Capital Environment : Interim Report 2023

MANAGEMENT DISCUSSION AND ANALYSIS

In the first half of 2023, the global economy demonstrated a momentum of recovery, as evidenced by the positive growth achieved by major economies, such as the United States, Europe, Japan and China. In the first half of the year, the U.S. inflation showed signs of easing and the interest rate hikes were on hold in June. The annualized growth rate of the gross domestic product (GDP) of the United States in the second quarter reached 2.4%, compared to a 2% growth rate in the first quarter. This ongoing improvement reflected a robust economic growth in the United States that exceeded market expectation. The European and Japanese economies grew relatively slowly, yet they emerged from last year's "de facto stagnation" and showed signs of moderate growth in reverse. Amid signs of global recovery, China adhered to the national development strategy outlined its 14th Five-Year Plan, and stepped up macroeconomic regulation to achieve steady economic performance and steady improvement in the quality of development, resulting in a gradual recovery of market demand, sustained increases in production and supply, generally stable employment and commodity prices and a steady growth in residents' income, with the overall economic performance improving stably. In the first half of the year, China's GDP reached RMB59,303.4 billion, up by 5.5% year-on-year and 1% higher than that in the first quarter, which is the most significant growth rate among major global economies, and has helped to drive the sustained recovery of the global economy.

In 2023, the "Government Work Report" delivered at the national two sessions pointed out that in the future, China will promote the blueprint for advancing Chinese modernization, with green development as one of the key elements. According to the report, China will increase its efforts on environmental protection to strengthen ecological environmental protection and promote green and low-carbon development, thereby staying true to the idea that lucid waters and lush mountains are invaluable assets and consolidating the results of the battle to safeguard blue skies, blue water and clean soil. Moreover, since this year the Chinese government has rolled out a range of proactive measures and policies to promote the realization of carbon peaking and carbon neutrality, covering such aspects as coordinated promotion of pollution and carbon reduction, green finance, eco-product value, construction of carbon markets, carbon sinks, accelerating the development of clean energy, and curbing the blind development of projects with high energy consumption and heavy carbon emissions and low efficiency. These measures and policies aim at promoting the shift towards green development, encouraging green production and lifestyles across the country, and further promoting green economy and social sustainability. Capital Environment Holdings Limited (the "Company"), together with its subsidiaries (collectively, the "Group"), actively aligned itself with national strategies to grasp market opportunities, and fully implemented the "14th Five-Year Plan" strategy and the overall deployment of "Eco+2025" strategic iteration of Beijing Capital Eco- Environment Protection Group Co., Ltd. ("Capital Eco Group"), a substantial shareholder of the Company. With a focus on capacity building and technological innovation, it has created a diversified value driver of "investment

• capability + service" to develop both asset-light and asset-heavy operations, supporting Capital Eco Group to achieve a multi-business portfolio covering "water, solid waste, air and energy" environmental services.

In the first half of the year, in respect of results of operations, the Group's total assets reached RMB20,174 million, representing a year-on-year increase of 0.18%; the turnover amounted to RMB1,909 million, representing

1. year-on-yeardecrease of 22.02%; profit for the period amounted to RMB135 million, representing a year- on-year decrease of 60.54%; and net profit attributable to parent company amounted to RMB150 million, representing a year-on-year decrease of 44.41%.

In terms of project reserves, the Group secured a total of 65 projects (including 27 waste-to-energy projects, 5 waste landfill projects, 6 organic waste treatment projects, 17 cleaning, collection and transportation and management projects, 7 hazardous waste treatment projects, 1 waste electrical appliances dismantling project and 2 biomass power generation projects) in the PRC, with a total investment of approximately RMB19,081 million, of which RMB16,652 million had been invested before 30 June 2023. The facilities are designed with an aggregate annual waste treatment capacity of approximately 14,506,000 tons and annual electrical and electronic equipment dismantling volume of approximately 1.2 million units.

MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)

During the period, the Group's projects in operation or trial operation reached 55, including 24 waste-to-energy and biomass power generation projects, 4 waste landfill projects, 17 cleaning, collection and transportation and management projects, 1 dismantling project, 6 organic waste treatment projects, and 3 hazardous waste treatment projects. Key tasks were carried out in an orderly manner according to the Group's scientific management plan. In the first half of the year, the Group completed domestic waste disposal of 4,886,900 tons, hazardous waste disposal of 24,300 tons, and a dismantling volume of 493,400 units, providing a total of 1,200 million kWh of on-grid electricity.

Quality enhancement: accelerating efforts to improve the quality and efficiency of existing projects Looking back at the first half of 2023, in view of the environmental industry being fully-grownin terms of size, the Group worked to reduce costs and increase efficiency, and leveraged on external resources. The Group focused on its environmental protection business, explored solutions for addressing the difficulties and pain points of the solid waste industry chain, and actively sought innovation and changes to achieve "high quality, stable growth, sustainability, new development and high value", turning uncertainty into certainty and launching a second curve of growth. Furthermore, by applying the basic concept of technological innovation, technology leadership and business integration, the Group has been steadily promoting scientific and technological research and development, commercialization of technology and mechanism innovation so as to find new impetus and incubate new businesses, building up its own competitive edges in an all-roundway. In the future, the Group will continue to find new tracks and directions for future development with a broader vision. The Group will upgrade its operations with a more determined approach, achieve the improvement of professional standards with more assiduous efforts, and further explore in-depthcooperation with potential partners in the sector under the three major corporate labels of marketability, execution and resilience so as to jointly move towards sustainability.

Solid progress was made in construction management. In terms of projects under construction, the Group has completed 72+24-hour trial runs for the incineration projects in Zhumadian and Nanle, and is proactively proceeding with final works such as the finishing works and defect elimination. The Group has expedited to promote two projects under construction, namely the one in Puer and the other in Nongan. In terms of newly-built projects, the Group has steadily promoted the preliminary work of project construction for the Nanchang incineration phase III project, and has proactively propelled the project preparation work for the Fangcheng incineration project. The Group strengthened the inspection, supervision and control of projects under construction, strictly controlled the construction progress, continued to enhance the quality control at the final stage of completion, and strengthened the safety management of construction sites and the investigation and rectification of hidden dangers.

Procurement management continued to be deepened. In terms of centralized procurement for cost reduction, the Group expanded the scope of centralized procurement and purchased four types of materials/services, namely filter bag cages, slaking lime, urea, and daily equipment maintenance services, through centralized procurement in the first half of the year, effectively reducing production costs. In terms of procurement management improvement, firstly, the Group has completed the development of equipment centralized procurement process for the construction phase; secondly, the Group continued to strengthen the control of bidding and procurement work, and further standardized the on-site management of the tender opening and evaluation process; and finally, the evaluation and classification management of suppliers for centralized procurement were carried out based on the characteristics of materials/services to centrally purchased.