Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

馬 鞍 山 鋼 鐵 股 份 有 限 公 司

Maanshan Iron & Steel Company Limited

(A joint stock limited company incorporated in the People's Republic of China)

（Stock Code: 00323）

2019 ANNUAL RESULTS ANNOUNCEMENT

  1. IMPORTANT NOTICE
    1. This annual results announcement is abstracted from the full text of that of current year's annual report. To fully understand the business performance, financial position and future development plans of the Company, investors shall carefully read the full Annual Report published on media designated by China Securities Regulatory Commission such as the website of Shanghai Stock Exchange as well as the website of the Stock Exchange of Hong Kong Limited.
    2. The board of directors (the "Board"), the supervisory committee, the directors, the supervisors and senior management of the Company warrant that there are no false representations or misleading statements contained in, or material omissions from this annual report; and jointly and severally accept full responsibility for the truthfulness, accuracy and completeness of the information contained in this annual report.
    3. All directors attended the board meeting.
    4. Ernst & Young Hua Ming LLP issued a standard unqualified audit opinion on the annual financial statements of the Company.
    5. Profit distribution plan or plan for the capitalization of capital reserve during the reporting period proposed by the Board
      The Board suggests 2019 final dividend of RMB0.08 per share (tax included) shall be distributed and retained earnings will be carried forward to the year of 2020. No capital reserve shall be transferred to share capital. The distribution plan is going to be submitted to the Annual General Meeting for approval.

- 1 -

  1. BASIC INFORMATION OF THE COMPANY 1. Company Profile

Type of

Stock exchange for

Short name

shares

listing of shares

of stock

Stock code

A Shares

The Shanghai Stock Exchange Magang Stock

600808

H Shares

The Stock Exchange of Hong

Maanshan Iron

00323

Kong Limited

& Steel

Contact

Secretary of the board of directors,

person

joint company secretary

Joint company secretary

Name

He Hongyun

Rebecca Chiu

Office address

No. 8 Jiu Hua Xi Road, Maanshan City,

Room 1204-06, 12/F, The Hong Kong

Anhui Province, the PRC

Chinese Bank Building, 61-65 Des

Voeux Road Central, Central, Hong

Kong

Telephone

86-555-2888158/2875251

(852) 2155 2649

Email address

mggfdms@magang.com.cn

rebeccachiu@chiuandco.com

2. Introduction of the Company's Major Businesses during the Reporting Period

As one of the largest iron and steel producers and sellers in China, the Company's major businesses are production and sales of iron and steel products; the main production processes include iron making, steel making, steel rolling, etc. Major products of the Company are steel, which can be roughly divided into three types, i.e. plates, long products and wheels and axles.

  • Plates: Major products include thin plates and plates of moderate thickness. The thin plates are divided into hot and cold-rolled thin plates, galvanized plates and coilcoating plates.
  • Long products: Major products include section steel and wire rod.
  • Wheels and axles: Major products include train wheels, axles and rings.

During the reporting period, the major businesses, main products and their usages, operation modes, major driving factors of performance did not experience substantial changes.

- 2 -

3. Major Accounting Data and Financial Indicators of the Company

3.1 Major Accounting Data and Financial Indicators for the Past Three Years

Unit: million RMB

Increase/decrease

compared to

2019

2018

previous year

2017

(%)

Total assets

86,322.04

76,872.00

12.29

72,191.59

Revenue

78,262.85

81,951.81

-4.50

73,228.03

Net profit attributable to

owners of the parent

1,128.15

5,943.29

-81.02

4,128.94

Net profit excluding non-

recurring gains or losses

attributable to owners of

the parent

1,635.50

5,092.36

-67.88

3,969.09

Net assets attributable to

owners of the parent

26,933.16

28,173.62

-4.40

23,895.74

Net cash flows from operating

activities

7,865.96

13,870.43

-43.29

4,599.82

Basic earnings per share

(RMB/share)

0.147

0.772

-80.96

0.536

Diluted earnings per share

(RMB/share)

0.147

0.772

-80.96

0.536

Return on net assets (weighted

average) (%)

4.09

22.68

Decreased

18.92

by 18.59

percentage points

3.2 Major Accounting Data by Quarter during the Reporting Period Unit: million RMB

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

(Jan-Mar)

(Apr-Jun)

(Jul-Sep)

(Oct-Dec)

Revenue

17,717

19,309

20,555

20,682

Net profit attributable to

owners of the parent

84

1,061

320

-337

Net profit excluding non-

recurring gains or losses

attributable to owners of

the parent

56

785

612

183

Net cash flows from operating

activities

-2,289

5,262

-1,336

6,229

- 3 -

4. Share Capital and Shareholders

4.1 Numbers of Shareholders and Preferred Shareholders with Voting Rights Restored as well as Shareholding of the Top Ten Shareholders

Unit: Share

Numbers of Shareholder as end of the reporting period

(unit)

203,898

Numbers of Shareholder as end of last month prior to the

report date (unit)

197,388

Shareholding of the top ten shareholders

No. of Shares

Pledged or Frozen

Increase/Decrease

No. of Shares

under Restricted

Situations

within the

at the End

Condition

Share

Shareholder

Name of Shareholder (Full Name)

Reporting Period

of Period

Percentage

for Sales

Status

Number

Nature

(%)

Magang (Group) Holding Co., Limited

-

3,506,467,456

45.54

-

None

-

State-owned

shareholder

Baosteel Hong Kong Investment

Unknown

894,718,458

11.62

-

Unknown

Unknown

State-owned

Company Limited(Note)

shareholder

Hong Kong Securities Clearing Company

-894,210,208

822,352,592

10.68

-

Unknown

Unknown

Unknown

(Nominees) Limited (Note)

Central Huijin Investment Ltd.

-

142,155,000

1.85

-

Unknown

Unknown

State-owned

shareholder

Hong Kong Securities Clearing Company

Unknown

115,225,937

1.50

-

Unknown

Unknown

Unknown

Ltd.

Fujian Gunxueqiu Investment

Unknown

55,604,486

0.72

-

Unknown

Unknown

Unknown

Management Co., Ltd. - Jiayao

Gunxueqiu Securities Investment

Fund No.1

Bank of China Ltd. - Fullgoal CSI SOE

Unknown

34,038,300

0.44

-

Unknown

Unknown

Unknown

One Belt One Road ETF

Tibet Futongda Investment Co., Ltd.

Unknown

29,610,600

0.38

-

Unknown

Unknown

Unknown

China Merchants Bank Ltd. - SSE

Unknown

29,521,813

0.38

-

Unknown

Unknown

Unknown

Dividend Index ETF

Agriculture Bank of China Ltd. - CSI

Unknown

29,348,549

0.38

-

Unknown

Unknown

Unknown

500 ETF

Notes on the above shareholders'

At the end of the reporting period, the controlling shareholder of both the Holding and Baosteel Hong

affiliated relation or concerted action

Kong Investment Company Limited("Baosteel Hong Kong Investment") is China Baowu, hence they

are persons acting in concerted action. In addition, the Holding has no affiliated relation with any of

the other foregoing shareholders, nor is it a person acting in concerted action; however, it is not in the knowledge of the Company whether there is any affiliated relation among other foregoing shareholders and whether they are persons acting in concerted action.

- 4 -

Note: At the end of the reporting period, Baosteel Hong Kong Investment held 896,387,958 H Shares of the Company in total, accounting for 11.64% of total share capital of the Company, among which, 894,718,458 shares are directly held by itself, and 1,669,500 shares are held through Hong Kong Securities Clearing Company (Nominees) Limited. Hong Kong Securities Clearing Company (Nominees) Limited held 822,352,592 H Shares of the Company, which were held on behalf of its customers.

4.2 Block Diagram of Property Rights and Control Relationships between the Company and Controlling Shareholder

The Holding

45.54%

Magang

4.3 Block Diagram of Property Rights and Control Relationships between the Company and Actual Holders

SASAC of the State

Council

100%

SASAC of Anhui

China Baowu

49%

51%

100%

Baosteel Hong Kong

Investment

The Holding

11.64%

45.54%

Magang

- 5 -

III. MANAGEMENT DISCUSSION AND ANALYSIS

1. Business Environment

  • Steel Market

In 2019, due to the influence of increased productivity and output, the price of steel slightly fluctuated with a slight decrease compared to that of last year. Domestic Consolidated Steel Price Index (CSPI) increased in fluctuation from 107.12 at the end of last year, and reached a year high of 112.67 at the end of April. Then, the index decreased in fluctuation and reached 106.10 at the end of December. The average CSPI value was 107.98 with a year-on-year decrease of 5.9%. The market was featured by the trend of "strong in long products and weak in plates".

As for imports and exports, according to China Customs, annual steel export was 64.29 million tons with 7.3% of year-on-year decline; and cumulative steel import was 12.30 million tons with 6.5% of year-on- year decline.

  • Raw Materials and Fuels Market

As for raw materials and fuels, in 2019 iron ore price rose quickly due to the dam-break accident of Vale of Brazil at the beginning of the year, reaching US$115.96/ton at the end of July. Then the price fell back and was decreased to US$90.52/ton at the end of December with dramatic increase in fluctuation range than the previous year. The average CIF of import iron ore nationwide in 2019 was US$94.92/ton with a year- on-year increase of 36.65%. Due to the influence of environmental protection policy and the supply-side reform in relevant sectors, the price of raw materials and fuels such as scrap steel and coal fluctuated in a higher level. Affected by the cost factor, the profit margins of iron and steel enterprises during the reporting period declined significantly.

2. Major Business Performance during the Reporting Period

The year 2019 was a landmark year in the Company's history of development. Under the guidance of Anhui Province and China Baowu, the Company joined China Baowu, obtaining a new platform to accelerate high- quality growth. In the year of 2019, the Company adhered to the general tone of steady progress, and thoroughly carried out and implemented the major strategic deployment of Anhui provincial government and China Baowu. Under the background of the global economy staying in a downward period and the growth in China slowing down, the Company actively coped with the sharp change in both supply and demand markets, enhanced its dual engine of "effectiveness and efficiency", focused on changes and breakthroughs as well as value creation, promoted the premium quality development of iron and steel sector. Although its profit margins were reduced significantly by the influence of the increased productivity in iron and steel sector, the rapid

- 6 -

increase or fluctuation in a higher level of the price of raw materials and fuels such as iron ore, scrap steel and coal, the Company still managed to have a stable and orderly operation. Major business performance:

  1. Fully promoting the restructuring work with China Baowu for a preliminary synergistic effect. After becoming a member of China Baowu, the Company actively promoted its consolidation and integration with China Baowu, aligned its management with that of China Baowu in an orderly way, and fully launched its cooperation with China Baowu in green development • intelligent manufacturing as well as the 100-Day Action Plan concerning professional consolidation and integration.
  2. Focusing on premium development of its major iron and steel business and gradually improving business quality. Under the circumstances of the Company's permanent shutdown of two 420-cubic-meter blast furnaces in April 2018 and two 40-tonne converters in October 2018 as well as the overhaul of a 2500-cubic-meter blast furnace from January to February in 2019, the Group, by adopting a flexible production plan and premium manufacturing, managed to produce 18.10 million tones of pig iron, 19.84 million tones of crude steel and 18.77 million tones of steel with a slight year-on-year increase; adhered to the principle of maximizing efficiency and continued to increase the proportion of high value-added products with that of specialty steel being increased by 55.5%; further implemented lean marketing and continuously optimized customer channels, developing 102 new end users and achieving the annual proportion of direct supply of steel plates of 81.1%; accelerated to promote the certification of key products, with highly corrosion- resistant continuous hot-rolled steel sheet products for railway vehicles passing the product certificate of CRCC, 70 grades of auto sheets being certified by various original automobile manufacturers including SAIC Volkswagen and SAIC-GM, and the "wheels for China standard EMU Fuxing bullet train" produced by Magang being awarded the Gold Award for Innovative Products in 2019 World Manufacturing Conference.
  3. Continuing to deepen reform and management to stimulate development vitality. The Company innovated performance assessment mechanism by establishing an assessment indicator system focusing on EVA and checklist evaluation. To further strengthen the resource integration and business integration, the Company established an ironmaking plant, orderly promoted the integration of rail transit resources; persisted in optimizing human resources, actively implemented the principle of "reducing total volume, adjusting structure, improving quality, enhancing vitality" in accordance with the baseline requirement of an annual average of 8% in the human resources optimization rate, improved supporting policies, carried out process reengineering, promoted flat management, significantly increased the personnel efficiency; stepped up the training of innovative talents, advanced the "1+2+4" talent training program in a systematical way, and conducted "Pilot Program" and "Flying Program".

