TO ALL SHAREHOLDERS,

On behalf of the board of directors of Wasion Group Holdings Limited (the “Group”), I am pleased to present the operating results of the Group for the financial year ended 31 December 2016.

During the year under review, the Group recorded turnover of RMB2,607.5 million and the net profit amounted to RMB307.27 million, representing a decrease of 27% over 2015, mainly due to the decrease of sales revenue and the increase of financing cost. Basic earnings per share were RMB30 cents. The board of directors has proposed to pay a final dividend of HK$0.24 per share to show the confidence of the board of directors in the long-term development of the Group and reward the shareholders for their continuous supports. During the year under review, the three major businesses of the Group, including Advanced Metering Infrastructure (AMI), Advanced Distribution Operations (ADO) and Smart Meter (SM), had achieved healthy development and continued to maintain our advantages in the market competition. On the other hand, the comprehensive gross margin had slightly increased by 1% due to the rigorous selection of purchase orders with reasonable returns and the strengthened cost control.

In view of various serious challenges in the macro environment throughout 2016, the Group had persisted in the operating guideline of “Seeking Progress in Stability” to seize the future market opportunities, continued to respond positively and prudently to the risks and opportunities in all respects, and gradually developed the Group’s businesses at a solid pace. Meanwhile, the Group had actively optimized the customer structure and substantially increased the portion of overseas and non-grid customers during the year under review, which had become one of the important cornerstones for the healthy development of the Group in the future.

In respect of SM business, the Group won three contracts in the biddings of State Grid at total amount of RMB600 million, and two contracts in the centralized biddings of China Southern Power Grid at total amount of RMB330 million, both of which had been ranked in the forefront with outstanding performances.

AMI business had been steadily developed as well. Focusing on a new generation of power technology and a new generation of communication technology, the Group had committed itself to the R&D of the next generation of smart meters for the whole AMI market to continuously lead the development of the industry. Meanwhile, the Group had actively expanded the relevant business in the market opportunities of big data monitoring and analysis upon the micro-grid and electric power, making full use of our technologies in measurement, monitoring and supervising. In respect of fluid metering solutions, with the project experiences in Changsha and Panjin, etc., the Group had seized the opportunities in the national escalating pricing system and the “Water and Gas Supply & Sewage and Waste Treatment” policies, continued to improve the operating of being on a shortlist in the key markets, and increased the market share steadily.

In respect of overseas markets, the Group had maintained the leading position in the markets of Tanzania, Bangladesh and Egypt, etc. with outstanding performances in self-support market under its competitiveness and brand. The access to emerging markets of Mexico, South Africa and Brazil etc. had been obtained as well, through the cooperation with Siemens. Since Europe had promoted smart grid transformation in the past two years with a huge market space, the Group had actively seized the opportunity to enter the European and American markets and successfully signed a contract in Austria in early March, 2017. Austria has been a pioneer in the construction of a smart grid in Europe, and the Group believes that the entry into Austria is an important step for the Group to enter the European market. While continuously deepening the cooperation with Siemens, the Group had started the technical cooperation with some international giants, including Itron, LSIS, Huawei and CISCO etc. to actively promote the technical standards of China to go to international markets and further enhance the technical capacity of the Group in systems and solutions, in order to lay the foundation for the future development in new markets.

ADO business had been actively developed in the year of 2016 with satisfied growth rate. Focusing on the industries of rail transit and data center, etc., the Group had taken the initiatives to improve the cooperation with non-grid customers in the year, from which the revenue had been significantly increased. In respect of system integration, the solution containing cloud platform had been devised in the year to offer online and offline quality services for industrial and commercial customers and ensure the safety use and effective conservation of energy.

During the year under review, the Group had combined the data collection terminal business and water, gas and heat metering business of existing AMI unit into the segment of “Communication and Fluid Advanced Metering Infrastructure”, whose spin-off for separate listing in a Chinese stock exchange had been considered by the Group, as disclosed in the announcement in September 2016. The remaining smart power metering business will be combined with SM unit to the segment of “Power Advanced Metering Infrastructure”, while ADO unit will remain unchanged. The Group believes that this will help to concentrate the resources to seize market development opportunities more accurately.

