Dear colleagues,

Looking back at the year 2016, we feel it was an extraordinary year for the world, and more extraordinary for China. The G20 Summit was held in Hangzhou in a magnificent way, which not only uplifted Hangzhou to a higher level, but more importantly demonstrated China’s strength and charm to the whole world. The US presidential election ended in the Republican candidate, the property developer, Mr. Trump becoming the next US President. What destination will populism bring America to, how the process of globalization will be changed, and how should China react in this new political and economic order, will all re-write the world history greatly.

The Chinese economy was also turbulent. As the beginning of economic new normal, the GDP growth of the whole year was 6.6%, and no sign was seen for a robust growth. The property market blew hot and cold, and was stimulated and suppressed at the same time. The bulk raw material price fell in the beginning and then went up. The commodity prices went down continuously. The manufacturing companies therefore were hit at both ends, losing much of the profits. At the same time, they were under the pressure to cut the capacity, reduce the inventory, and undergo transformation and upgrade. Lots of small and medium sized companies were unable to survive.

With manufacturing as our core business, this year Xizi UHC met the most difficult challenges in our company history. It was also a tough test for our management team. Thanks to our advanced management tools, we can lock the raw material prices in advance, integrate the factories beforehand, and practice lean management in our entire operation and process, so that we can control our costs and cut down our expenditures. There is no secret for good management other than diligence, supervision and control. Fancy words or noble slogan do us no good. By doing every step well and by digging deep on every parameter, we can achieve RMB25.6 billion sales revenue for the past year, an 8.5% increase over the previous year. Under such background, this achievement is outstanding. It comes from the management bonus of our planning ahead and making integration ahead. Because of our thinking ahead and being flexible, we are now able to enjoy the pleasure at this moment. So here, on behalf of Chairman Wang Shuifu and myself, I want to express my sincerest gratitude and respect to all Xizi members who made their efforts and contribution to the company growth.

To summarize the year 2016, we carried out the reform at both the strategy level and management level.

Reshaping the share holding composition to sort out the management structure

Since 2015, Xizi IUK has gradually been buying all shares owned by the foreign partner. Up to now Xizi has become the dominant share holder of the company, and the management personnel also participated in the share structure reform. The company name was officially changed to Xizi Intelligent Parking System Co., Ltd. After the share structure is clarified, the company will move toward the direction of joint stock holding system, and the decision making process will be more efficient and coordinated. The management team has strong confidence in the bright future of parking service industry, and the company will continue to unfold a new chapter in the capital market.

In the boiler sector, after another deep level integration of shares, Hangzhou Boiler Group further increased the shares of Industrial Boiler, which will provide greater support and guidance to the development of Industrial Boiler. The future strategy and positioning of Industrial Boiler will become much clearer, and the whole company will bring all forces together to achieve the common goal. The electrical and technology company also reform the share structure, with Hangzhou Boiler Group becoming the majority share holder, building a good foundation for the new round of development.

In the real estate sector, we bought all the shares owned by Green Town in Qinshan Lake Rose Garden, Royal Garden and Green Town Xizi Property Management. These have become the projects solely owned by Xinhuayuan. The Xilu Yard Villa project is redesigned and enjoys great popularity in the market; for Tonglu Daqishan project, we negotiated the management structure with our partners to improve the product quality; for Xixihai project we sold our shares. By adding some and cutting off some, we can better use our resources and strength. With sharp market sense, we can grasp the pulse of demand more accurately, carry out lean management in greater depth, and develop products welcomed by customers more rapidly. Thus, the direction and dream of Xinhuayuan are becoming much clearer.

On the top level share structure design, Xizi UHC, as the majority share holder, will make plans for the company in a better way. From the perspective of long term development, it will make decision making and execution more smoothly and efficiently. In the future, Xizi UHC will try to become the leader in many industries, and will lead these industries using its leading position. At the same time, a community of interests has been formed with the management people, which will give better incentives to them in pursuing better accomplishments, realizing his/her own value and also the value for the company. In this system, excellent management people can grow and enjoy the work. In the future, we shall firmly stick to the share holding mechanism for excellent management people, and form a culture of gathering dreams and sharing growth.

