China Lesso Announces 2022 Annual Results

(20 March 2023, Hong Kong) –China Lesso Group Holdings Limited(“China Lesso” or the“Group”,HKEx stock code: 2128), a leading large-scale industrial group that manufactures piping and buildingmaterials inmainlandChina,todayannounceditsannualresultsfortheyearended31December2022(the“Year”).

In2022,facingthecomplicatedandchangingmacroenvironment,therecurringCovid-19pandemicat homeandabroad,thedownturnoftherealestateindustryinthePRCandfiercemarketcompetition, China Lesso as a leading large-scale industrial conglomerate that manufactures piping andbuilding materials in mainland China, continued to adheretothe principle of developing business withprudence approachandputmorefocusonrefiningitsbusiness.TheGroupcapitalisedontheChinesegovernment’s favourablepoliciesandthestabledemandoftheinfrastructureandpipingtocontinuedevelopingits various business segments. The overall business developed steadily during theYear.TheGroup’srevenue amountedtoRMB30,767million.GrossprofitwasRMB8,241million.Grossprofitmarginincreased slightlyto26.8%,mainlyduetothetimelyadjustmentonsellingpricesoftheGroup’sproductsforaddressingthefluctuationoftherawmaterial’sprice.ProfitattributabletoownersoftheGroupwas RMB2,517million.BasicearningspersharewereRMB0.82.TheBoardrecommendedthepaymentofa final dividend of HK30 cents per shareforthe year ended 31 December2022.

TheplasticpipingsystemsbusinessisthemainstayoperationoftheGroup.In2022,giventheconsistent introduction of growth stabilisation policies by the central government, the prosperity ofinfrastructuresector,as an important pillar of growth stabilisation, continuedtoimprove. The Group has fullycaptured the development opportunities brought by the new infrastructure to continuously develop thepiping systems and accelerate the development of smart pipeline networks.Atthe same time, the Groupkeptstrengthening strategic partnerships with government departments, leading centralgovernment-owned enterprisesandstate-ownedenterprisesintheinfrastructuresector,whileproactivelyinvestinginnational projectsofstrategicimportanceandurbanredevelopmentprojects.Revenuefromtheplasticpiping systemsbusinessamountedtoRMB25,607million,accountingfor83.2%oftheGroup’stotalrevenue.Due tothefrequentCOVID-19outbreaksinthePRCwhichresultingadecreaseinmarketdemand,coupled with theGroup’scertain production bases hadtosuspend production under quarantine policies, salesof theGroup’splasticpipesandpipefittingswereaffectedtoacertainextent.DuringtheYear,salesvolume oftheplasticpipingsystemsdecreasedby6.1%to2.39milliontonnes.Despitetheoveralldeclineinsales volumeoftheGroup,thegrossprofitmarginincreasedto27.5%duetothegradualdeclineinrawmaterial pricesinthesecondhalfoftheyearandtheadoptionofeffectiveprocurementstrategiesbytheGrouptoactivelycontrolthecostsofrawmaterialsandmanufacturing,aswellasthetimelyadjustmentstothe selling prices, so as to maximise its economies ofscale.

The Group has been embracing intelligentisationtoconduct the upgrading of its business. Therefore,the Grouphasbeenexpeditingtheadoptionofsmartmanufacturingbyproactivelybuilding21smartfactories across the world thatintegrate“Internet of Things, smart control and automatedproduction”.Duringthe reportingperiod,theGroup’sannualdesignedcapacityformanufacturingplasticpipingsystemsexpanded from3.20milliontonnesattheendof2021to3.26milliontonnesattheendof2022,andtheactual utilisationrateduringtheyearwasapproximately74.4%.Alwaysadheringtothegreendevelopmentphilosophy,theGroupadvocateslowenergyconsumptionandhighenergyefficiencyproductionandleadsthe industry towards green and sustainable development. During theYear,Guangdong LiansuTechnologyIndustrialCo.,Ltd.,asubsidiaryoftheGroup,wassuccessfullyselectedasthe2021NationalGreenFactory,fullydemonstratingthegovernment’srecognitionoftheGroup’sefforttopromotegreendevelopmentin theindustry.

The Group leveraged its edge of the principal business and continued to provide high-standardpipeline applicationsupportforlarge-scaleagriculturalfarmingandmarineaquaculture,andexpandedintovarious fields of agriculture with its strong technical strength and advantages of pipeline productsystem,which has given new impetustothe transformation and upgrading of agriculture and sustainabledevelopment of greenecology,as well as enriching theGroup’sincome sources and expanding its marketshare.

