SHANDONG CHENMING PAPER HOLDINGS LIMITED
THE 2018 ANNUAL REPORT
March 2019
I Important Notice, Table of Contents and Definitions
The board of directors (the “Board”), the supervisory committee (the “Supervisory Committee”) and the directors (the “Directors”), supervisors (the “Supervisors”) and senior management (the “Senior Management”) of the Company hereby warrant the truthfulness, accuracy and completeness of the contents of the annual report, guarantee that there are no false representations, misleading statements or material omissions contained in this annual report, and are jointly and severally responsible for the liabilities of the Company.
Chen Hongguo, head of the Company, Dong Lianming, head in charge of accounting and Zhang Bo, head of the accounting department (Accounting Officer), declare that they warrant the truthfulness, accuracy and completeness of the financial report in the annual report.
All directors have attended the board meeting to review this report.
The Company is exposed to various risk factors such as macro-economic fluctuation, state policies and regulations and competition in the industry. Investor should be aware of investment risks. For further details, please refer to the risk factors likely to be faced and the measures to be taken to address them as set out in the outlook on the future development of the Company in Discussion and Analysis of Operations.
The proposed profit distribution plan of the Company was considered and passed by the Board:
The audited consolidated net profit attributable to shareholders of the Company for 2018 prepared in accordance with Accounting Standards for Business Enterprises by the Company amounted to RMB2,509,828,858.47. When deducting the interest on perpetual bonds of RMB347,140,000.00 for 2018 and the fixed dividend on preference shares of RMB214,425,000.00, the distributable profit realised for 2018 amounted to RMB1,948,263,858.47.
In accordance with the requirements of the Articles of Association and the Prospectus of Non-public Issuance of Preference Shares, based on the total ordinary share capital of 2,904,608,200 shares and the 1,162,790,698 simulated ordinary shares converted from the preference shares using a conversion ratio of 1 share valued at RMB3.87 as at the end of 2018, a cash dividend of RMB2.4 (tax inclusive) per 10 shares will be distributed to holders of ordinary shares, a cash dividend of RMB2.4 (tax inclusive) per 10 simulated ordinary shares converted from the preference shares will be distributed to holders of preference shares. No bonus shares will be issued and no capitalisation issue will be made out of the reserves. A cash dividend of RMB697,105,968 will be distributed to holders of ordinary shares and a variable cash dividend of RMB279,069,767.52 will be distributed to holders of preference shares. In other words, a cash dividend of RMB6.2 (tax inclusive) per preference share with a nominal value of RMB100 each will be distributed to holders of preference shares.
I Important Notice, Table of Contents and Definitions
Table of contents
I Important Notice, Table of Contents and Definitions .............................................................................................. 1 II Company Profile and Key Financial Indicators ....................................................................................................... 4 III Chairman’s Report .................................................................................................................................................. 11 IV Business Overview .................................................................................................................................................. 14 V Discussion and Analysis of Operations ................................................................................................................... 19 VI Directors’ Report ..................................................................................................................................................... 44 VII Material Matters ...................................................................................................................................................... 54 VIII Changes in Share Capital and Shareholders .......................................................................................................... 88 IX Preference Shares ................................................................................................................................................... 96 X Directors, Supervisors and Senior Management and Staff ..................................................................................... 101 XI Corporate Governance ............................................................................................................................................ 113 XII Corporate Bonds ..................................................................................................................................................... 138 XIII Financial Report ...................................................................................................................................................... 142 XIV Documents Available for Inspection ........................................................................................................................ 307
I Important Notice, Table of Contents and Definitions
Definitions
Item means Definition
Company, Group, Chenming means Shandong Chenming Paper Holdings Limited and its subsidiaries
Group or Chenming Paper
Parent Company or means Shandong Chenming Paper Holdings Limited
Shouguang Headquarters
Chenming Holdings means Chenming Holdings Company Limited
Shenzhen Stock Exchange means Shenzhen Stock Exchange
Stock Exchange means The Stock Exchange of Hong Kong Limited
CSRC means China Securities Regulatory Commission
Shandong CSRC means Shandong branch of China Securities Regulatory Commission
Zhanjiang Chenming means Zhanjiang Chenming Pulp& Paper Co., Ltd.
Jiangxi Chenming means Jiangxi Chenming Paper Co., Ltd.
Wuhan Chenming means Wuhan Chenming Hanyang Paper Holdings Co., Ltd.
Shanghai Chenming means Shanghai Chenming Industry Co., Ltd.
Huanggang Chenming means Huanggang Chenming Pulp& Paper Co., Ltd.
Chenming (HK) means Chenming (HK) Limited
Haiming Mining means Haicheng Haiming Mining Company Limited
Jilin Chenming means Jilin Chenming Paper Co., Ltd.
Shouguang Meilun means Shouguang Meilun Paper Co., Ltd.
Chenming Sales Company means Shandong Chenming Paper Sales Company Limited
Finance Company means Shandong Chenming Group Finance Co., Ltd.
Chenming Leasing means Shandong Chenming Financial Leasing Co., Ltd. and its subsidiaries Hongtai Real Estate means Shanghai Hongtai Real Estate Co., Ltd.
reporting period or the year means The period from 1 January 2018 to 31 December 2018
the beginning of the year or means 1 January 2018
the period
the end of the year or the period means 31 December 2018
the prior year means The period from 1 January 2017 to 31 December 2017
II Company Profile and Key Financial Indicators
I. Company profile
Stock abbreviation 晨鳴紙業 Stock code 000488
晨鳴B 200488
晨鳴優01 140003
晨鳴優02 140004
晨鳴優03 140005
Stock exchanges on which the shares are listed Shenzhen Stock Exchange
Stock abbreviation 晨鳴紙業 Stock code 01812
Stock exchanges on which the shares are listed The Stock Exchange of Hong Kong Limited
Legal name in Chinese of the Company 山東晨鳴紙業集團股份有限公司
Legal short name in Chinese of the Company 晨鳴紙業
Legal name in English of the Company (if any) SHANDONG CHENMING PAPER HOLDINGS LIMITED
Legal short name in English of the Company (if any) SCPH
Legal representative of the Company Chen Hongguo
Registered address No. 595 Shengcheng Road, Shouguang City, Shandong Province Postal code of registered address 262700
Office address No. 2199 Nongsheng East Road, Shouguang City, Shandong Province Postal code of office address 262705
Website of the Company http://www.chenmingpaper.com
Email address chenmmingpaper@163.com
II. Contact persons and contact methods
Secretary to the Board Hong Kong Company Secretary
Name Yuan Xikun Poon Shiu Cheong
Correspondence address No. 2199 Nongsheng East Road, 22nd Floor, World Wide House,
Shouguang City, Shandong Province Central, Hong Kong
Telephone (86)-0536-2158008 (852)-2501 0088
Facsimile (86)-0536-2158977 (852)-2501 0028
Email address chenmmingpaper@163.com kentpoon_1009@yahoo.com.hk
III. Information disclosure and places for inspection
Designated media for information disclosure China Securities Journal, Shanghai Securities News,
Securities Times, Securities Daily and Hong Kong Commercial Daily Designated websites for the publication of Domestic: http://www.cninfo.com.cn;
the Annual Report as approved by CSRC Overseas: http://www.hkex.com.hk
Places for inspection of theCompany’s Securities investment department of the Company
Annual Report
IV. Change in registration
Organisation registration code 913700006135889860
Change of principal activities since its listing (if any) No
Change of the controlling shareholder (if any) No
II Company Profile and Key Financial Indicators
V. Other relevant information
CPAs engaged by the Company
Name of CPAs Ruihua Certified Public Accountants (Special General Partnership)CPAs’ Office Address 4/F, Tower 2, No. 16 Xisihuanzhong Road, Haidian District, Beijing Name of the Signing Certified Liu Jian and Jiang Lei
Public Accountants
Sponsors engaged by the Company to continuously perform its supervisory function during the reporting period
□ Applicable√ Not applicable
Financial Advisors engaged by the Company to continuously perform its supervisory function during the reporting period□ Applicable√ Not applicable
VI. Major accounting data and financial indicators
Retrospective adjustment to or restatement of the accounting data for prior years by the Company
√ Yes□ No
Reason for retrospective adjustment or restatement
Correction of accounting errors
Increase/decrease
for the year
as compared to
2018 2017 the prior year 2016 Before After After Before After adjustment adjustment adjustment adjustment adjustment Revenue (RMB) 28,875,756,163.56 29,851,743,848.13 29,472,453,563.98 -2.02% 22,907,118,241.84 22,566,922,464.31 Net profit attributable to shareholders
of the Company (RMB) 2,509,828,858.47 3,769,325,450.93 3,769,325,450.93 -33.41% 2,063,986,822.25 1,998,578,788.75 Net profit after extraordinary gains or
losses attributable to shareholders 1,953,699,849.74 3,425,779,016.95 3,425,779,016.95 -42.97% 1,611,533,699.22 1,546,125,665.72 Net cash flows from operating activities (RMB) 14,099,701,887.04 23,766,042.93 23,766,042.93 59,227.09% 2,153,049,269.84 2,153,049,269.84 Basic earnings per share (RMB per share) 0.51 1.13 1.13 -54.87% 0.99 0.95 Diluted earnings per share (RMB per share) 0.51 1.13 1.13 -54.87% 0.99 0.95 Decreased by
7.29
percentage
Rate of return on weighted average net assets 8.51% 15.80% 15.80% points 9.59% 9.23%
II Company Profile and Key Financial Indicators
VI. Major accounting data and financial indicators(Cont’d)
Increase/decrease
as at the end
of the year compared
As at the to the end of
end of 2018 As at the end of 2017 the prior year As at the end of 2016 Before After After Before After adjustment adjustment adjustment adjustment adjustment Total assets (RMB) 105,318,734,827.82 105,625,096,076.92 105,625,096,076.92 -0.29% 82,285,354,532.15 82,285,354,532.15 Net assets attributable to shareholders
of the Company (RMB) 25,048,731,454.79 27,778,529,074.90 27,778,529,074.90 -9.83% 22,218,808,367.43 22,218,808,367.43 1. Reason for accounting policy change and correction of accounting errors:
Some of the financial leasing operations conducted by Shandong Chenming Financial Leasing Co., Ltd., a subsidiary of the Company, did not comply with laws. Hence, revenue arising from such operations shall recognise as interest income and interest expense instead of revenue and operation costs. For adjustment for errors in 2017, revenue was reduced by RMB379,290,284.15, while finance cost reduced by RMB379,290,284.15. At the same time, for adjustment for errors by the Company in 2016, revenue was reduced by RMB340,195,777.53, while finance cost reduced by RMB340,195,777.53. For adjustment for errors in 2015, revenue was reduced by RMB49,262,640.70, while finance cost reduced by RMB49,262,640.70. As such errors are items under income statement, opening retained profit will not be affected.
The Resolution on Corrections on Accounting Errors and Retrospective Restatement was passed at the twelfth meeting of the eighth session of the Board and the thirteenth meeting of the eighth session of the Supervisory Board to correct the accounting errors and make retrospective restatement.
2. Data specification for basic earnings per share, diluted earnings per share, and rate of return on weighted average net assets: The net profit attributable to shareholders of the Company does not exclude the effect of the interest payment deferred and accumulated to subsequent periods for perpetual bonds under other equity instruments and the effect of the dividends on preference shares under other equity instruments that have been considered and approved for distribution. When calculating financial indicators such as earnings per share and rate of return on weighted average net assets, the interest on perpetual bonds of RMB347,140,000 and the dividends on preference shares of RMB679,141,006.88 during the reporting period are deducted.
3. Pursuant to the proposed profit distribution plan for 2017 approved at the 2017 annual general meeting of the Company, based on the total ordinary share capital of 1,936,405,467 shares as at the end of 2017, a cash dividend of RMB6 (tax inclusive) per 10 shares was distributed to ordinary shareholders; and a capitalisation issue made out of the capital reserves of 5 shares for every 10 shares held was distributed to ordinary shareholders. TheCompany’s share capital increased by 968,202,733 shares. The earnings per share for the same period last year were also adjusted accordingly.
II Company Profile and Key Financial Indicators
VII. Differences in accounting data under domestic and overseas accounting standards
1. Differences between the net profit and net assets disclosed in accordance with international accounting standards and China accounting standards in the financial report
□ Applicable√ Not applicable
There was no difference between the net profit and net assets disclosed in accordance with international accounting standards and China accounting standards in the financial report during the reporting period.
2. Differences between the net profit and net assets disclosed in accordance with overseas accounting standards and China accounting standards in the financial report
□ Applicable√ Not applicable
There was no difference between the net profit and net assets disclosed in accordance with overseas accounting standards and China accounting standards in the financial report during the reporting period.
VIII. Key Financial Indicators by Quarter
Unit: RMB Q1 Q2 Q3 Q4 Revenue 7,241,811,895.12 8,309,522,144.77 7,941,434,778.16 5,382,987,345.51 Net profit attributable to shareholders
of the Company 782,500,357.98 1,002,130,667.33 696,526,748.13 28,671,085.03 Net profit after extraordinary gains or losses
attributable to shareholders of the Company 733,118,818.26 804,777,947.18 645,794,426.61 –229,991,342.31 Net cash flows from operating activities 1,267,680,953.19 3,477,356,967.72 4,328,323,926.68 5,026,340,039.45 Whether the above indicators or their aggregated amounts have any material difference with the respective amounts as disclosed in the quarterly report or interim report
□ Yes√ No
II Company Profile and Key Financial Indicators
IX. Five-year financial summary under paragraph 19 of appendix 16 of the Hong Kong Listing Rules
Unit:RMB’0,000 For the year ended 31 December
2018 2017 2016 2015 2014 Before After Before After Before After
adjustment adjustment adjustment adjustment adjustment adjustment
Revenue 2,887,576 2,985,174 2,947,245 2,290,711 2,256,692 2,024,191 2,019,264 1,910,168 Profit before tax 320,632 453,648 453,648 258,317 258,317 141,017 141,017 56,101 Tax 64,158 77,752 77,752 56,056 62,597 43,224 36,683 10,770 Profit for the current period attributable
to shareholders of the Company 250,983 376,933 376,933 206,399 199,858 102,122 108,663 50,520 Minority interests 5,491 -1,036 -1,036 -4,138 -4,138 -4,329 -4,329 -5,190 Basic earnings per share (RMB/share) 0.51 1.13 1.13 0.99 0.95 0.5 0.53 0.26 Rate of return on weighted average
net assets(%) 8.51% 15.80% 15.80% 9.59% 9.23% 6.73% 7.17% 3.62% Unit:RMB’0,000 For the year ended 31 December
2018 2017 2016 2015 2014 Before After Before After Before After
adjustment adjustment adjustment adjustment adjustment adjustment
Total assets 10,531,873 10,562,510 10,562,510 8,228,535 8,228,535 7,796,170 7,796,116 5,682,203 Total liabilities 7,944,704 7,535,092 7,535,092 5,972,050 5,972,050 6,070,277 6,063,736 4,247,396 Minority interests 82,296 249,565 249,565 34,605 34,605 38,743 38,743 43,073 Equity attributable to shareholders
of the Company 2,504,873 2,777,853 2,777,853 2,221,881 2,221,881 1,687,149 1,693,690 1,391,734 Net current assets (liabilities) –1,344,718 -783,090 -783,090 -1,094,182 -1,094,182 -1,347,029 -1,340,488 -452,549 Total assets less current liabilities 4,390,405 4,837,646 4,837,646 3,557,671 3,557,671 2,932,756 2,939,242 2,872,637
II Company Profile and Key Financial Indicators
X. Items and amounts of extraordinary gains or losses
√ Applicable□ Not applicable
Unit: RMB Item Amount for 2018 Amount for 2017 Amount for 2016 Explanation
Profit or loss from disposal of non-current
assets (including write-off of provision for
assets impairment) 17,149,722.72 65,853,273.77 -1,536,454.18
Government grants (except for the
government grants closely related to
the normal operation of the company
and granted constantly at a fixed
amount or quantity in accordance with
a certain standard based on state
policies) accounted for in profit or loss for
the current period 535,691,291.26 392,774,230.02 472,476,962.83
Gain arising from investment costs for
acquisition of subsidiaries, associates
and joint ventures by the corporation
being less than its share of fair value of
identifiable net assets of the investees
on acquisition 143,867,008.14
Profit or loss from debt restructuring 24,309.62 -90,997.90
Gain or loss arising from contingent items
unrelated to the ordinary course of
business of the Company -325,259,082.28
Except for effective hedging business
conducted in the ordinary course of
business of the Company, gain or
loss arising from the change in fair
value of financial assets held for trading
and financial liabilities held for trading,
as well as investment gains from disposal
of financial assets held for trading and
financial liabilities held for trading and
available-for-sale financial assets 61,750,000.00 94,000,000.00
Gain or loss on external entrusted loans 13,312,368.97 87,608,490.56
Gain or loss from changes in fair value
of investment properties subsequently
measured at fair value -21,464,400.65 -21,000,042.33 -20,084,425.90
Other non-operating income and
expenses other than the above items 23,291,720.22 33,659,216.99 10,022,635.89
Less: Effect of income tax 52,960,460.82 50,196,013.15 92,004,074.27
Effect of minority interests (after tax) 7,328,864.01 3,488,835.77 3,939,014.00
Total 556,129,008.73 343,546,433.98 452,453,123.03—
II Company Profile and Key Financial Indicators
Notes for theCompany’s extraordinary gain or loss items as defined in the Explanatory Announcement on Information Disclosure for Companies Offering Their Securities to the Public No.1 - Extraordinary Gains or Losses and the extraordinary gain or loss items as illustrated in the Explanatory Announcement on Information Disclosure for Companies Offering Their Securities to the Public No.1 - Extraordinary Gains or Losses defined as its recurring gain or loss items
□ Applicable√ Not applicable
No extraordinary gain or loss items as defined or illustrated in the Explanatory Announcement on Information Disclosure for Companies Offering Their Securities to the Public No.1 - Extraordinary Gains or Losses were defined by the Company as its recurring gain or loss items during the reporting period.
IIIChairman’s Report
Dear Shareholders,
I am pleased to present to all shareholders the report of the Company for the financial year ended 31 December 2018. On behalf of the Board, I express my sincere gratitude to all shareholders for their concern and support rendered to the Company. During the reporting period, facing the tightening state financial policies, the effects of the US-China trade war and the downward pressure of paper prices, the Company, aiming at “developing into an enterprise with hundreds of billions in value and forging Chenming into a centennial brand”, committed itself to “team building, management enhancement, outstanding business performance and good results”. The Company overcome all difficulties and mitigated the risks by using every means with strong determination, and achieved satisfying results.
I. Results of Operations
In 2018, the Company completed the production of machine-made paper of 4.57 million tonnes with sales of 4.32 million tonnes and achieved revenue of RMB28,876 million, a year-on-year decrease of2.02%. Total profit and net profit attributable to equity holders of the Company were RMB3,206 million and RMB2,510 million respectively, down by29.32% and33.41% from the prior year. The net cash flow from operating activities amounted to RMB14,100 million, a year-on-year increase of 592 times. The net cash flow from operatiy activities amounted to RMB14,100 million, a year-no-year increase of 592 times. TheCompany’s total assets amounted to RMB105,319 million.