Organizational restructure, and improvement on human resource structure

In the elevator sector, Tianjin Xizi, Chengdu Xizi, component sales and screen door business departments have fresh people joined in the management positions. Especially I want to mention two young people Song Ping and Zhang Weichu. They responded to the company’s call at the most needed time, gave up their comfortable life in Hangzhou, accepted the challenges and went to Tianjin to optimize the production and improve the quality. We should give high praise to their determination and spirit, and should learn from them. Forward also promoted an executive vice president to be in charge of the operation and management, so that the general manager can focus more on product research and development. Our Yuqian factory also has a new general manager in position.

In Hangzhou Boiler Group’s headquarter, the two new vice presidents that just got on board this year also made a lot of contribution to the savings in procurement and to sales. Industrial Boiler also divided the business into two sectors, with two general managers in charge of each sector. One general manager is in charge of the sales of industrial boiler, and the other in charge of the new railway logistics business based on the Anji base. Thus it enhances the foundation, and meanwhile seeks new development. We hope that the two general managers can bring the respective company to a new height, and build a solid foundation for the future development of Industrial Boiler and even Hangzhou Boiler Group. General Boiler also faces the question of development. A Xizi UHC veteran was appointed to the management position, which we hope will not only bring new management ideas into the company, and more importantly find a future development road for General Boiler.

It is the same for Finance, Baida and Real Estate sectors. New people are joining the company, small business teams are formed and compete with each other which forms a good competition environment. Later this year grand openings of Ninghai Xizi International and Qingchun Xizi International were held, which was the best evidence of team work and team optimization.

Where there are new people, there is energy and new changes. Allowing more young people who have the capability and who have the innovation spirit to go to important management positions, not just gives these youngsters an opportunity, more importantly gives the company a development opportunity. Organization restructuring is the secret to enable a company last long. A company has to look after people who care about the company and who can achieve goals. People who share the same ideas and interests with the company, who care about the company and are willing to make contribution and sacrifice for the company, who are eager to make accomplishments are those we should assign important roles to. On the contrary, people who don’t care about the company and who can make no achievements are those we should get rid of without any doubt. Here I want to stress again our human resource strategy that we should combine experienced people with young people, and people who grow to the management positions from inside with people we recruit from outside. Everybody has his strength and weakness. What an excellent team does is to bring together the respective strong points to achieve maximal synergy effects and management efficiency.

Lean management, pursuing profit improvement

The implementation of lean management is our constant goal at this changing time. It goes through all operation aspects of the company.

Trust Tech and Optimax continue the industrial optimization work and cut down the management cost by utilizing the scale effect of the company venue. The Lin’an Base of elevator components is coming into being. Management integration also took place in Tianjin and Chengdu factories. As a result, manufacturing has been uplifted substantially, and the management and team members have a refreshed spiritual attitude. In the coming years, we need to continue the integration of manufacturing in the three factories in Hangzhou, to really integrate the production management. At the macro level, we need to emphasize strategy planning and technical innovation, and at the tactic level, we need to continue to control cost and reshape the workflow.

This year Xizi Forward is the only small and medium-sized company to be rewarded the Zhejiang Provincial Government Quality Award and received the honor from the Governor himself. This is not only the recognition and praise for the total quality management adopted by Forward, but also the encourage for the whole Xizi UHC in its hard work for the pursuit of excellent quality, and the urge on the enhancement and extension work following the quality award. Forward has been taking the No.1 position in the elevator main machine market in China, which has close relationship to its emphasis on product innovation and quality. After having enjoyed the benefits from industrial extension from the previous couple of years, Forward now is showing its determination in further integration. The Yuqian Base in Lin’an broke ground at the beginning of this year, and the first phase of factory building will be able to start operation next year with a production capacity of 35,000 tons. In 2017, we need to continue the resource integration of the two factories, and improve the product liability to further enlarge the competitive advantage of our products.

Xizi Intelligent Parking has a good year. We need to learn from it the level of fine management on site. The newly developed intelligent parking system was highly praised by provincial and municipal government leaders during G20 Hangzhou Summit. The parking service industry has a bright future. We need to plan in advance the extension of the industry, accelerate the usage of Internet APPs in the parking industry, and seek breakthrough in AGV intelligent parking technology.

