# I. DISCUSSION AND ANALYSIS ON THE OPERATIONS

In 2018, the macro economy basically maintained a stable and positive development trend, while the coal production and economy were in a good state of operation, industry concentration was further improved. The supply and demand in the domestic coal market were booming and balanced as well in general. The supply-side reform drove a continual rise of coal price and better profitability of the industry. Based on its existing strategic development goals, the Company was effectively responsive to market changes for the purpose of advancing its continuous high-quality development.

As of the end of the reporting period, the Company recorded a total asset of RMB94.551 billion, a revenue of RMB38.017 billion in 2018 and a net profit attributable to owners of the parent company of RMB4.194 billion.

# (I) Coal sector

During the reporting period, the Company has realized production of commodity coal of 47.69 million tonnes and sales of coal of 85.99 million tonnes.

# 1. Coal production

During the reporting period, the Company completed the optimization and promotion of new processes and new technologies, improved the recovery rate and maximized economic benefits. Meanwhile, the Company focused on deliberating on the coal refining plans for all coal mines and coal washing plants, assisted the reform of production system, diversified the type of commodity coal, and increased lump coal rate, thereby achieving coal refining, cost reduction and efficiency enhancement.

# 2. Coal transportation and sales

In 2018, the Company strengthened marketing for coal. On the basis of enhancing the key contracted users, the Company brought its sale pace under control through sub-division of coal type, combination of futures and spot, direct supply of orders, container distribution and other new trade modes, optimizing its client structure and gradually releasing new driving forces.

# (II) Railway sector

In 2018, as driven by the strategy of transportation-sale integration, the Company seized the new opportunities brought by the reform of railway cargo settlement, strengthened the coordination of transportation with sales and storage & shipment management to improve the turnover rate; and established the Gonggou Shipment Station and increased supply. During the reporting period, Zhundong Railway Company and Huzhun Railway Company dispatched 74.20 million tonnes and 32.15 million tonnes of coal, respectively. The traffic volume through the Company’s self-operated railways first exceeded 100 million tonnes with a profit of RMB667 million achieved.

# I. DISCUSSION AND ANALYSIS ON THE OPERATIONS (Continued)

# (III)Coal-to-chemicals sector

The layout of coal-to-chemicals industry is an important strategic move for the Company to extend its industrial chain, achieve transformation and upgrading and enhance its core competitiveness. The “13th Five-Year Plan for Energy Development” clearly states that the pace of development should be rationally controlled, technological innovation and market risk assessment should be strengthened, the conditions for environmental protection accession should be strictly implemented, the deep processing of coal should be developed in order, the upgrading of coal-to-fuel, coal-to-olefin production and other demonstrations should be steadily promoted and the competitiveness and risk-resistance of the project should be enhanced according to the orientation of the National Energy Technology Reserve and Capacity Reserve Demonstration Project. A total of three projects of “Xinjiang Yili”, “Xinjiang Ganquanpu” and “Inner Mongolia Yitai” were selected as key coal liquefaction projects in the “13th Five-Year Plan” for deep processing of coal. The Company has been unswervingly speeding up the approval and construction of coal chemical projects.

# 1. Demonstration project of coal-to-oil production of 0.16 Mtpa

During the reporting period, on ensuring the safe and stable production, Coal-to-oil Company optimized its processes and procedures, and enhanced technical innovation so that a total of 0.1943 million tonnes of various types of oil and chemicals were produced during the year. In the meantime, the Company realized the target of inventory-cutting and cost reduction and efficiency improvement via reasonable allocation of inventory materials and enhancement of cost control, and recorded a revenue of RMB894 million and a net profit of RMB31.84 million.

The 0.05 Mtpa stable light hydrocarbons deep processing project of Coal-to-oil Company achieved a successful trial run, further extending the industry chain and increasing the added value of the products for the Company.

# 2. Project construction

The 1.2 Mtpa of fine chemicals project of Yitai Chemical completed the transfer from CIP to PPE at the end of September 2018. The Company is actively advancing the engineering settlement and budgeting of the project. During the year, Yitai Chemical recorded a production volume of 0.26 million tonnes of chemicals, and a revenue of RMB1.292 billion and net profit of RMB57.78 million.

In 2018, as to the second phase of the 2 Mtpa indirect coal-to-liquids conversion pilot project of Coal-to-oil Company, the Company adjusted the product scheme and some process plan for the second phase of the project by focusing on the design optimization and taking into account of the implementation of the project, upper-stream facilities cooperation and construction, investment and financing, product scheme adjustment and other factors.

During the reporting period, Yili Energy actively carried out project site management, supporting resource integration and product scheme optimization, continued to promote the financing works and introduction of strategic partners.

During the reporting period, Yitai Xinjiang continued to enhance project site management for its energy project, and advanced the approval work for the project in a planned and orderly manner.