II. Corporate Governance
During the reporting period, the Company regulated its operation under the requirements of the Companies Law, the Securities Law, the Code of Corporate Governance for Listed Companies, the Rules Governing Listing of Stocks on Shenzhen Stock Exchange, the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the related regulations of the China Securities Regulatory Commission. The Company kept on improving and optimising its legal person governance structure and regulating its operation in practice. The Board considered the status of theCompany’s corporate governance was substantially in compliance with the requirements and requirements of the regulatory documents such as the Code of Corporate Governance for Listed Companies.
During the reporting period, the Board strived to regulate the operation of the Company by improving its corporate governance. The Company improved its corporate governance system in a timely manner and amended and improved the amended management systems including the Rules of Procedures for General Meetings, the Rules of Procedures for Board Meetings, the Rules of Procedures for Supervisory Committee Meetings and the Articles of Association in accordance with the regulatory requirements.
Strict enforcement of relevant internal control systems has promoted a regulated operation and healthy development of the Company, thus protecting the legitimate rights and interests of our investors. The overall status of corporate governance is in compliance with the requirements of the China Securities Regulatory Commission. As theCompany’s development strives forward, its regulated operation and internal control will continue to improve.
IIIChairman’s Report
III. Dividend Distribution
Consistent with our long-term goal of pursuing the maximisation of corporate values, the Company has always placed much emphasis on the benefits of and returns to our shareholders. The audited consolidated net profit attributable to shareholders of the Company for 2018 prepared in accordance with Accounting Standards for Business Enterprises by the Company amounted to RMB2,509,828,858.47. When deducting the interest on perpetual bonds of RMB347,140,000.00 and the fixed dividend on preference shares of RMB214,425,000.00 for 2018, the distributable profit realised for 2018 amounted to RMB1,948,263,858.47. In accordance with the requirements of the Articles of Association and the Prospectus of Non- public Issuance of Preference Shares, the proposed profit distribution plan of the Company for 2018 is as follows: Based on the total ordinary share capital of 2,904,608,200 shares and the 1,162,790,698 simulated ordinary shares converted from the preference shares using a conversion ratio of 1 share valued at RMB3.87 as at the end of 2018, a cash dividend of RMB2.4 (tax inclusive) per 10 shares will be distributed to holders of ordinary shares; a cash dividend of RMB2.4 (tax inclusive) per 10 simulated ordinary shares converted from the preference shares will be distributed to holders of preference shares. No bonus shares will be issued and no capitalisation issue will be made out of the reserves. A cash dividend of RMB697,105,968 will be distributed to holders of ordinary shares and a variable cash dividend of RMB279,069,767.52 will be distributed to holders of preference shares. In other words, a cash dividend of RMB6.20 (tax inclusive) per preference share with a nominal value of RMB100 each will be distributed to holders of preference shares. IV. Future Development
The structure of paper making materials in China continues to optimise with a gradual increase in the proportion of wood pulp. In 2018, the structure of paper making materials in PRC was63% waste paper,33% wood pulp and4% non-wood pulp materials, which basically met the production needs based on the current product structure. From 2008 to 2017, the proportion of waste paper increased by 2.4 percentage point, while the consumption proportion of wood pulp increased by 9.3 percentage point. Due to factors such as quality and environmental protection, the use of non-wood pulp materials in production gradually decreased, down by 11.7 percentage point from 2008 to 2017. In the long run, raw materials will always be a major constraint for the paper making industry. Ever since the ban on taking in certain international waste, the import of waste paper fell to 17.06 million tonnes in 2018, down by33.8% year on year, while domestic waste paper recycling continued to rise. The increase in consumption proportion of wood pulp was mainly supported by imports, which gave companies with raw material resources a competitive advantage. As theCompany’s new chemical wood pulp projects gradually commence operation, theCompany’s self-sufficiency rate in wood pulp will be further enhanced, which will reduce production cost significantly, enhance the core competitiveness of the Company, and provide strong support and assurance for theCompany’s future development.
IIIChairman’s Report
In addition, environmental protection policies have been issued intensively during the recent years, which further phased out outdated production capacity, and significantly increased sectoral concentration. The paper making industry in China has been increasingly concentrated since 2010, in particular, the number of PRC paper making and paper product companies with a designated size dropped from 7,213 in 2013 to 6,681 in 2017. The elimination of outdated production capacity provides scope for concentration among leading enterprises. With strong financial strength, advanced production equipment and large-scale production advantages, large paper making enterprises in the industry continues to increase entry barriers and enjoy huge profits from theindustry’s new profit cycle. The industry will continue to boom.
The Company will adhere to the main theme of emphasising on environmental protection, low carbon, recycling and sustainable development. Following the “Made in China 2025 Plan” and the principles of scientific development and quality and efficiency enhancement, the Company, aiming at “developing into an enterprise with hundreds of billions in value and forging Chenming into a centennial brand”, will further reorganise methodology and restructure, while comprehensively enhancing quality, efficiency, management level, technology application, sense of happiness and brand image, pushing the Company to be stronger, better and greater, with a view to becoming a globally competitive world-class enterprise. Chen Hongguo
Chairman
29 March 2019
IV Business Overview
I. Principal activities of the Company during the Reporting Period
Whether the Company needs to comply with the disclosure requirements of specific industries
No
(I) Principal activities of the Company during the reporting period
The Company is a large conglomerate principally engaged in pulp production and paper making with synergistic development in finance, mining, forestry, logistics and construction materials. The Company is the only listed company with A shares, B shares and H shares in China. It is among the top 100 listed companies in China and the top 10 star enterprises in China, and is rated as one of the 50 most competitive blue chip companies in China. It has been honoured over 200 titles above the provincial level including the China May 1st Labour Prize, the Top 10 Best Light Industry Enterprises in China, Outstanding Contribution Prize in Business Administration in China and the National Spiritual Civilisation Advanced Unit. Its key indicators in respect of business and economic efficiency have been in a leading position in the industry in China for over 20 consecutive years. The machine-made paper business is the principal activity and the major source of revenue and profit of the Company. During the reporting period, there was no significant change in the principal activity of the Company.
Recently, the Company has committed itself to implementing the “forestry, pulp and paper integration” strategy, introduced world-leading pulp production and paper making technology, and completed the largest integrated forestry, pulp and paper project with the most advanced technology and equipment in the world. The Company is the enterprise that offers the widest product range in the paper making industry, and its five largest product series include high-end offset paper, white paper board, coated paper, light weight coated paper, household paper, electrostatic copy paper and thermal paper, glassine paper, with each major product ranking among the best in terms of market share.
The Company has scientific research institutions including the national enterprise technology centre, the postdoctoral working station as well as state certified CNAS pulp and paper testing centre and has obtained over 210 national patents including 17 patents for invention, with 7 products selected as national new products and 35 products filling the gap in China. The Company has obtained 21 science and technology progress awards above the provincial level and undertaken five national science and technology projects and 26 provincial technological innovation projects. The Company has pioneered to obtain the ISO9001 quality certification, ISO14001 environmental protection certification and FSC-COC certification among its industry peers.
IV Business Overview
I. Principal activities of the Company during the Reporting Period(Cont’d)
(II) General information of the industries where the Company operated in during the reporting period As an important basic raw material industry, the paper making industry plays an important role in the national economy, and is related to, among others, the economy, culture, production and national defence of a country. Its products are used in various sectors including culture, education, technology and the national economy. According to the data from the National Bureau of Statistics, in 2018, the machine-made paper and paper board production volume in China was 116,606,000 tonnes, representing year-on-year growth of-1.5%. The accumulated production volume shifted to negative growth since June 2018. Total revenue of the paper making industry throughout the year amounted to RMB1.3 trillion, representing year-on-year growth of8.3%. The sectoral concentration in the paper making industry was significantly higher. However, due to the factors such as the rise in raw material prices and more stringent environmental protection policies, in 2018, net profit of the paper making industry decreased by RMB7.1 billion to RMB76.6 billion, while15% of companies in the industry made loss, and the majority of them were small and medium-sized enterprises primarily suffering from, among others, ageing of production equipment and difficulties in working capital turnover.
The new production capacity in the industry was put into operation slowly, and the effects of the tightening of the supply side gradually loomed large. Unlike the upward cycle in the paper making industry in the period from 2009- 2011 when great investments were made in production capacity formation, the year-on-year growth rate of cumulative completed fixed asset investment in the industry was maintained within10% in 2017 since the rise in paper prices, while the year-on-year growth of completed fixed asset investment in the industry was5.1% in 2018. The paper making industry was subject to higher environmental protection standards as the State stressed the importance of “clear waters and green hills”. The measures such as environmental protection inspections and the licensing system for pollutant discharge reflected the development trend in respect of more stringent environmental protection in the industry. The environmental protection costs in the industry increased significantly, and the pressure on the cost side made some middle and small-sized enterprises with outdated production capacity exit the market, and the tightening of the supply side continued to make the sectoral concentration higher.
II. Material Changes of Major Assets
1. Material Changes of Major Assets
Major assets Description
Equity During the reporting period, the Company invested in the equity interest of Weifang Xingxing United Chemical Co., Ltd. It acquired14.2742% equity interest in Wuhan Chenming,55% equity interest in Shanghai Hongtai, and49% equity interest in Guangdong Huirui. It disposed of50% equity interest in Guangdong Dejun,30% equity interest in Xuchang Chenming and40% equity interest in Wuhan Wan Xing Real Estate. Fixed assets During the reporting period, the Financial Leasing Company changed its overall operating strategy by continuously reducing the scale of the financial leasing business. Construction in progress During the reporting period, continued investment was made in the Huanggang Chenming chemical pulp project, the Shouguang Headquarters newsprint paper-for- cultural paper project, and the Shouguang Meilun 510,000 tonne high-end cultural paper project and chemical pulp project.
2. Major Assets Overseas
□ Applicable√ Not applicable
IV Business Overview
III. Analysis of Core Competitiveness
Whether the Company needs to comply with the disclosure requirements of specific industries
No
The Company is a leading player in the paper making industry of China. After innovation and development for more than half a century, it has developed into a large conglomerate principally engaging in pulp production and paper making with synergistic development in finance, mining, forestry, logistics and construction materials. It is also the first company in the paper making industry to own a financial company, as well as the only listed company in China with three types of shares in issue, namely A shares, B shares and H shares. Compared with other enterprises in the industry, the Company has the following advantages:
1. Advantages of forestry-pulp-paper integration
Since initiating the forestry, pulp and paper integration strategic layout in 2001, the Company has enjoyed a high wood pulp self-sufficiency rate in the domestic paper making industry. As at the end of December 2018, the Company could produce 3,280,000 tonnes of wood pulp on its own with respect to the materials. The chemical pulp project of Huanggang Chenming with annual pulp production capacity of 300,000 tonnes commenced operation in November 2018. The chemical wood pulp project of Shouguang Meilun is going to commence operation in the near future. The operations of these projects will further enhance the self-sufficiency rate with respect to wood pulp, relieving the imbalanced supply and demand for the raw materials of wood pulp, and reducing our production cost.
Self-produced pulp enjoys significant cost advantage over purchased wood pulp, which enables the gross profit of theCompany’s paper products to consistently rank among the top of the industry; on the other hand, the price of wood chips, the raw material for pulp making, is relatively stable. Therefore, the procurement advantage of bulk supplies and the application of ancillary logistics services have significantly reduced the logistics and transportation costs of raw material and finished products, considerably increasing theCompany’s cost advantage and quality stability. 2. Scale advantages
After years of development, the Company, being a leading player in the paper making industry in China, has achieved annual pulp and paper production capacity of over 11 million tonnes and is capable to compete with international paper making enterprises in scale. The large-scale centralised production and operation model has provided the Company with obvious economic benefits. The Company also has strong market influence over raw material procurement, product pricing and industry policymaking.
3. Product advantages
The Company has implemented the “forestry, pulp and paper integration” strategy, introduced world-leading pulp and paper production technology, and set up the largest integrated forestry, pulp and paper project with the most advanced technology in the world. The Company is the enterprise that offers the widest product range in the paper making industry, and its five largest product series include high-end offset paper, white paper board, coated paper, light weight coated paper, household paper, electrostatic copy paper and thermal paper, glassine paper, with each major product ranking among the best in terms of market share.
IV Business Overview
III. Analysis of Core Competitiveness(Cont’d)
4. Advantages in technical equipment
Currently, the Company has the largest integrated forestry, pulp and paper project with the most advanced technology in the world and dozens of pulp and paper production lines of international advanced standards. TheCompany’s overall technical equipment has reached the advanced international level. The major production equipment has been imported from internationally renowned manufacturers, including Valmet, Ahlstrom and Metso of Finland, Voith of Germany and TBC of the United States.
The technical equipment used by the Company generally reflects the characteristics of being technology-intensive and the integration of mechanical and electrical in the paper making industry nowadays. The degassing technology, wet end chemical technology, intelligent sheet lateral control technology, coating preparation technology, free-jet coating technology, multi-nip pressure balanced calender technology and the technical processes independently developed by the Company of the pulp systems have all reached the international advanced level.
5. Advantages in research and innovation and new product development
Shouguang Headquarters, Zhanjiang Chenming, Shouguang Meilun, Jiangxi Chenming, Jilin Chenming and Haiming Mining are a high and new-technology enterprises and give full play to their strong research capability. Supported by the national enterprise technology centre and the post-doctoral working station, the Company has established a comprehensive intellectual property system and put more and more efforts in technical innovation and scientific research and development to develop new products with high technology contents and high added value as well as proprietary technologies. Meanwhile, the technology centre of the Company has actively engaged in technical cooperation with schools, research institutions and international advanced enterprises. The Company has obtained over 210 national patents including 18 patents for invention and 7 products selected as national new products. The Company participated in the formulation of 5 national standards and was awarded honours including “China Patent Shandong Star Enterprise”, becoming the “green engine” of the transformation and upgrading in the paper making industry and leading the direction of the latest and most advanced technology in the paper making industry in China. 6. Funding advantages
The paper making industry is a capital-intensive industry, and funding is one of the most important factors in the development of the industry. The Company has high profitability and credit status, and has maintained long-term stable cooperative relations with its bankers, which provide the Company with an unobstructed indirect financing capacity. Since its listing, the Company has maintained good operating results and a sound corporate governance structure. It has conducted several financing activities in domestic and foreign capital markets. As the funds obtained have been applied effectively with good market image, the Company has stronger abilities in direct financing. 7. Team advantages
The key management members and the core personnel of the Company remain stable. In the business development of the Company, an internal corporate culture developed by the stable core staff team favourable to the growth of the Company consolidates the management experience specific to the industry, thus resulting in a team advantage blended with management and culture. Meanwhile, the Company has attracted experienced professionals with financial, legal, financial management backgrounds through its advanced management philosophy and ample room for development. The high quality and professional team secures the sustainable development of the Company with a solid supply of talents.
IV Business Overview
III. Analysis of Core Competitiveness(Cont’d)
8. Advantages in environmental governance capacity
In recent years, the Company and its subsidiaries have constructed the pollution treatment facilities including the alkali recovery system, middle water treatment system, middle water reuse system, white water recovery system and black liquor comprehensive utilisation system. The environmental indicators of the Company rank high in the country and in the world. Besides, the national policy of eliminating outdated production capacity will facilitate the development of the paper making industry while the replenishment and replacement of additional production capacity will bring new blood and momentum into the paper making industry, favouring industry concentration to establish a sound industry cycle.
V Discussion and Analysis of Operations
I. Overview
During the reporting period, facing the tightening up of national financial policies, the effects of the US-China trade war and the downward pressure of paper prices, the Company, aiming at “developing into an enterprise with hundreds of billions in value and forging Chenming into a centennial brand”, committed itself to “team building, management enhancement, outstanding business performance and good results”. Having firmly establishing and constantly implementing its new management philosophy, Chenming completed various works on maintaining stable operation, promoting growth, adjusting structure, preventing risk exposures and formulating favourable policies for employees, and achieved satisfying results. In 2018, the Company completed the production of machine-made paper of 4.57 million tonnes with sales of 4.32 million tonnes and achieved revenue of RMB28,876 million, a year-on-year decrease of2.02%. Total profit and net profit attributable to equity holders of the Company were RMB3,206 million and RMB2,510 million respectively, down by29.32% and33.41% from the prior year. TheCompany’s total assets amounted to RMB105,319 million. The net cash flow from operating activities amounted to RMB14,100 million, a year-on-year increase of 592 times. The total asset of the company amounted to 105,319 million. The operation and management results were mainly reflected in the following aspects: (I) Sales management
Facing the complex and ever-changing market conditions, the sales system persistently executed the decision and planning made by the management of the Company with a pioneering attitude in spite of challenges, thus opening up an new dimension for sales. Through sales restructuring with adjustment to independent operation of seven product companies engaged in, among others, culture paper and coated paper from integrated sales, the Company greatly increased its operating efficiency. With an innovative management model, the Company established daily work and corresponding measures at each level, thus charting a clear course for employees to proceed with their tasks. By implementing the weekly meeting system, the weekly appraisal measure and a performance-driven approach, the Company stimulatedemployees’ diligence and determination, and enabled the sales teams to improve their work with fresh mentality.
(II) Product management
Benefiting from the strengthened basic management and adjustment in product structure, the production system in general remained stable and under control with constant improvement. The Company gained initiatives in the market through adjustment in the product structure and development of new products; reduced inventory, turnover days and operational pressure by implementing production scheduling; and shed light on the daily work direction for all levels of staff through innovative basic management with clearer instructions to and greater control over all levels of work.
V Discussion and Analysis of Operations
I. Overview(Cont’d)
(III) Finance and financial capital management
During the reporting period, the Company established a more rational financial business system by strengthening capital management, deepening cooperation between banks and the Company, and facilitating and implementing debt-to-equity swaps. Through strengthened capital management, the Company held regular meetings to study and formulate financing proposals, set up a steering group on financing, and stepped up its appraisal efforts, which yielded great results. Through deepening cooperation between banks and the Company, the Company established a closer relationship with banks, entered into cooperation agreements, and enjoyed quicker facility approval, which effectively improved its corporate financing environment. Through facilitating and implementing debt-to-equity swaps, the Company further optimised its asset and liability structure.
(IV) Project construction
During the reporting period, the phase I of the magnesite mining project of Haiming Mining commenced operation in January 2018, the 510,000-tonne high-end culture paper project of Shouguang Meilun commenced operation in August 2018, the 300,000-tonne chemical pulp project of Huanggang Chenming commenced operation in mid- November 2018, and the 400,000-tonne chemical pulp project of Shouguang Meilun also staged a trial run. The operation of the above projects will play a very important role in enhancing the sustainable development and achieving the strategic objectives of the Company.
