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Chairman Statement

RETROSPECT

Looking back on 2020, it was quite an unusual year. The Chinese domestic first quarter economic performance overall was severely hampered by the Coronavirus outbreak. For many domestic industries and market segments, the year 2020 was a difficult and challenging period. The environmental treatment industry was also not spared and had undergone arduous trials and allencompassing adjustments. Facing severe challenges in the macro environment, all employees of the Group commit to the business principles of "Quality First, Customer First", we approach our projects with a customer-oriented devotion built upon the foundation of "Integrity, Harmony and Excellence", making smooth transition over this difficult time, and continuing to cultivate new projects.

In 2020, the domestic cigarette industry was severely impacted by the new coronavirus outbreak, so much so that during the February Lunar New Year festive season sales came almost to a screeching halt; number of stock orders from the nation's network of retail tobacco sale points dropped sharply. Things only started recovering in March. While sale tumbled in the first quarter, the overall cigarette sales total in 2020 still managed to achieve a "micro" increase. Without a doubt, the cigarette sales growth was facing deep underlying challenges, to name a few: Chinese economic growth was fraught with uncertainties and situation becoming ever more complex, new shifts in tobacco consumption culture, gradual tightening of tobacco control policies, rise in disruptive new tobacco products etc. Tobacco industry had always been a pivotal source of national tax income. The government will have to maintain a balance between industry growth and implementing tobacco control policies.

2020 was the final year in China's 13th Five-Year Plan, and for water ecological restoration and comprehensive treatment industry, it was known also as the "year of examination", for which the central government underwent comprehensive review of past efforts in pollution prevention and control. The Group participated in water treatment projects in the greater Huizhou area of Guangdong Province, and had since completed relevant projects by the end of the year. The result had demonstrated effective improvements to local ecological systems, and uplifted the living environment for residents. The Group continues to build out the paradigm of sustainable development of human resources; we spent the past year trimming the organization, from technical design to project construction, at every ring in the Group's value chain, our lean and mean project teams had developed fast and effective decision-making and agile execution.


FUTURE PROSPECTS

In 2020, the scale of China's e-cigarette market had expanded significantly. According to relevant surveys, China's e-cigarette market had reached 8.33 billion yuan. E-cigarettes have evolved from relatively niche nicotine products to entering the mainstream consumption market. Its enormous market potential has attracted interest from tobacco giants foreign and domestic. The Group is keeping close attention to the development in China's e-cigarette regulatory policies, studying industry trends and explore potential business opportunities.

There remains many unresolved complications and hidden challenges in the treatment of black and odorous water; many Chinese cities still need to increase investments to complete the expansion of their urban sewage pipe networks. Southern China is one of the top priority regions for central government's water treatment assessment. The dilemma facing the central government is how to maintain current level of economic growth, while resolving the complex and severe problem of black and odorous water and stabilizing the quality of our water environment. In November 2020, Xinhua News Agency broadcasted the government's "14th Five-Year Plan"; the plan also included the first ever watershed plan drafted by Ministry of Ecology and Environments: a vision of harmonious existence between humans, water life and plants. The Group continues to cultivate new comprehensive water treatment projects in various parts of Guangdong Province, while seeking further suitable business opportunities in Southern China.



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