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Dear Shareholder,

I would like to thank you for your ongoing support and am pleased to announce that APAC Resources generated a net profit of HK$328,115,000 in the twelve months ended 30 June 2018 (“FY 2018”). This was partly driven by gains arising from share of results of associates of HK$179,130,000, and a reversal of impairment loss on the carrying value of the Group’s investment in Mount Gibson Iron Limited of HK$67,506,000. However, most importantly, our core business segments also contributed a profit of HK$105,551,000.


The past twelve months have, as usual, been a volatile period for commodity prices. Earlier in FY 2018, commodity prices rallied on the back of steady global growth. The US economy was strong, and China appeared to be maintaining its growth trajectory, overcoming earlier concerns that environmental reforms and attempts to reduce corporate debt would slow the economy.


However in June, the escalating “Trade War” between China and US intensified, with markets concerned that tariffs from both countries would reverse the global growth trajectory. Metals, specifically base metals and precious metals, have sold off heavily, and energy has also been weaker. Both China and US have applied tariffs or taxes on US$50 billion of US and Chinese goods respectively. In late August, talks between the US and China resumed, although there does not appear to be much progress at the time of writing, with the US threatening tariffs on an additional US$200 billion of Chinese imports and China ready to levy taxes on additional US$60 billion of US goods.


Weakening emerging markets are also adding to global uncertainty as certain emerging market economies and currencies are impacted by rising US interest rates which have supported the US dollar. The countries most at risk are generally those with large current account deficits and high levels of external debt, namely Turkey, Argentina, South Africa and Indonesia, amongst others. While the issues seem to be isolated to individual economies for now, we cannot rule out contagion and its impact on global growth.


China appears to be committed to its plan to deleverage so as long as the economy is robust enough although the private Caixin PMI numbers have been trending down over the past twelve months. We believe the impact of the tariffs has yet to fully play out, however China has announced its intention to support the economy through fiscal stimulus if required. Stimulus could include tax cuts, infrastructure spending, and encouraging lending. The timing and size of stimulus has not yet been disclosed, but China has cut bank’s Reserve Requirement Ratio (RRR) three times in 2018. Looking forward, we expect commodity prices to be driven by the Trade War and any offset from potential Chinese stimulus.


Other geopolitical issues remain in flux. The NAFTA negotiations seem to be coming to an end, with an agreement reached between Mexico and the US foreshadowing a potential deal with Canada. North Korean and US relations have been out of the spotlight in recent months, although the progress on North Korean denuclearization is unclear. Sentiment in the UK is poor as it is struggling to finalise a deal on Brexit before it leaves the EU in March 2019.


In August 2016, we announced the creation of two new investment portfolios, one to focus on energy and the other focused on mining. These portfolios form a new platform for the company’s ongoing commitment and investment in the Resource Investment segment.


It is our long held belief that Shareholders should receive a return, and given strong results in our core business segments and the share of results of associates, we are pleased to declare an interim dividend of HK6 cents per share for FY 2018. We will continue to reassess our dividend policy based on our expectations of the economic outlook. As ever, I would like to thank you all for your continued faith in APAC Resources.

Andrew Ferguson

Chief Executive Officer

21 September 2018
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