(V) Corporate management
The Company fully implemented the adjustments to its organisational structure and remuneration system as planned to further enhance its functional management and the effectiveness of remuneration as incentives. The Company also proactively proceeded with the process and information-based construction to promote management reform and system upgrade. The Company further improved its management system so that there were rules to follow for the basic management. The Company focused on strengthening level management by specifying the tasks and measures to be taken at each level on a daily, weekly, monthly and annual basis, making clear the responsibilities of each position, and setting the direction for each level of work and enhancing the execution capability of the team.
V Discussion and Analysis of Operations
II. Analysis of principal operations
1. Overview
Please see “I. Overview” under “Discussion and Analysis of Operations” for relevant information.
2. Revenue and cost
(1) Components of revenue
Unit: RMB 2018 2017 Increase/ Amount % of revenue Amount % of revenue decrease Total revenue 28,875,756,163.56 100% 29,472,453,563.98 100% -2.02% By industry
Machine-made paper 24,303,557,365.13 84.17% 26,280,449,337.82 89.17% -7.52% Financial leasing 2,202,061,690.16 7.63% 1,967,883,247.49 6.68% 11.90% Magnesite mining 416,152,447.97 1.44% — — — Construction materials 288,669,257.79 1.00% 255,747,205.45 0.87% 12.87% Electricity and steam 154,541,407.23 0.54% 198,073,854.15 0.67% -21.98% Chemicals 110,998,714.22 0.38% 109,914,856.68 0.37% 0.99% Hotel 26,182,589.82 0.09% 24,368,815.97 0.08% 7.44% Others 1,373,592,691.24 4.76% 636,016,246.42 2.16% 115.97% By product
White paper board 6,440,247,745.66 22.30% 6,906,078,714.80 23.43% -6.75% Duplex press paper 6,155,644,742.23 21.32% 6,368,897,144.23 21.61% -3.35% Coated paper 4,697,177,229.03 16.27% 5,489,860,030.01 18.63% -14.44% Electrostatic paper 2,404,374,935.48 8.33% 2,371,439,780.86 8.05% 1.39% Anti-sticking raw paper 1,208,193,494.70 4.18% 1,207,953,706.05 4.10% 0.02% Household paper 749,151,937.19 2.59% 689,570,026.52 2.34% 8.64% Light weight coated paper 198,364,650.45 0.69% 515,092,105.82 1.75% -61.49% Writing paper 118,511,116.22 0.41% 275,304,569.70 0.93% -56.95% Other machine-made paper 2,331,891,514.17 8.07% 2,456,253,259.83 8.33% -5.06% Financial leasing 2,202,061,690.16 7.63% 1,967,883,247.49 6.68% 11.90% Magnesite mining 416,152,447.97 1.44% — — — Construction materials 288,669,257.79 1.00% 109,914,856.68 0.37% 162.63% Electricity and steam 154,541,407.23 0.54% 198,073,854.15 0.67% -21.98% Chemicals 110,998,714.22 0.38% 255,747,205.45 0.87% -56.60% Hotel 26,182,589.82 0.09% 24,368,815.97 0.08% 7.44% Others 1,373,592,691.24 4.76% 636,016,246.42 2.16% 115.97% By geographical segment
Mainland China 24,560,408,181.92 85.06% 25,541,544,676.83 86.55% -3.84% Other countries and regions 4,315,347,981.64 14.94% 3,930,908,887.15 13.45% 9.78%
V Discussion and Analysis of Operations
II. Analysis of principal operations(Cont’d)
2. Revenue and cost(Cont’d)
(2) Industries, products or regions accounting for over10% of revenue or operating profit of the Company√ Applicable□ Not applicable
Whether the Company needs to comply with the disclosure requirements of specific industries
No
Unit: RMB Increase/decrease Increase/decrease Increase/decrease of operating costs of gross profit margin of revenue as compared as compared to the as compared to the to the corresponding corresponding period corresponding period Revenue Operating costs Gross profit margin period of the prior year of the prior year of the prior year By industry
Machine-made paper 24,303,557,365.13 17,849,873,914.56 26.55% -7.52% -4.14% -2.59% Financial leasing 2,202,061,690.16 167,892,149.50 92.38% 11.90% -40.54% 6.72% By product
Duplex press paper 6,155,644,742.23 4,518,550,774.15 26.60% -3.35% -3.47% 0.09% Coated paper 4,697,177,229.03 3,407,051,401.87 27.47% -14.44% -10.49% -3.20% White paper board 6,440,247,745.66 5,395,302,715.50 16.23% -6.75% 13.12% -14.71% Electrostatic paper 2,404,374,935.48 1,440,077,827.51 40.11% 1.39% -4.23% 3.51% Anti-sticking
raw paper 1,208,193,494.70 728,105,243.01 39.74% 0.02% -8.52% 5.63% Financial leasing 2,202,061,690.16 167,892,149.50 92.38% 11.90% -40.54% 6.72% By geographical segment
Mainland China 24,560,408,181.92 15,153,938,755.30 38.30% -3.84% -5.94% 1.38% Other countries
and regions 4,315,347,981.64 4,108,074,364.17 4.80% 9.78% 13.55% -3.16% Under the circumstances that the statistics specification for theCompany’s principal operations data experienced adjustment in the reporting period, the principal activity data upon adjustment of the statistics specification as at the end of the reporting period in the latest year
□ Applicable√ Not applicable
V Discussion and Analysis of Operations
II. Analysis of principal operations(Cont’d)
2. Revenue and cost(Cont’d)
(3) Whether revenue from sales in kind is higher than revenue from services
√ Yes□ No
Increase/ By industry Item Unit 2018 2017 decrease Machine-made paper Sales ’0,000 tonnes 432 496 -12.90% Production output ’0,000 tonnes 457 510 -10.39% Inventories ’0,000 tonnes 72 47 53.19% Explanation on why the related data varied by more than30%
√ Applicable□ Not applicable
The inventories of machine-made paper increased year on year by53.19% mainly due to the decreased sales of machine-made paper during the reporting period.
(4) Performance of material sales contracts of the Company during the reporting period
□ Applicable√ Not applicable
V Discussion and Analysis of Operations
II. Analysis of principal operations(Cont’d)
2. Revenue and cost(Cont’d)
(5) Composition of operating costs
By industry
Unit: RMB 2018 2017 Increase/ By industry Item Amount% of operating costs Amount% of operating costs decrease Machine-made paper Raw materials 10,868,034,213.18 60.89% 11,321,010,554.29 60.80% -4.00% Chemicals 2,809,021,253.78 15.74% 2,649,089,266.03 14.20% 6.04% Energy and power 1,969,433,608.33 11.03% 2,041,148,096.91 11.00% -3.51% Depreciation 803,728,940.46 4.50% 875,140,104.87 4.70% -8.16% Labour costs 252,589,989.30 1.42% 259,402,371.05 1.40% -2.63% Other production costs 1,147,065,909.50 6.43% 1,474,478,932.18 7.90% -22.21% Subtotal 17,849,873,914.56 100.00% 18,620,269,325.34 100.00% -4.14% Power and steam Raw materials 94,793,908.60 81.90% 106,044,022.66 80.20% -10.61% Depreciation 8,307,708.78 7.18% 9,800,393.22 7.40% -15.23% Labour costs 3,443,963.29 2.98% 3,756,021.82 2.80% -8.31% Energy and power 2,875,214.19 2.48% 2,850,799.43 2.20% 0.86% Chemicals 246,573.81 0.21% 345,197.70 0.30% -28.57% Other production costs 6,072,545.25 5.25% 9,400,888.63 7.10% -35.40% Subtotal 115,739,913.92 100.00% 132,197,323.45 100.00% -12.45% Construction materials Raw materials 171,263,506.98 74.83% 151,042,972.58 72.70% 13.39% Energy and power 21,374,540.73 9.34% 23,009,884.02 11.10% -7.11% Labour costs 14,460,145.11 6.32% 14,112,147.05 6.80% 2.47% Depreciation 6,626,767.96 2.90% 7,247,023.47 3.50% -8.56% Other production costs 15,148,057.14 6.62% 12,319,837.64 5.90% 22.96% Subtotal 228,873,017.91 100.00% 207,731,864.76 100.00% 10.18%
V Discussion and Analysis of Operations
II. Analysis of principal operations(Cont’d)
2. Revenue and cost(Cont’d)
(6) Change of scope of consolidation during the reporting period
√ Yes□ No
During the year, the scope of consolidation included 4 newly established subsidiaries, namely Shandong Chenming Coated Paper Sales Co. Ltd., Chenming Paper United States Co., Ltd., Beijing Chenming Financial Leasing Co., Ltd. and Jiangxi Chenming Supply Chain Management Co., Ltd.
During the year, a company was excluded from the scope of consolidation: The Company disposed of30% equity interest in Xuchang Chenming Paper Co. Ltd. Subsequent to the disposal, Xuchang Chenming Paper Co. Ltd., which was held as to30% by the Company, was excluded from the scope of consolidation.
(7) Significant change in or adjustment of the businesses, products or services of the Company during the reporting period
□ Applicable√ Not applicable
(8) Sales to major customers and major suppliers
Sales to major customers of the Company
Total sales to top 5 customers (RMB) 2,031,261,823.95 Total sales to top 5 customers as a percentage of the total sales for the year 7.03% Sales to top 5 customers who are related parties 0.00% Information on top 5 customers of the Company
As a percentage of the total sales No. Name of customer Sales (RMB) for the year(%) 1 Customer A 555,240,686.16 1.92% 2 Customer B 400,285,052.75 1.39% 3 Customer C 373,751,814.80 1.29% 4 Customer D 354,040,200.90 1.23% 5 Customer E 347,944,069.34 1.20% Total— 2,031,261,823.95 7.03% Major suppliers of the Company
Total purchases from top 5 suppliers (RMB) 4,272,763,918.65 Total purchases from top 5 suppliers as a percentage of the total purchases for the year 21.53% Total purchases from top 5 suppliers who are related parties as a percentage 0.00%
V Discussion and Analysis of Operations
II. Analysis of principal operations(Cont’d)
2. Revenue and cost(Cont’d)
(8) Sales to major customers and major suppliers(Cont’d)
Information on top 5 suppliers of the Company
As a percentage of the total purchases for No. Name of supplier Purchases (RMB) the year(%) 1 Supplier A 1,117,882,698.14 5.63% 2 Supplier B 987,054,232.32 4.97% 3 Supplier C 833,962,815.65 4.20% 4 Supplier D 814,300,495.13 4.10% 5 Supplier E 519,563,677.40 2.62% Total— 4,272,763,918.65 21.53% 3. Expenses
Unit: RMB Increase/
Decrease
2018 2017 (%) Reasons for material changes Selling and distribution 1,190,499,238.49 1,304,465,552.27 -8.74%
expenses
General and 967,840,641.90 892,063,618.67 8.49%
administrative
expenses
Finance expenses 2,741,486,438.03 2,117,302,131.72 29.48% Mainly due to an increase in interest expenses.
Research and 929,873,688.40 1,017,306,281.19 -8.59%
development
expenditure
Loss on impairment 164,654,098.54 141,361,141.80 16.48%
of asset
V Discussion and Analysis of Operations
II. Analysis of principal operations(Cont’d)
4. Research and development expenditure
√ Applicable□ Not applicable
The Company had been closely following the economic and market conditions in China and in the industry since 2018. Driven bycustomers’ demand with a view to enhancing economic benefits, the Company put more efforts into technical innovation, promoted the application of new technology and new raw materials such as high-efficiency chemical and mechanical pulp technology and wet-end chemical application for paper making, and developed new technology-based products with more economic benefits. The Company was also committed to researching and developing for the purpose of product differentiation and refining. 12R&D projects including the “technical development of mildew proof white paper board”, the “technical development of high-bulk coated paper for children sketching books” and the “technical development of denaturation amylum for highly concentrated coating” were listed on the technological innovative project plans of Shandong Province for 2018. The Company also collaborated with Qilu University of Technology for Industry-University Research, producing aR&D project for “technology in the preparation of chemical mechanical pulp by co-processing hydrothermal mixed wide leaves and biologicals”, which dealt with core technological challenges arising in the production process, such as the high electricity consumption of pulp grinding, the inconsistent whiteness of paper pulp and the problem of papers turning yellow easily. Ultimately, the technology was widely applied in the production of high-end white paper boards and coated papers. At the same time, our “high-bulk white paper board” and “technological development in paper for milk tea paper cups” were awarded the 2018 Excellent Product By Innovative Enterprise Technology in Shandong Province(2018年度山東省企業技術創新優秀產品) and First Prize for Outstanding Achievements(優秀成果一等獎), respectively. We also successively completed theR&D of 14 new products, including the core paper for white paper boards and paper for paper bags, which accelerated the restructuring of our product mix and facilitated the restructuring and upgrading of enterprises. Research and development expenditure of the Company
Percentage 2018 2017 of changeR&D headcount 1,863 1,434 29.92% Ratio ofR&D personnel 12.26% 10.56% 1.70%R&D expenditure (RMB) 929,873,688.40 1,017,306,281.19 -8.59%R&D expenditure to revenue 3.22% 3.45% -0.23% Reasons for significant change in totalR&D expenditure to revenue
□ Applicable√ Not applicable
Reasons for and reasonableness of the significant change of the capitalization rate ofR&D expenditure
□ Applicable√ Not applicable
V Discussion and Analysis of Operations
II. Analysis of principal operations(Cont’d)
5. Cash flows
Unit: RMB Increase/ Item 2018 2017 decrease(%) Subtotal of cash inflows from operating activities 39,069,129,483.14 25,185,850,961.77 55.12% Subtotal of cash outflows from operating activities 24,969,427,596.10 25,162,084,918.84 -0.77% Net cash flows from operating activities 14,099,701,887.04 23,766,042.93 59,227.09% Subtotal of cash inflows from investing activities 2,785,950,020.88 1,018,367,966.90 173.57% Subtotal of cash outflows from investing activities 4,564,941,039.27 4,649,220,322.66 -1.81% Net cash flows from investing activities -1,778,991,018.39 -3,630,852,355.76 51.00% Subtotal of cash inflows from financing activities 61,785,793,427.64 66,918,619,679.44 -7.67% Subtotal of cash outflows from financing activities 74,638,951,528.02 62,441,482,879.29 19.53% Net cash flows from financing activities -12,853,158,100.38 4,477,136,800.15 -387.08% Net increase in cash and cash equivalents -422,850,131.94 824,547,328.84 -151.28% Explanation on main effects of material changes
√ Applicable□ Not applicable
(1) Net cash flows from operating activities increased by59,227.09% as compared to the corresponding period of the prior year mainly due to the net recovery of proceeds of RMB6,191 million resulting from the continuous reduction in the scale of the financial leasing business of the Company.
(2) Net cash flows from investing activities increased by51% as compared to the corresponding period of the prior year mainly due to the disposal of the equity interest in Guangdong Dejun Investment Co., Ltd. by the Company. (3) Net cash flows from financing activities decreased by387.08% mainly due to an increase in the repayment of borrowings during the reporting period.
Explanation on main reasons leading to the material difference between net cash flows from operating activities during the reporting period and net profit for the year
√ Applicable□ Not applicable
The main reason is the fact that the net recovery of proceeds of RMB6,191 million resulting from the continuous reduction in the scale of the financial leasing business of the Company.
III. Analysis of non-principal operations
□ Applicable√ Not applicable
V Discussion and Analysis of Operations
IV. Assets and liabilities
1. Material changes of asset items
Unit: RMB As of the end of 2018 As of the beginning of 2018
As a percentage As a percentage
Amount of total assets Amount of total assets Percentage change Description of major changes
Monetary funds 19,292,774,747.79 18.32% 14,443,492,461.43 13.67% 4.65% Mainly due to the increase in deposits for the issuance of financing
Construction in progress 11,871,350,821.55 11.27% 7,683,945,044.32 7.26% 4.01% Mainly due to the continued investment made in the Huanggang Chenming 300,000 tonne chemical pulp project, the Shouguang Headquarters newsprint paper-for-cultural paper project, and the Shouguang Meilun 400,000 tonne chemical pulp project and 510,000 tonne high-ended cultural paper project
Bills receivable 1,213,116,491.46 1.15% 4,220,231,853.56 4.00% -2.85% Mainly due to the decrease in the payment for goods made by bills
Other receivables 2,225,558,697.91 2.11% 538,734,656.55 0.51% 1.60% Mainly due to the sales of some debts by the Financial Leasing Company
Non-current assets due 4,007,503,281.86 3.81% 6,901,695,875.94 6.53% -2.72% Mainly due to the recovery of proceeds by the financial leasing within one year business.
Bills payable 4,218,969,554.93 4.01% 1,278,395,090.71 1.21% 2.80% Mainly due to the increased external payment made by bills by the Company
Other current liabilities 2,915,035,681.03 2.77% 10,797,248,631.76 10.22% -7.45% Mainly due to the repayment of the matured short-term commercial paper
Long-term payables 3,900,255,693.44 3.70% 5,550,881,435.64 5.26% -1.56% Mainly due to the repayment of the equipment financing due. 2. Assets and liabilities measured at fair value
√ Applicable□ Not applicable
Unit: RMB Profit or loss
from change in Cumulative fair Impairment Purchases Disposal
fair value during value change provided during during during
Item Opening balance the period charged to equity the period the period the period Closing balance Consumable biological assets 1,756,375,954.07 -21,464,400.65 78,010,397.66 — 41,520,519.59 264,889,462.65 1,511,542,610.36 Total 1,756,375,954.07 -21,464,400.65 78,010,397.66 — 41,520,519.59 264,889,462.65 1,511,542,610.36 Whether there were any material changes on the measurement attributes of major assets of the Company during the reporting period
□ Yes√ No
V Discussion and Analysis of Operations
IV. Assets and liabilities(Cont’d)
3. Restriction on asset rights as at the end of the reporting period
Carrying amount
as at the end
Item of the year Reasons for such restriction
Other monetary funds 16,911,216,505.27 As deposits for bank acceptance bills, letters of credit and bank borrowings, and deposit reserves
Bills receivable 431,715,666.94 As collateral for short-term borrowings, bills payable, letters of guarantee and letters of credit
Fixed assets 8,079,811,565.53 As collateral for bank borrowings and long-term payables Intangible assets 873,985,362.13 As collateral for bank borrowings and long-term payables Investment properties 4,691,453,227.24 As collateral for bank borrowings
Total 30,988,182,327.11
V. Investments
1. Overview
√ Applicable□ Not applicable
Investments during the
Investments during the corresponding period
reporting period (RMB) of prior year (RMB) Change 6,770,571,000.00 10,071,391,442.52 -32.77%
V Discussion and Analysis of Operations
V. Investments(Cont’d)
2. Material equity investments during the reporting period
√ Applicable□ Not applicable
Unit: RMB Progress as Profit or loss Date of
Form of Investment Source Period of at the date of Estimated from investment Involvement disclosure Disclosure index Name of investee Principal activities investment amount Shareholding of fund Partner(s) investment Product type balance sheet return for the period in lawsuit (if any) (if any) Beijing Chenming Financial Financial leasing and operation Newly 200,000,000.00100.00% Self-owned A wholly-owned subsidiary 17 May 2018 to 16 Financial leasing Completed Not applicable -1,654,500.81 No 30 January 2018 http://www.cninfo.com.cn Leasing Co., Ltd. leasing established funds May 2048
Shanghai Chenming Industrial investment, commercial Capital 2,000,000,000.00100.00% Self-owned A wholly-owned subsidiary 15 September 2017 Industrial investment Completed Not applicable -1,595,138.11 No 17 April 2018 http://www.cninfo.com.cn Industry Co., Ltd. consultation and property increase funds to 14 September
management 2037
Shandong Chenming Group Business as permitted by the Capital 2,000,000,000.00100.00% Self-owned A wholly-owned subsidiary Long-term Corporate financial Completed Not applicable 244,038,383.55 No 27 April 2018 http://www.cninfo.com.cn Finance Co., Ltd. China Banking Regulatory increase funds business
Commission pursuant to relevant
laws, administrative regulations
and other regulations
Wuhan Chenming Hanyang Production and sales of machine- Acquisition 60,896,600.0065.21% Self-owned Aberdeen Industrial Limited, 29 June 2004 to 18 Machine-made paper Completed Not applicable 53,188,105.84 No 24 May 2018 http://www.cninfo.com.cn Paper Holdings Co., Ltd. made paper, paper board and of minority funds Hong Kong Dongfang Huixin November 2048 and paper making
paper making machinery interest Holdings Limited, Hubei machinery
Xinhua Printing Industry Park
Co., Ltd., Hubei Changjiang
Publishing& Media Group
Co., Ltd. and Hubei Zhiyin
Printing Co., Ltd.