Looking forward, the Group really appreciates the trust and support from our customers and shareholders in the past year, with whom the Group has been developing steadily and healthily. Although the global economy is facing the increasing difficulties, and the economic growth of China is still exposed to many uncertainties, the energy market of China, supported and promoted by the country, will meet a great reform. We will seize the opportunity to transform ourselves from an equipment supplier to a comprehensive service provider of Energy Internet.

We will persist in technological innovation and continue to lead the upgrades of technologies and products in the industry. Since AMI is the basis for the development of national smart grid, focusing on the overall market trends of AMI and being the major participant in the standards formulation of new generation of smart meters in State Grid, the Group has been committed to the R&D of new generation of smart meters and high-end gateway meters and prepared adequate technologies and products for the continuous leadership in the upgrades of AMI technologies and products.

In the field of communication solution, the Group has acquired Zhuhai Zhonghui Microelectronics Co., Ltd. successfully, which has further improved the industrial chain of the Group and enhanced the communication technological level in the strategic emerging industries, such as Internet of Things and Energy Internet, etc. to meet various market demands under the global regional differences and environmental differences and continuously improve the comprehensive technical strength and market competitiveness.

Meanwhile, the Group will continue to increase its investment in water metering business. With the technical advantages of smart metering and the successful model of being on a shortlist of numerous water companies, the businesses of the Group, including smart water system, automatic water control and distinguishing water supply, etc. will achieve rapid breakthrough and sustainable development. The Group also believes that the gas supply and heating supply market of China will grow rapidly in the future with the supports from the escalating pricing policy and heating metering reform, which will benefit the long-term development of the Group’s relating businesses.

In respect of ADO business, the Group has been actively participating in the pilot project of electricity market reform, represented by the incremental distribution pilot park, to explore new businesses including electricity sales, operation and maintenance services and comprehensive energy services. At the same time, the Group will seize the investment opportunities in the constructions of the distribution grid, rail transit and distributed energy as well as the industrial energy conservation and emission reduction, improve the marketing by taking the advantages of existing customer resources in the power grid, promote the ADO system solutions and engineering services, and be determined to become a leading integrated provider of ADO.

In respect of overseas business, we will actively respond to the national strategy of “One Belt One Road” and establish the strategic cooperation with the central enterprises to full play the general contracting capacity of the Group in the metering construction and seize the large-scale transformation opportunities in power distribution, distribution network and water and gas supply in the countries along “One Belt One Road”. On the one hand, the Group will develop its own brand and marketing channel to further expand the businesses in traditional markets, transform from the power metering business to the coordinated development of water, electricity and gas business and system services business, and strengthen the promotion of products and technologies in Africa, Southeast Asia, South Asia and Eurasian Union (formerly known as CIS countries), etc.; on the other hand, relying on the strategic cooperation with the international industry leaders, the Group will improve the product technology, quality and brand capacity, and actively participate in the smart grid, water and gas engineering construction in EU, Central and South America, etc..

The Group’s innovative business will focus on the research and application of energy storage technology and inverter technology. In respect of energy storage technology, we will continue to deepen the R&D of liquid metal batteries and implement the research of power battery cascade utilization and Battery Management System (BMS). In respect of inverter technology, we will focus on the R&D of intelligent inverter based on micro-grid and virtual synchronous machine technology to provide the Group with key technologies in micro-grid business and ensure the core competitiveness of the Group in the new business areas.

Summing up the year of 2016, in spite of various difficulties and challenges, we had operated the Group carefully, faced the problems directly, overcame all the difficulties and marched forward persistently. Looking forward, facing the infinite field of energy measurement and energy efficiency management, we will not forget our initial determination, and will uphold the mottos of operation which is “Perfect Work with Passion, and Success achieved with Integrity” to highly respond to market changes and customer requirements. We will also persist in the operation and management direction of “March Forward through Continuous Innovation” to promote “technology and product innovation, market and sales innovation, operation and service innovation, management and mechanism innovation”, and realize our ambitious vision of “Continual Innovation Contributing to Wasion’s Centennial History”!


Yours faithfully,
Ji Wei
Chairman

Hong Kong, 21 March 2017