Intermsoftheoverseasmarketexpansion,theGroupcontinuestoexpandoverseasmarketswithafocus ontheSoutheastAsia.InAugust,phase1oftheproductionbaseinIndonesiawasofficiallyputinto operation, becoming a driving force for theGroup’saccelerated development in the SoutheastAsian market. The production base in Cambodia was putintooperation by the end of 2022. Furthermore,the GroupissteadilypushingforwardwiththeconstructionofproductionbasesinsuchcountriesasThailand, Malaysia,PhilippinesandBangladesh,whiletheproductionbaseinIndonesiawillproceedwiththe construction of the PhaseII.

Investmentinnewinfrastructurehasbecomeastrongsupportforstabilisingeconomicgrowthinthepost- pandemicera,anditwillcontinuetodemonstrateemergingpotential.TheGroupwillfullygraspthe marketopportunitiesfromthenewinfrastructureinvestmenttoexpanditsplasticpipingsystemsbusiness andkeeponseekingvariousstrategicpartnerstocreatemutualbenefitandawin-winsituation.TheGroup will continuetodrive all-round development with innovation and breakthroughs, build the“benchmarkfactory,and promote its upgrade towards intelligentisation and greening, thereby strengtheningits sustainable developmentcapabilities.

For building materials and home improvement business, in 2022, the downward pressure remainedin thePRCrealestatemarketsince2021andtheindustryfacedwithmyriadchallengesahead,whichinturn affected the business development of the building materials and home improvement industry in thePRC toacertainextent.DuringtheYear,revenuefromtheGroup’sbuildingmaterialsandhomeimprovement businessamountedtoRMB2,705million,representing8.8%oftheGroup’stotalrevenue.Asanumberof large-scaleprivatepropertydevelopersweremiredinfinancialdifficulties,theGrouphasactivelyadjusted itsbusinessstrategytodiversifyitscustomerportfolioandproactivelyexploredmoreinfrastructure projectswhichweremainlyundertakenbygovernmentandstate-ownedenterprises,therebyminimising theGroup’sbusinessrisks.Inaddition,theGroupfurtherstrengtheneditsrelationshipwithpremiumreal estatecompaniesasitsexistingcustomersaswellasvigorouslyexploredthepossibilityofcross-sector collaborationwithvariousindustries,inordertobringamorestablesourceofincomeforthebuilding materialsandhomeimprovementbusiness.DuringtheYear,theGroupsignedastrategiccooperation agreementwithaB2Bbuildingmaterialsprocurementandtradingplatformandawell-knownsupplychain enterpriserespectively,aimingtoachieveawin-winsituationofresourcesharing,costreductionand efficiencyenhancementthroughitscooperationwithdifferentpartnersinvariousaspects.

Looking forward to 2023, it is expected that the domestic macro economy will achieve anoverall improvement. The policy support is expectedtofurther increase, thus gradual stabilisation andrecovery on the real estate market is also expectedtobe seen. The Group will remain its focus on productquality and optimise one-stop–integrated solution and services. Meanwhile, the Group will strengthenits relationshipswithexistingcustomersaswellasactivelyexplorenewcustomerswithstrongcapital strengthtosupportsalesgrowth.Inaddition,theGroupwillgivefullplaytothesynergybetweenthe pipeline business and its building materials and home improvement business, step up the cultivationof technicaltalents,increaseinvestmentinscientificresearchandinnovateandupgradeeco-friendlyproducts, expectingto restoregrowth of the business of building materials and homeimprovement products as soon aspossible.

Withthecontinuousincreaseofthegovernment’seffortsinecologicalenvironmentalprotectionand governance,themarketpotentialofenvironmentalprotectionindustryinthePRChasbeenexpandedrapidly.Thus,theGrouphasbeendiligentlydevelopingitsenvironmentalprotectionbusiness.Though COVID-19 pandemic continuously recurred in 2022, theGroup’senvironmental protectionbusiness recorded a revenue of RMB348 million. The Group focused on expanding the environmentalprotection business by securing leading enterprises as new customers in the traditional industries. In theurban servicesector,theGroupmainlydevelopedthemarketsofkeyregions.Inaddition,theGroupiscommitted toexploringnewbusinessdevelopment,mainlyonthebusinessesofthetreatmentandoperationofwater environment, waterecology,and soil and mine remediation, thus aligning its development withnational policies.Inthefuture,theGroupwillcontinuetoexploretheopportunitiesofservicinggovernment projectswhendevelopingthemarket,withafocusonsuchfieldsastheagriculturalsectors,thetreatment of soil, maintenance of water quality and provision of technical services, creating better conditionsforits futuredevelopment.