Guangdong Huirui Industrial investment, marine Acquisition 120,600,000.0049.00% Self-owned Zhanjiang Chenming and Long-term Industrial investment Completed Not applicable -79,406,759.94 No Not applicable Not applicable Investment Co., Ltd. engineering project investment, of minority funds Shanghai Chenli Investment
tourist project investment, green interest Co., Ltd.
landscape project investment,
municipal works and ancillary
project investment; sales of
hardware and electric materials
and electrical engineering
products
Goldtrust Futures Co., Ltd. Broker of commodities and Acquisition 180,000,000.0045.00% Self-owned Hunan Oil Pump Co., Long-term Financial futures Currently pending Not applicable Not applicable No 12 October 2018 http://www.cninfo.com.cn futures, broker of financial futures, funds Ltd., Shanghai PanHou business for the approval
investment consultant of futures; Investment Management of SFO
property management. Co., Ltd., Shanghai Jinzhi
Information Technology
Co., Ltd., Yingxin (Hainan)
Financial Services Co., Ltd.,
Beijing Wuxianxinrui Network
Technology Co., Ltd.
Shanghai Hongtai Real Real estate development Acquisition 2,099,074,400.00100.00% Self-owned Shanghai Xinhuangpu Real 31 January 1994 to Office, properties Completed Not applicable -173,123,654.50 No 21 December http://www.cninfo.com.cn Estate Co., Ltd. and operation and property of minority funds Estate Co., Ltd., Shanghai 30 January 2044 2018
management interest Xinmin Industrial Co., Ltd.
Weifang Xingxing United Production and sales: hydrogen Acquisition 110,000,000.00 50% Self-owned Shouguang Chenming and Long-term Production of Completed Not applicable -746,762.88 No Not applicable Not applicable Chemical Co., Ltd. peroxide funds Shandong Hexin Chemical chemical products
Industry Group Co., Ltd.
Total — — 6,770,571,000.00 —— — — — — — 40,699,673.15— — —
V Discussion and Analysis of Operations
V. Investments(Cont’d)
3. Material non-equity investments during the reporting period
√ Applicable□ Not applicable
Unit: RMB Accumulated
Industry in Accumulated realised return
Fixed which the Investment actual amount as of the Reasons for failure
assets investment amount during invested as of end of the in meeting scheduled
Form of investment project the reporting the end of reporting progress and Date of
Project name investment or not operates period reporting period Source of fund Progress Estimated return period estimated return disclosure Disclosure index 510,000-tonne high-end Self- Yes Paper making 1,004,571,235.06 1,701,781,479.30 Self-raised and 100% Estimated revenue of — Trial production phase 18 February 2017 http://www.cninfo.com.cn cultural paper project constructed borrowings RMB780 million upon
of Shouguang Meilun official operation
of the project
400,000-tonne Self- Yes Pulp 1,214,814,219.34 3,016,785,495.66 Self-owned funds 95% Estimated total profit of — Not yet completed 21 March 2014 http://www.cninfo.com.cn chemical pulp project constructed production and borrowings approximately RMB350
of Shouguang Meilun million upon completion
and commencing
production of the project
Chemical pulp project of Self- Yes Pulp 1,411,690,254.49 3,605,150,078.66 Self-owned funds 100% Estimated revenue of — Trial production phase 2 August 2013 http://www.cninfo.com.cn Huanggang Chenming constructed production and borrowings RMB400 million upon
official operation
of the project
Haiming magnesite Self- Yes Magnesite 21,566,889.76 486,501,551.60 Self-owned funds — Estimated total profit of — Not yet completed N/A N/A mining project constructed mining and borrowings approximately RMB150
million upon completion
and commencing
production of the project
newsprint Self- Yes Paper making 521,228,391.31 1,426,602,125.57 Self-owned funds 100%— — Trial production phase N/A N/A paper-for-cultural constructed and borrowings
paper project
Total — — — 4,173,870,989.96 10,236,820,730.79— —— —— — —
4. Financial asset investment
(1) Security investments
□ Applicable√ Not applicable
The Company did not have any security investments during the reporting period.
(2) Derivatives investments
□ Applicable√ Not applicable
The Company did not have any derivative investments during the reporting period.
V Discussion and Analysis of Operations
V. Investments(Cont’d)
5. Use of proceeds
√ Applicable□ Not applicable
(1) General use of proceeds
√ Applicable□ Not applicable
Unit:RMB’0,000 Total Total
amount of amount of Total Proportion Total utilised Total proceeds amount of of total amount proceeds amount of with change accumulated amount of Total Use and of idle Total during the accumulated in use during proceeds accumulated amount of status of proceeds Fundraising amount of current utilised the reporting with change proceeds with unutilised unutilised for over Year method proceeds period proceeds period in use change in use proceeds proceeds 2 years 2018 Public 89,865.00 89,865.00 89,865.00 0 00.00% 0 Not 0 offering of applicable corporate
bonds
Total — 89,865.00 89,865.00 89,865.00 0 00.00% 0 0 Description of the general use of proceeds
On 13 March 2017, the Company received the Approval (Zheng Jian Xu Ke[2017] No. 342) from the China Securities Regulatory Commission for the public offering of corporate bonds of not more than RMB4.0 billion. On 27 March 2018, the Company issued the first tranche of corporate bonds for 2018 to qualified investors, with total proceeds raised of RMB900 million. After deducting the issuance expense paid of RMB1.35 million, the net proceeds raised of RMB898.65 million were deposited to the designated account for the proceeds of corporate bonds.
V Discussion and Analysis of Operations
V. Investments(Cont’d)
5. Use of proceeds(Cont’d)
(2) Commitment of proceeds
√ Applicable□ Not applicable
Unit:RMB’0,000 The date when
Change Invested Accumulated Investment the project Return
in project Total Total amount invested progress as reaches realised Expected Committed (including Committed investment during the amount as at the end of the working during the return being Significant investment project Partial investment After reporting at the end of the Period condition for reporting achieved change and excess proceeds change) of proceeds adjustment (1) period the period (2) (3)=(2)/(1) its intended use period or not in project Committed investment project
Repayment of No 89,865.00 89,865.00 89,865.00 89,865.00 100.0% 11 April 2018 Not applicable Not No bank loans applicable Subtotal of committed— 89,865.00 89,865.00 89,865.00 89,865.00 100.0%— — — — investment project
Amount, use and Not applicable
utilisation of
excess proceeds
Change in place of Not applicable
implementation of
investment project
of proceeds
Adjustment on Nil
implementation
method of investment
project of proceeds
Pre-investment and Nil
swap of investment
project of proceeds
Temporary Nil
replenishment of
liquidity by
idle proceeds
Balance and reason Not applicable
for proceeds
arising from project
implementation
Use and direction of Not applicable
unused proceeds
Use of proceeds and Nil
problems disclosed
or other issues
V Discussion and Analysis of Operations
V. Investments(Cont’d)
5. Use of proceeds(Cont’d)
(3) Change in use of proceeds
□ Applicable√ Not applicable
The Company did not have any change in use of proceeds during the reporting period.
VI. Disposal of material assets and equity interest
1. Disposal of material assets
□ Applicable√ Not applicable
2. Disposal of material equity interest
√ Applicable□ Not applicable
Net profit
contribution
to the Company Net profit
from the contribution to Carried out on
beginning of the the Company on schedule or not,
Transaction period up to the equity disposal as Pricing basis Relevant asset if not, the reasons
Equity interest consideration disposal date Effect of disposal a percentage of of disposal of Related party Relationship with title fully and measures taken
Counterparty(ies) disposed of Disposal date(RMB’0,000)(RMB’0,000) on the Company total net profit(%) equity interest transaction or not counterparty (ies)transferred or not by the Company Disclosure date Disclosure index Shanghai Zhongneng Guangdong Dejun 16 April 2018 263,404.14 5,249 The disposal can effectively increase2.08% Fair value No Not related party Yes Disposal completed 17 April 2018 http://.wwwcninfo.com.cn Enterprise Development Investment Co., Ltd. theCompany’s cash flow, which
(Group) Co., Ltd. enables the Company to concentrate
on capital advantages, better support
the development of competitive
businesses and further enhance
business performance.
Hubei Zheshang Wan Xing Wuhan Wan Xing Real 7 August 2018 13,160 7,968 The disposal is beneficial for the3.16% Fair value No Not a related partyYes Disposal completed 9 August 2018 http://.wwwcninfo.com.cn Investment Co., Ltd. Estate Co., Ltd. integration of theCompany’s
resources, and optimises the asset
structure of the Company. Moreover,
with a focus on the competitive
principal businesses, our quality and
efficiency are improved.
V Discussion and Analysis of Operations
VII. Analysis of major subsidiaries and investees
√ Applicable□ Not applicable
Major subsidiary and investees accounting for over10% of the net profit of the Company
Unit:RMB’0,000 Type of
Name of company company Principal activities Registered capita Total assets Net assets Revenue Operating profit Net profit Zhanjiang Chenming Pulp& Paper Subsidiary Production and sale of pulp, 5,550,000,000.00 20,285,814,497.00 8,727,359,466.34 9,475,655,599.04 1,553,668,126.15 1,353,265,077.60 Co., Ltd. duplex press paper, and
electrostatic paper
Shandong Chenming Financial Subsidiary Financial leasing 5,872,000,000.00 23,062,213,738.47 8,772,992,919.82 1,534,655,651.56 723,241,257.95 601,754,363.06 Leasing Co., Ltd.
Qingdao Chenming Nonghai Subsidiary Financial leasing 5,000,000,000.00 5,617,563,685.10 5,573,308,855.85 509,389,703.20 469,221,914.25 365,295,063.11 Investment Co., Ltd.
Acquisition and disposal of subsidiaries during the reporting period
√ Applicable□ Not applicable
Methods to acquire and
dispose of subsidiaries Impact on overall production
Name of companies during the reporting period and operation and results
Beijing Chenming Financial Leasing Newly established Net profit decreased by RMB1.65 million. Co., Ltd.
Shandong Chenming Coated Newly established No effect
Paper Sales Co. Ltd.
Jiangxi Chenming Supply Newly established No effect
Chain Management Co., Ltd.
Chenming Paper United States Co., Ltd. Newly established Net profit decreased by RMB43,000.
Shanghai Hongtai Real Estate Co., Ltd. Acquisition of55% equity Net profit decreased by RMB173.12 million. interest held by minority
shareholders
Xuchang Chenming Paper Co. Ltd. Transfer of30% Net profit decreased by RMB15.50 million. equity interes
Wuhan Chenming Hanyang Paper Acquisition of equity No effect
Holdings Co., Ltd. interest held by minority
shareholders
Guangdong Dejun Investment Co., Ltd. Transfer of50% equity Net profit increased by RMB52.49 million. interest
Wuhan Wan Xing Real Estate Co., Ltd. Transfer of40% equity Net profit increased by RMB79.68 million. interest
Particulars of major subsidiaries and investees
1. For the integrated forestry, pulp and paper project of Zhanjiang Chenming, the gross profit of major products remained at a high level, showing strong profitability.
2. The Financial Leasing Company strengthened its business management with stable profitability.
V Discussion and Analysis of Operations
VIII. Structured entities controlled by the Company
□ Applicable√ Not applicable
IX. Outlook on the future development of the Company
(I) Competition overview and development trend of the industry
China is theworld’s largest producer of paper and board, as well as theworld’s largest consumer. Despite the strong overall demand, the concentration of the domestic paper making industry is still significantly lower than that of developed countries in Europe and the United States. With reference to the historical development and current situation of the paper making industry in developed markets such as Europe and the United States, domestic paper making enterprises distribute dividends on a larger scale, however, there is an obvious shortage in the supply of pulp, a raw material, which prevented the rise of paper making behemoth. In 2017, the country produced 79,470,000,000 tonnes of pulp in total, representing a slight increase of0.30% year on year. However, there is still a big gap compared with the United States, and the supply of raw materials is still highly dependent on overseas suppliers. With the successive launch of new chemical wood pulp projects by Huanggang Chenming and Shouguang Meilun of the Company, theCompany’s self-sufficiency rate of wood pulp will be further increased, which will reduce production cost significantly, address the constraints of raw materials, enhance the core competitiveness of the Company, and provide strong support and safeguarding for theCompany’s future development.
The reform of the supply-side prompted the market to phase out outdated production capacity and accelerated the elimination of redundant production capacity. With the implementation of more stringent environmental protection measures, the licensing system for pollutant discharge and the external waste control policy, the pollution control of the paper making industry is strengthened from various aspects. It is expected that the relevant policies on the supply side of the industry will remain tight in 2019. Due to continuous investments in environmental protection and advantages in raw material cost and production scale, large factories will become more competitive, which can promote the centralised management and scale of enterprises, and accelerate the concentration of production capacity.
(II) Development strategy
The Company will adhere to the main theme of emphasising on environmental protection, low carbon, recycling and sustainable development. Following the “Made in China 2025 Plan” and the principles of scientific development and quality and efficiency enhancement, the Company will comprehensively improve its quality and efficiency, management level, technology application, sense of happiness and brand image through the incorporation of smart technology into its industrial activities, reorganised methodology and restructuring so as to expand and improve itself and strive to become one of the world-class companies with the highest growth rate.
Transformation and upgrade strategy: The Company will comprehensively improve the industrial structure and regional layout; emphasise on the development of the five leading businesses, namely pulp production, paper making, fibre yarn, forestry, mining and so on; and construct an efficient industrial system with synergies.
Green development strategy: Remaining steadfast in the operation philosophy of “forestry-pulp-paper-fibre-yarn integration”; with technical progress, advanced equipment and strict and prudent management, the Company will promote clean production and recycling economy, become a low-energy consumption and environmentally-friendly enterprise. The Company seeks for development while protecting the environment and maintains higher environmental protection standards while seeking for scientific development, thus achieving a “win-win” situation in economic development and environmental protection.
International operation strategy: The Company, based in China with a global reach, will follow the national strategy of the “Belt and Road” initiative, accelerate its pace of “going global”, reinforce global exchanges and communication and gradually expand its overseas market.
V Discussion and Analysis of Operations
IX. Outlook on the future development of the Company(Cont’d)
(II) Development strategy(Cont’d)
Operational excellence strategy: By adhering to the management policy of “efficient management, structural adjustment, market development and risk control”, the Company will constantly heighten its whole process management including production and operation, marketing, financial costs and project construction, effectively integrate its systems and resources, and strive to upgrade theCompany’s management capacity and profitability. Strengthening the Company through talent strategy: By improving talent development, introduction, application and incentive mechanisms, and nurturing high-end, versatile, innovative and international talents, Chenming will become one of the world-class companies with the highest growth rate.
Harmonious development strategy: By comprehensively enhancing enterprise culture building, caring for the employees, acting on its corporate social responsibilities, and elevating its integrated value-creating ability in terms of economy, society and environment, Chenming will create a positive corporate image for itself and strive to become a harmonious enterprise.
(III) Operation plans for 2019
In 2019, the main goal of the Company is thorough adherence to the guiding principle of work of “efficient management, structural adjustment, market development and risk control”, and fully carrying forward its corporate style of “tackling problems once discovered”. The Company will strive to improve corporate management while emphasizing economic benefits, and facilitate quality development of the Company. The specific measures are as follows:
1. Determined to make changes in corporate management
The corporate management centre will change its course, and strictly implement the various measures determined by the Company and place focus on assessment, so that the effects of corporate management can be seen.
① Diligently implement the weekly meetings. The corporate management centre shall act as the coordinator in organizing and convening weekly meetings of each department on a timely basis, and shall prepare the meeting minutes. Major issues shall be reported on a timely basis, and the corporate management department shall address opinions and issues raised by each department in an effective manner.② Give play to the functions of the department, clarify the scope of inspection of each department, conduct weekly inspections, propose rectification plan for eachdepartment’s work, and implement responsibility assessment.
③ Further implement the new ways of innovative management, so as to ensure its realisation in each unit. Thoroughly implement specific measures and work measures for each level to be strictly implemented. Change from monthly assessment to weekly assessment to ensure the effectiveness of the above.
V Discussion and Analysis of Operations
IX. Outlook on the future development of the Company(Cont’d)
(III) Operation plans for 2019(Cont’d)
2. Determined to achieve breakthrough in operation and management
① Enhance and increase the coping strength in operation and management. Keep abreast of market information at all times to learn, study and practice good practices by competitors, and further establish an effective mechanism to improve market response. Strengthen internal control by monitoring the implementation of the daily major measures by each level with strict examination and assessment. Weekly meetings shall be held by each level in an effective manner to study and resolve key and difficult issues at work. We will also keep a firm grasp of key operation indicators and focus on such, so as to ensure that all indicators are comprehensively improved.
② Increase the marketing capability of overseas business to further improve the overseas marketing structure. Establish a number of overseas branches, and increase the number of sales staff and overseas shipments. The performance of these events shall be incorporated into the performance appraisal of relevant personnel.
③ Strengthen agent management by walking in their shoes and supporting their expansion and enhancements. We will elevate the level of cooperation and enhance agent cooperation comprehensively on an overall scale.
3. Determined to achieve remarkable results in production management
Against the severe market conditions in 2019, the production system will be market-oriented, exerting substantial efforts in adjusting the product mix and creating positive conditions for operations.
① Determined to restructure. The production system shall render full support to the operations in adjusting the product mix, including the increment of developed products and the continuousR&D of other products with high efficiency, so as to fulfil established output targets. We will increase the output of various high-margin products, such as export paper, highly mechanical pulp paper, unbleached paper and high-grade specialty paper to enhance quality and efficiency.
