China Lesso announces 2021 annual results

HONG KONG SAR - Media OutReach - April 11, 2022 China Lesso Group Holdings Limited ("China Lesso" or the "Group", HKEx stock code: 2128), a leading large-scale industrial group that manufactures piping and building materials in mainland China, today announced its annual results for the year ended Dec 31, 2021 (the "Year").

As a leading large-scale industrial conglomerate that manufactures piping and building materials in mainland China, China Lesso (https://en.lesso.com/) capitalises on the Chinese government's favourable policies and the strong demand of the domestic market by fully developing all lines of its business.

In 2021, the Group achieved growth in overall revenue despite a number of unfavourable happenings such as the recurring Covid-19 pandemic at home and abroad and the multiple outbreaks of the pandemic in the second half of the year, the state's tightening regulation of the real estate industry, the collapse of some real estate enterprises in the fourth quarter, the debt crisis in the property sector, the environmental policy on attaining carbon emission peak and carbon neutrality, limitations on use of electricity and production, and rising prices of energy and raw materials. The Group's revenue increased by 14.2 per cent year on year to RMB32,058 million.

Gross profit slightly increased by 0.8 per cent to RMB8,448 million and gross profit margin was 26.4 per cent mainly due to the Group was not able to fully adjust the product selling prices at the same rate of the dramatically increase in raw material costs and fluctuations in production costs in the second half of 2021.

Profit attributable to owners of the Company amounted to RMB3,044 million due to various negative factors during the Year. Basic earnings per share was RMB0.99. The Board recommended the payment of a final dividend of HK26 cents per share for the year ended Dec 31, 2021. Together with the interim dividend, the dividend for the year in 2021 was HK38 cents per share.

The plastic piping systems business is the mainstay operation of the Group. During the Year, leveraging its industry-leading innovation capability and scale of operation, the Group has capitalised on the state's dual circulation economic model and pressed ahead with technological innovation so as to actively develop new products and technologies to satisfy the market's needs.

By grasping the opportunities arising from the Chinese government's initiatives in the "New Infrastructure, New Urbanisation Initiatives and Major Projects" and economic stimulus package, the Group further expanded the market share of its plastic piping system business and maintained its steady growth, so as to consolidate its leading position in the industry. In addition, the Group was committed to optimising its customer portfolio, and further shifted its focus from private engineering and construction projects to projects led by state-owned enterprises and municipal governments which had stronger demand.

During the Year, the plastic piping systems business continued to grow on the back of its stable performance, with revenue increased by 12.0 per cent to RMB27,457 million, accounting for 85.6 per cent of the total revenue of the Group. Due to the significant increase in raw material prices and price fluctuations, as well as the slowdown in the implementation of certain infrastructure projects in the second half of the year, the sales volume of the plastic piping systems decreased by 2.3 per cent to approximately 2.55 million tonnes.

The Group continued to take advantage of its economies of scale and implement effective procurement strategy to actively control the costs of raw materials and manufacturing, as well as made reasonable price adjustments in a timely manner in order to maintain its gross profit margin at a reasonable level. The Group increased the average selling price of its plastic piping system by 14.7 per cent during the Year to RMB10,773 per tonne. The gross profit margin was 25.9 per cent.

With the advantages of the immense capacity and wide geographical presence of its production capacity, excellent quality and strong supporting service capacity, the Group fully implemented automated and intelligent production by integrating resources from both the upstream and downstream of the value chain of the industry, and made use of the IoT to upgrade its production facilities to smart factories.

In 2021, the Group expanded or constructed more production bases in Gansu, Sichuan, Jiangxi, Guangdong, Fujian, Xinjiang and Indonesia to further enhance its overall production capacity. The Group's annual designed capacity for manufacturing plastic piping systems expanded from 3.03 million tonnes at the end of 2020 to 3.20 million tonnes at the end of 2021, and the capacity utilisation rate was maintained at 81.1 per cent.

In 2021, the Group focused its investment on the construction of an intelligent high-tech and environmental-friendly production base in Gansu, which is not only an integral component in the Group's nationwide strategic business planning, but also a fulcrum of its move to accelerate the development of the market of northwestern China.

It is expected that the project will be able to generate annual sales of approximately 100,000 to 150,000 tonnes of plastic piping at full capacity. In addition, the digital intelligent factory in Guangdong, will be put into operation, adding strong impetus to the Group's intelligent manufacturing and high-quality development. That factory also indicates China Lesso's commitment to the plastic piping system business as its primary operation, pursuit of agricultural modernisation, and the expansion of its business of building materials and home improvement.

Looking ahead, the Group will continue to expand existing plants and increase production facilities, in addition to its plan to construct new production bases in Guangxi and Gansu. At the same time, the Group will increase investment in exploring and transforming automation and intelligence application, while accelerating the implementation and replication of smart factories.

In terms of the overseas market expansion, the Group has set up overseas sales centres and established sales sub-teams in 11 countries and regions to develop overseas markets, enhancing its brand awareness overseas. In the mean-time, the Group also continued to optimise the overseas supply chain and promote the localisation of its brands. Moreover, the Group is actively scaling up its overseas production with a focus on the Southeast Asian market. It will tap into the huge domestic demand of the market and capitalise on the infrastructure development there.

