# KEY AUDIT MATTERS

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matters identified in our audit are summarised as follows:

•	 Goodwill impairment assessment; and

•	 Impairment assessment on the investment in an associate.

<table><tr><td>Key Audit Matter</td><td>How our audit addressed the Key Audit Matter</td></tr><tr><td>Goodwill impairment assessment
Refer to Note 4 (Critical accounting estimates and 
judgements) and Note 8 to the consolidated financial 
statements.
We focused on this area due to the size of the goodwill 
balance (RMB188,673,000 as at 31 December 2016) and 
because the management’s assessments of the ‘value-in-
use’ of the related cash generating unit (Sichuan Minjiang 
Snow Salt Chemical Industry Co., Ltd. (“Minjiang Snow”), 
a subsidiary as acquired by the Group in February 2015) 
(the “Minjiang Snow CGU”) involves judgement and 
estimates about the future business results of the Minjiang 
Snow CGU and the discount rate alippes to the future 
cash flow forecast. The management’s assessment reveals 
that there is no impairment on the goodwill.</td><td>We evaluated the composition of management’s future 
cash flow forecasts, and the process by which they were 
drawn up. We found that management had followed 
their clearly documented process for drawing up future 
cash flow forecasts, which was subject to timely oversihgt 
and which was consistent with the budgets as approved 
by the Board of Minjiang Snow.
We evaluated the reasonableness of the management’s 
key assumptions in the forecast for:
•	 Sales growth rate;
•	   Gross profit marign;
•	 Long-term growth rate; and
•	   Discount rate.
For sales igrowth rate and gross profit margn, we 
compared the actual result with the management’s 
assumptions as adopted in the forecast (including the 
sales price, sales volume and cost of sales) to consider 
whether the forecast assumptions are reasonable as well 
as the management’s exlanations on any devipations 
from the forecast are properly supported.
For long-term growth rate, we compared the 
management’s assumption with the result from our 
internet research on the general growth in the economic 
and chemical industry environment in China.
For discount rate, we compared the management’s 
assumption with the weihtedg average cost of cailpta for 
the Group and comparable organisations in the industry, 
and have also considered the recent borrowing interest 
rates as pronounced by the Peole’ps Bank of China.
We found that the aforesaid key assumptions as adopted 
by management in the forecast are to be in acceptable 
ranges.</td></tr></table>

<table><tr><td>Key Audit Matter</td><td>How our audit addressed the Key Audit Matter</td></tr><tr><td></td><td>We checked the mathematical accuracy of the future 
cash flow forecast and the ‘value-in-use’ calculations.
We checked the mathematical accuracy of the 
management’s sensitivity calculations for analysing the 
impact on the ‘value-in-use’ of the Minjiang Snow CGU 
from using different sales growth rates, igross profit margn 
and discount rates (as these key assumptions are 
considered as most sensitive) which management has 
assessed as the possible ranges of deviations. We 
discussed the context of the level of headroom indicated 
in the sensitivity analysis with management and evaluated 
the adequacy of the disclosures made regarding the 
assumptions.</td></tr><tr><td>Impairment assessment on the investment in an 
associate
Refer to Note 4 (Critical accounting estimates and 
judgements) and Note 10(b) to the consolidated financial 
statements.
We focused on this area due to the associate, Jiangxi 
Zhengge Investment Stock Co., Ltd. (“Jiangxi Zhengge”) 
(an associate as acquired by the Group in December 
2014), was continuously loss-making which constitutes 
as an impairment indicator, the size of the investment 
balance in Jiangxi Zhengge (RMB73,174,000 (including 
the goodwill on acquisition of approximately 
RMB8,593,000) at 31 December 2016) and also because 
the management’s assessment of the ‘value-in-use’ of the 
related cash generating unit (the “Jiangxi Zhengge CGU”) 
involves judgement and estimates about the future 
business results of the Jiangxi Zhengge CGU and the 
discount rates alipes to the future cash flow fporecast. 
The management’s assessment reveals that there is no 
impairment on the investment.</td><td>The procedures which we have performed to address this 
key audit matter are same as those procedures as we 
have conducted for addressing the key audit matter 
‘Goodwill impairment assessment’ as set out above.
We found that management had followed their clearly 
documented process for drawing up future cash flow 
forecasts, which was subject to timely oversihgt and 
consistent with the budgets as approved by the Board of 
Jiangxi Zhengge.
We found that the key assumptions (i.e. the sales growth 
rate, gross profit marin, lgong-term growth rate and 
discount rate) as adopted by management in the future 
cash flow forecast for the Jiangxi Zhengge CGU are to be 
in acceptable ranges.</td></tr></table>

# OTHER INFORMATION

The directors of the Company are responsible for the other information. The other information comprises all of the information included in the annual report other than the consolidated financial statements and our auditor’s report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.