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Dear shareholders:

On behalf of the board of directors (the “Board”) of King Stone Energy Group Limited (the “Company” or “King Stone Energy”, together with its subsidiaries, the “Group”), I am delighted to present the annual results for the year ended 31 December 2015.

In 2015, as global commodity markets continued to be weakening and coal, oil and gas prices were at low level, the performance of the Group’s energy sector business was inevitably affected; Meanwhile, countries around the world focused on emission reduction, energy saving, clean energy and other issues, which also brought indications for the Group to adjust its own energy operations and prepare future investment strategy. In June 2015, the Group announced the completion of the disposal of the coal business, which has incurred losses over the past few years. With the continuing uncertain market prospect, the disposal of such business not only significantly improved the financial condition of the Group, but also released more manpower as well as financial resources for the investment on other energy and new investment projects of the Group, improving return on investment.

In response to the changing market environment, the management of the Group reviewed resource investment and operating performance of each business segment from time to time. Oil and gas prices in 2015 hit its record low in recent years, the Group therefore strategically deferred the investment and exploration in natural gas projects in the United States. However, the Group took the opportunity at the same time to lease more mining areas with lower cost in order to consolidate its own resource reserves. The potential of the project can be rapidly unleashed when the market prices rebound.

The Company announced placings in August and November last year respectively to raise fund, in which the placing in August last year was completed during the year, successfully raising approximately HK$179 million. The second placing is expected to be completed before the end of April this year. The two placings will raise a total of approximately HK$595 million, which will be utilized for the Group’s liquidity and the proposed investment on stone paper project. In recent years, China has paid more attention on environmental protection, and has enhanced control efforts on carbon dioxide emission, water and soil resources contamination, deforestation, etc. The disposal of the coal business and the investment on stone paper business are the investment strategies of the Group regarding to the prevailing circumstances. Traditional wood pulp paper requires extensive deforestation and papermaking process also causes water pollution. The stone paper technology that the Group intends to invest not only can solve the abovementioned environmental problems, but also can seize the traditional paper pulp market with more competitive cost-effectiveness, quality and durability, particularly in textbook paper, package paper and other markets with higher paper quality demand. It is expected that stone paper will have a revolutionary market opportunity.

There are still many uncertainties for global economy in 2016. Along with every risk comes opportunity, I believe that with time-proven experience in investment and management of the Group’s management team, we can release the high potential of various investment projects during the low level economic cycle, creating satisfactory returns to the shareholders. Finally, on behalf of the Board of King Stone Energy, I give my sincerest thanks to our employees, customers and shareholders, and look forward to prospecting together.

Zhang Wanzhong
Chairman
31 March 2016


 
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