INNOV’s 2022 Annual Board Operation Review

The content of Innovo’s 2022 annual board of directors management review is as follows:

1. Business Overview

business model:

Since its establishment in 2003, it has focused on the development of the main business of polyurethane, focusing on the R&D, production and sales of EO and PO downstream derivatives, extending the industrial chain vertically, diversifying horizontally, resisting the periodicity of the chemical industry, and improving the ability to resist risks. Adhere to technology research and development as the drive, customer demand as the guide, close to the market in depth. Relying on years of technology accumulation in the field of EO, PO and AA downstream derivatives, taking advantage of independent innovation, developing high value-added products, and improving market competitiveness, polyurethane prepolymers are already in the leading position in the industry. aspect has a leading role. Polyether, combined polyether, polyester polyol and other series products have stable quality, stable growth in market share, and outstanding competitive advantages. Through continuous technological innovation, the development of differentiated products, the provision of diversified services, and the advantages of the upstream and downstream industrial chains, the company's profits have continued to grow.

1. Sales model

The company mainly adopts the product sales model of "payment first and goods later". The company implements a strict credit policy, and only gives a certain credit line and credit period to a small number of high-quality customers with high reputation or stable cooperation, considering factors such as their qualifications, cooperation situation and sales scale. The company's products are sold by the business department, which is divided into different business departments according to the products. The personnel of each business department are composed of sales personnel and R&D personnel, forming a departmental structure of "research and sales integration", and giving full play to the vitality of the business department. The company mainly adopts the direct sales model for product sales, subdivides customers, digs deep into customer needs, increases the development of strategic cooperation customers, conducts market expansion in a planned way, and improves marketing efficiency. While deeply cultivating the domestic market, the company actively explores the international market. In 2016, the company officially established a Dubai office. In 2017, the company established a Vietnam office. The products have been exported to more than 60 countries and regions in Southeast Asia, the Middle East, Europe and the United States. The company's export business has a strict system process, from customer inquiry, contract signing, production and stocking, chartering and booking, commodity inspection, export declaration, preparation and copying of customs clearance documents, delivery of documents to final file archiving are carried out in strict accordance with the standards , to control the foreign trade risk. At the same time, during the process of customers using the products, the company will provide continuous technical guidance, and the R&D team will go deep into the customer's production site to provide customers with high-quality consulting services.

2. Procurement mode

Procurement adopts the mode of combining centralization and decentralization, and adopts the method of centralized procurement for bulk raw materials. Integrate the resources of each subsidiary through centralized procurement, give full play to the advantages of large-scale procurement, obtain more favorable prices, avoid repeated procurement of similar products, reduce procurement frequency and supply-demand docking costs, reduce procurement costs, and improve procurement efficiency. During the reporting period, the procurement channels were improved, strategic partnerships were established with some suppliers, and annual plans were determined to ensure supply. Establish a complete supplier evaluation system, regularly evaluate suppliers objectively from different dimensions, select high-quality suppliers to establish long-term, close, stable and friendly cooperative relations, and ensure the stability of product quality and timeliness of supply from the source .

3. R&D model

Adhere to focus on the main business, professional focus, adhering to the concept of scientific development and high-quality development, adhere to technological innovation, quality first, with continuous supply of technology, strengthen product quality improvement, and enhance the core competitiveness of enterprises. Adhere to the market as the center, meet customer needs as the goal, new product development project management, regular scheduling, the effect is remarkable. Keep an eye on the market, continue to upgrade formulas and processes, form a differentiated product system, expand product application fields, and increase market share. Emphasis on scientific and technological innovation and personnel training, and Shandong University of Technology, Qingdao University of Science and Technology

Domestic colleges and universities such as China University of Science and Technology maintain a cooperative relationship between industry, education and research, set up post-doctoral workstations, and continue to promote joint training of high-end talents. Now it has three major research and development platforms: Shandong Engineering Technology Research Center, Shandong Enterprise Technology Center and Shanghai Jinshan Enterprise Technology Center, laying a solid foundation for product innovation and development. As of the end of the reporting period, the company has independently researched and developed more than 420 patents for inventions and utility models, with continuous research and development capabilities and obvious advantages in technological innovation.

4. Production mode

During the reporting period, we continued to promote lean management, driven by customer demand, and focused on reducing inventory, shortening cycle time, improving quality, improving resource utilization efficiency, and reducing waste. The safety management system, quality management system, and lean management are integrated and mutually promoted to improve the operating standards of employees and the management level of team leaders. Build a standardized workshop in the order of sorting, rectification, cleaning, cleaning, and quality, and promote the improvement of production site management. At the same time, employee morale, corporate culture, leadership, and production technology have all been improved during implementation, enhancing the competitiveness of the company. Shorten the process time from the generation of customer needs to the realization, greatly improve customer satisfaction, which is conducive to the stability and continuous expansion of the market.

1) Sign annual procurement contracts with leading suppliers in the industry to ensure supply.

2) Make use of the advantages of import and export channels, adjust the procurement channels of bulk raw materials in a timely manner according to changes in the international market, and actively respond to fluctuations in raw material prices.

3) Process improvement, equipment and facility renovation, reduction of production and manufacturing costs, detailed control of various costs, cost reduction and efficiency increase, reduction of energy use, and reduction of energy dependence.