- 7 -

  1. Deeply implementing and constantly boosting technical innovation. The Company further carried out the "Base+" technology innovation model, launched several intelligent manufacturing projects by cooperating with USTB, and built a joint research center for new iron-based materials with Tsinghua University; kept accelerating the building of innovative platforms, with the "National and Local Joint Engineering Research Center of Advanced Manufacturing Technology for Rail Transit Key Parts" being approved and put into service; vigorously intensified efforts to achieve breakthroughs in technology research and development, and managed to undertake 13 science research projects over provincial level, conduct 73 new product development projects, and win 3 China Metallurgical Science and Technology Awards, among which, the "R&D innovation in metallurgical technology of heavy-duty axle steel and product development" and "Research on surface oxidation mechanism and development and application of new generation control technology of hot-rolled strips" led by or involving the Company won the first prize.
  2. Constant deepening of brand building for an improved enterprises image. Leveraging on the implementation of 20 annual key works in brand building, the Company kept improving its brand cultivation management system and actively participated in domestic and overseas exhibitions such as the "19th China International Metallurgical Industry Expo" and the "2019 World Manufacturing Conference" to expand brand communication. During the assessment of CISA Modernized Innovation Achievement Award of Management of Metallurgical Industry in 2019, two of our achievements won awards. The Company also won the China's Top 100 Enterprises Award from China Business Top 100 and the Top 100 in Comprehensive Strength from Top 100 Hong Kong Listed Companies Research Center.
  3. Continuing the construction of an enterprise with three characteristics to greatly enhance risk control capability. The Company, focusing on building an intrinsic-safety enterprise, strengthened the philosophy of "safety 1000", implemented safety responsibilities, and deeply carried out the "1+5+N" special security governance, keeping its safety production situation in general stability. The Company, focusing on building an intrinsic environment-friendly enterprise, accelerated the execution of ultra-low emission moderation three-year action plan, organized and carried out Yangtze Rive protection work, and thoroughly implemented the requirements of the central environmental protection inspection team. The Company, focusing on building a financially sound enterprise, perfected investment income mechanism, controlled capital expenditure strictly and tightly, optimized financing structure, and actively competed for governmental funds.

- 8 -

  1. Actively participating in the critical battle against targeted poverty relief and achieving practical results. The Company continued to promote the all-round and balanced development between enterprises and the society, dispatched poverty relief village working teams to conduct poverty relief by developing industries, improving education and providing assistance by pairs under the support and help of the Holding. The poverty relief work received positive results and won recognition from Anhui Province.

3. Analysis of Principal Operation

Analysis of the change in accounts of the income statement and statement of cash flows

Unit: RMB

Amount of

Amount of

the current the same period

Account

year

of last year

Change

(%)

Revenue

78,262,846,004

81,951,813,488

-4.50

Cost of sales

71,315,481,915

69,794,982,119

2.18

Selling expenses

949,844,233

959,718,246

-1.03

General and administrative expenses

2,378,932,727

1,379,991,907

72.39

R&D expenses

846,472,355

801,240,784

5.65

Financial expenses

784,811,228

960,457,412

-18.29

Other income

117,373,339

185,350,836

-36.68

Investment income

815,067,777

1,090,099,779

-25.23

Gain/(loss) on changes in fair value

9,598,445

-10,213,369

-

Credit impairment losses

-15,592,865

-41,876,945

-

Assets impairment losses

-424,598,573

-754,443,431

-

(Loss)/gain from disposal of assets

-77,058,351

371,280,264

-120.75

Operating profit

1,831,577,615

8,085,297,848

-77.35

Non-operating income

469,913,966

160,098,567

193.52

Non-operating expenses

3,735,871

6,472,487

-42.28

Profit before tax

2,297,755,710

8,238,923,928

-72.11

Income tax expenses

583,837,841

1,180,935,234

-50.56

Net profit

1,713,917,869

7,057,988,694

-75.72

Net profit attributable to owners of the

1,128,148,980

parent

5,943,286,585

-81.02

Net profit attributable to non-

585,768,889

controlling interests

1,114,702,109

-47.45

Net cash flows from operating

7,865,957,124

activities

13,870,430,106

-43.29

Net cash flows used in investing

-4,793,209,384

activities

-4,011,703,200

-

Net cash flows used in financing

-2,822,692,873

activities

-6,027,314,622

-

- 9 -

Revenue decreased by 4.50% compared with the previous year, mainly due to the decrease in average sales price of steel this year.

Cost of sales increased by 2.18% compared with the previous year, mainly due to the increase in price of raw materials and fuels such as import ore this year.

General and administrative expenses increased by 72.39% compared with the previous year, mainly due to the increase in one-off termination compensation paid by the Company to its employees because of human resource optimization.

Other income decreased by 36.68% compared with the previous year, mainly due to the decrease in governmental grants received concerning daily operating activities this year.

Gain on changes in fair value is RMB9,598,445, while it was a loss of RMB10,213,369 in previous year, mainly due to the gain from the fair value changes of forward foreign exchange contracts held by the Company this year.

Credit impairment losses decreased by 62.77% compared with the previous year, mainly due to the decrease in bad debt provision based on the expected credit loss model of the Company this year.

Assets impairment losses decreased by 43.72% compared with the previous year, mainly due to the increase in fixed assets impairment of MG- VALDUNES and Changjiang Steel, subsidiaries of the Company, was offset by the decrease in the Company's inventory impairment this year resulted from the relatively stable steel price at the end of this year.

Loss from disposal of assets was RMB77,058,351, while it was a gain of RMB371,280,264 in previous year, mainly due to the Company's gain from disposal of certain fixed assets and land, and the recognition of gain from disposal of scrap assets by Ma Steel Hefei last year, while the recognition of loss from disposal of backward production capacity assets by Changjing Steel.

- 10 -

Non-operating income increased by 193.52% compared with the previous year, mainly due to the increase of stable subsidy received by the Company and the governmental grants for decapacity received by its subsidiary Ma Steel Hefei this year.

Non-operating expenses decreased by 42.28% compared with the previous year, mainly due to the decrease of fine and confiscation expenditure and other expenditure in the Company and its subsidiaries this year.

Income tax expenses decreased by 50.56% compared with the previous year, mainly due to the profitability of some subsidiaries decreased this year.

Net profit attribute to non-controlling interests decreased by 47.45% compared with the previous year, mainly due to the profitability of some non wholly-owned subsidiaries decreased this year.

Operating profit, profit before tax, net profit, and net profit attributable to owners of the parent decreased by 77.35%, 72.11%, 75.72% and 81.02%, respectively, compared with the previous year. These were all mainly due to the increased price of some raw materials and fuels, and decrease of steel price and gross margin of steel products this year.

Net cash inflows from operating activities were RMB7,865,957,124 which decreased by 43.29% compared with the previous year, mainly due to the decrease of steel price and the increase of cash outflow because of increased price of raw materials and fuels.

Net cash outflows used in investing activities were RMB4,793,209,384, while it was net outflow of RMB4,011,703,200 in previous year, mainly due to the cash payments for acquisition and construction of fixed assets and intangible assets increased compared with the previous year.

Net cash outflows used in financing activities were RMB2,822,692,873, while it was net outflow of RMB6,027,314,622 in the previous year, mainly due to the decrease of payment for loans this year.

During the reporting period, the Company's net cash flow from operating activities was RMB7.866 billion, while net profit was RMB1.714 billion, and the difference is RMB6.152 billion which is mainly due to a cash inflow of RMB5.549 billion because of the increase in customer deposits of MaSteel Finance.

- 11 -

3.1 Analysis of Revenue and Cost of Sales

(1). Analysis of Principal Operation by Industry, Products and Regions

Unit: million RMB

Principal operation by industry

Increase/

Increase/

Increase/

(decrease)

(decrease)

(decrease)

of cost

of gross

of revenue

of sales

margin

compared

compared

compared

Cost

Gross

with last

with last

with last

Industry

Revenue

of sales

margin

year

year

year

(%)

(%)

(%)

(%)

Iron and Steel

71,760

65,712

8.43

-5.82

0.28

Decreased by

5.57

percentage

points

Principal operation by product

Increase/

Increase/

Increase/

(decrease)

(decrease)

(decrease)

of cost

of gross

of revenue

of sales

margin

compared

compared

compared

Gross

with last

with last

with last

Product

Revenue

Cost of sales

margin

year

year

year

(%)

(%)

(%)

(%)

Long products

32,712

28,878

11.72

-2.77

3.73

Decreased by

5.53

percentage

points

Steel plates

33,590

31,644

5.79

-11.42

-5.70

Decreased by

5.71

percentage

points

Wheels and axles

2,867

2,580

10.01

41.02

26.35

Increased by

10.45

percentage

points

- 12 -

Revenue by region

Increase/

Increase/

Increase/

(decrease)

(decrease)

(decrease)

of cost

of gross

of revenue

of sales

margin

compared

compared

compared

Cost of

Gross

with

with

with

Region

Revenue

sales

margin

last year

last year

last year

(%)

(%)

(%)

(%)

Anhui

26,789

24,429

8.81

-12.51

-6.11

Decreased by

6.21

percentage

points

Shanghai

12,365

11,591

6.26

-4.60

4.39

Decreased by

8.07

percentage

points

Jiangsu

12,174

11,201

7.99

0.45

8.00

Decreased by

6.44

percentage

points

Zhejiang

5,040

4,705

6.65

-6.91

-0.76

Decreased by

5.78

percentage

points

Guangdong

2,176

2,012

7.54

-8.84

-1.71

Decreased by

6.68

percentage

points

Other Mainland

15,117

13,485

10.80

14.63

20.05

Decreased by

regions

4.03

percentage

points

Overseas and Hong

4,602

3,892

15.43

-12.58

-9.04

Decreased by

Kong

3.29

percentage

points

During the reporting period, the Group's revenue from principal operation was RMB77,158 million, of which the iron & steel revenue was RMB71,760 million, accounting for 93% of the principal operation revenue.

