Add New Energy Investment : ANNOUNCEMENT IN RELATION TO INTERNAL CONTROL REVIEW AND INTERNAL CONTROL REPORT

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Add New Energy Investment Holdings Group Limited

愛 德 新 能 源 投 資 控 股 集 團 有 限 公 司

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 02623)

ANNOUNCEMENT IN RELATION TO

INTERNAL CONTROL REVIEW AND INTERNAL CONTROL REPORT

Reference is made to the supplemental announcement (the "Supplemental Announcement") in relation to internal control review by independent professional internal control advisor (the "Internal Control Advisor") of Add New Energy Investment Holdings Group Limited (the "Company", together with its subsidiaries, the "Group") dated 11 November 2019.

As expected by the board (the "Board") of directors (the "Directors") of the Company in the Supplemental Announcement, internal control review was completed in early December and an internal control report (the "Internal Control Report") dated 13 December 2019 was issued by the Internal Control Advisor. The Internal Control Advisor was engaged to conduct internal control review with the main purpose of identifying the relevant potential internal control aspects for enhancements which led to the opinion of the Independent Auditor's Report for the year ended 31 December 2018 being qualified, and providing corresponding recommendations.

Upon the completion of the internal control review, major observations and recommendations were provided by the Internal Control Advisor in relation to credit risk management of customers and suppliers, management of master files of customers and suppliers, and identifying, monitoring and reporting connected/related parties and connected transactions, and are disclosed as follows:

Major observations and recommendations		Action plans
Record keeping of the reconciliation of	The Board made the major observations and
customers and suppliers should be improved	adopted the following recommendations:
The records of reconciliation with customers	•	The procurement and sales departments
and suppliers and results of checking were not		of the subsidiaries of the Group will
kept appropriately.		conduct reconciliation with customers
		and suppliers annually. Results of the
It is recommended by Internal Control Advisor		reconciliation will be reviewed by finance
that record keeping procedures regarding		department of the subsidiaries regularly
reconciliation of customers and suppliers of the		and properly kept.
Company should be improved.

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Major observations and recommendations			Action plans
Management of documents of customers and	The	Board made the major observations and
suppliers to be further improved		adopted the following recommendations:
The background search and information review	•	The inspection reports of suppliers and
of customers and suppliers were not kept		credit analysis reports of customers
appropriately for record.				prepared by the procurement department
				and sales department will be reported
It is recommended by Internal Control Advisor		in writing, and archived in enterprise
that internal management of documents should		resource planning system for record; and
be improved.
			•	The finance department personnel of
				subsidiaries will record periodically files/
				documents of customers and suppliers
				in enterprise resource planning system
				for internal sharing among the finance,
				sales and procurement departments. The
				said files/documents will be under joint
				management and updated every half year.
I d e n t i f y i n g , m o n i t o r i n g	a n d	r e p o r t i n g	The	Board made the major observations and
connected/related parties	and	connected	adopted the following recommendations:
transactions to be further improved
			•	The chief financial officer will be
The regular reporting procedures of identifying		assigned to strengthen the work on
connected/related parties	and	connected		identifying, monitoring	and	reporting
transactions were mainly in accordance with		connected/related parties	and	connected
relevant mainland China's rules and regulations		transactions, and the said work will be
only. Reporting connected/related parties and		supervised by the audit committee of the
connected transactions by subsidiaries should		Company (the "Audit Committee") and
also be strengthened.				internal audit department;
			•	The chief financial officer will review
				periodically the relevant	requirements
				and latest development of the Rules
				Governing the Listing of Securities on
				The Stock Exchange of Hong Kong
				Limited (the "Listing Rules") and
				relevant	accounting standards, and
				improve the policies and procedures
				relating to identifying, monitoring and
				reporting	connected/related	parties and
				connected	transactions and	maintenance
				of such records. The revised policies
				and procedures will be circulated to
				relevant staff for enhanced operation and
				processing;

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Major observations and recommendations		Action plans
It is recommended by Internal Control Advisor	•	A formal communication channel will
that the Company should improve the work		be established and regular meetings will
on identifying, monitoring and reporting		be held for employees of subsidiaries
connected/related parties and connected		to share the latest information of
transactions, and improve the written policies		identifying, monitoring	and	reporting
and procedures regarding the management		connected/related	parties	and	connected
of connected/related parties and connected		t r a n s a c t i o n s .	L i s t s o f i d e n t i f i e d
transactions in accordance with the latest		c o n n e c t e d / r e l a t e d p a r t i e s	w i l l b e
Listing Rules and relevant accounting		circulated to staff of subsidiaries; and
standards . The reporting procedure of
subsidiaries should also be strengthened.	•	Lists of identified connected/related
		parties will be formulated by way of self-
		declaration of the Directors and senior
		management, and chief financial officer
		will be appointed to update the lists
		periodically.