② Determined to implement basic management. We will comprehensively implement the work measures of each level, as formulated by the Group, and conduct weekly evaluation and assessment. We will also improve the training materials at each level. Training will be organised and taught by the main responsible person, and assessment and evaluation will be strictly implemented to truly enhance the management standards practical skills at all levels. We will reorganise and amend the production management system and process so that they will be simple, effective and easy to operate. We will also comprehensively check and improve the machine-controlled alarms in the production process, increase the level of automation in production scheduling, management and operation, in order to standardise, manage and enhance efficiency.
③ Strict with overall staffing planning. Following the standard of leading international peers, we enhance the level of automation and informationisation of equipment and strengthen the skills of employee, so as to reach the targets of our overall staffing planning.
④ Focus on new projects that are commencing operations. Huanggang Chenming should quickly become a new source of profit growth for the Company. The Shouguang Meilun chemical pulp project is under careful planning for trial operation, in order to achieve the target output and efficiency as soon as possible. Shouguang Meilun shall take leverage on the cost advantages of self-produced pulp to enhance economic benefits. Haiming Mining shall further enhance project management to ensure that phase II of the project is fully completed and put into operation, which will accelerate thecompany’s operation and management standard and improve profitability.
V Discussion and Analysis of Operations
IX. Outlook on the future development of the Company(Cont’d)
(III) Operation plans for 2019(Cont’d)
4. Determined to enhance financial management to achieve steady operation.
① Strengthen financing management and reduce financial costs. We will promote financing for debt reduction, so as to reduce the gearing ratio and enhance theCompany’s risk aversion ability. We will also deepen cooperation between banks and enterprises, and focus on increasing cooperation with state- owned banks and policy banks, so as to increase credit limit and reduce financial expenses.
② Promote financial operation to achieve quality and efficiency enhancement. The Finance Company will increase fund settlements internally and increase credit limit to peers externally, so as to improve settlement rate of funds.
(IV) Future capital requirements, source of funds and plan for use
The Company has established itself as a large conglomerate principally engaged in pulp production and paper making with synergistic development in finance, mining, forestry, logistics and construction materials. With the further development of the existing principal businesses of the Company, the future capital requirements of the Company will be: (1) investment in the existing projects under construction; (2) consistent investment in the existing production facilities because of technological transformation or production expansion; and (3) business expansion and general working capital requirements. As the demand for capital has been growing for theCompany’s production and operation, there is a strong need to replenish the working capital to enhance theCompany’s capability for sustainable operations.
In order to meet the business development requirements of the Company and further extend and expand the industry chain, the Company will establish diversified financing channels and increase the proportion of direct financing through diversified financing channels such as corporate bonds, perpetual bonds, short-term commercial paper, cross-border financing and introduction of third-party investors so as to enrich its financing channels and improve the debt structure of the Company and provide stable financial support for the operation and development of the Company.
(V) Risk factors likely to be faced and the measures to be taken
1. Policy risk
Paper making industry is a basic raw materials industry and its growth has been faster than the average growth of the national economy in recent years. However, the paper makingindustry’s profitability is closely correlated to the economic cycle, and the industry is therefore a cyclical industry fluctuating with the national macroeconomic performance, which will further affect the profitability of the Company.
Hence, following the principles of scientific development and quality and efficiency enhancement, the Company will comprehensively improve its industrial structure and regional layout through incorporation of smart technology into its industrial activities. The Company will emphasise on the development of leading businesses including pulp production and paper making, so as to construct an efficient industrial system with synergies.
V Discussion and Analysis of Operations
IX. Outlook on the future development of the Company(Cont’d)
(V) Risk factors likely to be faced and the measures to be taken(Cont’d)
2. Market fluctuation risk
With the rapid growth of the national economy, economic globalisation andChina’s accession to the WTO,China’s paper making industry has been facing increasingly fierce competition. Leveraging on the strength and capital accumulated over the years, domestic enterprises have further expanded their size and improved their technological levels and product quality. Well-known paper making enterprises overseas have also directly set up production bases in China through sole proprietorship or joint ventures so as to participate in the domestic market competition by virtue of their advantages in size and technology. Besides, tariff reduction on China after accession to the WTO has also further intensified the impact on the international market.
Hence, the Company will strive to enhance the quality of paper products and achieve the target of establishing a layout for high-end paper industry so as to increase the proportion of high-end paper. In recent years, the Company has been expanding its business size while optimising its product mix and has set up a few production lines for high-end paper. A diversified and high-end product mix enables the Company to spread market risk and strengthen the resistance towards market volatility. Besides, as high-end products have better profit margins, the Company can increase the proportion of high-end products through consistent improvement in product mix, thereby enhancing its profitability and comprehensive competitiveness.
3. Risk of overcapacity and slowdown in demand
Overcapacity is a prominent problem in the paper making and paper product industry in China such that there has been fierce competition among enterprises. Since 2013, affected by slowdown in macroeconomic growth, the demand in paper making industry has been weak. At the same time, China has been encouraging energy conservation and emission reduction. The outdated production capacity will be phased out, and thus the new projects will be on a large scale. By virtue of the economies of scale in the paper making industry, the production capacity of individual paper making projects which are under construction or planning for construction in China is large, which affects the demand and supply relationship in the whole paper making industry.
Hence, the Company will make advancements in equipment and technological level, expand its product mix, improve the grading of products and focus on the research and development of high-end products so as to improve competitiveness.
4. Risk of price fluctuation of raw materials
Wood pulp is a major raw material in the Company. The market price of wood pulp fluctuates significantly. The market price fluctuation of raw material has significantly affected the production costs of the Company. In addition to intensified market competition resulting from surging capacity in the industry in recent years, the increases in prices of a number of paper products were not in line with the increases in prices of raw materials. The market price fluctuation of raw materials will have an impact on the performance of the Company. Hence, the Company will remain steadfast in the “forestry-pulp-paper integration” development path and focus on the construction of the Zhanjiang Chenming pulp project, the Huanggang Chenming pulp project and the Shouguang Meilun chemical pulp project, thereby eliminating the limitations of raw materials on theCompany’s development and enhancing theCompany’s sustainable development.
V Discussion and Analysis of Operations
IX. Outlook on the future development of the Company(Cont’d)
(V) Risk factors likely to be faced and the measures to be taken(Cont’d)
5. Risk of change in environmental protection policies
China has been raising the standards for environmental protection in recent years. More stringent environmental protection policies have been implemented in the paper making industry with successive implementation of environmental inspections and licensing system for pollutant discharge. A multi-pronged approach has been adopted to promote industrial restructuring, and the paper making industry has entered into an important transitional period of development. A higher emission standard is bound to increase the environmental protection costs in the industry and a high entry standard may result in the slowdown of scale expansion. The Company always strives to achieve harmonious development with energy conservation and emission reduction. The Company will endeavour to develop the recycling economy through waste exchange and recycling and strive to maximise its resource utilisation. Meanwhile, the Company will make greater efforts to construct environmentally friendly projects and strive to achieve its waste emission target.
6. Risk on financial leasing business
The Company may suffer from loss if the lessees of its financial leasing business cannot make full rental payment on time due to any reason and there are abuses on equipment or any other short-term behaviour. Although the risk of such rental being unrecoverable is minimal, the Company will also make bad debt provision as required under its accounting policy. If such amounts cannot be recovered on time, the Company may be exposed to risk of bad debts.
The stringent risk management measures of Chenming Leasing provide comprehensive risk prevention and management for theCompany’s projects. Besides, the Company usually cooperates with state-owned enterprises and local governments, so it has strong risk resistance and low risk of default. Chenming Leasing will strengthen risk management so as to enhance risk resistance and maintain high-quality services.
V Discussion and Analysis of Operations
X. Reception of research investigations, communications and interviews
1. Reception of research investigations, communications and interviews during the reporting period√ Applicable□ Not applicable
Reception Type of
Reception time method participants Index for basic particulars 19 April 2018 Field research Institution See Register of Investor Relations Activities Dated 24 April 2018 on CNINFO
13 July 2018 Field research Institution See Register of Investor Relations Activities Dated 16 July 2018 on CNINFO
19 December 2018 Field research Institution See Register of Investor Relations Activities Dated 21 December 2018 on CNINFO
Number of receptions 3 Number of institutions received 44 Number of individuals received 0 Number of other participants received 0 Whether any unpublished material No information was disclosed,
revealed or leaked
VIDirectors’ Report
The Directors (the “Directors”) of the Company hereby present the annual report and the audited consolidated financial statements of the Company and the Group for the year ended 31 December 2018.
I. Principal activities
Please refer to section IV “Business Overview”, and “I. Principal operations of the Company during the Reporting Period” and “II. Analysis of principal operations” under section V “Discussion and Analysis of Operations” for details of principal activities of the Company.
II. Results and profit distribution
Please refer to section XIII “Financial Report” for the results of the Group for the year ended 31 December 2018.
III. Dividends
After the end of the reporting period, the Board proposed to pay a final dividend for the year ended 31 December 2018 (“final dividend”) of RMB2.4 in cash for every 10 Shares (tax inclusive) (2017: dividend of RMB6.00 in cash for every 10 Shares (tax inclusive)) to the ordinary shareholders of the Company, subject to approval of shareholders at the forthcoming Annual General Meeting (“AGM”) of the Company held on 11 June 2019. Upon approval of shareholders of the Company at the AGM, the Company is expected to pay the final dividend on or by 11 August 2019 to shareholders whose names appear on the register of members of the Company on 20 June 2019.
In accordance with the Corporate Income Tax Law of the PRC and its implementation rules effective on 1 January 2008, where a PRC domestic enterprise distributes dividends for financial periods beginning from 1 January 2008 to non-resident enterprise shareholders, it is required to withhold10% corporate income tax for such non-resident enterprise shareholders. Therefore, as a PRC domestic enterprise, the Company will, after withholding10% of final dividends as corporate income tax, distribute the final dividends to non-resident enterprise shareholders, i.e. any shareholders who hold theCompany’s Shares in the name of non-individual shareholders, including but not limited to HKSCC Nominees Limited, or other nominees, trustees, or holders of H Shares registered in the name of other organisations and groups.
Due to changes in the PRC tax laws and regulations, according to the Announcement on the List of Fully and Partially Invalid and Repealed Tax Regulatory Documents issued by the State Administration of Taxation(《關於公佈全文失效廢止﹑部份條款失效廢止的稅收規範性文件目錄的公告》) on 4 January 2011, individual Shareholders who hold theCompany’s H Shares and whose names appeared on the H Share Register of the Company can no longer be exempted from individual income tax pursuant to the Notice of the State Administration of Taxation Concerning the Taxation of Gains on Transfer and Dividends from Shares (Equities) Received by Foreign Investment Enterprises, Foreign Enterprises and Foreign Individuals (Guo Shui Fa[1993] No. 045)(《關於外商投資企業﹑外國企業和外籍個人取得股票(股權)轉讓收益和股息所得稅收問題的通知》(國稅發[1993]045號)) issued by the State Administration of Taxation, whilst pursuant to the letter titled Tax Arrangements on Dividends Paid to Hong Kong Residents by Mainland Companies issued by the Stock Exchange to the issuers on 4 July 2011 and the Notice on Matters Concerning the Levy and Administration of Individual Income Tax after the Repeal of Guo Shui Fa[1993] No. 045 of State Administration of Taxation (Guo Shui Han[2011] No. 348)(《國家稅務總局關於國稅發[1993]045號文件廢止後有關個人所得稅徵管問題的通知》(國稅函[2011]348號)), it is confirmed that the overseas resident individual shareholders holding shares of domestic non-foreign invested enterprises issued in Hong Kong are entitled to the relevant preferential tax treatments pursuant to the provisions in the tax arrangements between the countries where they reside and the PRC or the tax arrangements between the PRC and Hong Kong (Macau). Therefore, the Company will withhold10% of the dividend as individual income tax, unless it is otherwise specified in the relevant tax regulations and tax agreements, in which case the Company will withhold individual income tax of such dividends in accordance with the tax rates and according to the relevant procedures as specified by the relevant regulations.
VIDirectors’ Report
IV. Closure of register of members
The register of members of the Company will be closed from 10 May 2019 (Friday) to 11 June 2019 (Tuesday), (both days inclusive), during which no transfer of shares of the Company will be registered. In order to be eligible to attend and vote at the annual general meeting to be held on 11 June 2019 (Tuesday), all share transfer documents accompanied by the corresponding share certificates must be lodged with theCompany’s Hong Kong share registrar and transfer office, Computershare Hong Kong Investor Services Limited at shops 1712-1716, 17th Floor, Hopewell Centre, 183Queen’s Road East, Wan Chai, Hong Kong for registration not later than 4:30 p.m. on 9 May 2019 (Thursday).
V. Five-year financial summary
Please refer to “IX. Five-year financial summary under paragraph 19 of appendix 16 of the Hong Kong Listing Rules” under section II “Company Profile and Key Financial Indicators” for the financial summary of the Company for the past five financial years.
VI. Donations
During the year, the Company donated RMB8,740,500.00 (2017: RMB1,950,000) to non-profit making organisations. VII. Subsidiaries
Please refer to “VII. Analysis of major subsidiaries and investees” under section V “Discussion and Analysis of Operations” and “XX. Matters of significant of subsidiaries of the Company” under section VII “Material Matters” for the details of acquisition and disposal of subsidiaries by the Company during the year.
VIII. Property, plant and equipment
Please refer to “II. Financial Statements 1. Consolidated Balance Sheet” under section XIII “Financial Report” for the details of changes in property, plant and equipment of the Group for the year ended 31 December 2018.
IX. Share capital
Please refer to “I. Changes in shares” under section VIII “Changes in Share Capital and Shareholders” for details of changes in share capital of the Company for the year ended 31 December 2018.
X. Pre-emptive rights
In accordance with the Articles of Association and the PRC laws, there are no rules requiring the Company to grant existing shareholders pre-emptive rights on newly issued shares of the Company in proportion to their shareholdings.
VIDirectors’ Report
XI. Transfer into reserves
TheCompany’s contributed surplus is distributable to shareholders in accordance with the Companies Law. As at 31 December 2018, theCompany’s reserves available for cash distribution and/or distribution in specie, including contributed surplus of the Company, amounted to RMB9,530,159,552.96 (2017: RMB9,514,629,584.05) as set out in “II. Financial Statements 1. Consolidated Balance Sheet” under section XIII “Financial Report”.
XII. Directors
As at 31 December 2018, the Directors of the Company were:
1. Executive Directors
Mr. Chen Hongguo
Mr. Hu Changqing
Mr. Geng Guanglin
Mr. Li Feng
Mr. Chen Gang
2. Non-executive Directors
Ms. Zhang Hong
Ms. Yang Guihua
3. Independent Non-executive Directors
Ms. Liang Fu
Ms. Wang Fengrong
Mr. Huang Lei
Ms. Pan Ailing
According to the Articles of Association of the Company, all Directors, including non-executive Directors, have been elected at the general meetings with a term of three years from May 2016 to May 2019. They may be re-elected for another term upon expiry of tenure.
VIDirectors’ Report
XIII.Directors’ service contracts
All Directors have entered into service contracts with the Company for a term from 18 May 2016 to 17 May 2019. None of the Directors who have offered themselves for re-election at the forthcoming AGM have entered into any service contract with the Company or any of its subsidiaries which cannot be terminated by the Group within one year without payment of compensation other than statutory compensation.
XIV. Directors and SeniorManagement’s remuneration and the five highest paid individuals Details of Directors and the SeniorManagement’s remuneration and the five highest paid individuals of the Company or/and its subsidiaries are set out in “V. Personnel of the Company” in section X “Directors, Supervisors and Senior Management and Staff” and “XII Related parties and related party transactions” in section XIII “Financial Report”.
In 2018, the Company had 26 Senior Management members in total, which included directors, supervisors and the Senior Management. The remuneration of the Senior Management falls within the following ranges:
Range of remuneration (RMB) Number 4.8 million to 5.2 million 1 3.6 million to 4.0 million
3.2 million to 3.6 million
2.8 million to 3.2 million
2.4 million to 2.8 million
2.0 million to 2.4 million 3 1.6 million to 2.0 million 1 1.2 million to 1.6 million 5 0.8 million to 1.2 million 1 Below 0.8 million 15 XV. Independent Non-executive Directors
The Company has received from each of the independent non-executive Directors a confirmation of independence for the year pursuant to Rule 3.13 of the Hong Kong Listing Rules and considered all of the independent non-executive Directors to be independent during the year.
VIDirectors’ Report
XVI. Securities interests held by Directors, Supervisors and Chief Executives
As at 31 December 2018, interests of the Company or its associated corporations (within the meaning of Part XV of SFO) held by each of the Directors, Supervisors and Chief Executives of the Company under section 352 of the SFO are set out as follows:
Number of shares (A shares) held as at the end of the reporting period Name Position (shares) Directors
Chen Hongguo (Note 1) Chairman 10,144,444 Hu Changqing Executive Director and Vice Chairman 1,857 Li Feng Executive Director 707,727 Geng Guanglin Executive Director 656,150 Chen Gang Executive Director — Yang Guihua Non-executive Director — Zhang Hong Non-executive Director — Huang Lei Independent non-executive Director — Liang Fu Independent non-executive Director — Wang Fengrong Independent non-executive Director — Pan Ailing Independent non-executive Director — Supervisors
Li Dong Supervisor 15,000 Sun Yinghua Supervisor — Zhang Xiaofeng Supervisor —
VIDirectors’ Report
XVI. Securities interests held by Directors, Supervisors and Chief Executives(Cont’d)
Associated corporations
Number of shares
held at the Number of shares beginning of the held at the end Name of reporting period Change during of the reporting Name Position associated corporations (shares) the period+/- period (shares) Chen Hongguo Chairman Shouguang Henglian 231,000,000 — 231,000,000 Enterprise Investment
Co. Ltd. (Note 2)
Note 1: Save for the 10,144,444 A shares held personally, Chen Hongguo is deemed to be interested in the 644,022 A shares held by his spouse, Li Xueqin.
Note 2: Chen Hongguo and his spouse, Li Xueqin, collectively hold76.79% equity interests in Shouguang Henglian Enterprise Investment Co. Ltd., (hereinafter referred to as “Shouguang Henglian”), as a result, Shouguang Henglian is deemed to be controlled by Chen Hongguo. As a result, the 231,000,000 shares in Chenming Holdings (approximately18.65% of the total share capital of Chenming Holdings) held by Shouguang Henglian is also deemed to be held by Chen Hongguo.
Save as disclosed above, as at 31 December 2018, none of the Directors, Supervisors or chief executives of the Company had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations which were required to be filed in the register of the Company required to be maintained pursuant to section 352 of the SFO or which were required to be notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as contained in Appendix 10 to the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (hereinafter referred to as the “Hong Kong Listing Rules”). As at 31 December 2018, none of the Directors, Supervisors or chief executives or their respective spouses or children under the age of 18 held or exercised any rights to subscribe for the share capital or debentures of the Company or its associated corporations.
