Wanhua Chemical : Annual Report of 2021

2021 Annual Report

Management Discussion and Analysis

Discussion and Analysis for Operation

In 2021, taking "cost reduction and eciency improve- ment" as its management theme, the Company actively boosted the talent innovation program, optimized the supply chain structure, and improved its operational ef- ciency. It accomplished its goals in safety management, talent cultivation, technical breakthroughs, management innovation, new project construction, operation of new facilities, acquisition & merger, and industrial integration, grasped the opportunity brought by the peak of global chemical industry, and brought the performance of the Company to a new height. Positively responding to the "carbon peak and neutrality" strategy of China, the Com pany made innovative arrangements in the new energy industry, made plans for future development of Wanhua and laid a rm foundation for the quality and sustainable development of the Company in the "14th Five-year Plan" period.

Market and Marketing

In 2021, the vaccination rate in major economies worldwide rose. Economy was recovering, which lifted global market demands for chemical products. However, aec- ted by extreme weather, the pandemic and other factors, part of overseas facilities were short of supply, resulting in large uctuations in global supply chains of the chemical industry, phased imbalance of supply and demand, and price increase of global chemical products. In 2021, the Company's MDI facilities in Yantai received technical reform and the million-ton ethylene industrial chain project and other projects with new capacity and facilities were put into operation, which improved the supply capacity in global market. With years of preparation in global supply chains and channels, the Company overcame diculties brought by the pandemic and other adverse factors, orderly guaranteed market supply for global core customers, expanded its share in global market, and the Company's brand reputation and customer satisfaction in the market were also signicantly improved.

The PU business segment made eorts in both products and solutions, which enhanced each other and maintained rapid growth. The Company mainly "expanded market resources, stretched overseas boundaries, amplied the synergistic advantage, deepened channel reform, and increased long-term interest". It enhanced cultivation and development of potential upstream and downstream industries, deepened the cooperation with global

WANHUA CHEMICAL GROUP CO., LTD.

quality customers, developed more room for market gr- owth, reserved more market resources and invested more in overseas marketing. The Company constantly improved its global supply chain management, implemented exible supply chain management mode, rationally allocated regional resources, reduced logistics cost, and improved customer service eciency. It enhanced its synergistic advantage, gave play to its advantage in polyether and modication technologies and services, and deepened combined marketing of products and solutions to provide integrated, dierentiated, systematic solutions, create value for customers, be the most trustworthy strategic partner of customers and a responsible supplier in the industry, and promote healthy and sustainable development of the industry.

The Petrochemical business segment insisted the "light assets and high turnover" strategy in 2021. While "con- trolling resources, expanding channels, and building sy- stems" on the supply chain, the Company constantly expanded global strategic purchase resources for LPG, took part in LPG operations, reduced purchase cost, and controlled purchase risks. By investing in VLGC and other transportation resources, it rationally controlled logistics costs, improved supply guarantee on the end of raw material purchase and competitiveness in cost. On the sales, it carried out work centering on "the marketing of values, strategies, and culture", actively boosted deepened cooperation mode for strategic customers, and formed the supply chain thinking and the business mode of value chain creation. As a result, it enhanced delivery eciency to customers, optimized customers' cooperation experience, and greatly lifted the depth, width, and satisfaction of customer cooperation.

The Performance chemicals business keeps rapid growth. In 2021, the ADI Business realized the transformation from a follower into a leader. With a shortage of global supplies, the Company made every eort to satisfy the needs of core customers and became the winner of the rst "Excellent Supplier Award" issued by Allnex. In 2021, the Emerging Technology Business Group realized notable sales growth in the water-based resin business and constantly promoted battery materials. Performance Polymers Business Unit further improved the competitiveness of PC products and the operation rate of PC facilities took a domestic leading position in 2021.

2021 Annual Report

In terms of brand building, centering on sustainable de- velopment, the Company tried to establish a good corporate image of achieving carbon neutrality, recycling re- sources, improving human life, and building a harmonious society and joined hands with the relevant parties to establish a brand ecosystem to continuously improve the brand inuence of the Company.

Production and Operation

1. Yantai Industrial Park

In 2021, centering on the management theme of "cost reduction and eciency improvement", the Yantai production base carried out work from reducing production costs, improving eciency, optimizing new facilities, optimizing the start-up of equipment, and optimizing designs.

In terms of production, the Company reached a new level of annual output in 2021. In the rst year of operati- on, the million tons/year ethylene facilities were operating with full load. In February, the technical transformation for the 1.1 million tons/year MDI facilities was com- pleted. Facilities in the industrial park maintained stable output, high yield, and guaranteed supply for global ma- rkets. As to overhaul, throughout the year, the Company completed major overhaul for 44 projects and key technical transformation for 10 projects.

In terms of engineering construction and production pr- eparation, following the management requirements of "lifting standards, strengthening processes, seizing the key points, emphasizing details, improving management, and enhancing eciency", the park improved its team with the standards for "talents with the six good qualities" and tried to build a rst-rate engineering construction team. In 2021, the park promoted a responsibility matrix for supervisors and contractors for PO/SM and BPA pro- jects, boosted cost reduction and eciency improvement with lean construction, and strengthened sample projects and the "5S" management for construction to improvement with lean construction, and strengthened sample projects and the "5S" management for construction to improve civilized construction on the sites. In 2021, Wanhua had 53 projects under construction, wherein 23 projects realized interim delivery.

2. Ningbo Industrial Park

In 2021, centering on the management theme of "cost reduction and eciency improvement", Wanhua Ningbo Industrial Park insisted on the idea of "customer-oriented and integrated park operation" and achieved historical breakthrough in production and operation.

WANHUA CHEMICAL GROUP CO., LTD.

In terms of production, the facilities were safe and stable and ran eciently. Multiple production indicators reached a record high. As to customer-oriented services, dynamic monitoring were implemented for 20 key indicators and extended from product services to services in the production process. In 2021, there were zero customer complaints about all the product series.

In terms of cost reduction and eciency improvement, the park started from shrinking accounting units (taking product lines as the units) and enhancing the sense of business (a business entity taking facilities as the prot center), and continuously created the lean culture, and tried to establish a ne industrial park with best ecie- ncy and optimal costs. As to transformation managem- ent, in 2021, the park comprehensively implemented the overhaul management system for the rst time, continued the ve requirements for projects, and formed

1. three-in-one(technologies+equipment+contractors) practice system taking the sub-commandpost of facili- ties as the responsible entity, work packages as starting points, process-based standard production as basic re- quirements, to comprehensively improve the quality of overhaul management.

3. Hungary BC Company

In 2021, the BC Company overcame diculties brought by repeated outbreak of the pandemic and synchronous implementation of production and key construction projects. The production facilities ran stably and eci- ently. The sales volume and prots of major products set new records.

BC Company overcame diculties caused by the pandemic and fully coordinated engineering resources to complete the technical transformation for the 350,000 tons/year MDI facilities. Facilities after overhaul and transformation have been put into operation. The production reliability of facilities was further improved.

As to procurement, BC Company strengthened synergistic procurement with the head oce by formulating synergistic procurement strategy for materials of key projects and the lean synergistic projects for raw and auxiliary materials. The procurement costs were consecuti vely lowered.

As to logistics, BC Company overcame the diculties brought by the pandemic and the shortage of transport ca- pacity. The delivery was smooth and the customer satisfaction and trust were largely enhanced.