- 13 -

(2). Analysis of Production and Sales Volumes

Unit: ten thousand tonnes

Year-on-

Year-on-

year

year increase/

Year-on-

increase/

(decrease) of

year increase/

(decrease) of

Production

Sales

Inventory

production

(decrease) of

inventory

Products

volume

volume

volume

volume

sales volume

volume

(%)

(%)

(%)

(%)

Long products

937.9

933.9

16.8

3.22

2.64

31.25

Steel plates

915.9

915.9

4.9

-2.59

-2.64

-

Wheels and axles

23.0

22.5

1.0

6.48

2.27

100.00

(3). Analysis of Costs

Unit: million RMB

Change in

amount in 2019

Cost

% of total

Amounts

% of total against amount

components

Amount in 2019

costs in 2019

in 2018

costs in 2018

in 2018

(%)

(%)

(%)

Raw materials

55,857

78.32

53,081

76.05

5.23

Salary

3,707

5.20

3,735

5.35

-0.75

Depreciation and

amortization

3,037

4.26

3,519

5.04

-13.70

Fuels and power

3,720

5.22

3,398

4.87

9.48

Others

4,994

7.00

6,062

8.69

-17.62

- 14 -

(4). Analysis of Major Customers and Major Suppliers

During the reporting period, the amount of total sales to the top five customers was RMB5.946 billion, accounting for 8% of the annual sales. Among which, the sales of the related parties was RMB1.755 billion, accounting for 2% of the annual sales. The amount of the total purchase from the top five suppliers was RMB17.078 billion, accounting for 26% of the annual purchase. Among which, the purchase from the related parties was RMB7.161 billion, accounting for 11% of the annual purchases.

Among the major suppliers, the Holding is the controlling shareholder of the Company, the Masteel Scrap is a controlling subsidiary of the Holding; among the major customers, the Magang Chemicals & Energy is a controlling subsidiary of the Holding. Saved as the above, there was no directors or supervisors or their connected persons or any shareholders (to the best knowledge of the board of directors, holding 5% or above of the shares in the Company) having any beneficial interests in the top five suppliers or customers of the Group in 2019.

3.2 Expenses

During the reporting period, the Group's selling expenses were RMB950 million, general and administrative expenses were RMB2.379 billion, and the financial expenses were RMB785 million. Among which, the selling expenses and financial expenses decreased by 1.03% and 18.29%, respectively, and that of general and administrative expenses increased by 72.39%. The increase in general and administrative expenses was mainly due to the increase of one- off termination compensation paid by the Company to its employees because of human resource optimization.

3.3 Research and Development (R&D) Expenses

R&D expenses details

Unit: million RMB

Spent R&D expenses in 2019

846.47

Capitalized R&D expenses in 2019

-

Total R&D expenses

846.47

Total R&D expenses as a portion of revenue (%)

1.08

Number of the Company's R&D staff

1,738

Percentage of R&D staff number to the Company's total

number of employees (%)

6.63

Percentage of capitalized R&D expenses (%)

-

- 15 -

4. Analysis of Assets and Liabilities

4.1 Assets and Liabilities

Unit: RMB

Percentage of

Percentage of

Closing

closing balance

Closing

closing balance

balance

of 2019 in

balance

of 2018 in

Year-on-year

Account

of 2019

total assets

of 2018

total assets

change

(%)

(%)

(%)

Cash and bank balances

9,517,313,695

11.03

9,762,844,718

12.70

-2.51

Financing receivables

11,098,699,421

12.86

4,970,113,847

6.47

123.31

Prepayments

981,443,575

1.14

712,340,548

0.93

37.78

Loans and advances to

customers

4,256,415,190

4.93

2,845,298,103

3.70

49.59

Non-current assets due

within one year

-

-

101,201,184

0.13

-100.00

Property, plant and

equipment

30,045,743,674

34.81

31,545,176,835

41.04

-4.75

Construction in progress

3,259,704,984

3.78

1,662,672,077

2.16

96.05

Right-of-use assets

418,879,903

0.49

-

-

-

Deposits and balances

from banks and other

financial institutions

400,031,889

0.46

900,366,111

1.17

-55.57

Customer deposits

10,964,896,002

12.70

4,915,309,311

6.39

123.08

Short-term loans

12,880,053,159

14.92

10,917,293,181

14.20

17.98

Financial liabilities held

for trading

2,258,750

0.003

8,012,670

0.01

-71.81

Notes payable

7,313,729,148

8.47

2,638,271,437

3.43

177.22

Trade payable

6,130,327,006

7.10

7,703,736,542

10.02

-20.42

Taxes payable

547,209,418

0.63

1,325,517,987

1.72

-58.72

Long-term employee

benefits payable

101,327,703

0.12

157,371,474

0.20

-35.61

Lease liabilities

411,432,835

0.48

-

-

-

General reserve

325,786,322

0.38

224,841,404

0.29

44.90

Financing receivables increased by 123.31% compared with the previous year, mainly due to that the notes receivable at fair value through other comprehensive income was calculated under this account as per the format requirement of new financial statements. Meanwhile, the decrease in the endorsement of notes receivable this year caused the increase of notes receivable held by the Company this year.

- 16 -

Prepayments increased by 37.78% compared with the previous year, mainly due to the increase in prepayments for procuring import raw material and fuels as well as the spare parts this year.

Loans and advances to customers increased by 49.59% compared with the previous year, mainly due to the increase in the amount of loans lent by MaSteel Finance to its external companies of the Group this year.

Non-current assets due within one year decreased by 100% compared with the previous year, mainly due to the maturity of the treasury bonds held by MaSteel Finance this year.

Construction in progress increased by 96.05% compared with the previous year, mainly due to the increased investment of the Company in heavy duty H-beam, new square billet continuous caster in Special Steel Company, long product upgrade and transform projects etc. this year.

The balance of right-of-use assets at the end of this year was RMB418,879,903 while that of the end of previous year was zero, mainly due to the Group recognized the rights to use lease assets over lease terms as right-of-use assets as a results of the application of New Leases Standard since 1 January 2019.

Deposits and balances from banks and other financial institutions decreased by 55.57% compared with the previous year, mainly due to MaSteel Finance decreased the deposits and balances from commercial banks.

Customer deposits increased by 123.08% compared with the previous year, mainly due to the increase in cash absorbed by MaSteel Finance in this year from the Holding and its subsidiaries.

Financial liabilities held for trading decreased by 71.81% compared with the previous year, mainly due to the changes to the fair value of the forward foreign exchange contracts held by the Company this year.

Notes payable increased by 177.22% compared with the previous year, mainly due to the decrease in the endorsement of notes receivable and the increasing demand for newly issued notes in this year.

Taxes payable decreased by 58.72% compared with the previous year, mainly due to the payment of various unpaid taxes payable of last year end made by the Company and its subsidiary Changjiang Steel at the beginning of this year.

- 17 -

Long-term payroll and employee benefits payable decreased by 35.61% compared with the previous year, mainly due to the one-off termination of employment contracts between the Company and certain early retired employees as well as the retirement of certain early retired employees this year.

The balance of lease liabilities at the end of this year was RMB411,432,835 while that of the end of previous year was zero, mainly due to the Group recognized the present value of outstanding lease payments as lease liabilities as a result of the application of New Leases Standard since 1 January 2019.

General reserve increased by 44.90% compared with the previous year, mainly due to the accrual of risk reserve of MaSteel Finance this year.

5. Analysis of Operational Information

During the reporting period, the production capacity and utilisation rates were as follows:

Utilisation rate

Production

of production

Product type

capacity

capacity

(ten thousand

tonnes)

(%)

Pig iron

1,833

99

Crude steel

2,170

91

Steel production

1,970

95

5.1 Manufacturing and Sales of Steel Material Based on Processing Techniques

Unit: million RMB

Type based on

Production volume

processing

(tonnes)

Sales volume(tonnes)

Revenue

Cost of sales

Gross margin(%)

techniques

This Year

Last Year

This Year

Last Year

This Year

Last Year

This Year

Last Year

This Year

Last Year

Cold-rolled steel

4,491,648

4,801,070

4,488,675

4,800,445

17,951

23,015

17,147

20,879

4.48

9.28

Hot-rolled steel

14,046,434

13,687,895

14,008,657

13,704,774

48,351

48,548

43,375

40,518

10.29

16.54

Wheel and axles

230,183

215,567

224,914

220,352

2,867

2,033

2,580

2,042

10.01

-0.44

- 18 -

5.2 Manufacturing and Sales of Steel Material Based on Forms of Finished Goods

Unit: million RMB

Type based

Production volume

on forms of

(tonnes)

Sales volume(tonnes)

Revenue

Cost of sales

Gross margin (%)

finished products

This Year

Last Year

This Year

Last Year

This Year

Last Year

This Year

Last Year

This Year

Last Year

Long Products

9,379,436

9,086,121

9,338,795

9,098,502

32,712

33,644

28,878

27,840

11.72

17.25

Steel Plates

9,158,646

9,402,844

9,158,537

9,406,717

33,590

37,919

31,644

33,557

5.79

11.50

Wheels and axles

230,183

215,567

224,914

220,352

2,867

2,033

2,580

2,042

10.01

-0.44

5.3 Sales of Steel Material Based on Sales Channels

Unit: 100 million RMB

Based on

Percentage in total

sales

Revenue

revenue (%)

channels

This Year

Last Year

This Year

Last Year

Offline sales

686.7

702.2

87.74

84.84

Online sales

30.9

33.8

3.95

4.08

5.4 Supply of Iron Ore

Increase/

Supply source of iron ore

Supply volume (tonnes)

decrease

This Year

Last Year year on year (%)

Domestic source

7,807,702

7,848,045

-0.51

Overseas import

18,558,939

21,032,183

-11.76

6. Investment Analysis

6.1 General Analysis of External Equity Investments

Unit: million RMB

Investment amount as at the end of the reporting period of

the Company

12,050.66

Changes in investment amount

1,556.42

Investment amount as at the end of previous year of the

Company

10,494.24

Increase/decrease in investment amount (%)

14.83

During the reporting period, the Company had not carried out any significant equity investments.

- 19 -

6.2 Significant Non-Equity Investment

Unit: million RMB

New

Investment

during the

Budgeted

Reporting

Project

Project Name

Investment

Period

Progress

Product quality projects

9,446

1,911

51%

Energy-saving and

environment

protection projects

5,861

982

42%

Equipment

advancement and

other modification

projects

1,809

620

79%

Other projects

N/A

87

N/A

Total

/

3,600

/

7. Outlook for Future Development

7.1 Industry Landscape and Trend

Looking forward to 2020, the global economy growth will continue to slow down, and the feature of "three lows and two highs", that is low growth, low inflation, low interest rate, high debt, high risk, will be further highlighted. In terms of domestic development, the influence of the "overlapping of three periods" will be further deepened while the impact of COVID-19 on economy and society will increase the downward pressure on the economy. The State will adhere to the general principle of pursuing progress while ensuring stability; continue to apply the new development philosophy; continue to pursue supply- side structural reform as our main task; continue to take reform and opening up as our driving force; continue to work for high-quality development; continue the three critical battles; implement the "six stability" in an all-round way, make coordinated efforts to maintain stable growth, advance reform, make structural adjustments, improve living standards, guard against risks, and ensure stability; and keep major economic indicators within an appropriate range.

