The Making of a Green Shirt – Sustainable Manufacturing through A Vertically-Integrated Supply Chain Dr. John Cheh Vice Chairman & CEO, Esquel Group Oct 19, 2011 ESQUEL GROUP

The Making of a Green Shirt ESQUEL GROUP

Esquel’s Vertically-Integrated Set Up The Making of a Green Shirt Esquel’s Vertically-Integrated Set Up Cotton Farming Spinning Weaving/Knitting Garment Manufacturing Trims & Packaging Retail and Direct Distribution ESQUEL GROUP

Sustainability is at the Heart of Our Corporate Culture The Making of a Green Shirt Sustainability is at the Heart of Our Corporate Culture Esquel was accorded with the Caring Company Award by the Hong Kong Council of Social Service, in recognition of Esquel’s community involvement and our commitment of being a good corporate citizen in the past year. ESQUEL GROUP 3

The Making of a Green Shirt ESQUEL GROUP

The Making of a Green Shirt Common misconceptions about sustainable production: Add to the costs For public relations reasons Needs to be forced upon (by media, customer or government) For large companies only Successful companies are successful because they practise sustainable production ESQUEL GROUP 5

Embrace Technology & Modern management The Making of a Green Shirt Embrace Technology & Modern management ESQUEL GROUP 6

The Making of a Green Shirt Sustainable Farming Sustainable farming methods and technologies result in increase in cotton yields and higher income and quality of life for farmers Growing Organic Cotton in Xinjiang, Certified by Ecocert Natural Pest Control, breeding cotton pests’ enemy to reduce pesticide consumption Drip Irrigation, reduces water consumption and usage of chemical fertilizer Handpicking Cotton, eliminates use of chemical defoliant ESQUEL GROUP

The Making of a Green Shirt Sustainable Farming ESQUEL GROUP

The Making of a Green Shirt Water Consumption of Cotton Shirt Energy Consumption of Cotton Shirt ESQUEL GROUP 9 9

The Making of a Green Shirt Energy Saving Annual energy consumption fell by 40% from 2005 to 2010, equivalent to 160 M kwh of electricity and 242,000 tons of greenhouse gas emission Installation of Frequency Inverters to all Machinery reduces energy consumption by 40% Installation of Water Curtains, better ventilation and cooling save up to 80% electricity Energy Efficient Lighting: replaced light bulbs with high efficiency fluorescent light tubes and reflectors Installation of Skylights: makes use of natural light to reduce energy consumption Steam Powered Air-conditioning System: reduces heat and saves electricity ESQUEL GROUP

The Making of a Green Shirt Energy Saving ESQUEL GROUP

The Making of a Green Shirt Water Conservation Reduction of water consumption by 50% from 2005 to 2010, equivalent to 6.8 M tons of water Waste Water Treatment Plant neutralizes waste water from mills and factories Patented Pulse Dyeing Technology consumes less water, electricity and chemicals Cold Pad Batch Pre- treatment Technology saves water and energy Recycling Condensed and Cooling Water saves water & steam Green Washing uses ecologically biodegradable products for treatment and finishing Wet Processing Centre recycles water in garment washing process Reuses Soap Water reuses up to 300 tons of water every day Heat Exchange System saves 137 tons of steam ESQUEL GROUP

The Making of a Green Shirt Water Conservation Traditional Dyeing Pulse Dyeing ESQUEL GROUP

The Making of a Green Shirt Emission Control Desulfurization of Waste Lye reduces sulfur dioxide emissions Uses Only Clean Low Sulfur Coal which is cleaner source of power Thermal Power Plant supplies own electricity and steam to enhance energy efficiency and reduces carbon dioxide emissions ESQUEL GROUP

The Making of a Green Shirt ESQUEL GROUP 15

The Making of a Green Shirt ESQUEL GROUP 16

Competitiveness of Suppliers The Making of a Green Shirt Competitiveness of Suppliers Suppliers need to upgrade and innovate Consolidation Cost containment (“It’s All About Productivity”) Creativity and innovation Conservation Corporate social responsibility ESQUEL GROUP

Winning As The Industry Consolidates Drivers of industry consolidation Abolishment of quota Stretched material & labor supply with surging costs Buyers’ desire to simplify and optimize their sourcing operations Flight to quality and stability ESQUEL GROUP

Consolidation of Major Exporting Countries to US (by Value of Total Apparel) Source: US Office for Textile and Apparel ESQUEL GROUP

Compete through State-of-the-Art Equipment to Improve Quality & Productivity ESQUEL GROUP

Compete through State-of-the-Art Equipment to Improve Quality & Productivity ESQUEL GROUP

Creativity and Innovations It’s the 10th anniversary of Esquel’s Research & Development Center. Esquel’s annual R&D spending has amounted to US$ ### . Our R&D team has worked relentlessly to develop value-added products and research on process and product innovation as well as invented a wide range of green products and production methods to enhance the Group’s competitiveness. We have also be accredited as national High-tech Enterprises since 2008. Well-appointed facilities for product development and process innovation that enhances Esquel competitive advantage ESQUEL GROUP

Creativity and Value Adding Services 創新和增值服務 ESQUEL GROUP

Caring for People and Local Communities ESQUEL GROUP

Caring for People and Local Communities ESQUEL GROUP

Caring for People and Local Communities Through Esquel — Y.L. Yang Education Foundation, Esquel is actively involved in projects that encourage education for the underprivileged because we believed that education is an effective way to help them rise out of poverty and improve their future livelihoods. Rebuilt 19 schools in some of China’s most impoverished areas such as Akesu, Hotan, Kashi etc. Donated 330,000 books to more than 1,000 schools Organized Esquel summer camp program to encourage learning in a fun and relaxed setting for more than 250 primary students Supported more than 40 outstanding students covering their yearly tuition fee and living expenses Provided financial support to more than 1,000 underprivileged children, including some from aids-affected families Provided live broadcast training to almost 50,000 primary and intermediate school teachers in 16 districts in Xinjiang Launched Esquel Eco-mobile, a classroom-on-the-wheel laboratory in 2004 and 2007 in Xinjiang and Guangdong to educate children on how to protect our environment and raise the awareness. ESQUEL GROUP

Caring for People and Local Communities ESQUEL GROUP

“We Must Become The Change We Want To See” ESQUEL GROUP

THANK YOU ESQUEL GROUP