Capitalising on the national policy adjustment, the Group successfully established its presenceof environmental protection business in Jiangsu, Guangdong and Hunan provinces, among which thesolid wastedisposalbaseinFoshanwasofficiallyputintooperationinJuly,andtheprojectofthebasefor comprehensiveutilisationofrenewableresourcesinprocessingindustryinHunanMiluoalsocommenced itsconstructionattheendofJuly,andisexpectedtobeputintotrialoperationwithin2023.Infuture,the GroupwillcontinuetodeveloptheChinesemarkettofurtherexpanditsmarketshares.

In term of thesupply chain service platform, despite the fluctuation of global pandemic conditions,with the end of the international pandemic control and the expansion of the related businesses, inparticular of the holding of Shenzhen EDA CloudTechnologiesCo., Ltd., it recorded an increase in revenue.During theYear,revenue from the supply chain services platform increased by 11.9% to RMB958million.

The Group has been adjusting its business layout and optimising its operation management. TheGroup’scurrentmallsinfourSoutheastAsiancountries,includingBangkokinThailand,TangeranginIndonesia,YangoninMyanmar,and Phnom Penh in Cambodia, with the phase 1 of these properties being readyforrentalandoperation.TheDubaiLogisticsCentreandtheAuburnprojectinSydneyarebothinthepre- operationalstage,withtheGrouptakingtheleadintheDubaiLogisticsCentrebyadoptingtherental operationcontractingmodel,whichhasachievedverygoodresults.Lookingahead,theGroupplansto further expand the distribution network in Southeast Asia after taking into account thebusiness development by driving the long-term development of such businesssegment.

Asgreenandsustainabledevelopmenthavebecomeaglobalconsensus,thenewenergyindustryhas hugemarketpotential.Therefore,theGroup’sactivelydevelopedthenewenergyindustryandannounced inearlyJanuary2022thatGuangdongLessoBanhaoPhotovoltaicNewEnergyTechnologyCo.,Ltd.(“Lesso Banhao”)hasenteredintothephotovoltaicindustrytodevelopanewgrowthenginefortheGroup.During theYear,the Group successfully enteredintostrategic cooperation agreements with a number ofstate- ownedenterprisesandcentralgovernment-ownedenterprisestojointlyexplorethephotovoltaicmarket.The first production line of Lesso Banhao started a trial run in April 2022 and its products wereofficially launchedforsaleinJuly2022.LessoBanhaohasbeengraduallyestablishingacomprehensiveproduction, supplyandsalessystemwithfourproductionbasesinChinaandIndonesia,demonstratingastrongsupply capacity. Supported by the extensive sales and marketing channels of China Lesso across the PRC,Lesso Banhao has more than 500 distributors, over 1,000 stores and nearly 100 specialty storesforthe salesof its photovoltaic products. The Group has also set up overseas sales centers and formed sales teams in16 countriestoexpandintovarious overseasmarkets.

Asof31December2022,LessoBanhaohasparticipatedintheconstructionof90photovoltaicpower stationprojects,ofwhich78projectsinthePRCand12projectsinoverseasmarket.LessoBanhaohas invested16powerstationswithaninstalledcapacityofupto12.5MW.DuringtheYear,LessoBanhao has recordedRMB589millionofrevenue,layingasolidfoundationforitsfuturedevelopment.Thoughthe newenergybusinesscontributesaninsignificantpercentagetotheGroup’srevenue,themanagement believes that with the increasing investment and policy support from the government in the newenergyindustry,a high growth trend in the photovoltaic industry has been formed. Therefore, Lesso Banhaowill actively develop competitive production capacity and enhance its technology developmentcapability. Furthermore,itwillcontinuetostrengthenpartnershipwithcentralgovernment-ownedandstate-owned powerinvestmententerprisesnationwidetoexplorenewmodesofcooperationandmakeeveryeffortto buildanewchannelconstructionandmarketingnetworkfornewenergybusiness,promotingthenew energy businesstobecome a major driving force for theGroup’sfuturerevenue.