Having completed the five-year goal of resolving excess capacity ahead of schedule, the iron and steel industry shall correctly understand and properly handle the relationship between "capacity, output, and products" under the pressure of stringent environment protection standards. The iron and steel enterprises shall adhere to green development, promote and lead the green revolution in the whole industry chain, and significantly improve the green development level of the sector by continuously and vigorously boosting ultra-low emission moderation.

- 20 -

7.2 Corporate Development Strategy

Against a complex and fast-changing domestic and international environment, the Company shall maintain strategic focus, treat national development and industry changes from a comprehensive, dialectical and long-term perspective, unswervingly implement the new development philosophy and the overall development strategy of China Baowu, and pursue high quality development.

  1. The Company will follow the general idea for a "better, stronger and bigger" high-quality growth, focus on three types of products of "wheels and axles, steel plates, premium long products", and highlight the development of rail transit (wheels and axles), automobile plates, home electrical appliances plates, H beams, and premium special steel.
  2. The Company will implement a strategy of "premium product + scale", making wheels and axles become the number one in comprehensive competitiveness at home and abroad, the comprehensive competitiveness of steel plates enter the tier 1 in China, H-beam products become the number one in comprehensive competitiveness at home, the Special Steel Company a production base for premium special steel and wire rod, and the Changjiang Steel a production base for important premium construction materials.
  3. The Company will adhere to the purpose and requirements of the "four principles for intelligent production", advance big data, AI, IOT, block chain and similar technologies and apply them into intelligent equipment, intelligent plant and intelligent operation to improve the level of intelligent manufacturing.
  4. The Company will vigorously promote new processes, new technologies, new equipment, and new standards in terms of ultra-low emission, energy saving and environmental protection, enhance green development, integrate into the high-quality steel ecosystem created by China Baowu, and create a green, intelligent and premium urban steel plant demonstration base.

- 21 -

7.3 Business Plan

In 2020, while adhering to the general tone of steady progress and implementing the new development philosophy, the Company will highlight China Baowu's performance guidance of "surpassing yourself, leading the industry, pursuing excellence", achieve goals via implementing the principle of "high tech, high market share rate, high efficiency, ecologization, internationalization", take reform as its driving force, promote innovation-driven development, focus on consolidation and integration, align with higher standards to find out gaps, and strive to create a new chapter for its high-quality development. In 2020, the Group plans to produce pig iron of 18.20 million tons, crude steel of 20.20 million tons and steel of 19.10 million tons which will increase by 0.55%, 1.81% and 1.81% respectively, compared with the production in 2019. Among which, the Company plans to produce pig iron of 14.40 million tons, crude steel of 15.90 million tons and steel of 14.66 million tons, which will increase by 2.49%, 3.92% and 2.95% respectively, compared with the production in

2019. The major measures to be taken are as follows:

  1. Thoroughly implement the overall development strategy of China Baowu and prepare the new round of development plan. The Company, orientated as per the development strategy of China Baowu as well as product and production line, on three types of products of wheels and axles, steel plates, premium long products and professionalized products, actively plan the adjustment and upgrade of strategy planning in iron and steel industry by focusing on realizing the target of helping the comprehensive competitiveness of steel plates enter the leading place in the industry, that of wheels and axles as well as H beams become the number one at home and abroad as well as at home respectively, and building Special Steel Company into a premium production base of quality steel rods and wires to effectively align with the overall planning of China Baowu.
  2. Continue to improve aligning mechanism with China Baowu and exert cooperative benefits. According to the requirements of "unified language, unified rules, unified platforms", the Company will accelerate its profound integration with China Baowu advance an all-round collaboration in R&D, procurement, manufacturing, sales, capital, management and industrial chain extension, focus on the implementation of 9 technological support projects and 14 management support projects to effectively achieve breakthroughs in high-end product technologies, improve abilities of management system, and strive to achieve an annual cooperative benefit of RMB1.6 billion.

- 22 -

  1. Adhere to the filling of liquid iron supply gaps in the northern area and the professionalized production in the southern area to create new competitive advantages. The Company will implement supporting projects in the northern area in a fast way; perfect the production capability layout of No.1 Steel Rolling Plant and Special Steel Company; systematically resolve the problem of imbalanced iron-sinter-coke supply and iron & steel process via speeding up technology transform, strengthen the professionalized abilities of the southern area to promote the achievement of China Baowu being a leader in global iron and steel industry.
  2. Keep enhancing manufacturing abilities and further exert scale advantage. Centering on blast furnaces, the Company will step forward to perfect their examination and risk alert mechanism, strengthen the linkage between different systems, consolidate the foundation for a stable and effective performance of blast furnaces to achieve smooth production under a higher level; optimize iron to steel ratio, intensify efforts to increase the utilisation rate of production capacity and order fulfillment rate to improve volume, revenue and efficiency.
  3. Align with higher standards in an all-round way to find out gap and pursue for excellence and efficiency. The Company will stick to its dos and don'ts, accelerate to implement supporting systems to quickly increase system efficiency; align with higher standards in all aspects to find out differences, take the increase of key technological and economic indexes as the assessment guidance for the main channel of decreased cost and improved efficiency and the average level of the best three months in previous year as a starting point, further clarify the classification of production line, and pursue high efficiency and excellent to further improve indexes, optimize structure, organize production effectively, and decrease cost.
  4. Build a green steel plant and create an intelligent steel enterprise. Taking the 2021 China Baowu Green Development • Intelligent Manufacturing Conference held in Magang as an opportunity, the Company will, as per the deployment of China Baowu, satisfy the requirements of its environmental protection principles and the guideline of "ultra-low emission of waste gas, zero emission of waste water, no shipping out of solid wastes, cleanness, greening, beautifying and culture", draft and carry out working plans, speed up the implementation of ultra-low emission moderation projects, significantly increase the green development index of Magang. As per the requirements of the "four principles for intelligent production", the Company will conduct a batch of intelligent manufacturing sample project to support the consistency, stability, and reliance of product quality for the optimization of safety, efficiency, environment and organization.

- 23 -

  1. Focus on its major business of iron and steel and continue to intensify efforts to cut production and maintain healthy development. By professional integration and capital operation, the Company will focus on its principle operation in iron and steel, reduce the proportion of trade receivables and deposits to further increase the efficiency of assets, capitals and human resources, and further decrease legal persons by taking input-output benefits as measurement.
  2. Reform remuneration system and highlight incentive orientation. In a new environment, the Company will further perfect corporate governance, explore long-term motivation methods, establish, improve and carry out continuous and stable motivation and constrain mechanism to fully exert the initiative of core talents and excellent cadre, and ensure the implementation of business plans by strengthening performance assessment orientation and focusing on key indicators.

7.4 Potential Risks

Right now, the growth of global economy including China is slowing and economic globalization is faced with challenges. Domestic iron and steel production capacity has a huge potential, the iron and steel capacity in coastal areas will be increased significantly, the increase of downstream demand will be impacted in a certain period due to COVID-19, the supply-end pressure will be increased, and the competition will become fierce. The price of major raw materials and fuels such as iron ore, scrape steel and coal used for iron and steel production is still high; meanwhile, corporate comprehensive costs including environmental protection will be increased with the implementation of environmental protection policies. The Company's response measures are described in the "business plan" in the preceding paragraph.

- 24 -

IV. SIGNIFICANT EVENTS

  1. Plan or Proposal of Profit Distribution for Ordinary Shares, Plan or Proposal of Transferring Capital Reserve to Share Capital for the Past Three Years (including the Reporting Period)
    According to the China Accounting Standards, in 2019, the Company achieved a net profit of RMB794 million. After accruing 10% of the statutory surplus reserve, the profit available for distribution to shareholders at the end of 2019 was RMB3,288 million. The Board suggests 2019 final dividend of RMB0.08 per share (tax included) shall be distributed and retained earnings will be carried forward to the year of 2020. No capital reserve shall be converted to share capital. The resolution shall be approved by the AGM of the Company.
    The final dividend of the Company was RMB0.165 per share (tax included) for the year of 2017 and retained earnings were carried forward to the year of 2018. No capital reserve shall be converted to share capital. The 2018 interim dividend and final dividend of the Company were RMB0.05 per share (tax included) and RMB0.31 per share (tax included). Retained earnings were carried forward to the year of 2019 and no capital reserve shall be converted to share capital.
  2. Remunerations of the Auditor
    During the year, Ernst & Young Hua Ming LLP was appointed as the auditors of the Company and had issued audit report on the financial statements prepared under the China Accounting Standards and internal control audit report. The remuneration for Ernst & Young Hua Ming LLP amounted to RMB5.385 million (tax exclusive), including annual audit fee of RMB4.80 million (including internal control audit fee of RMB600,000) and the fees for agreed upon procedures on interim financial statements of RMB585,000. The aforementioned audit fees, agreed-upon procedures fees and other professional services were already inclusive of disbursements incurred by the auditors. Meal and accommodation expenses incurred by auditors while performing professional services at the Company were borne by the Company.
    In addition, Ernst & Young Tax Services Limited provided profit tax reporting services in Hong Kong for the Company with services fee of HK$45,000 (tax exclusive), which was a non-audit service.

- 25 -

  1. Audit Committee
    The Company's Audit Committee held a meeting on 26 March 2020 and reviewed the 2019 annual accounts.
  2. Purchase, Sales or Redemption of Listed Securities of the Company
    During the reporting period, the Company didn't repurchase any of its listed shares, and the Group didn't purchase or resale any listed share.
  3. Pre-emptiveRights
    When new shares are offered, the Company is not required under the law of China or the Articles of Association to ask its existing shareholders to buy new shares in the currency of their share holdings first.
  4. Public Float
    Based on the data accessible for the Company and to the best knowledge of the board of directors, as of the date of this report, the Company meets relevant requirements about public holdings in Securities Listing Rules of the Stock Exchange of Hong Kong Limited.
  5. Code on Corporate Governance
    In 2019, the Company has complied with all the requirements of the Code on Corporate Governance as set out in Appendix 14 of the Hong Kong Listing Rules.
    All of the Directors of the Company had confirmed in written form that they had complied with the requirements stipulated by the Model Code for Securities Transactions by Directors of Listed Companies in Appendix 10 of the Hong Kong Listing Rules during the reporting period.

- 26 -

  1. MATTERS RELATED TO FINANCIAL REPORT
    1. After Auditing, the Company's Auditor Ernst & Young Hua Ming LLP Issued a Standard Unqualified Audit Opinion on the 2019 Annual Financial Report of the Company
    2. Analysis and Explanation of the Company on the Reasons for and the Impact of the Changes to Accounting Policies and Accounting Estimates
      • Changes to Accounting Policy

The Ministry of Finance has promulgated the newly revised "Accounting Standard for Business Enterprises No. 21 - Leases" ("New Leases Standard") on 7 December 2018. According to the New Leases Standard, the lessee should recognize the right-of-use assets and lease liability for the leases. The Company has implemented the New Leases Standard since 1 January 2019.