XVII. Interests and short position of substantial shareholders in shares and underlying shares As at 31 December 2018, the following shareholders (other than the Directors, Supervisors or chief executives of the Company) had interests or short positions in theCompany’s shares and underlying shares as shown in the share register maintained by the Company in accordance with Section 336 of the SFO (Chapter 571 of the Laws of Hong Kong): Number of Approximate shareholding Name shares held (shares) as a percentage of Total share Class capital(%) of shares(%) Shouguang Chenming Holdings Co., Ltd. 444,146,128 A shares (L) 15.29 26.59 Shouguang Chenming Holdings Co., Ltd. 210,717,563 B shares (L) 7.25 29.83 Chenming Holdings (Hong Kong) Limited 210,717,563 B shares (L) 7.25 29.83 Shouguang Chenming Holdings Co., Ltd. 153,414,000 H shares (L) 5.28 29.04 Chenming Holdings (Hong Kong) Limited 153,414,000 H shares (L) 5.28 29.04 The National Social Security Fund Council 27,076,500 H shares (L) 0.93 5.12 (L) - Long position (S) - Short position (P) - Lending pool
Save as disclosed above, as at 31 December 2018, no other person had interests or short positions in theCompany’s shares or underlying shares as recorded in the register maintained under section 336 of the SFO.
VIDirectors’ Report
XVIII. Relationship with employees, customers and suppliers
Please refer to “V. Personnel of the Company” under section X “Directors, Supervisors and Senior Management and Staff”, “2. (8) Sales to major customers and major suppliers” of “II. Analysis of principal operations” under section V “Discussion and Analysis of Operations” for details of the relationship between the Company and its employees, customers and suppliers.
XIX.Directors’ interests in material contracts and indemnity provision
None of the Company or any of its subsidiaries entered into any material contracts, in which Directors had significant interests (either directly or indirectly), that subsisted at the end of the financial year or at any time during the reporting period. The Company did not have any indemnity provision in favour of any Director.
XX. Interests in competing business
None of the Directors or controlling shareholders of the Company was interested in any business which competes or is likely to compete with the businesses of the Company and any of its subsidiaries.
XXI.Directors’ rights to purchase shares or debentures
At no time during the year was the Company or any of its subsidiaries a party to any arrangements to enable the Directors to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate. XXII. Preference shares
Please refer to section IX “Preference Shares” for details of the issue of preference shares of the Company.
XXIII. Management contracts
No contracts concerning the management and administration of the whole or any substantial part of the business of the Company were entered into or existed in 2018.
XXIV. Major risk factors
Please refer to “(V) Risk factors likely to be faced and the measures to be taken” of “IX. Outlook on the future development of the Company” under section V “Discussion and Analysis of Operations” for details of major risk factors of the Company. XXV. Material matters
Please refer to section VII “Material Matters” for details of material matters of the Company.
XXVI. Future development
Please refer to “(I) Competition overview and development trend of the industry”, “(II) Development strategy”, “(III) Operating plan for 2019” and “(IV) Future capital requirements, source of funds and plan for use” of “IX. Outlook on the future development of the Company” under section V “Discussion and Analysis of Operations” for details of future development of the Company.
VIDirectors’ Report
XXVII. Environment, social and governance report and social responsibility
Please refer to XVIII. Fulfilment of Social Responsibility under section VII “Material Matters” for details of fulfilment of social responsibility. Please refer to the environment, social and governance report as required by the Hong Kong Listing Rules, which will be issued separately by the Company before 29 June 2019.
XXVIII. Purchase, sale and redemption of shares
The Company and its subsidiaries did not purchase, sell or redeem any listed securities of the Company during the reporting period.
XXIX. Sufficiency of public float
During the reporting period, based on the information that is publicly available to the Company and within the knowledge of the Directors, the Company has maintained a sufficient prescribed amount of public float as required under the Hong Kong Listing Rules.
XXX. Review of the Audit Committee
The audited consolidated financial statements of the Company for the year ended 31 December 2018 has been reviewed by the Audit Committee of the Company.
XXXI. Gearing ratio
As at 31 December 2018, theCompany’s gearing ratio (including minority interest) was62.61%, representing an increase of1.81% from60.80% for 2017, mainly due to the increase of long-term borrowings and short-term borrowings of the Company.
The ratio was calculated as: total borrowings/total assets (whereas total borrowings represent borrowings due within one year, borrowings due after one year, short-term commercial paper and medium and long-term notes and others). XXXII. Going Concern Basis
The Company is a large conglomerate principally engaged in pulp production and paper making with synergistic development in finance, mining, forestry, logistics and construction materials. It is also the first company in the paper making industry to own a financial company, as well as the only listed company in China with three types of shares in issue, namely A shares, B shares and H shares. The Group has production bases in Shandong, Guangdong, Hubei, Jiangxi, Jilin, Wuhan, and others, which deliver annual pulp and paper production capacity of over 11,000,000 tonnes.
VIDirectors’ Report
XXXII. Going Concern Basis(Cont’d)
The Company has good sustainable profitability. In 2018, the Company achieved revenue of RMB28,876 million, net profit attributable to shareholders of the Company of RMB2,510 million and net cash inflows from operating activities of RMB40,089 million. Meanwhile, the Company always places emphasis on the interests of and return to shareholders, and has paid generous cash dividends for several years. With the commencement of operation of several major pulp production projects during and subsequent to the reporting period, the future performance of the Company is worth looking forward to. In addition, as at the end of December 2018, the Company obtained, from major financial institutions, comprehensive credit facilities of RMB81,750 million, of which the unutilised credit facilities amounted to RMB29,594 million, which provided important support to theCompany’s business development. As an A-share, B-share and H-share listed company, the Company has convenient financing channels. The Company has established a finance company and commercial factoring companies as the core of the financial segment. The rapid business development, improving management system and effective risk control are conducive to further increasing theGroup’s fund settlement, management, investment and financing ability, and reducing its financing cost while improving its debt structure.
The auditors of the Company have prepared the 2018 annual financial report on a going concern basis, and have issued a standard unqualified audit opinion (see Financial Report section).
Therefore, the Board believes the Company has the ability to continue as a going concern.
XXXIII. Connected Transactions
During the year ended 31 December 2018, the Group entered into the following conected transactions.
Acquisition of25% equity interest in and loan due from Shanghai Hongtai Real Estate Co.,Ltd.*(上海鴻泰房地產有限公司) On 20 December 2018, Shanghai Chenming Industry Co.,Ltd.*(上海晨鳴實業有限公司) (“Shanghai Chenming”), Shanghai New Huang Pu Real Estate Co.,Ltd.*(上海新黃浦置業股份有限公司) and Shanghai Xinmin Industrial Co.,Ltd.*(上海鑫旼實業有限公司) (“Shanghai Xinmin”)entered into entered into the equity transfer agreement in respect of the acquisition of25% equity interest in and loan due from Shanghai Hongtai Real Estate Co.,Ltd.*(上海鴻泰房地產有限公司) (“Hongtai Real Estate”) (“Sale Shares and Sale Loan”), pursuant to which acquisition rights of the Sale Shares and Sale Loan were obtained by New Huang Pu Real Estate from Shanghai Xinmin by way of public tendering, and were transferred to Shanghai Chenming.
New Huang Pu Real Estate agreed with such arrangement, and conditionally agreed to sell to Shanghai Chenming, and Shanghai Chenming conditionally agreed to acquire from New Huang Pu Real Estate, the Sale Shares and Sale Loan for a consideration of RMB957,500,000.
Before the Acquisition, Shanghai Chenming held75% equity interest in the Target Company and New Huang Pu Real Estate held25% equity interest in the Target Company. Immediately after the completion of the Acquisition, Shanghai Chenming will hold100% equity interest in the Target Company.
Before the acquisition, as the equity interest in Hongtai Real Estate were held by Shanghai Chenming and New Huang Pu Real Estate as to75% and25%, respectively, New Huang Pu Real Estate was a substantial shareholder of a non-wholly owned subsidiary of the Company, and hence a connected person of the Company at the subsidiary level.
For details, please see the announcement of the Company dated 20 December 2018.
Save as disclosed above, there were no other connected transactions of the Company during the year.
VIDirectors’ Report
XXXIV. Major Investment, Acquisition and Disposal
During the year ended 31 December 2018, the Group entered into the following major transaction agreements.
Subscription of shares in Guangdong Nanyue Bank Co., Ltd. and share transfer of Guangdong Nanyue Bank Co., Ltd. On 28 May 2018 (after trading hours), Zhanjiang Chenming Pulp& Paper Co., Ltd.(湛江晨鳴漿紙有限公司) (“Zhanjiang Chenming”), a direct wholly-owned subsidiary of the Company, entered into the Subscription Agreement with Guangdong Nanyue Bank Co., Ltd.(廣東南粵銀行股份有限公司) (“Guangdong Nanyue Bank”), pursuant to which Zhanjiang Chenming agreed to subscribe and Guangdong Nanyue Bank agreed to issue 425,594,366 shares through private placement at a total consideration of RMB791,605,520.76 based on the audited net assets per share of Guangdong Nanyue Bank of RMB1.86 as at 31 December 2017 (the “Acquisition”).
On the same date, Zhanjiang Chenming entered into separate Share Transfer Agreements with China Delixi Holding Group Co., Ltd.(中國德力西控股集團有限公司), Shandong Hexin Chemical Group Co., Ltd.(山東和信化工集團有限公司), Chibi Chenli Paper Co., Ltd.(赤壁晨力紙業有限公司), and Foshan Nanhai Quanhui Metal Materials Trading Co., Ltd.(佛山市南海全匯金屬材料貿易有限公司) respectively, pursuant to which the Vendors agreed to dispose, and Zhanjiang Chenming agreed to acquire from the Vendors, a total of 943,405,634 shares in Guangdong Nanyue Bank at a total consideration of RMB1,754,734,479.24 based on the audited net assets per share of Guangdong Nanyue Bank of RMB1.86 as at 31 December 2017 (the “Equity Transfers”).
Upon completion of the Subscription and the Share Transfers, Zhanjiang Chenming will hold 1,369,000,000 shares in Guangdong Nanyue Bank, representing14.55% of its total enlarged share capital.
For details, please see the announcement of the Company dated 28 May 2018.
Save as disclosed above, there were no other major investment, acquisition or disposal of the Company during the year.
VII Material Matters
I. Profit distribution for ordinary shares of the Company and conversion of capital reserves into share capital
Formulation, implementation or adjustment of profit distribution policy for ordinary shares, especially the cash dividend during the reporting period
√ Applicable□ Not applicable
The Company implemented its profit distribution policy in strict compliance with the Articles of Association. Its cash dividend policy was formulated and implemented in compliance with the requirements of the Articles of Association and the resolution of the general meeting with well-defined and clear dividend distribution criteria and proportion. The legal interests of the small shareholders were fully protected as the related decision-making process and mechanism were in place, the duties of independent Directors were well-defined so that they played a role, and the small shareholders were given opportunities to sufficiently voice their opinion and make requests.
Implementation of the 2017 profit distribution plan for ordinary shareholders: Based on the number of the ordinary shares as at the dividend distribution registration date of 1,936,405,467 shares, a cash dividend of RMB6 (tax inclusive) was to be paid to all ordinary shareholders for every 10 shares held and a capitalisation issue to ordinary shareholders was made out of the capital reserves of 5 shares for every 10 shares held. The total cash dividend to be distributed amounted to RMB1,161,843,280.20. The dividend distribution was implemented and completed on 10 August 2018. For details, please refer to the announcement on payment of final dividend and withholding and payment of enterprise income tax for non-resident enterprise shareholders published on the Hong Kong Stock Exchange, and the announcement on the implementation of the 2017 profit distribution plan for A share and B share published on CNINFO on 6 August 2018. Particulars of Cash Dividend Policy
Was it in compliance with the requirements of the Articles of Association and
the resolutions of the general meeting? Yes Were the dividend distribution criteria and proportion well-defined and clear? Yes Were the related decision-making process and mechanism in place? Yes Did independent Directors fulfil their duties and play their role? Yes Were the minority shareholders given opportunities to sufficiently voice their opinion and
make requests and were the legal interests of the minority shareholders fully protected? Yes Were conditions and procedures legal and transparent in respect of
cash dividend policy with adjustments and changes? Yes The dividend distribution plans for ordinary shares (proposed) and the proposals on conversion of capital reserves into share capital (proposed) over the past three years (the reporting period inclusive)
(1) The 2018 profit distribution plan for ordinary shares
On 29 March 2019, the Company convened the twelfth meeting of the eighth session of the Board, at which the 2018 profit distribution proposal was considered and approved: based on the total number of ordinary shares of the Company as at the end of 2018 of 2,904,608,200 shares, a cash dividend of RMB2.4 (tax inclusive) was to be paid to all ordinary shareholders for every 10 shares held. The total cash dividend distributed to the holders of ordinary shares amounted to RMB697,105,968 (tax inclusive) in 2018. The 2018 profit distribution plan is subject to consideration and approval at the 2018 annual general meeting, and will be implemented within two months from the date of consideration and approval at the general meeting.
VII Material Matters
I. Profit distribution for ordinary shares of the Company and conversion of capital reserves into share capital(Cont’d)
Formulation, implementation or adjustment of profit distribution policy for ordinary shares, especially the cash dividend during the reporting period(Cont’d)
(2) 2017 profit distribution plan for ordinary shares
On 13 June 2018, the Company convened the 2017 annual general meeting, at which the 2017 profit distribution plan was considered and approved: based on the number of the shares as at the dividend distribution registration date of 1,936,405,467 shares, a cash dividend of RMB6.00 (tax inclusive) was to be paid to all shareholders for every 10 shares held, and a capitalisation issue made out of the capital reserves of 5 shares for every 10 shares held will be distributed to ordinary shareholders. The total cash dividend distributed to the holders of ordinary shares amounted to RMB1,161,843,280.20 (tax inclusive) in 2017.
(3) 2016 profit distribution plan for ordinary shares
On 21 April 2017, the Company convened the 2016 annual general meeting, at which the 2016 profit distribution plan was considered and approved: based on the number of the shares as at the dividend distribution registration date of 1,936,405,467 shares, a cash dividend of RMB6.00 (tax inclusive) was to be paid to all shareholders for every 10 shares held. The total cash dividend distributed to the holders of ordinary shares amounted to RMB1,161,843,280.20 (tax inclusive) in 2016.
Cash dividends for ordinary shares of the Company over the past three years (the reporting period inclusive) Unit: RMB Total cash Ratio of cash dividend Dividends (including through Amount of cash distribution other means) Net profit dividend as a through other as a percentage attributable to percentage of net means in net of net profit ordinary profit attributable Amount of profit attributable attributable shareholders to ordinary cash dividends to ordinary to ordinary of the Company shareholders of distribution shareholders of shareholders of in the consolidated the Company in through other the Company in Total cash the Company in Amount of financial statements the consolidated means such the consolidated dividend the consolidated cash dividends during the year financial as share financial (including through financial Year of distribution (tax inclusive) of distribution statements repurchase statements other means) statements 2018 697,105,968.00 2,509,828,858.47 27.78% 0.00 0.00% 697,105,968.00 27.78% 2017 1,161,843,280.20 3,769,325,450.93 30.82% 0.00 0.00% 1,161,843,280.20 30.82% 2016 1,161,843,280.20 1,998,578,788.75 58.13% 0.00 0.00% 1,161,843,280.20 58.13% The Company made a profit and had positive retained profit available for ordinary shareholders of parent company during the reporting period without cash dividend for ordinary shares being proposed
□ Applicable√ Not applicable
VII Material Matters
II. Proposals on profit distribution and conversion of capital reserves into share capital during this reporting period
√ Applicable□ Not applicable
Numbers of bonus share per 10 shares (share(s)) 0 Dividend distribution per 10 shares (RMB) (tax inclusive) Cash dividend of RMB2.4 (tax inclusive) per 10 shares to ordinary shareholders and cash dividend of RMB2.4 (tax inclusive) per 10 simulated shares converted from preference shares into ordinary shares to holders of preference shares Conversion per 10 shares (share(s)) No increase of share capital from reserves Share base of the distribution proposal (shares) 2,904,608,200 ordinary shares and 1,162,790,698 simulated shares converted from preference shares on a conversion ratio of 1 preference share valued at RMB3.87; the share base of the distribution proposal was 4,067,398,898 shares. Cash dividend (RMB) (tax inclusive) 976,175,735.52 Amount of cash dividend distribution through other means such 0.00 as share repurchase (RMB)
Total cash dividend including other means (RMB) 976,175,735.52 Distributable profits (RMB) 9,107,422,690.85 Percentage of cash dividend to total profits distribution 100% Cash dividend policy
For profit distribution of companies which are fully developed with significant capital expenditure arrangement, the percentage for cash dividend shall represent at least40% of the profits distribution for the current year
Particulars of profit distribution and conversion of capital reserves into share capital
The audited consolidated net profit attributable to shareholders of the Company for 2018 prepared in accordance with Accounting Standards for Business Enterprises by the Company amounted to RMB2,509,828,858.47. When deducting the interest on perpetual bonds of RMB347,140,000.00 and fixed dividend on preference shares of RMB214,425,000.00 for 2018, the distributable profit realised for 2017 amounted to RMB1,948,263,858.47.
In accordance with the requirements of the Articles of Association and the Prospectus of Non-public Issuance of Preference Shares, based on the total ordinary share capital of 2,904,608,200 shares and the 1,162,790,698 simulated ordinary shares converted from the preference shares using a conversion ratio of 1 share valued at RMB3.87 as at the end of 2018, a cash dividend of RMB2.4 (tax inclusive) per 10 shares will be distributed to ordinary shareholders; a cash dividend of RMB2.4 (tax inclusive) per 10 simulated ordinary shares converted from the preference shares will be distributed to holders of preference shares. No bonus shares will be issued and no capitalisation issue was made out of the reserves. A cash dividend of RMB697,105,968 will be distributed to ordinary shareholders and a variable cash dividend of RMB279,069,767.52 will be distributed to holders of preference shares. In other words, a cash dividend of RMB6.20 (tax inclusive) per preference share with a nominal value of RMB100 each will be distributed to holders of preference shares.
