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Chairman Statement

The Chinese Tobacco Industry remained week and outlook cloudy, many domestic tobacco manufacturers were under pressure to reduce their inventory. Like most of our peers, Huaxi Holdings Company Limited (the “Company”) Cigarette Packaging Business is facing challenges such as decreased sales orders, pricing pressure, raw material and labour cost hikes. The Company was well prepared to meet the new operating difficulties, by innovating on production techniques to reduce raw material wastage, reducing percentage of defective product outputs, and strengthening quality control on final products. The Company was able to edge an increase in TOTAL REVENUE and NET PROFIT, successful in overcoming negative exogenous shocks brought upon by industry shifts. In the coming year, the Company shall continue to operate under the guiding philosophy of “Opening new streams and plugging existing leaks”; diligently researching and develop new products, bring in new clients to upgrade the company’s main business.

According to the “Water Pollution Control Action Plan” published by the Central Government of China, a mandate is established that by 2020, most domestic river systems need to have undergone ecological rehabilitation. Time is of the essence and this provides the Company with valuable opportunities to participate in further government-sponsored environmental treatment projects. Many new competitors have since entered the environmental treatment industry, including companies which command massive amounts of economic resources. For the past 12 months, the Company had created the first environmental rehabilitation project in Lianjiang river basin of Guangdong Province. Through multi-stakeholder cooperation, the project finally produced satisfactory results. Officials on the Central, Provincial, and City level government had visited the sites, embraced the results and gave their approvals. The Company’s engineering team is made extra potent with advisory services from leading domestic research institutions like the Tsinghua University, our brand of quality and reliability contends to be the bellwether of the industry.

Lianjiang treatment project had brought new revenue stream for the Company; project itself has concluded the construction period, and is entering maintenance period. In the next few years, the Company stands in position of strength to win tender to similar environmental treatment projects, venturing into new space for growth.

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