According to the New Leases Standard, the Company has recognized the right-of-use assets and lease liabilities for all the leases (except for short-term leases and leases of low-value assets which subject to simplified treatment) as per the present value of minimum lease payments for future rent payable, and also recognized the expenses for depreciation and unrecognized financing without restating comparative information since 1 January 2019. The change of this accounting policy increased the opening balance of right-of-use assets and lease liabilities of the Group by RMB443,424,793 and RMB443,424,793, respectively, and increased that of the Company by RMB388,795,738 and RMB388,795,738. The New Leases Standard had no influence on the opening balance of retained earnings and shareholders' equity of the Group and the Company, nor significant influence on the net profit attributable to owners of the parent and the shareholders' equity attributable to owners of the parent of the Group in 2019.

- 27 -

  • Changes to Format of Financial Statements

To meet the requirements of the Notice on Revising and Issuing Format of 2019 Financial Statements for General Business Enterprises (Cai Kuai [2019] No.6) and the Notice on Revising and Issuing Format of Consolidated Financial Statements (2019 edition) (Cai Kuai [2019] No.16), in the balance sheet, the amount previously presented in "notes and trade receivable" shall be presented separately in "notes receivable" and "trade receivable"; the amount previously presented in "notes and trade payables" shall be presented separately in "notes payable" and "accounts payable"; the notes at fair value through other comprehensive income previously presented in "other current assets" are separately presented in "financing receivables"; the "interests receivable" in "other receivables" is changed to reflect only the outstanding interests on financial instruments that expired and can be collected at the balance sheet date (the interests on the financial instrument accrued using the effective interest method are included in the outstanding amount of the corresponding financial instrument); the "interests payable" in "other payables" is changed to reflect only the outstanding interests on financial instruments that expired and should be paid at the balance sheet date (the interests on the financial instrument accrued using the effective interest method are included in the outstanding amount of the corresponding financial instrument). The Group has retrospectively adjusted the comparative amounts correspondingly. The changes in accounting policies have had no impact on the net profit and equity in the consolidated and company financial statements.

  1. During the Reporting Period, There Was No Correction Due to Material Accounting Errors
  2. Compared with the Financial Report of Previous Year, the Company Shall Make Specific Explanation about the Changes Happened to the Scope of the Consolidation of Financial Statements.
    On 12 June 2019, Magang Hongfei Power Energy Co., Ltd. ("Magang Hongfei") was jointly set up by the Company, Anhui Hongfei New Energy Technology Co., Ltd. and Feimazhike, a subsidiary controlled by the Holding after being approved by the 21th meeting of the 9th session of the Board of the Company. The registered capital of Magang Hongfei is RMB100 million with the Company holding 51% of its shares. As of 31 December 2019, the Company has completed investment, and included Magang Hongfei as its controlling subsidiary to the scope of the consolidation.
    Saved as the above, compared with the financial report of previous year, the scope of consolidation of the Company's financial statements did not change.

- 28 -

CONSOLIDATED AND COMPANY'S STATEMENTS OF FINANCIAL POSITION

As at 31 December 2019

Renminbi Yuan

31 December

31 December

31 December

31 December

2019

2018

2019

2018

Notes

Group

Group

Company

Company

ASSETS

CURRENT ASSETS

Cash and bank balances

9,517,313,695

9,762,844,718

3,187,001,428

5,993,538,669

Financial assets held for trading

2,126,112,194

2,084,414,075

3,573,580

-

Trade receivables

4

1,092,930,122

1,121,768,976

3,154,416,565

2,460,866,900

Financing receivables

5

11,098,699,421

4,970,113,847

9,796,502,361

4,692,435,408

Prepayments

6

981,443,575

712,340,548

693,109,995

997,856,384

Other receivables

156,291,851

147,965,534

94,415,995

63,844,132

Inventories

10,947,850,219

11,053,918,748

6,633,161,943

7,108,599,357

Financial assets purchased under

agreements to resell

2,369,966,754

2,432,279,109

-

-

Loans and advances to customers

4,256,415,190

2,845,298,103

-

-

Non-current assets due within

one year

-

101,201,184

-

-

Other current assets

3,975,034,798

3,173,122,975

354,016,165

272,152,842

Total current assets

46,522,057,819

38,405,267,817

23,916,198,032

21,589,293,692

NON-CURRENT ASSETS

Long-term equity investments

3,546,219,668

2,809,063,381

11,477,691,872

10,146,271,956

Other equity instruments

investments

278,576,509

263,122,364

275,508,859

263,122,364

Investment properties

64,697,688

55,804,755

64,570,817

55,593,723

Property, plant and equipment

30,045,743,674

31,545,176,835

22,357,559,485

23,828,190,594

Construction in progress

3,259,704,984

1,662,672,077

2,770,963,397

1,382,508,379

Right-of-use assets

418,879,903

-

368,857,495

-

Intangible assets

1,973,126,962

1,855,265,330

1,088,324,048

987,387,010

Deferred tax assets

213,036,331

275,626,734

125,314,560

192,801,687

Total non-current assets

39,799,985,719

38,466,731,476

38,528,790,533

36,855,875,713

TOTAL ASSETS

86,322,043,538

76,871,999,293

62,444,988,565

58,445,169,405

- 29 -

CONSOLIDATED AND COMPANY'S STATEMENTS OF FINANCIAL POSITION（CONTINUED）

As at 31 December 2019

Renminbi Yuan

31 December

31 December

31 December

31 December

2019

2018

2019

2018

Notes

Group

Group

Company

Company

LIABILITIES AND

SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

Deposits and balances from banks

and other financial institutions

400,031,889

900,366,111

-

-

Customer deposits

10,964,896,002

4,915,309,311

-

-

Repurchase agreements

1,386,580,448

1,133,772,377

-

-

Short-term loans

12,880,053,159

10,917,293,181

10,776,844,475

6,570,000,000

Financial liabilities held for

trading

2,258,750

8,012,670

2,258,750

8,012,670

Notes payable

7

7,313,729,148

2,638,271,437

5,085,093,096

1,022,148,850

Trade payables

8

6,130,327,006

7,703,736,542

7,478,411,251

10,288,909,379

Contract liabilities

3,765,254,551

3,572,594,400

2,455,027,803

2,382,469,502

Payroll and employee benefits

payable

691,976,938

563,642,908

540,612,797

428,093,317

Taxes payable

547,209,418

1,325,517,987

232,319,349

479,009,037

Other payables

4,294,496,279

3,530,746,914

3,793,893,919

2,967,729,141

Non-current liabilities due within

one year

1,677,068,898

1,470,868,462

3,612,706,920

1,345,513,152

Accrued liabilities

22,664,675

29,997,521

-

-

Other current liabilities

-

1,026,897,260

-

1,026,897,260

Total current liabilities

50,076,547,161

39,737,027,081

33,977,168,360

26,518,782,308

NON-CURRENT LIABILITIES

Long-term loans

3,468,200,000

3,596,387,552

4,098,200,000

6,296,387,552

Lease liabilities

411,432,835

-

363,877,690

-

Long-term employee benefits

payable

101,327,703

157,371,474

71,919,779

130,803,630

Deferred revenue

1,402,283,687

1,364,795,555

736,754,692

721,934,242

Deferred tax liabilities

21,500,325

24,066,311

-

-

Total non-current liabilities

5,404,744,550

5,142,620,892

5,270,752,161

7,149,125,424

Total liabilities

55,481,291,711

44,879,647,973

39,247,920,521

33,667,907,732

- 30 -

CONSOLIDATED AND COMPANY'S STATEMENTS OF FINANCIAL POSITION（CONTINUED）

As at 31 December 2019

Renminbi Yuan

31 December

31 December

31 December

31 December

2019

2018

2019

2018

Group

Group

Company

Company

SHAREHOLDERS' EQUITY

Share capital

7,700,681,186

7,700,681,186

7,700,681,186

7,700,681,186

Capital reserve

8,353,499,761

8,352,287,192

8,358,017,477

8,358,017,477

Other comprehensive income

(99,760,804)

(112,702,163)

22,196,339

12,906,467

Special reserve

35,484,176

31,037,123

13,711,365

9,496,082

Surplus reserve

4,651,252,494

4,571,901,256

3,814,465,907

3,735,114,669

General reserve

325,786,322

224,841,404

-

-

Retained earnings

5,966,218,930

7,405,577,274

3,287,995,770

4,961,045,792

Equity attributable to owners of the parent

26,933,162,065

28,173,623,272

Non-controlling interests

3,907,589,762

3,818,728,048

Total shareholders' equity

30,840,751,827

31,992,351,320

23,197,068,044

24,777,261,673

TOTAL LIABILITIES AND

SHAREHOLDERS' EQUITY

86,322,043,538

76,871,999,293

62,444,988,565

58,445,169,405

- 31 -

CONSOLIDATED AND COMPANY'S INCOME STATEMENT

For the year ended 31 December 2019

Renminbi Yuan

Notes

2019

2018

2019

2018

Group

Group

Company

Company

Revenue

10

78,262,846,004

81,951,813,488

64,351,035,109

67,232,862,477

Less: Cost of sales

10

71,315,481,915

69,794,982,119

60,672,829,845

60,301,176,864

Taxes and surcharges

580,515,703

810,322,306

434,407,490

594,037,306

Selling expenses

949,844,233

959,718,246

396,816,540

431,922,944

General and administrative

expenses

2,378,932,727

1,379,991,907

1,921,159,099

977,633,833

R&D expenses

846,472,355

801,240,784

704,163,255

733,213,870

Financial expenses

11

784,811,228

960,457,412

684,401,816

839,073,012

including: interest expense

788,151,024

879,897,330

713,486,648

760,470,881

interest income

79,269,218

54,228,185

78,303,360

69,756,208

Add: Other income

117,373,339

185,350,836

85,785,078

125,182,466

Investment income

815,067,777

1,090,099,779

1,444,663,878

1,783,607,075

including: share of profits of

associates and

joint ventures

575,520,895

657,410,287

560,233,499

654,348,579

gain from

derecognition of

financial assets

measured at

amortized cost

67,796,079

57,877,322

-

-

Gain/(loss) on the changes in

fair value

9,598,445

(10,213,369)

6,945,620

(10,976,670)

Credit impairment losses

(15,592,865)

(41,876,945)

25,141,942

(4,004,617)

Assets Impairment losses

(424,598,573)

(754,443,431)

(862,906,925)

(694,051,720)

(Loss)/gain from disposal of

assets

12

(77,058,351)

371,280,264

251,573,164

267,685,982

Operating profit

1,831,577,615

8,085,297,848

488,459,821

4,823,247,164

Add: Non-operating income

13

469,913,966

160,098,567

370,221,091

158,250,867

Less: Non-operating expenses

14

3,735,871

6,472,487

778,025

3,043,411

Profit before tax

2,297,755,710

8,238,923,928

857,902,887

4,978,454,620

Less: Income tax expenses

15

583,837,841

1,180,935,234

64,390,503

259,515,465

Net profit

1,713,917,869

7,057,988,694

793,512,384

4,718,939,155

- 32 -

CONSOLIDATED AND COMPANY'S INCOME STATEMENT（CONTINUED） For the year ended 31 December 2019

Renminbi Yuan

2019

2018

2019

2018

Group

Group

Company

Company

Categorized by operation continuity

Net profit from continuing operations

1,713,917,869

7,057,988,694

793,512,384

4,718,939,155

Categorized by ownership

Net profit attributable to owners of the

parent

1,128,148,980

5,943,286,585

Net profit attributable to non-controlling

interests

585,768,889

1,114,702,109

Other comprehensive income, net of tax

12,941,359

(20,906,601)