Facing a difficult market situation, New Xi’ao Group adopted a flexible approach, made technical innovation, improved brand image and service quality, established good relationship with the partners, and effectively increased the client recognition. The sales of its three member companies all went up by some percentage, and the group has become the true national brand leader in the elevator industry.

Hangzhou Boiler Group was successfully listed as the Key Company of Zhejiang High-end Equipment Manufacturing. It has made great achievements in new products and new technologies, including the first set 9HA gas turbine bypass system in the world, the successful deployment of China’s first large scale salt melting energy storage opto-thermal power station in Delingha, and the large (700 ton/day) intelligent trash incineration complete equipment was exhibited in the science and technology achievement exhibition of China’s 12th 5-year plan period. All these products and technologies are in the leading place in China and even in the world. The company continues to optimize the management from 6 parameters, and make digital management a new normal. Each department has a clear KPI and is implementing it satisfactorily, and each branch company has a clear goal and dedicated people to manage it. By sorting out historical issues and creatively applying lean management philosophy to solve them, it has achieved very good management benefits. In the future, from the operation perspective, Hangzhou Boiler Group needs to think carefully the coordination between the branch companies and the headquarter, the integration of factory manufacturing, and the technical innovation. From the perspective of development, it needs to think over capital operation and the construction of intelligent town.

For Xizi Aviation sector, the year 2016 is a milestone year. Xizi Aviation has obtained 256 certifications of special technique qualification for five major aviation companies in the world, including European Airbus, American Boeing, Canadian Bombadier, China COMAC, and China AVIC. It has successfully delivered the first piece product of front landing gear compartment for Airbus A320. Now the world’s best-selling airplane is equipped with parts manufactured by Xizi. This was a new starting point for Xizi Aviation as the supplier of Airbus. It indicated the advancement of Xizi Aviation’s manufacturing capability from component to large and medium complex structural pieces. Shenyang Xizi Aviation signed a pilot cabin interior decoration project agreement with Boeing, signifying that Shenyang Xizi Aviation has become the first private Chinese company among Boeing’s 2nd-tier suppliers in China. Along with Zhoushan being chosen by Boeing to become its first and only overseas assembly and deliver center, Xizi Aviation will meet the once in a blue moon opportunity. We can only become better by working with great companies. As the top level manufacturing industry, aviation manufacturing can reshape a company and guide a company to overcome the difficulties in transform and upgrade. Xizi Aviation’s entrance into the international aviation manufacturing supply chain indicates that Xizi UHC now has the capability to become a world class company.

Facing the difficult situation, Xizi Heavy Industry on one hand seeks breakthrough in the market, on the other hand carries out lean management to cut down the costs. It has made various achievements in 2016, including strengthened cooperation with important clients like Toshiba, Hyundai, and Kuntong; official release of economical cargo elevator and economical escalator; square tube line put into operation and reaching the expected production output, and self production of escalator main drive from outsourcing with performance better than the target; optimization of business management flow and improvement on material management platform; being awarded the Provincial Level Enterprise Technology Center title. In 2017, it will push forward the development of 20-ton heavy duty cargo elevator and 15m lifting height escalator, as well as the market exploration of customized elevator on existing buildings, to enhance the competiveness in serving the market.

The Modern Service sector has also been implementing lean management. Detailed breakdown of expenditures, capital usage, profit and other performance assessment indicators are made by project and by team, making it very easy to compare the performance of different teams simply by numbers. The real estate company usually deals with large quantity and large amount in supply. The collective procurement and bidding approach adopted this year is the best way of lean management. It should learn to better understand the macro situation, the target area and the land supply, lead product innovation, customer needs and service to property owners, create a land buying strategy, a product handbook, and a service bible. In the future, Baida Group needs to find suitable industry and targets for investment and acquisition. Using Ninghai Xizi International as the operation model to form a new type of business model and cultivate a batch of talented business people. For Finance, it should keep close watch of the risks and stay prudent.