VII Material Matters
III. Performance of undertakings
1. Undertakings made by parties involved in undertakings including theCompany’s beneficial controllers, shareholders, related parties, bidders and the Company during the reporting period or prior periods but subsisting to the end of the reporting period
√ Applicable□ Not applicable
Party involved in Type of Particulars on the Undertaking undertaking undertaking Details of undertaking Undertaking date Term performance Undertaking on
shareholding structure
reformation
Undertaking made in
offering documents or
shareholding
alternation documents
Undertaking made during
asset reconstruction
Undertaking made on Chenming Non-competitive (1) Chenming Holdings Co., Ltd. (“Chenming Holdings”) 22 May 2008 During the period Implementing initial public offering Holdings undertaking shall not engage, whether solely, jointly, or by when Chenming as normal or refinancing Co., Ltd. representing itself or any other persons or companies, Holdings was the
and shall not procure its associates (as defined in The major shareholder
Listing Rules of Hong Kong Stock Exchange) to engage, of the Company
in any business which competes with the business of
the Company and its subsidiaries (“Chenming Group”
or “we”) directly or indirectly, in any country and region
which our business exists (or any part of the world if in
any form of electronics business), or in any business
that directly or indirectly competes with Chenming
Group’s business which we operate from time to time
(including but not limited to any business in the form
of sole proprietorship, joint ventures or acquisitions, or
holding interests directly or indirectly in such enterprises,
or by any other means); (2) in the event that Chenming
Holdings is required by its business to, whether solely,
jointly, or by representing itself or any other persons
or companies, engage in business which directly or
indirectly competes against the business of Chenming
Group, or obtain any business opportunity which
directly or indirectly competes against the business of
Chenming Group, it shall endeavour to procure that
Chenming Group shall have priority to obtain the right
to operate such business or to obtain such business
opportunity; (3) if Chenming Holdings is in breach of the
above-mentioned undertakings, it shall indemnify the
Company for any loss caused by such breach and the
Company shall have the right to acquire all businesses of
Chenming Holdings, which directly or indirectly compete
with the businesses of our Group, at market price or cost
price (whichever price is lower); (4) Chenming Holdings
shall not make use of its position as the controlling
shareholder (as defined in The Listing Rules of Hong
Kong Stock Exchange) of our Group to jeopardise the
legal interests of Chenming Group and its shareholders
with other persons or companies or on their behalf.
VII Material Matters
III. Performance of undertakings(Cont’d)
1. Undertakings made by parties involved in undertakings including theCompany’s beneficial controllers, shareholders, related parties, bidders and the Company during the reporting period or prior periods but subsisting to the end of the reporting period(Cont’d)
Party involved in Type of Particulars on the Undertaking undertaking undertaking Details of undertaking Undertaking date Term performance Chenming Holdings Defective properties (1) According to the plan on defective properties of the 16 January 2008 During the period Implementing as Co., Ltd. Company, Chenming Holdings Co., Ltd. (“Chenming when Chenming normal Holdings”) has guaranteed and undertaken that: Holdings was the
according to the application of the Company, for major shareholder
defective property(ies) owned by the Company and of the Company
its holding subsidiary company which situated in the
administrative area of Shouguang city, Chenming
Holdings will purchase it (them) and have it(them) being
transferred to itself pursuant to the law in accordance
with the result of the related asset valuation if the
Company decides to transfer and dispose of it(them)
and there is no other transferee; (2) before the Company
transfers and disposes of the defective properties
pursuant to the law, if the Company suffers any
economic losses due to the defects of the title (including
but not limited to damages, penalties and relocation
costs), Chenming Holdings will bear such economic
losses; (3) during the regulatory process taken to the
defective properties of buildings and land of subsidiaries
of the Company situated outside the local areas (outside
the administrative area of Shouguang city), the economic
losses such as penalties or relocation costs imposed
by competent administrative authorities to be borne
by the subsidiaries arising from defects of insufficient
title documents shall be paid pursuant to the law by
Chenming Holdings after verification.
Shandong Specific remedial In view of the impacts on dilution of current returns 25 March 2016 9999-12-31 Implementing as Chenming Paper measures for for ordinary shareholders under the preference shares normal Holdings Limited non-public issuance, and in order to implement the Notice of
issuance of the General Office of the State Council on Further
preference shares Strengthening Protection of the Lawful Rights of Small
Investors in Capital Markets, protect the interests
of ordinary shareholders and provide remedies for
the possible dilution on current returns as a result
of preference shares issuance, the Company has
undertaken that it will implement various measures
to ensure the effective utilisation of proceeds raised,
which can prevent dilution on current returns effectively,
thereby enhancing future returns.
VII Material Matters
III. Performance of undertakings(Cont’d)
1. Undertakings made by parties involved in undertakings including theCompany’s beneficial controllers, shareholders, related parties, bidders and the Company during the reporting period or prior periods but subsisting to the end of the reporting period(Cont’d)
Party involved in Type of Particulars on the Undertaking undertaking undertaking Details of undertaking Undertaking date Term performance Equity incentive
undertakings
Other undertakings
made to the
Company’s
minority shareholders
Whether undertakings Yes
performed on time
2. Description on theCompany’s assets and items in meeting original profit forecast and its explanation as there is profit forecast for assets and items of the Company and the reporting period is still within the profit forecast period
□ Applicable√ Not applicable
IV. Appropriation of funds of the Company by the controlling shareholder and its related parties for non-operating purposes
□ Applicable√ Not applicable
There was no appropriation of funds of the Company by the controlling shareholder and its related parties for non-operating purposes during the reporting period.
V. Opinions of the Board, the Supervisory Committee and independent Directors (if any) regarding the “modifiedauditor’s report” for the reporting period issued by the accountants□ Applicable√ Not applicable
VII Material Matters
VI. Reason for changes in accounting policies, accounting estimates and accounting methods as compared to the financial report for the prior year
√ Applicable□ Not applicable
Change in accounting policies due to implementation of new standards
The Ministry of Finance issued the “Accounting Standard for Business Enterprises No. 22– Recognition and Measurement of Financial Instruments (revised in 2017)” (Cai Kuai (2017) No. 7), “Accounting Standard for Business Enterprises No. 23– Transfer of Financial Assets (revised in 2017)” (Cai Kuai (2017) No. 8) and “Accounting Standard for Business Enterprises No. 24– Hedging Accounting (revised in 2017)” (Cai Kuai (2017) No. 9) on 31 March 2017, issued “Accounting Standard for Business Enterprises No. 37– Presentation of Financial Instruments (revised in 2017)” (Cai Kuai (2017) No. 14) on 2 May 2017 (the “New Standards for Financial Instruments”), and issued “Accounting Standard for Business Enterprises No. 14– Revenue (revised in 2017)” (Cai Kuai (2017) No. 22) on 5 July 2017 (the “New Standard for Revenue”), which required the enterprises listed in both domestic and overseas markets and the enterprises listed in overseas markets and adopting the International Financial Reporting Standards or Accounting Standards for Business Enterprises for financial report preparation to adopt the New Standards for Financial Instruments and the New Standard for Revenue from 1 January 2018. As approved at the eleventh meeting of the eighth session of the Board of the Company on 25 October 2018, the Company began to adopt the above five accounting standards within the timeframe as required by the Ministry of Finance.
The effects of the implementation of the New Standards for Financial Instruments on the Company are set out in the following tables:
A. Comparison of recognition and measurement of financial assets before and after the adoption of the New Standards for Financial Instruments
31 December 2017 (before change) 1 January 2018 (after change)
Category of financial assets Category of measurement Carrying amount Category of measurement Carrying amount
Bills receivable and accounts receivable Loans and receivables 7,886,097,430.59 Amortised cost 7,886,097,430.59
Available-for-sale financial assets Available-for-sale 2,453,000,000.00 Financial assets measured at fair value 2,453,000,000.00
financial assets through profit or loss
Financial assets measured at fair value —
through other comprehensive income
B. Reconciliation of the category and carrying amount of financial instruments on the date of first adoption
31 December 2017 1 January 2018
Item (before change) Reclassification Remeasurement (after change)
Assets:
Financial assets measured at
air value through profit or loss 94,000,000.00 -94,000,000.00
Held-for-trading financial assets 94,000,000.00 94,000,000.00
Available-for-sale financial assets 2,453,000,000.00 -2,453,000,000.00
Other non-current financial assets 2,453,000,000.00 2,453,000,000.00
C. Impact of the adoption of the New Standard for Revenue on the Company:
Amount as at Amount as at 31
1 January December 2017
Change Item 2018 (after change) (before change)
Advances on sales Contract liabilities 243,182,891.22
Advances on sales Advance receipts 243,182,891.22
VII Material Matters
VII. Reason for retrospective restatement to correct major accounting errors during the reporting period
√ Applicable□ Not applicable
The name of the
report projects
during the periods
of comparison Cumulatively The contents of the correction of accounting errors. Procedure affected affected amount Some of the financial leasing operations conducted by Shandong Chenming Consideration and Revenue from -379,290,284.15 Financial Leasing Co., Ltd., a subsidiary of the Company, did not comply with approval at the twelfth principal activities
laws. Hence, interest income arising from such operations shall recognise as meeting of the eighth for 2017
interest income and interest expense instead of revenue and operating costs. session of the Board and
financial cost -379,290,284.15 The misstatement of items in the income statement did not affect the retained at the thirteenth meeting of
for 2017
profit at the beginning of the period. the eighth session of the
Supervisory Committee in Revenue from -340,195,777.53 2019 principal activities
for 2016
financial cost -340,195,777.53 for 2016
Revenue from -49,262,640.70 principal activities
for 2015
financial cost -49,262,640.70 for 2015
VII Material Matters
VIII. Reason for changes in scope of the consolidated financial statements as compared to the financial report for the prior year
√ Applicable□ Not applicable
During the year, the scope of consolidation included 4 newly established subsidiaries, namely Shandong Chenming Coated Paper Sales Co. Ltd., Jiangxi Chenming Supply Chain Management Co., Ltd., Chenming Paper United States Co., Ltd. and Beijing Chenming Financial Leasing Co., Ltd.
During the year, one company was excluded from the scope of consolidation: The Company disposed of30% equity interest in Xuchang Chenming Paper Co. Ltd. Subsequent to the disposal, Xuchang Chenming Paper Co. Ltd., which was held as to30% by the Company, was excluded from the scope of consolidation.
IX. Engagement or dismissal of accounting firms
Current accounting firm engaged
Name of the domestic accounting firm Ruihua Certified Public Accountants (Special General Partnership)
Remuneration of the domestic accounting firm(RMB’0,000) 330
Continued term of service of the domestic accounting firm 6
Name of certified public accountants of the domestic accounting firm Liu Jian and Jiang Lei
Continued term of service of certified public accountants 1
of the domestic accounting firm
Whether to appoint another accounting firm during the current period
□Yes√ No
Particulars on recruitment of accounting firms, financial consultants or sponsors for internal control and auditing purposes√ Applicable□ Not applicable
1. In 2018, the Company engaged Ruihua Certified Public Accountants as the internal control and auditing firm of the Company. The Company paid RMB800,000 as internal control and auditing fees during the period.
2. In 2018, the Company engaged King& Wood Mallesons (Qingdao) Law Firm as its regular legal advisor and paid RMB100,000 as legal advisory fees during the period;
X. Suspension in trading or delisting upon publication of annual report
□ Applicable√ Not applicable
XI. Matters related to bankruptcy and reorganisation
□ Applicable√ Not applicable
There was no matter related to bankruptcy and reorganisation during the reporting period.
VII Material Matters
XII. Material litigation and arbitration
√ Applicable□ Not applicable
Judgment
execution of
Basic information about Amount Will liability Judgment result of the litigation the litigation
litigation (arbitration) (RMB’0,000) be incurred Progress of litigation (arbitration (arbitration) and its effect (arbitration) Disclosure date Disclosure index Statutory demand andHK$389,112,432.44 Yes The Company has appealed against the Not applicable Not applicable 15 May 2018 http://www.cninfo.com.cn Winding-up Petition order of Justice Harris dated 14 June
2017 on 12 July 2017.The hearing was
conducted at the Court of Appeal of the
High Court of the HKSAR on 11 May
2018. At the conclusion of the hearing, the
court indicated that a date will be set to
hand down the judgment. The Company
will perform its disclosure obligation on a
timely basis according to the progress.
XIII. Punishment and rectification
√ Applicable□ Not applicable
Investigation and
Name Type Reason punishment type Conclusion, if any Disclosure date Disclosure index Jiangxi Chenming Paper Corporate Inspection by environmental General During the period from May to Not applicable Not applicable Co., Ltd. protection authorities due to administrative June 2018, Jiangxi Chenming
failure to have waste pulp and penalties were was imposed 5 administrative
waste wood chip disposal imposed by penalties by Nanchang
registered, excessive waste environmental Environmental Protection
water discharge, and non- protection Bureau due to fluctuating waste
compliance sludge disposal authorities. water discharge as a result
by a third party transportation of unstable environmental
company. protection treatment facilities,
non-compliance sludge
disposal by a third party
transportation company and
failure to have waste pulp and
waste wood chip disposal
registered. The penalties due
were paid. The above cases
were settled. Jiangxi Chenming
had conducted rectification
based on the rectification
notices and had good results.
The above five administrative
penalties were general
administrative penalties and
did not constitute material non-
compliance with the laws and
regulations.
VII Material Matters
XIII. Punishment and rectification
Rectification
√ Applicable□ Not applicable
Jiangxi Chenming actively conducted rectification upon the above environmental protection penalties. The rectification measures are detailed as follows:
1. Jiangxi Chenming replaced the automatic valve, inspected the equipment and facilities more frequently and enhanced the regular maintenance and repair of the key equipment. The blowdown pipes were repaired to ensure the alkaline cleaning water in the alkaline cleaning tanks still had access to the wastewater treatment system for effective treatment through the pipes when the automatic valve did not function. The wastewater was treated and discharged up to standard through the central wastewater outfall in the plant area. The wastewater outfall was monitor online in real time throughout 24 hours to completely remove the problem of leakage possibly caused by the alkaline cleaning system. The rectification was completed on 12 June 2018.
2. Jiangxi Chenming commissioned for the formulation of a sludge treatment plan and sought expert verification, the result of which is secure landfill. Disposal of sludge by way of regular clearance and landfilling was completed during the reporting period.
3. As there is recovery value in waste pulp and waste wood chip, Jiangxi Chenming has always recycled such items as valuable by-products, as such they were not registered with solid waste platforms. On 27 June 2018, as required by the Environmental Protection Bureau, Jiangxi Chenming organised the data collection and ledger compilation of waste pulp and waste wood chip for 2017, filled such data on the general industrial solid waste registration website of Nanchang Environmental Protection Bureau, and submitted the printed version with the municipal solid waste station for registration and filing.
4. With the shift in production of Jiangxi Chenming, the original discharge of thermo-mechanical pulp and waste paper deinked pulp mixture gradually turned into the discharge of thermo-mechanical pulp. The COD and SS density of thermo-mechanical pulp discharge are high, and drastic fluctuations of SS discharge indicator were recorded during the adjustment of the mid-stage water system. Jiangxi Chenming made a series of adjustments for this purpose, including:① complementing the strains in sludge;② adjusting the primary sedimentation tank;③ applying the recycling system; and④ increase the application of chemicals in in-depth treatment. The implementation of the above measures enabled discharge up to standard.
XIV. Credibility of the Company, its controlling shareholders and beneficial controllers
□ Applicable√ Not applicable
XV. Implementation of the equity incentive plan, employee shareholding plan or other employee incentive measure of the Company
□ Applicable√ Not applicable
There was no implementation of the equity incentive plan, employee shareholding plan or other employee incentive measure of the Company during the reporting period.
VII Material Matters
XVI. Significant related party transactions
1. Related party transactions associated with day-to-day operation
√ Applicable□ Not applicable
Subject Pricing Amount of Percentage Amount of Market price
Types of the matter of the basis of the Price of related party as the amount transactions Whether Settlement of of available
related party related party related party related party transactions of similar approved exceeding related party similar Disclosure Related party Related party relationship transactions transactions transactions transactions(RMB’0,000) transactions(RMB’0,000) approved cap transactions transaction date Disclosure index Jiangxi Chenming Natural Director of the Company Procurement Natural gas, Market price Market price 34,763.91 1.8% 35,000 No Bank acceptance Not applicable 23 June 2018 http://www.cninfo. Gas Co., Ltd serves as the chairman heavy oil etc. and telegraphic com.cn transfer
Particulars on refund of bulk sale Not applicable
2. Related party transaction in connection with purchase or sale of assets or equity interest
√ Applicable□ Not applicable
Assessed
Carrying value of the
Pricing amount of the transferred
Types of the Subject matter of basis of the transferred asset Settlement of Transaction
Related related party the related party related party asset(RMB’0,000) Transfer price related party profit and loss Disclosure Disclosure Related party party relationship transactions transactions transactions(RMB’0,000) (if any)(RMB’0,000) transactions(RMB’0,000 date index Guangdong Dejun Pursuant to the Equity Receipt of30% Valuation report 21,085.86 123,977.96 127,500 Wire transfer Not applicable 30 January http://www. Investment Co., Ltd. requirement under acquisition equity interest in 2018 cninfo. com.cn Paragraph (3) of Hongtai Real Estate
Article 10.1.6 of held by Guangdong
the Rules Governing Dejun and
the Listing of Guangdong
Stocks on Shenzhen Dejun’s debt to
Stock Exchange Hongtai Real Estate
Effects on the operating The transaction was conducted to meet the needs of the Company for accelerated internationalisation development and long-term business development. Upon completion of the transaction, the Company results and financial is able to more rationally integrate the resources of all Shanghai departments, save the office rental expenses of Shanghai departments, and increase fixed assets for the Company, further improving the condition of the CompanyCompany’s office environment and efficiency.
3. Related party transaction connected to joint external investment
□ Applicable√ Not applicable
There was no related party transaction of the Company connected to joint external investment during the reporting period.
VII Material Matters
XVI. Significant related party transactions(Cont’d)
4. Relatedcreditors’ rights and debts transactions
√ Applicable□ Not applicable
Were there any non-operating relatedcreditors’ rights and debts transaction?
√ Yes□ No
Debts payable to any related party:
Amount Amount
increased recovered
during the during the Interest for the
Relationship Opening balance current period current period current period Closing balance Related party with the Company Reason (RMB’0,000) (RMB’0,000) (RMB’0,000) Interest rate (RMB’0,000) (RMB’0,000) CHENMING HOLDINGS The controlling shareholder financial support 0 84,082.03 46,482.03 7% 482.03 37,600 COMPANY LIMITED of the Company
Effect of related debts on Financial support is provided by Chenming Holdings without requiring any pledge or guarantee, which is a testament to its support and confidence in the future development of the the operating results and Company, and helps the Company promote project construction and satisfy its needs for working capital.
financial position
of the Company
5. Other significant related party transactions
□ Applicable√ Not applicable
There was no other significant related party transaction of the Company during the reporting period.
XVII. Material contracts and implementation
1. Custody, contracting and leasing
(1) Custody
□ Applicable√ Not applicable
There was no custody of the Company during the reporting period.
(2) Contracting
□ Applicable√ Not applicable
There was no contracting of the Company during the reporting period.
(3) Leasing
□ Applicable√ Not applicable
There was no leasing of the Company during the reporting period.
VII Material Matters
XVII. Material contracts and implementation(Cont’d)
2. Significant guarantees
√ Applicable□ Not applicable
(1) Guarantees
During the reporting period, the Company provided guarantee to Weifang Sime Darby West Port Co., Ltd., a joint venture, and the guarantee amount incurred was RMB85.00 million. The Company provided guarantee to subsidiaries and the guarantee amount incurred was RMB10,855.5683 million. The subsidiaries provided guarantee to their subsidiaries and the guarantee amount incurred was RMB1,321.3970 million.