9,289,872

(14,583,847)

Other comprehensive income attributable to

owners of the parent, net of tax

12,941,359

(20,906,601)

Other comprehensive income that will not be

reclassified to profit or loss:

9,340,609

(11,838,378)

9,289,872

(11,838,378)

Changes in fair value of other equity

investments

9,340,609

(11,838,378)

9,289,872

(11,838,378)

Other comprehensive income that may be

reclassified to profit or loss:

3,600,750

(9,068,223)

-

(2,745,469)

Other comprehensive income using the

equity method that may be reclassified

to profit or loss

-

(2,745,469)

-

(2,745,469)

Exchange differences on translation of

foreign operations

3,600,750

(6,322,754)

-

-

Other comprehensive income

attributable to non-controlling

interests, net of tax

-

-

Total comprehensive income

1,726,859,228

7,037,082,093

802,802,256

4,704,355,308

- 33 -

CONSOLIDATED AND COMPANY'S INCOME STATEMENT（CONTINUED）

For the year ended 31 December 2019

Renminbi Yuan

Notes

2019

2018

2019

2018

Group

Group

Company

Company

Attributable to:

Owners of the parent

1,141,090,339

5,922,379,984

Non-controlling interests

585,768,889

1,114,702,109

EARNINGS PER SHARE:

Basic earnings per share

(cent/share)

16

14.65 cents

77.18 cents

Diluted earnings per share

(cent/share)

16

14.65 cents

77.18 cents

- 34 -

- 35 -

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2019

Renminbi Yuan

2019

Attributable to owners of the parent

Non-

Total

Other

Share

Capital

comprehensive

Special

Surplus

General

Retained

controlling

shareholders'

capital

reserve

income

reserve

reserve

reserve

earnings

Sub-total

interests

equity

1.

Balance at the end of previous year

7,700,681,186

8,352,287,192

(112,702,163)

31,037,123

4,571,901,256

224,841,404

7,405,577,274

28,173,623,272

3,818,728,048

31,992,351,320

1) Changes in accounting policies

-

-

-

-

-

-

-

-

-

-

2.

Balance at the beginning of the year

7,700,681,186

8,352,287,192

(112,702,163)

31,037,123

4,571,901,256

224,841,404

7,405,577,274

28,173,623,272

3,818,728,048

31,992,351,320

3.

Increase/(decrease) during the year

-

-

12,941,359

-

-

-

1,128,148,980

1,141,090,339

585,768,889

1,726,859,228

1) Total comprehensive income

  1. Shareholders' contributions and reduction in capital

(i)

Capital contributions by shareholders

-

-

-

-

-

-

-

-

58,375,000

58,375,000

(ii)

Acquisition of non-controlling

-

1,212,569

-

-

-

-

-

1,212,569

(14,270,769)

(13,058,200)

interests

3) Profits appropriation

-

-

-

-

79,351,238

-

(79,351,238)

-

-

-

(i)

Transfer to surplus reserve

(ii)

Transfer to general reserve

-

-

-

-

-

100,944,918

(100,944,918)

-

-

-

(iii)

Distribution to shareholders

-

-

-

-

-

-

(2,387,211,168) (2,387,211,168)

(539,403,487) (2,926,614,655)

4) Special reserve

-

-

-

123,900,345

-

-

-

123,900,345

11,467,106

135,367,451

(i)

Additions

(ii)

Utilisation

-

-

-

(123,668,575)

-

-

-

(123,668,575)

(13,075,025)

(136,743,600)

(iii)

Changes in the share of associates and

-

-

-

4,215,283

-

-

-

4,215,283

-

4,215,283

joint ventures' special reserve, net

4. Balance at the end of the year

7,700,681,186

8,353,499,761

(99,760,804)

35,484,176

4,651,252,494

325,786,322

5,966,218,930

26,933,162,065

3,907,589,762

30,840,751,827

- 36 -

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)

For the year ended 31 December 2019

Renminbi Yuan

2018

Attributable to owners of the parent

Non-

Total

Other

Share

Capital

comprehensive

Special

Surplus

General

Retained

controlling

shareholders'

capital

reserve

income

reserve

reserve

reserve

earnings

Sub-total

interests

equity

1. Balance at the end of previous year

7,700,681,186

8,352,287,192

(124,156,060)

31,929,722

4,100,007,341

191,546,668

3,643,443,763

23,895,739,812

3,341,524,501

27,237,264,313

1)

Changes in accounting policies

-

-

32,360,498

-

-

-

(20,317,968)

12,042,530

(7,887,756)

4,154,774

2. Balance at the beginning of the year

7,700,681,186

8,352,287,192

(91,795,562)

31,929,722

4,100,007,341

191,546,668

3,623,125,795

23,907,782,342

3,333,636,745

27,241,419,087

3. Increase/(decrease) during the year

1)

Total comprehensive income

-

-

(20,906,601)

-

-

-

5,943,286,585

5,922,379,984

1,114,702,109

7,037,082,093

2)

Shareholders' contributions and reduction

in capital

(i) Capital contributions by shareholders

-

-

-

-

-

-

-

-

5,625,000

5,625,000

(ii)

Disposal of subsidiaries

-

-

-

-

-

-

-

-

(33,622,763)

(33,622,763)

3)

Profits appropriation

(i) Transfer to surplus reserve

-

-

-

-

471,893,915

-

(471,893,915)

-

-

-

(ii)

Transfer to general reserve

-

-

-

-

-

33,294,736

(33,294,736)

-

-

-

(iii)

Distribution to shareholders

-

-

-

-

-

-

(1,655,646,455)

(1,655,646,455)

(599,962,724)

(2,255,609,179)

4)

Special reserve

(i)

Additions

-

-

-

111,418,123

-

-

-

111,418,123

13,344,579

124,762,702

(ii)

Utilisation

-

-

-

(114,169,275)

-

-

-

(114,169,275)

(14,994,898)

(129,164,173)

(iii) Changes in the share of associates and

joint ventures' special reserve, net

-

-

-

1,858,553

-

-

-

1,858,553

-

1,858,553

4. Balance at the end of the year

7,700,681,186

8,352,287,192

(112,702,163)

31,037,123

4,571,901,256

224,841,404

7,405,577,274

28,173,623,272

3,818,728,048

31,992,351,320

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2019

Renminbi Yuan

2019

2018

1.Cash flows from operating activities

Cash received from sale of goods and rendering of services

85,381,943,471

88,099,085,582

Tax refunds received

39,778,743

89,627,633

Net decrease in deposits in central bank

270,559,928

-

Net increase in repurchase agreements

252,808,071

825,671,421

Net decrease in financial assets purchased under agreements to resell

63,112,150

-

Net increase in customer deposits and balances from banks and other

financial institutions

5,549,252,469

2,668,035,812

Cash received for interest charges, fees and commissions

237,844,273

155,169,236

Cash received relating to other operating activities

583,464,714

352,495,095

Sub-total of cash inflows

92,378,763,819

92,190,084,779

Cash paid for purchases of goods and services

(73,614,093,642)

(65,851,612,316)

Net increase in deposits in central bank

-

(272,649,256)

Net increase in financial assets purchased under agreements to resell

-

(1,228,499,181)

Net increase in loans and advances to customers

(1,445,182,560)

(1,639,933,298)

Cash paid to or on behalf of employees

(5,624,533,684)

(4,812,499,475)

Taxes and surcharges paid

(2,835,616,971)

(3,999,110,989)

Cash paid for interest charges, fees and commissions

(115,077,983)

(72,592,692)

Cash paid relating to other operating activities

(878,301,855)

(442,757,466)

Sub-total of cash outflows

(84,512,806,695)

(78,319,654,673)

Net cash flows from operating activities

7,865,957,124

13,870,430,106

2.Cash flows from investing activities

Cash received from disposal of investments

45,901,020,088

55,669,149,428

Cash received from investment income

273,187,446

336,315,552

Proceeds from disposal of items of property, plant and equipment,

intangible assets, and other non-current assets

73,150,394

303,112,930

Cash received relating to other investing activities

-

131,408,596

Sub-total of cash inflows

46,247,357,928

56,439,986,506

- 37 -

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

For the year ended 31 December 2019

Renminbi Yuan

2019

2018

2.Cash flows from investing activities (continued)

Purchases of property, plant and equipment, intangible assets and other

non-current assets

(4,851,962,970)

(2,572,133,839)

Cash paid for investments

(46,128,478,911)

(57,685,087,518)

Acquisition of non-controlling interests

(13,058,200)

-

Cash paid relating to other investing activities

(47,067,231)

(194,468,349)

Sub-total of cash outflows

(51,040,567,312)

(60,451,689,706)

Net cash flows used in investing activities

(4,793,209,384)

(4,011,703,200)

3.Cash flows from financing activities

Cash received from borrowings

17,391,616,546

16,920,506,859

Cash received from bond issuance

-

1,000,000,000

Cash received from investors

58,375,000

5,625,000

Including: capital injection from a subsidiary's non-controlling interests

58,375,000

5,625,000

Sub-total of cash inflows

17,449,991,546

17,926,131,859

Repayment of borrowings

(16,279,489,866)

(20,778,250,231)

Cash paid for distribution of dividends or profits and for interest

expenses

(3,771,643,051)

(3,175,196,250)

Including: dividends or profits paid to non-controlling interests by

subsidiaries

(539,063,187)

(602,443,934)

Cash paid relating to other financing activities

(221,551,502)

-

Sub-total of cash outflows

(20,272,684,419)

(23,953,446,481)

Net cash flows used in financing activities

(2,822,692,873)

(6,027,314,622)

4.Effect of foreign exchange rate changes on cash and cash equivalents

55,419,991

162,261,477

5.Net increase in cash and cash equivalents

305,474,858

3,993,673,761

Add: cash and cash equivalents at the beginning of the year

6,934,175,776

2,940,502,015

6.Cash and cash equivalents at the end of the year

7,239,650,634

6,934,175,776

- 38 -

NOTES TO FINANCIAL STATEMENTS

As at 31 December 2019

Renminbi Yuan

1. SIGNIFICANT ACCOUNTING POLICIES

  1. Basis of preparation
    The financial statements are prepared in accordance with "China Accounting Standards for Business Enterprises - General Principles" and other issued application guidance, interpretations and other related regulations issued later (collectively known as the "CAS").
    The financial statements are prepared on a going concern basis.
    As of 31 December 2019, the net current liabilities of the Group amounted to RMB3,554,489,342. The directors of the Company have considered the availability of funding sources, including but not limited to an unutilised banking facilities of RMB22.2 billion as at 31 December 2019 and the expected cash inflows from the operating activities in the upcoming 12 months. The board of directors of the Company believes that the Group has sufficient working capital to continue as a going concern for not less than 12 months after the end of reporting period. Therefore, the board of directors of the Company continues to prepare the Group's financial statements for the year ended 31 December 2019 on a going concern basis.
    The financial statements have been prepared under the historical cost convention, except for certain financial instruments which have been measured at fair value. Assets classified as held for sale are disclosed at the lower of carrying amount and fair value less costs to disposal on the date of classification. Provision for asset impairment is provided in accordance with related regulations.
  2. Statement of compliance with the CAS
    The financial statements have been prepared in accordance with the CAS, and present truly and completely the financial position of the Company and the Group as of 31 December 2019, and the results of their operations and cash flows for the year ended 31 December 2019.