The future is coming toward us at an incredibly fast speed, which has many good things but also a lot of uncertainties. The global economy is at a long period of turbulent time. The keynote of Chinese economy next year is “seeking progress in stability”, with the GDP target no lower than 6%. However, it will be more difficult for the economy to keep stable as compared to the year 2016. China’s previous advantage in cheap labor is gradually turning into its disadvantage. At the time of Internet age, no industry can stay unaffected, where cross-industry acquisition happens at any time, and the company faces the pain in transformation or end of business if it chooses not to transform. Danger is everywhere. A company has no choice but to do everything it can to prepare for the winter. The famous Japanese entrepreneur Inamori Kazuo once said that if a bamboo only grew higher but without the joint, it would lose the tenacity and become more fragile. A company is like the bamboo. If it does not experience difficulties, it is like a bamboo without joints and will break down easily. Only companies that sustain the tests of harsh times are great and real companies.

Therefore, under this situation, the company credibility becomes more valuable and risk control is more important. Risk management should not only focus on beforehand evaluation and screening, but should also pay enough attention to process management, and make sure the measures are fully implemented. Otherwise, the evaluation has no meaning, and correct decisions will also turn into undesired result if the implementation process is distorted. At that time the good expectations will only live as our fantasy. Risk management should not only pay attention to the abundance of capital flow, but also lower the leverage ratio. The risk of leverage is self-evident. It gives very attractive prospect, but quite often a small unexpected crack at the macro or micro level will turn into a catastrophe. So we must stay vigilant and lower our ratio of loans to minimize the risk.

This year and even in the long period afterward, lean management and increasing income while reducing costs will be the on-going subject. Under the situation of pressure from increased raw material prices and falling sales prices, we should on one hand try all means to expand our income, and on the other hand spare no efforts to cut the cost. We should stick to the real economy, lay emphasis on technical innovation and quality improvement, which are the foundation and source for our existence and development. We should stay concentrated and root ourselves firmly in the manufacturing industry. The advice that Liu Bowen gave to the Emperor Zhu Yuanzhang, which states staying vigilant, making good preparation and keeping a low profile, still has good inspiration on our cause in the manufacturing industry and grow ourselves stronger. All people in the management should think about it carefully.

In the future economic time, lots of people will complain about competition. In fact, competition is everywhere. You don’t need to worry about competition itself. What you need to worry about is do you and your organization have the competitiveness. You and your team need to work hard to learn from great companies, for their optimism and fighting spirit when facing difficulties, their aggressiveness and sense of crisis when meeting challenges, need to make yourself and your team better and have more wisdom and courage. The less you are frightened by the difficulty, the more determined you will be to overcome the difficulty. Wisdom comes from continuously updated knowledge, and courage comes from a healthy strong body. Many people complain about being obsessed by lots of work, and having no time to do any thinking. Time is equal to everyone. To do more than others, you need to try your best to get more time. A great person must have time to think about strategies and other great things, and must on the other hand have time to execute the tactics in details. So, please run against time, run against opportunity and run against the future.

The future Chinese economy will only make the strong players even stronger. It will bring new opportunities for Xizi. We need to have the wisdom to find the gold from a pile of sand. For example, to ensure the sustainable development of Chinese economy in the middle to long term, the government will spend more efforts in pushing forward the structural reform. We need to see clearly our strength in the structural reform, and also grasp opportunities in the acceleration of state enterprise reform. We also should carefully study the potential opportunities in big health, big environment protection and big data industries. With our strength and courage, we have been successful in starting the business, then we can also be successful in making the innovations.

The future will be difficult, because the time of big growth has passed. The future will also be good, because the time of intelligence has come. The anticipated future by the past generations is becoming true. This will be an exciting time for us, and also a time with unprecedented challenges for human race. Whether machine intelligence will overpass human being will become the hottest topic in the future, and is also the most interested issue by the general public. Each time has its own hot spots, as well as painful spots. However, we should always remember that:

Even the whole world falls into sleep, you still need to march forward by yourself, and even all others get lost, you still need to stand up and stay progressive.

Taking this opportunity, I sincerely thank each of you for your hard work and dedication. Wish all of you good health, great prosperity and a happy family.

Xizi UHC President Chen Xiaxin