Save as disclosed above, some other observations were also raised by the Internal Control Advisor under their scope of works during the course of their internal control review, which mainly include the following:

1. Pricing policies - the sales pricing of main business operation was mainly set and proposed by individual salespersons by their market intelligence without written reports and study for documentary; gross profits were disregarded in pricing policy determination; and the thresholds of seeking fee quotation relating to purchase of commodities and assets were not specifically defined in current procurement policies;
2. Anti-fraudpolicies - there were no formal channel and contact person for employees reporting suspicious or identified fraud to senior management and/or Audit Committee; and the internal audit manager of the Group has cross roles as the finance manager of key subsidiary; and
3. Regular review of the design of internal control procedures - internal control procedures for existing business were applied to new business without any tailoring according to its own business processes; and written manuals of internal control policies and procedures were not regularly updated.

In response, it is recommended by the Internal Control Advisor that:

1. Pricing policies - standard operation procedures relating to pricing policies of the key subsidiary should be be updated; written reports and studies should be prepared and properly kept for record; gross profits should be considered in pricing policies determination; and the thresholds of seeking fee quotation relating to purchase of commodities and assets should be defined clearly in written policies;
2. Anti-fraudpolicies - a formal channel should be established, and contact person for reporting suspicious or identified fraud to senior management and/or Audit Committee should be assigned; and an additional person should be appointed to act as the internal audit manager; and
3. Regular review of the design of internal control procedures - internal control procedures for new business should be established; and written manuals of internal control policies and procedures should be updated regularly and circulated properly to relevant staff.

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The management agreed with the following action plans:

1. Pricing policies - above procedures will be updated; written reports and studies will be prepared and properly kept for record; gross profits will be considered in pricing policies determination; and the said thresholds will be defined clearly in written policies;
2. Anti-fraudpolicies - a formal channel will be established and the said contact person will be assigned to perform relevant duties; and an additional person was already appointed to act as the internal audit manager; and
3. Regular review of the design of internal control procedures - internal control procedures for new business will be established; and the said written manuals will be updated regularly and circulated properly.

The Board generally agreed with the above recommendations and action plans, and the implementation was conducted by the Company which comprises different phases and is still in progress. The following table sets forth the current stages and expected timetable of implementation:

Expected date	Implementation
From 2 December 2019 to	The Company will establish and formulate updated written
15 December 2019	policies and procedures and tables templates in relation to all
	recommendations provided by the Internal Control Advisor. These
	documents will be reviewed and approved by the management.
	Internal trainings will be held among personnel from relevant
	departments, and newly implemented policies and procedures will
	be circulated to them.
From 16 December 2019 to	Each relevant department will implement the recommendations,
22 December 2019	new policies and procedures.
From 23 December 2019 to	The person in charge of each relevant department will supervise
31 December 2019	and review the implementation of recommendations, new policies
	and procedures, and provide necessary recommendations to adjust
	the newly established policies and procedures.
From January 2020 to	Each relevant department of the Company will have strictly
March 2020	implemented the recommendations and revised policies and
	procedures.
In early March 2020	Internal Control Advisor will review and assess the results of
	implementation.
	By order of the Board
	Add New Energy Investment Holdings Group Limited
	Li Yunde
	Chairman

Hong Kong, 13 December 2019

As at the date of this announcement, the Board comprises three executive Directors, namely Mr. Li Yunde (Chairman), Mr. Geng Guohua (Chief Executive Officer) and Mr. Lang Weiguo; and three independent non-executive Directors, namely Mr. Leung Nga Tat, Mr. Zhang Jingsheng and Mr. Li Xiaoyang.

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