- 39 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

1.3 Changes in accounting policies New Leases Standard

In 2018, the Ministry of Finance promulgated the revised "Accounting Standards for Business Enterprises No. 21 - Leases" (New Leases Standard). The New Leases Standard introduces a single model similar to the current accounting treatment of finance leases, requiring the lessee to recognise right-of-use assets and lease liabilities for all the leases, except for short- term leases and leases of low-value assets, and recognise depreciation and interest expense, respectively. The Group has accounted for leases under the New Leases Standard since 1 January 2019 and the Group did not reassess whether a contract is, or contains, a lease at the date of initial application for the contracts existed prior to the initial application date. According to the transitional requirements, the Group did not restate comparative information. Instead, the Group recognised the cumulative effect of the initial application of the New Leases Standard as an adjustment to the opening balance of retained earnings of 2019 at the date of initial application:

  1. the Group recognised the right-of-use asset and the lease liabilities at the amount of the carrying amount of the lease asset and lease liability under the original standards applicable at the date of initial application for leases previously classified as finance leases;
  2. for leases previously classified as operating leases, the Group recognised lease liabilities based on the present value of the remaining lease payments discounted at the incremental borrowing rate at the date of initial application, and measured right-of-use assets based on the amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously recognised; and
  3. the Group has performed impairment test for right-of-use assets and accounted for the impairment correspondingly

For operating leases of low-value assets and operating leases for which the lease term ends within 12 months before initial application, the Group applied a simplified approach and did not recognise the right-of-use assets and lease liabilities. For leases previously classified as operating leases, the Group also applied the available practical expedients wherein it:

- 40 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

  1. applied a single discount rate to a portfolio of leases with reasonably similar characteristics; and excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application;
  2. used hindsight in determining the lease term where the contract contained options to extend or terminate the lease;
  3. relied on its assessment of whether leases are onerous contracts before the date of initial application as an alternative to performing an impairment review, and adjusted the right-of-use assets at the date of initial application by the amount of any provision for onerous leases recognised in the balance sheet immediately before the date of initial application; and
  4. accounted for the changes in leases before the date of initial application based on the final arrangement for such changes.

The Group reconciled the outstanding minimum lease payments for significant operating leases disclosed in 2018 financial statements with lease liabilities included in the balance sheet as at 1 January 2019 based on the present value of the minimum lease payments discounted using the incremental borrowing rate of the Group as the lessee as at 1 January 2019 as follows:

Minimum lease payments for significant operating leases as at 31 December 2018

Plus: payments for optional extension periods not recognised as at 31 December 2018

Weighted average incremental borrowing rate

Lease liabilities as at 1 January 2019 (including lease liabilities due within one year)

955,544

692,343,252

693,298,796

4.95%

443,424,793

- 41 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

The effect of implementation of the New Leases Standard on the balance sheet as at 1 January 2019 is as follows:

Consolidated balance sheet

Under the

Carrying

original

amount

standard

Effect

Right-of-use assets

443,424,793

-

443,424,793

Lease liabilities

427,657,812

-

427,657,812

Lease liabilities due within one year

15,766,981

-

15,766,981

Company balance sheet

Under the

Carrying

original

amount

standard

Effect

Right-of-use assets

388,795,738

-

388,795,738

Lease liabilities

376,644,378

-

376,644,378

Lease liabilities due within one year

12,151,360

-

12,151,360

The effect of implementation of the New Leases Standard on the financial statements for the year ended 31 December 2019 is as follows:

Consolidated balance sheet

Under the

Carrying

original

amount

standard

Effect

Right-of-use assets

418,879,903

-

418,879,903

Lease liabilities

411,432,835

-

411,432,835

Lease liabilities due within one year

16,261,266

-

16,261,266

- 42 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

Consolidated income statement

Under the

Carrying

original

amount

standard

Effect

Cost of sales

1,730,834

2,166,334

(435,500)

Selling expenses

211,723

437,029

(225,306)

General and administrative expenses

22,545,909

34,610,229

(12,064,320)

Finance expenses

21,539,323

-

21,539,323

Company balance sheet

Under the

Carrying

original

amount

standard

Effect

Right-of-use assets

368,857,495

-

368,857,495

Lease liabilities

363,877,690

-

363,877,690

Lease liabilities due within one year

12,766,688

-

12,766,688

Company income statement

Under the

Carrying

original

amount

standard

Effect

General and administrative expenses

19,938,243

31,123,524

(11,185,281)

Finance expenses

18,972,164

-

18,972,164

In addition, the cash paid by the Group for repayment of the principal and interest of the lease liability is included in the statement of cash flows as cash outflows from financing activities, and the payments for short-term leases and leases of low-value assets accounted for using the practical expedients and variable lease payments not included in the measurement of the lease liability are still included in cash outflows from operating activities

- 43 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

Changes in Financial Statements Format

To meet the requirements of the Notice on Revising and Issuing Format of 2019 Financial Statements for General Business Enterprises (Cai Kuai [2019] No.6) and the Notice on Revising and Issuing Format of Consolidated Financial Statements (2019 edition) (Cai Kuai [2019] No.16), in the balance sheet, the amount previously presented in "notes and trade receivable" shall be presented separately in "notes receivable" and "trade receivable"; the amount previously presented in "notes and trade payables" shall be presented separately in "notes payable" and "accounts payable"; the notes at fair value through other comprehensive income previously presented in "other current assets" are separately presented in "financing receivables"; the "interests receivable" in "other receivables" is changed to reflect only the outstanding interests on financial instruments that expired and can be collected at the balance sheet date (the interests on the financial instrument accrued using the effective interest method are included in the outstanding amount of the corresponding financial instrument); the "interests payable" in "other payables" is changed to reflect only the outstanding interests on financial instruments that expired and should be paid at the balance sheet date (the interests on the financial instrument accrued using the effective interest method are included in the outstanding amount of the corresponding financial instrument). The Group has retrospectively adjusted the comparative amounts correspondingly. The changes in accounting policies have had no impact on the net profit and equity in the consolidated and company financial statements.

- 44 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

The main impacts of retrospective adjustments caused by the above changes in accounting policies are as follows:

The Group

Changes in accounting policies

Before

Other

After

changes

Effect

changes in

changes

Closing

of the

presentation

Opening

balance for

New Leases

of financial

balance for

2018

Standard

statements

2019

Assets:

Trade receivables

-

-

1,121,768,976

1,121,768,976

Financing receivables

-

-

4,970,113,847

4,970,113,847

Notes and trade receivables

6,091,882,823

-

(6,091,882,823)

-

Right-of-use assets

-

443,424,793

-

443,424,793

Liabilities:

Notes payable

-

-

2,638,271,437

2,638,271,437

Trade payables

-

-

7,703,736,542

7,703,736,542

Notes and trade payables

10,342,007,979

-

(10,342,007,979)

-

Lease liabilities

-

427,657,812

-

427,657,812

Non-current liabilities due

within one year

-

15,766,981

-

15,766,981

- 45 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

The Company

Changes in accounting policies

Before

Other

Before

changes

Effect

changes in

changes

Closing

of the

presentation

Opening

balance for

New Leases

of financial

balance for

2018

Standard

statements

2019

Assets:

Trade receivables

-

-

2,460,866,900

2,460,866,900

Financing receivables

-

-

4,692,435,408

4,692,435,408

Notes and trade receivables

7,153,302,308

-

(7,153,302,308)

-

Right-of-use assets

-

388,795,738

-

388,795,738

Liabilities:

Notes payable

-

-

1,022,148,850

1,022,148,850

Trade payables

-

-

10,288,909,379

10,288,909,379

Notes and trade payables

11,311,058,229

-

(11,311,058,229)

-

Lease liabilities

-

376,644,378

-

376,644,378

Non-current liabilities due

within one year

-

12,151,360

-

12,151,360

- 46 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

2. SCOPE OF CONSOLIDATION

As of 31 December 2019, the Company established the following subsidiary, and has included it in the scope of consolidation since then.

Capital paid

Date of

Registered

Percentage

Investment

as of the

establishment

capital

of equity

form

year end

Masteel Hongfei Electricity Power Co.,Ltd.

(Note)

June 2019

RMB100,000,000

51%

Cash

RMB51,000,000

Note: On 12 June 2019, upon the approval by the 21st meeting of the 9th Board of Directors of the Company, the Company established Masteel Hongfei Electricity Power Co., Ltd. ("Masteel Hongfei") together with Anhui Hongfei New Energy Technology Co., Ltd. and Feimazhike Automation and Information Technology Co., Ltd., which is a subsidiary of the Holding. The registered capital of Masteel Hongfei is RMB100 million and the Company holds 51% of its equity interest. As of 31 December 2019, the Company has completed capital injection and included it in the scope of consolidation.

3. OPERATING SEGMENT INFORMATION Operating segments

The Group divides the operation services into two operating segments which are determined based on the internal organization structure, management requirements and internal reporting system:

  • Production and sale of iron and steel products and related by-products: the Company and its subsidiaries except for Masteel Finance
  • Financial service: Masteel Finance

The Group did not consider financial service as an individual reportable segment, as Masteel Finance mainly offers financial service to internal companies. Therefore, the Group focuses on the production and sale of iron and steel products and by-products, and it is unnecessary for the Group to disclose more detailed information.

- 47 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

Other information

Product and service information

External principal operating income

2019

2018

Sale of steel products

69,168,676,112

74,107,142,467

Sale of steel billets and pig iron

2,590,852,101

2,088,810,111

Sale of coke by-products

43,710,671

933,738,098

Others

5,355,010,744

3,783,555,349

77,158,249,628

80,913,246,025

Geographical information

External principal operating income

2019

2018

Mainland China

72,555,885,543

75,648,970,094

Overseas and Hong Kong

4,602,364,085

5,264,275,931

77,158,249,628

80,913,246,025

Non-current assets

31 December

31 December

2019

2018

Mainland China

39,090,556,947

37,608,891,886

Overseas and Hong Kong

217,815,932

319,090,492

39,308,372,879

37,927,982,378

- 48 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

The non-current assets information above is based on the locations of the assets and excludes financial assets and deferred tax assets.

Major customer information

The Group had not placed reliance on any single external customer which accounted for 10% or more of its total revenue.

4. TRADE RECEIVABLES

The Group's trade receivables were interest-free with normal credit terms of 30 to 90 days.

The ageing of trade receivables, based on the invoice date, is analyzed below:

31 December

31 December

2019

2018

Within one year

1,076,796,471

1,090,345,962

One to two years

14,798,803

31,834,919

Two to three years

26,523,395

26,792,202

Over three years

27,217,799

45,506,589

1,145,336,468

1,194,479,672

Less: Provisions for bad debts

52,406,346

72,710,696

1,092,930,122

1,121,768,976

In 2019, there were no trade receivables that had been written off (2018: Nil).

As of 31 December 2019 and 2018, there was no trade receivables that were derecognized due to the transfer of financial assets.

As of 31 December 2019 and 2018, the Group had no assets or liabilities deriving from transferring trade receivables in which the Group is continuingly involved.

