Dear Shareholders,

Forging ahead to navigate across the cycle and turning losses into profits
During FY2024, the Chinese economy faced the triple pressure of shrinking demand, supply shocks and weakening expectations, which affected the rebound of sales in the packaging paper industry to a certain extent. Meanwhile, the overall supply of domestic packaging paper continued to expand, posing notable downward pressure on paper prices. Besides, the continued expansion of production capacity by the peers and the increasing supply of imported paper further added the supply pressure, putting the packaging paper industry under stress. In the face of the complex situation, we proactively responded to these difficulties and challenges and successfully navigated across the cycle by pursuing progress amidst stability and promoting stability through making progress. We actively explored new profit growth points, optimized the product portfolio, and made expansion plan for high-value products to continuously boost our market share and strengthen our market competitiveness. The Group achieved a significant year-on-year growth of 18.3% in sales volume and a year-on-year increase of 4.9% in revenue for the financial year. We kept a close tab on the supply and prices of raw materials, while improving the supply chain to strengthen our ability to control the industrial chain. By striking a balance between production and sales and optimizing inventory management, we enhanced the efficiency of resource utilization. All these efforts contributed to the steady recovery and positive development of the Group’s results for the financial year. Recording a substantial year-on-year growth of 273.2% in gross profit and significant year-on-year growth of 6.9 percentage points in gross profit margin, we eventually registered a successful turnaround from loss to profit.

Creating exemplary quality paper that embodies the characteristics of Nine Dragons Paper
The quality of packaging paper is closely related to that of raw materials, and good control at the source gives core impetus to precisely control costs and enhance product competitiveness. During the current financial year, we continued to promote the deployment of high-quality pulp production lines to improve resource security, ensure the quality of high-end products, and strive for premium pricing of products. As of the end of the financial year, the Group’s production capacity for fibre raw materials amounted to 5.14 million tonnes, including production capacity of 2.38 million tonnes for wood pulp, 0.7 million tonnes for recycled pulp and 2.06 million tonnes for wood fibre, effectively optimizing our fiber raw material structure, and strengthening our solid foundation and comprehensive competitiveness in the upstream industry chain. In terms of products, Beihai base was officially put into operation in November 2023, with a production capacity of 1.35 million tonnes for virgin kraftliner and printing and writing paper, which boosted the paper production capacity of the Group to 21.67 million tonnes. We will adhere to the development path towards high value-added products and high effectiveness, and continue to promote value creation and profit growth. The Group is pressing on its capacity expansion projects with a total of 3.70 million tonnes of paper production capacity for bleached folding boxboard and, printing and writing paper to further enhance the product mix. Nine Dragons Paper is one of the few paper-making enterprises in mainland China that is equipped with the advantage of a vertically integrated production chain, with its downstream packaging business effectively complementing the paper-making industry chain. While the market remained in a stage of recovery and adjustment during the financial year, the packaging business strived for the leading position against stiff headwinds, met the challenges with a high degree of flexibility, and precisely seized the market dynamics to provide one-stop and efficient packaging services to end-users, giving play to our excellent resilience for development and adaptability, and showcasing the strong competitiveness and strategic vision of Nine Dragons Paper.

Focusing our concerted efforts to promote high-quality development
Currently, under the complicated and volatile international situation, the competition in the industry remains intense, and the economy and consumer confidence have yet to fully recover. Nonetheless, we believe that with a series of policies gradually launched by the Chinese government to stabilize the economy, expand domestic demand and promote consumption, consumer confidence will be further boosted, which will in turn promote the growth of demand in the packaging paper industry. Amidst both challenges and opportunities, Nine Dragons Paper will focus its concerted efforts to forge ahead, increase profitability and fulfil high-quality and sustainable development. Stepping into the next financial year, our core strategies are as follows:

1. Optimize the raw material structures — We will push ahead with the production capacity projects for wood pulp and alternative raw materials in full steam. While minimizing the procurement cost of recovered paper, we will ensure stable production quality;
2. Strengthen the core competitiveness of products — Putting efforts in effective and intensive product differentiation for higher premium pricing of products, we will continue to increase our market share by tapping high-end markets and precise positioning with excellent quality, so as to consolidate and enhance our position in the industry;
3. Increase the operating efficiency and effectiveness — We will adopt measures of cost reduction and efficiency enhancement in all aspects, streamline and optimize staffing structure. By closely monitoring the market price movements of raw materials, we will precisely control costs and maintain our competitiveness. We will maintain low inventory operations in the long run and strengthen working capital management to ensure a robust cash flow; and
4. Pursue high-quality and sustainable development — Nine Dragons Paper is committed to achieving high-quality and sustainable development by developing a comprehensive management system, implementing green and low-carbon development, and ensuring safe, compliant and efficient operations.

Last but not least, on behalf of all members of the Board, I would like to take this opportunity to express my sincere gratitude to all shareholders. I will closely work with all employees of Nine Dragons Paper to forge ahead with dedication, and remain committed to further boost the profitability. Thank you.

Cheung Yan
Chairlady

25 September 2024