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Chairman Statement

2015 is, quite accurately so, an extraordinary year for Huaxi Holdings Company Limited. On one hand, we have experienced challenges in the existing cigarette-related business due to exogenous changes sweeping throughout the entire Chinese tobacco industry; on the other, we are discovering vast new investment opportunities in the Chinese domestic environmental treatment sector. When one window closes, another door opens. We are prepared to face the challenges and embrace the opportunities.

The cigarette packaging business is being swayed by many external factors; from the Chinese economic slowdown, to government anti-smoking policies, the general sales trend in the Chinese tobacco industry has been heading south. As a result, the Company’s revenue from tobacco-related businesses were negatively impacted. The joint venture to develop functional foods suitable for people with hyperglycemia with Yangtze Delta Region Tsinghua Institute had also met some headwind. The sugar-free health food market had experienced growth for nearly 20 years, both online and offline, people with hyperglycemia have easy access to wide choices of products suiting their needs. With so many products floating in the market, some are of poor packaging and generally questionable quality, consumers hence are quite sceptical towards most products offered in the market. To build a brand from scratch, earning consumers’ trust, and then be able to extract economic profit from that brand requires substantial time and capital investment. The Company has decided to be cautious on making any further investment in this joint venture.

Chinese tobacco industry report did show an increase in the number of domestic smokers in China from 2015 to 2016; the tobacco industry, nevertheless, still hosts a strong customer base. At the same time, our technology department has formalized research and development cooperation with our primary Shanghai-based customer. The Company remains upbeat in the stability and future growth of revenue from the tobacco-related businesses. Moreover, we remain committed to investing in more efficient technology, enabling us to manufacture superior products and better service our customers; we shall remain ahead of industry standards.

The Company first ventured into the environmental treatment sector by winning tender to a government contract; to complete the project, we have assembled a team of capable and effective professionals, some with more than a decade of experience in water treatment. Every team member exudes passion and a strong sense of duty towards the people of Shantou. Restoring the river eco-system not only benefits the residents of Shantou City, it also creates immense value for the Shantou City Government, the Company, and for those who believed in us every step of the way. The team had been able to cross various technical hurdles during the eco-restoration process. I am fully confident that they will be able to complete the series of water quality mandates.

The management team and I will remain vigilant in observing industry transformations. In the meantime, we will persist in diversifying our business in, but not limited to, biotechnology to create maximum value for shareholders and also participate in environment protection.

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