- 49 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

5. FINANCING RECEIVABLES

31 December

31 December

2019

2018

Bank acceptance notes

11,097,821,345

4,970,113,847

Commercial acceptance notes

878,076

-

11,098,699,421

4,970,113,847

As of 31 December 2019, the Group pledged the bank acceptance notes of RMB4,470,011,632 (31 December 2018: Nil) to issue notes payable and the bank acceptance notes of RMB127,316,634 (31 December 2018: Nil) to pledge for the short-term loan.

The undue notes discounted or endorsed were as follows：

31 December 2019

31 December 2018

Derecognized

Not derecognized

Derecognized

Not derecognized

Bank acceptance notes

2,076,771,934

127,789,539

7,398,304,418

159,713,509

As of 31 December 2019 and 2018, there were no trade receivable transferred from notes receivable because of the drawers' inability to pay.

The Group derecognized notes receivable discounted to financial institutions amounting to RMB4,189,003,767 (2018: RMB119,530,190), and recognized discount expense amounting to RMB49,959,470 (2018: RMB2,083,991).

- 50 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

6. PREPAYMENTS

An ageing analysis of the prepayments is as follows:

31 December 2019

31 December 2018

Book value

Ratio (%)

Book value

Ratio (%)

Within one year

946,842,275

96

696,694,164

98

One to two years

27,222,230

3

5,422,942

1

Two to three years

88,508

-

385,515

-

Over three years

7,290,562

1

9,837,927

1

981,443,575

100

712,340,548

100

Prepayments aged over one year were mainly unsettled prepayments for the materials and spare parts purchase. The goods were not yet delivered which resulted in the corresponding prepayments not being settled.

7. NOTES PAYABLE

31 December

31 December

2019

2018

Bank acceptance notes

7,313,729,148

2,638,271,437

As of 31 December 2019 and 2018, the ageing of the Group's notes payable was all within six months, and there were no overdue notes.

- 51 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

8. TRADE PAYABLES

The trade payables are interest-free and are normally settled within three months. The ageing analysis of trade payables, based on the invoice date, is as follows:

31 December

31 December

2019

2018

Within one year

5,994,021,801

7,551,105,922

One to two years

114,525,131

39,150,817

Two to three years

10,584,079

22,709,232

Over three years

11,195,995

90,770,571

6,130,327,006

7,703,736,542

9. DIVIDENDS

According to the "2018 Annual Profit Distribution Plan" approved by the Company's 2018 Annual General Meeting on 12 June 2019, the Company would distribute dividends to all shareholders at RMB0.31 per share (tax included) (2018: RMB0.215 per share), for 7,780,681,186 shares amounting to RMB2,387,211,168 (2018: RMB1,655,646,455). The dividends had been paid in 2019 and was included in the financial statements.

On 30 March 2020, the 30th meeting of the 9th board of the Company approved the 2019 final cash dividend of RMB0.08 (tax included) per share to shareholders, for 7,700,681,186 shares amounting to RMB616,054,495. The profit distribution plan will be submitted for approval in the annual shareholders' meeting of the Company. Before the approval of the 2019 final dividend, the dividend will not be the liabilities of the Company and therefore was not included in the current year's financial statements.

- 52 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

10. REVENUE AND COST OF SALES

2019

2018

Revenue

Cost of sales

Revenue

Cost of sales

Principal operating income

77,158,249,628

70,327,320,806

80,913,246,025

68,957,076,057

Other operating income

1,104,596,376

988,161,109

1,038,567,463

837,906,062

78,262,846,004

71,315,481,915

81,951,813,488

69,794,982,119

Revenue is presented as follows:

2019

2018

Revenue from contracts with customers

78,021,403,864

81,791,852,460

Rental income

3,847,825

11,182,578

Interest income

237,594,315

148,778,450

78,262,846,004

81,951,813,488

Timing of revenue recognition from contracts with customers：

2019

2018

At a point in time

Sale of steel products

71,759,528,213

76,195,952,578

Sale of other products

5,995,406,150

5,341,091,143

Over time

Processing

160,134,559

133,062,594

Agency commission

22,590,195

69,777,068

Packaging services

53,978,920

49,322,771

Others

29,765,827

2,646,306

78,021,403,864

81,791,852,460

- 53 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

Revenue recognised that was included in contract liabilities at the beginning of the year:

2019 2018

Revenue

3,543,085,084 3,800,847,781

The amounts of transaction prices allocated to the remaining performance obligations (unsatisfied or partially unsatisfied) at the year end is expected to be recognised as revenue as follows

2019 2018

Within one year

3,765,254,551 3,572,594,400

Note: For sales of products, the Group satisfies a performance obligation when customer obtained the control of the relevant products, and for provide of services, the Group satisfies a performance obligation based on performance progress over the contract period. The maturity on contract payment of the Group is 30 to 90 days, without existence of significant financing component. The contracts between the Group and its certain customers containing sales rebate arrangements (future price reductions based on cumulative sales volumes), which forms a variable consideration. The Group determines the variable consideration based on the expected or the most probable value. However, the sales price including variable considerations should not exceed the amount accumulatively recognized which is not likely to be significantly reversed when the uncertainty disappears.

11. FINANCIAL EXPENSES

2019

2018

Interest expenses (Note)

788,151,024

879,897,330

Less: interest income

79,269,218

54,228,185

Less: capitalized interest

-

-

Exchange loss

42,953,057

99,590,860

Others

32,976,365

35,197,407

784,811,228

960,457,412

Note: The Group's interest expenses included interest on bank loans, lease liabilities and short- term financing bonds.

- 54 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

12. (LOSS)/GAIN FROM DISPOSAL OF ASSETS

2019

2018

(Loss)/gain on disposal of fixed assets

(77,442,073)

247,721,113

Gain on disposal of intangible assets

383,722

123,559,151

(77,058,351)

371,280,264

13. NON-OPERATING INCOME

Included

in 2019

non-recurring

gains and

2019

2018

losses

Government grants not related

to the ordinary course of

business

462,733,716

154,659,733

462,733,716

Others

7,180,250

5,438,834

7,180,250

469,913,966

160,098,567

469,913,966

The government grants not related to the ordinary course of business are as follows:

2019

2018

Employees stabilization allowance

179,977,500

-

Compensation for settlement of employees

175,955,283

154,659,733

Grants for reduction of overcapacity

95,885,000

-

Compensation for "Three Supplies and Property

Management"(" 三 供 一 業")

10,705,600

-

Others

210,333

-

462,733,716

154,659,733

- 55 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

14. NON-OPERATING EXPENSES

Included

in 2019

non-recurring

gains and

2019

2018

losses

Charity donation

609,449

1,130,050

609,449

Penalty expenditure

864,215

1,567,787

864,215

Compensation for sales

1,103,530

1,561,587

1,103,530

Others

1,158,677

2,213,063

1,158,677

3,735,871

6,472,487

3,735,871

15. INCOME TAX EXPENSES

2019

2018

Mainland China current income tax expense

504,353,061

949,175,391

Hong Kong current income tax expense

8,519,080

9,399,676

Overseas current income tax expense

14,054,819

29,528,238

Deferred tax expense

56,910,881

192,831,929

583,837,841

1,180,935,234

- 56 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

Reconciliation between income tax expenses and profit before tax is as follows:

2019

2018

Profit before tax

2,297,755,710

8,238,923,928

Tax at the applicable tax rate of 25% (Note)

574,438,928

2,059,730,982

Effect of different tax rates of some subsidiaries

(6,325,547)

(12,950,204)

Non-deductible expenses

24,823,810

122,878,020

Other tax preference

(132,030,610)

(112,104,563)

Income not subject to tax

(9,677,236)

(73,555,483)

Unrecognized deductible temporary difference

and tax losses

300,068,716

365,585,000

Utilised previous years' tax losses

(25,572,453)

(1,004,295,946)

Share of profit and loss of joint ventures and

associates

(141,887,767)

(164,352,572)

Tax charge at the Group's effective rate

583,837,841

1,180,935,234

The Group's effective rate

25%

14%

Note: The Group's income tax has been provided at the rate on the estimated taxable profits arising in the PRC during the period. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries or regions in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

- 57 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

16. EARNINGS PER SHARE

2019

2018

cent/share

cent/share

Basic earnings per share

Continuing operations

14.65

77.18

Diluted earnings per share

Continuing operations

14.65

77.18

Basic earnings per share shall be calculated by dividing profit attributable to owners of the parent (the numerator) by the weighted average number of ordinary shares in issue (the denominator). During the year of 2019 and 2018, the Company did not have any dilutive items that should adjust the basic earnings per share.

The calculations of the basic earnings per share amounts are based on:

2019

2018

Earnings

Profit attributable to owners of the parent

Continuing operations

1,128,148,980

5,943,286,585

Number of shares

Weighted average number of ordinary shares

in issue during the year

7,700,681,186

7,700,681,186

- 58 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

17. CONTINGENT EVENTS Difference of corporate income tax

The State Administration of Taxation issued "The notice of income tax collection and management on Shanghai Petrochemical Company Limited and other eight companies listed overseas corporation" (Guo Shui Han [2007] No. 664) in June 2007, with stated claims that the relevant local tax bureaus must correct immediately the expired tax incentives of the nine overseas listed companies. The income tax difference between the results of the previously expired preferential rate and the applicable rate should be treated in accordance with the relevant provisions of the "People's Republic of China Administration of Tax Collection Law".

The Company was one of the nine companies mentioned above and used a 15% preferential tax rate in the previous period. After understanding the above information, the Company and the tax authorities issued a comprehensive communication and according to the tax authorities, the applicable corporate income tax rate in 2007 was 33%, which was adjusted from the original 15%. The Company had not been recovered prior period income tax differences.

Based on the comprehensive communication between the Company and the tax authorities, the director of the Company believed that it is uncertain whether the tax authorities will recover the difference between the previous period's income tax at this stage, and the final result of this matter cannot be estimated reliably. Therefore, the financial statements have not made any provision or adjustments related to the income tax differences.

Pending litigation

As of 31 December 2019, the Group and the Company did not have significant pending litigation.

- 59 -

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

As at 31 December 2019

Renminbi Yuan

18. EVENTS AFTER THE BALANCE SHEET DATE

On 30 March 2020, the 30th meeting of the 9th board of the Company approved the 2019 final cash dividend of RMB0.08 (tax included) per share to shareholders. The profit distribution plan will be submitted for approval in the annual shareholders' meeting.

Since the outbreak of novel coronavirus (COVID-19) continues to spread throughout China and to countries across the world in January 2020, the epidemic preventive measures has been going on through the country. The Group will implement the relevant measures and strengthen the support for the prevention and control of the epidemic. The Group will monitor the developments of COVID-19 situation closely, assess and react actively to its impacts on the financial position and operating results of the Group. Up to the date of the announcement, the assessment is still in progress.

Apart from above, as of the date of the announcement, the Group had no other significant events after the balance sheet date that need to be disclosed.

By order of the Board

Maanshan Iron & Steel Company Limited

Ding Yi

Chairman

30 March 2020

Maanshan City, Anhui Province, the PRC

As at the date of this announcement, the directors of the Company include executive directors Ding Yi, Wang Qiangmin, Ren Tianbao and Zhang Wenyang; non-executive director Qian Haifan; and independent non-executive directors Zhang Chunxia, Zhu Shaofang asnd Wang Xianzhu.

- 60 -

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Maanshan Iron & Steel Company Limited published this content on 31 March 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 31 March 2020 01:52:02 UTC