GROUP IN RETROSPECT

As of December 2022, the Chinese economy still faced multitude of trials and challenges, such as negative impacts from the COVID-19 pandemic and worsening geopolitical environment. Under the triple pressure of shrinking domestic demand, supply chain shocks, and weakening economic forecasts, the Chinese government took active countering measures, to ensure a stabilization of the domestic economy in short term, and gradual improvement in long term.

Chinese municipal government finances continue to deteriorate, compounded by three years of public health expenditures in pandemic prevention, and decrease in land-transfer revenue due to weak domestic real estate industry, forcing cuts on public spending and investments. These macro factors have been detriments to the Group’s primary business expansions.

Moreover, during the year, the world had witnessed an unprecedented series of crises threatening world peace and civilization progress: the conflict between Russia and Ukraine since the beginning of the year had gradually morphed into tragedy for mankind, the war had brought immense suffering, and its economic shock far-reaching. At the same time, many countries around the world are experiencing high inflation, global energy and food prices have soared. People’s income are contracting, and the problems they face are rising.

Even so, we have continued to work tirelessly, optimise our headcounts, and actively adopted measures to soften the negative impacts of the external environment on the Group’s businesses.

At the end of 2022, the Chinese government announced that the coronavirus infection would return to a Category B management. After the adjustment and optimization of pandemic prevention and control measures, the Chinese economy exhibited a strong recovery, which played a significant role in boosting the global economic growth. The Party Central Committee, the State Council and other national ministries and commissions issued "Implementation Plan for In-Depth Urban Black and Odorous Water Treatment", setting targets for collection and treatment rates of urban sewage, and elimination rate for black and odorous water, fully reflecting on the nation’s uncompromising commitment to ecological civilization construction and environmental protection. The Group will continue to fine tune management abilities and operational efficiencies, seeking new ground for growth.

BUSINESS REVIEW

China, as one of the signatories to the World Health Organization’s Framework Convention on Tobacco Control, will continue to fulfil its responsibilities on tobacco control and harm reduction. However, tobacco tax revenue is also a major component of China’s fiscal system. Juggling between tobacco control and collection of tobacco-related taxes, total domestic cigarette production remained stable in 2022.

The Group’s tobacco packaging and materials business was impaired by unfavourable factors like the supply chain disruptions, rising raw material prices and energy costs. Both revenue and gross profit margin fell during this financial year.

In our environmental and ecological restoration treatment business, the Group continued to partake in water environmental development projects in Huizhou this year, including the construction of drainage pipe network and river ecological maintenance. This year, the government had revised its investment budget in ecological restoration, the Group evaluated this new market reality, and made risk management measures accordingly.

REFORMING VISION FORWARD

2023 will be a crucial year for China, as it gears up to implement the "14th Five-Year Plan". The nation emerges from its pandemic prevention policies and ushers in series of economy stabilizing policies and measures, domestic ecological restoration will also see new developments.

Internationally, changes of the century are accelerating. Domestically, the foundation for Chinese economic recovery is not yet solid. For a long time, China had been assembling a rich foundation of economic resources, strong base of skilled human capital, complete industrial system, vigorous scientific and technological capabilities and hosting a gigantic domestic market. In tandem, they form the cornerstone for the central government’s push to promote economic development and hedge against external risks.

The Group will continue to seek opportunity to diversify. While solidifying our tobacco packaging and materials business, we will proactively pursue strategic opportunities arising from the development of the ecological restoration industry. Our goal is to diversify revenue sources and further promote business development, we shall actively seek out other qualifying investment opportunities.