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Chairman's Statement

Extracted from Annual Report 2018

Dear Shareholders,

The financial year ended 31 December 2018 ("FY2018") was a year of strategic growth for CITIC Envirotech Ltd, marked by expansion into new markets, an extended membrane product range, good financial performance and project wins.

Business Segment Review

Backed by our proprietary membrane technology and expertise in environmental engineering, CEL has established itself as the market leader in China's vast industrial wastewater treatment industry.

In FY2018, we stepped up the pace of expansion with the development of a robust pipeline of projects across China, many of which will generate recurring income for the Group. These included several Public-Private- Partnership ("PPP") projects such as those in Yingcheng County and Xiaogan City, in Hubei Province; as well as Yunfu City and Maoming City in Guangdong Province. In addition, the Group's expansion into the treatment of hazardous waste also paid off with two industrial projects in Xinjiang Province.

While we continued to secure a raft of new contracts under our core businesses, the Group also made significant inroads in securing larger and more complex contracts in the provision of comprehensive environmental services in sludge management and integrated environmental services. Notable contract wins included the Group's first environmental and ecological restoration project in Meigu County, Sichuan Province with a contract value of RMB2.5 billion as well as our third circular economy PPP project worth RMB1 billion in Anyang City, Henan Province.

CEL has also taken great strides to fulfil its existing order book, with previously secured projects well on schedule for delivery. The Group encountered some unexpected developments during the year however, with the Group entering into a mutual agreement with the local authority of Lanzhou City to terminate the land remediation component of PPP project due to changes in city planning. The remediation portion of the PPP project amounted to RMB 1.8 billion of the total contract value of RMB 4.6 billion.

Cumulatively, in FY2018, the Group secured project wins in excess of RMB 6 billion, which will be progressively delivered over the coming two years, providing growth visibility for the Group. We will continue to tap on growing demand for large-scale integrated environmental services as we embark on our next phase of growth.

During the year, Singapore Envirotech Accelerator ("SEA"), which is in collaboration with the Singapore Economic Development Board to accelerate innovation and commercialisation of environmental technologies, also secured its inaugural candidate for its accelerator programme. Headquartered in Singapore and sharing synergies with the Group, Century Water Systems & Technologies is an innovative and advanced water treatment engineering firm that specialises in water purification Nanofiltration ("NF") and Pervaporation ("PV") membranes and wastewater treatment systems and technologies.

We believe that these steps we have taken will put us in a good position to reap the benefits of a growing industry that is increasingly critical. In fact, the global water and wastewater treatment market is projected to reach US$674.72 billion by 2025, driven by the rising demand for freshwater for drinking, industrialisation and agriculture.

Geographical expansion

During the year, we expanded our footprint into the USA with the opening of our membrane manufacturing plant in Texas. The US$15 million state-of- the-art facility will manufacture Memstar's latest product, the Memstar advance reverse osmosis and nanofiltration membrane.

Alongside plans for a bigger share of the USA market, the plant will help the Group to expand its product offerings for new industries such as food and beverage, as well as pharmaceuticals.

With this new product as well as its existing microfiltration and ultrafiltration membranes, Memstar now offers a complete range of membrane filtration products. The US plant also takes the number of membrane plants owned by CEL to five, including one in Singapore, and three in China.

Financial Review

In FY2018, the Group posted net profit of S$113.2 million, a 41.6% growth from S$79.9 million in the corresponding period in 2017 ("FY2017"). Revenue for the period was S$994.5 million, 46.9% higher year-on-year ("YOY") from S$677.2 million.

This was achieved on the back of higher contributions across all our business segments. In particular, the Group's Membrane Systems segment clocked in a sterling performance, as sales in the segment more than doubled to S$255.1 million. The Group's core Engineering segment also turned in a strong performance with revenue of S$511.5 million in FY2018, an increase of 39.6% a year ago. Meanwhile, the Treatment segment, which provides a stream of recurring income for the Group, posted revenue of S$227.9 million, 24.0% higher than in FY2017.

To share our healthy performance with our valued shareholders, the Board has proposed a final dividend of 0.75 Singapore cent per share. Taken together with the interim dividend of 0.5 Singapore cent per share, total dividend for FY2018 will amount to 1.25 Singapore cents per share.

As at 31 December 2018, CEL's cash and bank balances stood at S$376.5 million. The group has a net current liability position of S$253.4 million due to the payout of Tranche 1 and 2 of the Group's Multicurrency Perpetual Securities of US$175 million and US$180 million respectively during the year.

Positive Outlook

Over the years, environmental protection has emerged as a top priority for the Chinese government. The 19th Party Congress has identified reining in pollution as one of China's "three tough battles" in the years ahead, with the implementation of a series of policies and laws aimed to improve China's environmental quality. In particular, China's 13th Five-Year Plan for National Ecoenvironmental Conservation that was issued in 2017, as well as the revised Environmental Protection Law and Environmental Protection Tax Law that came into force in 2018, have laid out the roadmap for national green development strategies.

According to estimates from the Environmental Planning Institute of the Ministry of Environmental Protection, an investment of 4.6 trillion yuan will be required to fulfill the goals set out in the Water Pollution Prevention and Control Action Plan.

On the back of increasingly stringent environmental protection regulations in China, growth in the industrial wastewater treatment market is expected to outpace that of municipal wastewater treatment, with growth rates of 5-10 per cent annually under China's 13th Five-Year Plan. By 2020, the scale of the urban wastewater treatment market is expected to reach 290 billion yuan, while the scale of the industrial wastewater treatment market will reach 230 billion yuan.

Taken together, this translates to greater opportunities for CEL as we look to leverage on our expertise to further entrench ourselves as the leader in China's environmental services sector. With our established track record in this field, CEL is wellpositioned to tap opportunities in China's burgeoning environmental sector.

Acknowledgements

Over the years, CEL has benefited from the strong leadership of our Board and the experience of our management team. I would like to take this opportunity to thank the directors for their counsel, and members of the management team for their strong and capable leadership of the company.

I would also like to thank all the staff of CEL for their valuable contributions and sacrifices in building CITIC Envirotech Ltd to be a premier integrated environmental services provider in China.

Last but not least, we are deeply appreciative of the strong support and trust from our valued shareholders. We will continue to work hard to create greater value for all of you.

Yours Faithfully,
Mr Hao Weibao
Executive Chairman and CEO