4) Optimize the product structure and increase the development of new products and high value-added products.

2. Risks and countermeasures of safe production

The company and some of its subsidiaries need to use hazardous chemicals such as EO, PO, and MDI as raw materials in daily production, and some hazardous chemicals are flammable and explosive. Although the company has obtained the license for the use of hazardous chemicals and registered hazardous chemicals in accordance with relevant regulations, has formulated a relevant safety production management system and strictly implemented the system, and the company and its subsidiaries have not had any incidents affecting production and operation during the reporting period. Major safety production accidents. However, based on the dangers of hazardous chemicals themselves, if accidental factors intervene to cause safety production accidents, it will affect the normal production and operation of the company.

Responses:

1) The company implements safety management for all employees, and the management at all levels is responsible for their own safety, insists on risk management and control as the core, and strengthens the responsibility of the main body of safety management.

2) Identify the latest safety-related laws and regulations and revise relevant safety management systems in a timely manner, conduct training and education on management systems, and enable relevant personnel to know, understand, and use the laws.

3) Focus on the management and control of major hazards, formulate an implementation plan for the safety management of major hazards, implement the responsibility system for major hazards, specify the person in charge of operations, technology and main persons in charge, and implement daily management in place.

4) Continue to implement engineering technical measures and continuously improve the intrinsic safety management level. According to the production process, focus on five aspects of project construction, process design, start-up and shutdown, inspection and maintenance, and abnormal handling, and conduct in-depth analysis to improve process safety capabilities.

5) Carry out a comprehensive hidden danger investigation, establish the concept that hidden dangers are accidents, eliminate major hidden dangers, reduce common hidden dangers, resolutely achieve zero harm and zero accidents, strengthen red line awareness, establish bottom line thinking, and improve safety awareness.

3. Environmental risks

The company belongs to the chemical industry, and there will be a certain amount of waste discharged in the daily production process. If it is not handled properly, it may have a certain impact on the environment. With the country's increasing requirements for environmental protection and cleaner production, and the further stringent environmental protection standards, the company may need to continue to increase investment in environmental protection in the future, resulting in increased production and operating costs, which will affect the company's operating performance to a certain extent.

Responses:

1) Identify the latest laws and regulations related to environmental protection and revise relevant environmental protection management systems in a timely manner, and conduct training and education on management systems.

2) Increase investment in environmental protection facilities, adopt advanced environmental protection facilities in the industry, ensure that pollutant emissions are lower than the standards required by relevant laws and regulations, and do our due obligations for environmental protection and ecological restoration.

3) Actively carry out clean production, link production, technology, technology and other departments to improve production technology, source control, and reduce the generation and discharge of pollutants.

4) Carry out a comprehensive investigation of environmental hazards to ensure the normal operation of environmental protection facilities.

4. Risks and countermeasures of tax incentives

The company and its subsidiaries Yinuowei New Materials, Dongda Chemical and Dongda Polyurethane are currently high-tech enterprises and enjoy a corporate income tax rate of 15%. According to the relevant provisions of the "Administrative Measures for the Identification of High-tech Enterprises" (Guo Ke Fa Huo [2016] No. 32) and the "Guidelines for the Management of High-Tech Enterprises Certification" (Guo Ke Fa Huo [2016] No. 195), after 3 years Re-certification is required. If the above-mentioned entities fail to pass the re-certification of high-tech enterprises in the future, they will no longer enjoy relevant tax incentives and will pay corporate income tax at a rate of 25%.

Responses:

1) Innovation is the primary driving force leading the development of an enterprise. Continue to increase the ability of scientific and technological innovation and accelerate the research and development of new technologies and new products.

2) Continue to carry out in-depth cooperation with colleges and universities, make full use of college resources, give full play to the advantages of the company's talent accumulation, and accelerate the company's continuous research and development capabilities and technological innovation advantages

5. Exchange rate fluctuation risk and countermeasures

The impact of exchange rate fluctuations on the company is mainly manifested in two aspects: first, if the RMB continues to appreciate sharply, the price advantage of the company's products in the international market will be weakened, thereby affecting the company's operating performance; second, the company's export business is mainly in US dollars Settlement, exchange gains and losses have a certain impact on the company's performance. As the company's overseas sales revenue continues to increase, if the RMB exchange rate is unstable in the future, the company may have greater exchange risk due to exchange rate fluctuations.

Responses:

1) The international trade department of the company keeps up with market conditions and chooses USD or RMB for settlement according to exchange rate fluctuations.

2) The International Trade Department and the Finance Department keep an eye on the exchange rate trend and settle foreign exchange in a timely manner to avoid exchange rate risks, increase exchange income, and ensure the profit margin of the company's export business.

Second, the company's export business is mainly settled in US dollars, and exchange gains and losses have a certain impact on the company's performance. As the company's overseas sales revenue continues to increase, if the RMB exchange rate is unstable in the future, the company may have greater exchange risk due to exchange rate fluctuations.

Responses:

1) The international trade department of the company keeps up with market conditions and chooses USD or RMB for settlement according to exchange rate fluctuations.

2) The International Trade Department and the Finance Department keep an eye on the exchange rate trend and settle foreign exchange in a timely manner to avoid exchange rate risks, increase exchange income, and ensure the profit margin of the company's export business.