Phase I of the production base in Indonesia has been put into operation and Phase II will be built in 2022 to prepare for the Group's further expansion into overseas markets. The production base in Cambodia is also undergoing renovation and is expected to commence production in the first half of 2022.

In addition, the Group has accelerated the construction of production bases in Thailand, Malaysia, the Philippines and Bangladesh to continue to enhance the competitiveness and influence of China Lesso in overseas markets. The Group will also remain open to potential acquisitions in the market to support further production capacity expansion overseas.

To keep abreast of market trends, the Group continues to develop new products and new technologies that satisfy market's demand. As the stainless-steel pipe products which had been introduced by the Group earlier have been advertised and have gone into mass production, an additional production line will be set up in a plant in Foshan in 2022 for mass production.

For building materials and home improvement business, the Group has taken active measures to diversify its customer portfolio by shifting the focus of its business of building materials and home improvement to supplying its goods to infrastructure projects led by governments and state-owned enterprise.

This move aimed at generating more stable growth in revenue at that business segment. During the Year, revenue of the Group's building materials and home improvement business amounted to RMB2,751 million, representing an increase of 37.8 per cent and accounting for 8.6 per cent of the Group's total revenue.

The Group seized and created new opportunities by giving full play to its advantages such as its well-developed businesses along the value chain of the industry, supply chain and scale of operation.

The Group has created a new model of "BBC" home improvement and established a unique ecosystem of businesses in the value chain of industry. Specifically the Group has created a one-stop integrated solution for the supply of all categories of products for home improvement, with the aim of joining hands with its distributors and business partners in exploring new business opportunities in the home improvement sector.

The Group has also actively set up home improvement boutique stores under Lesso brand and continued to accelerate its nationwide expansion through promotional meetings held in Wuhan, Hubei; Shunde, Guangdong; Changsha, Hunan; Nanchang, Jiangxi; Hefei, Anhui and Jinan, Shandong. The Group will also provide "Good Housekeeping " free value-added services to fully address the user's concern for home improvement.

Benefiting from the national policy of expediting the initiatives in the "New Infrastructure, New Urbanisation Initiatives and Major Projects", the industry of building materials and home improvement has great potential for development. Therefore, the Group is confident about the prospect of its business. It will actively give full play to the synergy between the pipeline business and its building materials and home improvement business.

Furthermore, the Group will increase investment in scientific research, step up the cultivation of technical talents, and innovate and upgrade eco-friendly products. All this will further advance the healthy development of the supply chain of the property sector and drive the steady growth in the business of building materials and home improvement.

Against the backdrop of China's strategic target of "double carbon", the Group has actively responded to the government's call for environmental protection, and vigorously developed the environmental protection business segment. During the Year, the Group's environmental protection business recorded a revenue of RMB301 million due to the impact of the repeated pandemic outbreak.

The Group is planning to further expand its environmental protection business by establishing hazardous solid waste treatment centres in Sanshui, Guangdong and Miluo, Hunan. In the future, by making good use of new opportunities creating by "double carbon" policy, the Group will continue to integrate various resources as it aims for great achievements in various projects and strives to rank among China's top, large environmental companies.

The Group has built a supply chain service platform, which is positioned as a "One-Stop Specialty Market for Home Improvement and Consumer Products", to enter overseas markets with the focus on the Southeast Asian market.

During the Year, revenue from supply chain services platform business increased by 24.2 per cent to RMB856 million despite the recurrent outbreaks of the global pandemic. In the future, the Group, taking into account the business development, plans to further expand the distribution network of the supply chain services platform business in Southeast Asia, and grasp the resulting business opportunities to promote the long-term development of such business segment

The Group captured opportunities of green transformation and expanded into photovoltaic industry by announcing the establishment of Guangdong Lesso Banhao Photovoltaic New Energy Technology Co., Ltd. in early January 2022 with a view of providing an integrated energy solutions for global industrial and commercial enterprises and households with an array of more diverse green products and services.

The Group will sell building applied photovoltaic (BAPV) solutions to existing customers, such as industrial parks, hospitals and schools, and will have three production lines to assemble and produce photovoltaic products. Meanwhile, the Group will actively invest resources in research and development with the aim to develop market-leading building integrated photovoltaic (BIPV) products and solutions, which are expected to be launched at the end of 2022.

As an extension of the Group's business, the development of photovoltaic business is still at early stage. However, the Group believes that the new photovoltaic business will create strong synergies with its existing businesses and sales channels and the eventual scale of the business would become a major revenue driver of the Group's revenue and help sustain its gross profit margins.

Mr. Wong LuenHei, Chairman and Executive Director of the Group, said, "Looking ahead to 2022, the Group expects that businesses worldwide will face even greater challenges and difficulties. Facing the complicated and ever-changing global economic situation and fierce market competition, the management is of the view that the business fundamentals of China Lesso remains unchanged. We remain cautiously optimistic about the long-term prospect. The Group will fully grasp the opportunities for development arising from the government policies.

It will also press on with its prudent approach to development, seek to reduce cost and raise efficiency, and further deepen the reform and upgrade its business by means of intelligent manufacturing. Meanwhile, it will lead the industry's green and sustainable development through technological research and development and thus provide green plants, green production, and green products and services.

We will also enhance synergies among our various businesses, optimise our team and marketing management, and follow the trend and pursue progress with prudence so as to become a global business group engaged in the businesses of piping and building materials to generate shareholder return for the long term."