internet Plus” e-commerce development policy, the Group comprehensively promoted the business strategy for further integration of networks and entities in 2018. Currently, we are managing a total of 11 agricultural produce exchange markets in the Mainland, covering Wuhan, Huangshi, Suizhou, Luoyang, Puyang, Kaifeng, Yulin, Qinzhou, Xuzhou, Huai’an and Panjin. During the year, the Group also cooperated with domestic e-commerce companies for the first time to pilot the delegated inspection and distribution business, which will promote the business of agricultural produce exchange markets, thus providing support to the construction and development of national agricultural trade.

BUSINESS DEVELOPMENT

Asset Light Operation Model

The Group has diversified from land acquisition to land lease operational arrangements while introduce strategic joint venture partnership in an attempt to reduce the capital pressure during business expansion and strengthen the Group’s cash flow, thereby increasing the operational efficiency and improving capital returns. The Group adopted the asset-light operation model for Suizhou Baisazhou Agricultural and By-Product Exchange Market (“Suizhou Market”), a project jointly operated by a joint venture which was established by the Group with an independent third party in March 2018. During the year, Suizhou Market has begun to contribute revenue to the Group and is expected to become increasingly mature under the guidance of the Group’s strategy.

Operation and Sales of Properties in Agricultural Produce Exchange Markets in the PRC

The Group actively identifies suitable business opportunities and leverages on its experience in the operation of agricultural produce exchange markets. In response to the government agricultural e-commerce policy, the Group has increased its revenue sources by the combination of e-commerce channels. During the year, the Group cooperated with e-commerce companies to provide “delegated purchase and inspection, subcontracting to point” services, and Wuhan Baisazhou Agricultural and By-Product Exchange Market (“Wuhan Baisazhou Market”) was selected as the first pilot distribution business. The Group will closely monitor the development of new business and consider expanding its business to other markets.

Strong Electricity Monitoring Alert System

As a leading agricultural products logistics and warehouse operator in China, the Group actively upgraded the environmental safety standards of the projects. During the year, it improved the strong electricity monitoring alert system for various agricultural produce exchange markets, strengthened the fire protection capability, created a safe operating environment and increased the resilience and core competitiveness of the Group.

CORPORATE STRATEGY

The Group has successfully built a nationwide chain of wholesale markets and a network of modern agricultural produce logistics centre network, linking the southern and northern regions and across the eastern and south-western parts of the PRC. Looking ahead, the Group will continue to expand its business development in the agricultural produce exchange markets and optimise the distribution of assets and resources of the Group through asset light operation strategy, thus enhancing operational efficiency and flexibility and seizing huge business opportunities brought by the favorable policies for the agricultural produce exchange markets.

In response to the focus of the PRC government’s “Three Rural Issues” and rural revitalization strategy, the Group is planning to conduct the distribution business and the bulk trading business, to further draw on the successful experience and competitive advantages in the agricultural produce exchange markets of the Group, and promote the upgrading and transformation of agricultural products markets in various areas. With the support of the national “One Belt, One Road” policy and related measures, the Group actively seeks opportunities to line up wholesale markets or buyers within the ASEAN region, thereby increasing the domestic and overseas sales of agricultural products, and enhancing the branding, positioning and speciality of Chinese agricultural products in the international market.

In addition, the Group is also planning to comprehensively upgrade its operating system to help refine its business analysis and management, closely monitor its operational data and enhance cost control.

In conclusion, in 2019, the Group will continue to actively expand and optimize its business development in response to the government policies, while prudently managing its capital and assets and creating a sustainable business environment. Leveraging on the Group’s successful track record and market potential, the management believes that the agricultural product market business will bring stable growth in return to the Group in the coming year and continue to promote the Group’s overall branding within Greater China for maximising the benefits to our shareholders.

SOCIAL RESPONSIBILITY

As a socially responsible corporation, the Group is committed to promoting sustainable business development. In 2018, the Company participated in the international large-scale environmental protection action “Earth Hour” organised by the World Wide Fund for Nature, to support the reduction of energy consumption to alleviate the impact of climate change, and the “Skip Lunch Day” and “Dress Casual Day” organised by The Community Chest of Hong Kong to bring hope and support to people in need in the community. In its operations in the PRC, the Group has adopted an active environmental protection strategy to ensure that our construction projects and business operations comply with environmental protection laws and regulations of the PRC, while providing support to various education aid and poverty alleviation activities.

Please refer to the environmental, social and governance report in this annual report for details of the Group’s environmental protection, social and governance related work in 2018.

APPRECIATION

I would like to express my sincere gratitude to the Company’s shareholders, bondholders, business partners and customers for their continued trust and support over the past year. Meanwhile, I would also like to thank my fellow board members, the management team and staff members at all levels for their dedication and remarkable contribution to the growth of the Group.

Chan Chun Hong, Thomas
Chairman and Chief Executive Officer

Hong Kong, 14 March 2019