As at 31 December 2018, the balance of the external guarantee provided by the Company (including the guarantee to its subsidiaries by the Company and the guarantee provided to subsidiaries by subsidiaries) amounted to RMB16,150.4970 million, representing64.48% of the equity attributable to shareholders of the Company as at the end of 2018.
The Company did not provide any guarantee to external parties (excluding the guarantee provided to its subsidiaries and the guarantee provided to subsidiaries by subsidiaries) and did not provide any guarantee against the rules and regulations.
Unit:RMB’0,000 External guarantees of the Company and its subsidiaries (excluding guarantees to subsidiaries)
Date of the related Guarantee Announcement to related disclosing the Amount of Guarantee Fulfilled parties Name of obligee guarantee amount guarantee Guarantee date provided Type of guarantee Term or not or not Weifang Sime Darby West Port Co., Ltd. 24 July 2017 17,500 20 December 2017 13,500 General guarantee 10 years Not No Total external guarantees approved during the reporting period (A1) 0 Total actual external guarantees during the reporting period (A2) 8,500 Total external guarantees approved at the end of the reporting period (A3) 17,500 Balance of total actual guarantees at the end of the reporting period (A4) 13,500 Guarantees between the Company and its subsidiaries
Date of the related Guarantee Announcement to related disclosing the Amount of Guarantee Fulfilled parties Name of obligee guarantee amount guarantee Guarantee date provided Type of guarantee Term or not or not Zhanjiang Chenming Pulp& Paper Co., Ltd. 30 March 2016 150,000 General guarantee 3 years No No Zhanjiang Chenming Pulp& Paper Co., Ltd. 17 February 2017 650,000 21 December 2017 325,547.08 General guarantee 2 years No No Zhanjiang Chenming Pulp& Paper Co., Ltd. 14 June 2018 200,000 General guarantee 3 years No No Shandong Chenming Financial Leasing Co., Ltd. 26 March 2015 500,000 2 March 2013 128,007.56 General guarantee 7 years No No Shandong Chenming Financial Leasing Co., Ltd. 30 March 2016 300,000 General guarantee 7 years No No Shandong Chenming Financial Leasing Co., Ltd. 14 February 2018 150,000 General guarantee 3 years No No Shanghai Chenming Financial Leasing Co., Ltd. 14 February 2018 400,000 General guarantee 3 years No No Qingdao Chenming Nonghai Financial Leasing Co., Ltd. 14 February 2018 250,000 General guarantee 3 years No No Guangzhou Chenming Financial Leasing Co., Ltd. 14 February 2018 200,000 General guarantee 3 years No No Shandong Chenming Commercial Factoring Co., Ltd. 14 February 2018 200,000 General guarantee 3 years No No Huanggang Chenming Arboriculture Development Co., Ltd. 17 February 2017 5,000 General guarantee 2 years No No Huanggang Chenming Pulp& Paper Co., Ltd. 26 March 2015 400,000 14 December 2015 90,404.36 General guarantee 7 years No No Huanggang Chenming Pulp& Paper Co., Ltd. 30 March 2016 550,000 General guarantee 7 years No No Jiangxi Chenming Paper Co., Ltd. 30 March 2016 150,000 General guarantee 7 years No No Jiangxi Chenming Paper Co., Ltd. 17 February 2017 200,000 16 March 2017 88,242.92 General guarantee 2 years No No Jiangxi Chenming Paper Co., Ltd. 14 June 2018 50,000 General guarantee 3 years No No Shouguang Meilun Paper Co., Ltd. 16 December 2010 600,000 19 January 2018 68,778.76 General guarantee 10 years No No Shouguang Meilun Paper Co., Ltd. 17 February 2017 100,000 General guarantee 2 years No No Shandong Chenming Paper Sales Co., Ltd. 30 March 2016 200,000 General guarantee 3 years No No Shandong Chenming Paper Sales Co., Ltd. 17 February 2017 400,000 24 February 2018 375,013.79 General guarantee 2 years No No Chenming (HK) Limited 30 March 2016 100,000 General guarantee 3 years No No Chenming (HK) Limited 17 February 2017 500,000 23 March 2018 343,959.27 General guarantee 2 years No No Chenming (HK) Limited 14 June 2018 250,000 General guarantee 3 years No No Shouguang Chenming Import and Export Trade Co., Ltd. 17 February 2017 50,000 General guarantee 2 years No No Jilin Chenming Paper Co., Ltd. 17 February 2017 150,000 25 October 2018 7,192.00 General guarantee 2 years No No Shandong Chenming Group Finance Co., Ltd. 17 February 2017 500,000 General guarantee 2 years No No Zhanjiang Chenming Arboriculture Development Co., Ltd. 17 February 2017 5,000 General guarantee 2 years No No Nanchang Chenming Arboriculture Development Co., Ltd. 15 August 2017 10,000 General guarantee 3 years No No Shandong Chenming Panels Co., Ltd. 14 June 2018 3,000 General guarantee 3 years No No Shanghai Chenming Industrial Co., Ltd. 11 October 2018 400,000 General guarantee 3 years No No Total amount of guarantee provided for subsidiaries approved during 2,103,000 Total amount of guarantee provided for subsidiaries during the reporting period (B2) 1,085,556.83 the reporting period (B1)
Total amount of guarantee provided for subsidiaries approved as at 7,623,000 Total balance of guarantee provided for subsidiaries as at the end of the reporting 1,427,145.74
the end of the reporting period (B3) period (B4)
VII Material Matters
XVII. Material contracts and implementation(Cont’d)
2. Significant guarantees(Cont’d)
(1) Guarantees(Cont’d)
Guarantees between subsidiaries
Date of the related Guarantee Announcement to related disclosing the Amount of Guarantee Fulfilled parties Name of obligee guarantee amount guarantee Guarantee date provided Type of guarantee Term or not or not Chenming (HK) Limited 30 March 2016 100,000 10 July 2018 87,870.22 General guarantee 3 years No No Chenming (HK) Limited 30 March 2016 100,000 8 August 2018 86,533.73 General guarantee 3 years No No Chenming (HK) Limited 30 March 2016 100,000 General guarantee 3 years No No Total amount of guarantee provided for subsidiaries approved during 0 Total amount of guarantee provided for subsidiaries during the reporting period (C2) 132,139.70 the reporting period (C1)
Total amount of guarantee provided for subsidiaries approved as 300,000 Total balance of guarantee provided for subsidiaries as at the end of the reporting 174,403.96 at the end of the reporting period (C3) period (C4)
Total amount of guarantee provided (i.e. sum of the above three guarantee amount)
Total amount of guarantee approved during the reporting period(A1+B1+C1) 2,103,000 Total amount of guarantee during the reporting period(A2+B2+C2) 1,226,196.53 Total amount of guarantee approved as at the end of the reporting period(A3+B3+C3) 7,940,500 Total balance of guarantee as at the end of the reporting period(A4+B4+C4) 1,615,049.70 The percentage of total amount of guarantee provided (i.e.4+B4+C4) to the net assets 64.48% of the Company
Of which:
Balance of guarantee provided for shareholders, beneficial controllers and its related parties (D) 0 Balance of guarantee directly or indirectly provided for obligors with gearing ratio over70% (E) 639,822.11 Total amount of guarantee provided in excess of50% of net assets (F) 349,058.78 Sum of the above three amount of guarantee(D+E+F) 988,880.89 Specific explanation of compound guarantees
(2) External guarantees against the rules and regulations
□Applicable√ Not applicable
There was no external guarantee provided by the Company which was against the rules and regulations during the reporting period.
3. Entrusted cash and asset management
(1) Entrusted wealth management
□Applicable√ Not applicable
The Company did not have any entrusted wealth management during the reporting period.
(2) Entrusted loans
□Applicable√ Not applicable
The Company did not have any entrusted loans during the reporting period.
VII Material Matters
XVII. Material contracts and implementation(Cont’d)
4. Other material contracts
√ Applicable□ Not applicable
Involved Estimated Implementation
assets and value of Whether it is as at the end
carrying involving Transaction a related of the
Name of contract Subject Date of amount assets Name of Valuation Pricing consideration party reporting Disclosure Disclosure Name of contract party counterparty matter signing (RMB’0,000) (RMB’0,000) valuer reference date basis (RMB’0,000) transaction Relationship period date index Zhanjiang Chenming Guangdong Nanyue14.55% equity 28 May 254,634 Not applicable Not applicable Not applicable Audited net 254,634 No Not applicable In the course of 5 May http://www. Pulp& Paper Co., Ltd. Bank Co., Ltd.(廣東南粵 in Guangdong 2018 assets performance 2018 cninfo.com.cn銀行股份有限公司), China Nanyue Bank per share
Delixi Holding Group Co., Co., Ltd.
Ltd.(中國德力西控股集(廣東南粵銀行
團有限公司), Shandong股份有限公司)
Hexin Chemical Group
Co., Ltd.(山東和信化
工集團有限公司), Chibi
Chenli Paper Co., Ltd.
(赤壁晨力紙業有限公司),
Foshan Nanhai Quanhui
Metal Materials Trading
Co., Ltd.(佛山市南海全
匯金屬材料貿易有限公司)
XVIII. Fulfilment of Social Responsibility
1. Fulfilment of social responsibility
The state is the strongest support for the development of Chenming, while society is the greatest origin forChenming’s development and growth. During its development for more than half a century, the Company has always adhered to its philosophy of “building the country through industry development and paying back to society”. It has voluntarily performed its social responsibility, and cultivated the “tree of responsibility”, which has already achieved fruitful results.
The Company has established its corporate governance structure in accordance with the requirements of the Companies Law, Securities Law, Articles of Association and other relevant laws and regulations and the actual situation of the Company. There is a clear separation of powers and responsibilities between the general meeting, the Board, the Supervisory Committee and the management which is accountable to the general manager. The management system under the structure is characterised by a mechanism of checks and balances of a legal person with separation of ownership and operation, separation of the decision-making, execution and supervisory powers, as well as the co-existence of the general meeting, the Board and the Supervisory Committee. Strict provisions on the rights, duties and responsibilities of the general meeting, the Board, the Supervisory Committee and general managers have been stipulated. The Company has placed great emphasis on fulfilment of social responsibility and goes beyond the concept of “profit as the only goal”. While creating value for shareholders during the process of production, operation and business development, the Company, in line with the development of the State and the society, has strived to reach a compromise between economic benefits and social benefits, short-term benefits and long-term benefits, as well as corporate development and social development, with the aim to achieve a healthy and harmonious development between the Company and its employees, the Company and the society, and the Company and the environment.
VII Material Matters
XVIII. Fulfilment of Social Responsibility(Cont’d)
1. Fulfilment of social responsibility(Cont’d)
Centring the corporate mission of “Creating Sharing Culture within Chenming and Achieving Win-Win Situation”, the core value of “Good Faith, Win-Win and Sharing”, the corporate spirit of “Learning, Surpass and Leading” as well as the human resources philosophy of “Providing Staff Trainings, Recruiting Talents, Allocating Human Resources Properly and Retaining Talents”, the Company has established its own corporate culture, which has become the spirit and driver for the sustainable and healthy development of the Company.
The Company strives to the development path of new type industrialisation with high technology contents, low energy consumption and less pollution. It puts great efforts in the implementation of green low-carbon strategy. In addition, the Company endeavours to facilitate business development in line with ecological development, enhance its competitiveness in economic development and environmental protection, and establish its economic and ecological culture. It also seeks for development while protecting the environment and maintains higher environmental protection while seeking for scientific development, thus achieving “win-win” situation in economic development and environmental protection. The Company has strictly in compliance with relevant environmental protection policies, laws and regulations in China. It has mitigated the impact on environment through industrial optimisation and upgrade, reduced resources utilisation through innovative operation, and implemented strict management with the concept of environmental protection and safety operation being penetrated into every procedure in production and operation, thereby promoting the harmonious development between the people and the Company, as well as that of the Company and the environment. The Company is the first in the industry in China which passes ISO14001 environmental management system certification. The Company has been named the environmental friendly enterprise, the recycling economy exemplary enterprise, the outstanding water efficiency unit and the outstanding unit in comprehensive utilisation of resources of Shandong province.
Leveraging its advanced production technology and manufacture equipment, extensive experience in waste treatment and various comprehensive treatment systems, the Company strives to implement horizontal and vertical control throughout its production processes, thus achieving low carbon emission through low energy consumption, as well as reduction of use of resources through recycling. The Company has passed the clean production assessment organised by United Nations Development Programme in May 1999. The Company focuses on its works in various aspects, including the establishment of eco-friendly energy consumption system, implementation of on-site 6S management, launch of environmental protection and hazard inspection works, wide application of new energy conservation and emission reduction technology, promotion of key energy conservation and emission reduction projects, enhancement of innovative technology, promotion of the industrialisation of comprehensive resources utilisation, implementation of scientific proposal on “multi-usage of water” based on the quality, quantity and working procedure, as well as strengthening of the awareness on energy saving and environmental protection of all staff and habit building. Hence, the Company has achieved whole process control and management over clean and efficient production.
VII Material Matters
XVIII. Fulfilment of Social Responsibility(Cont’d)
1. Fulfilment of social responsibility(Cont’d)
The Company has strictly implemented in-depth corporate governance. It has put great efforts and huge investments in promoting the management of “the three kinds of waste” so as to facilitate energy conservation and emission reduction, aiming to become a low energy consumption and environment-friendly enterprise. In respect of wastewater treatment, the Company has established world-class wastewater treatment system. It has over 10 wastewater treatment facilities for various purposes, with the most advanced treatment technology in domestic and overseas market being adopted. Hence, the Company has realised the comprehensive integration and upgrade of wastewater treatment facilities in plants, with different emission indicators better than relevant regulatory benchmark. In respect of solid waste treatment, the Company has discontinued the traditional landfilling treatment. It has enhanced its technology innovation, strengthened comprehensive resources utilisation, as well as expanded its industrial chain, thereby achieving recycling and harmless utilisation of solid waste. In respect of waste gas treatment, the Company has introduced advanced international environmental protection equipment and technology for desulphurisation, denitrification and de-dusting, smelly gas treatment and closure of coal plants. It has adopted scientific waste gas treatment to ensure our waste gas emission is in compliance with all relevant environmental protection standards and requirements in China.
The Company strives to create a wealthy society. It has offered more job vacancies, thereby contributing more taxes to the government, and sharing the achievements of the Company with our staff and society. While caring for our staff sincerely and building up a harmonious relationship with the staff, the Company also greatly supports different charity programmes. Over the past few years, the Company has donated tens of millions to Shouguang Education Fund, Shouguang Charity Federation, Weifang Venture Association, Shandong Red Cross and districts suffered from earthquake, which reflects the outstanding contribution of the Company to building a harmonious society in China. The Company has been honoured with the title of “Most Caring Donating Enterprise” by Weifang and Shouguang Municipal Committee and Municipal Government for serval times, while our chairman Mr. Chen Hongguo has been honoured with the title of “Most Caring Person”.
2. Fulfilment of social responsibility regarding targeted poverty relief
The Company did not commence any work regarding targeted poverty relief.
VII Material Matters
XVIII. Fulfilment of Social Responsibility(Cont’d)
3. Environmental protection matters
Are the Company and its subsidiaries classified as key pollutant discharging unit as specified by environmental protection authority?
Yes
Pollutant
Name of major Number of emission
Name of company pollutants and emission Distribution Emission standards Total Approved Excessive or subsidiary specific pollutants Way of emission outlets of emission outlets concentration implemented emissions total emissionsemissions Shandong Chenming COD Organised 3 Within Chenming 186mg/L 300mg/L 4126.30t 7666.64t No Paper Holdings Limited emission Industrial Park
Ammonia nitrogen Organised 3 Within Chenming 3.9mg/L 30mg/L 96.39t 766.66t No emission Industrial Park
Sulphur dioxide Organised 3 Within Chenming Electric power Electric power 8.87t 247.16t No emission Industrial Park station: station:
4.88mg/m³ 35mg/m³
Alkali recovery: Alkali recovery:
2.62mg/m³ 200mg/m³
Nitrogen oxide Organised 3 Within Chenming Electric power Electric power 172.5t 1059.41t No emission Industrial Park station: station:
42.1mg/m³ 100mg/m³
Alkali recovery: Alkali recovery:
127.3mg/m³ 300mg/m³
Smoke Organised 3 Within Chenming Electric power Electric power 1.45t 70.62t No emission Industrial Park station: station:
0.80mg/m³ 10mg/m³
Alkali recovery: Alkali recovery:
9.35mg/m³ 20mg/m³
Shouguang Meilun Sulphur dioxide Organised 2 Within Chenming8.2mg/m³ 35mg/m³ 79.82t 383.9t No Paper Co., Ltd. emission Industrial Park
Nitrogen oxide Organised 2 Within Chenming47.3mg/m³ 100mg/m³ 455t 1163.24t No emission Industrial Park
Smoke Organised 2 Within Chenming0.81mg/m³ 5mg/m³ 7.33t 122.94t No emission Industrial Park
Wuhan Chenming Hanyang COD Organised 1 East of the 30.67mg/l 80mg/L 33.96t 184.30t No Paper Holdings Co., Ltd. emission factory area
Ammonia nitrogen Organised 1 East of the 1.24mg/l 8 mg/L 1.37t 17.30t No emission factory area
Sulphur dioxide Organised 2 Within Qianneng 130t/h 50mg/m³ 32.17t 102.58t No emission Electric Power 24.8mg/m³
factory area 75t/h
Furnace:29.7mg/m³
Nitrogen oxide Organised 2 Within Qianneng 130t/h 100mg/m³ 42.62t 205.16t No emission Electric Power Furnace:
factory area 27.8mg/m³
75t/h
Furnace:58.1mg/m³
Smoke Organised 2 Within Qianneng 130t/h 20mg/m³ 14.73t 41.03t No emission Electric Power Furnace:12.2mg/m³
factory area 75t/h
Furnace:10.5mg/m³
VII Material Matters
XVIII. Fulfilment of Social Responsibility(Cont’d)
3. Environmental protection matters(Cont’d)
Pollutant
Name of major Number of emission
Name of company pollutants and emission Distribution Emission standards Total Approved Excessive or subsidiary specific pollutants Way of emission outlets of emission outlets concentration implemented emissions total emissionsemissions Jiangxi Chenming Paper COD Organised 1 At the boundary of 42.75mg/L 90mg/L 279.18t 1260t No Co., Ltd. emission factory area
Ammonia nitrogen Organised 1 At the boundary of 2.25mg/L 8mg/L 9.08t 112t No emission factory area
Sulphur dioxide Organised 2 Within factory area 200mg/m3 180.81t 806t No emission
Nitrogen oxide Organised 2 Within factory area 102.41mg/m3 200 mg/m3 303.37t 806t No emission
Smoke Organised 2 Within factory area 11.05mg/m3 30mg/m3 38.09t 135t No emission
Jilin Chenming Paper COD Organised 1 At the boundary of 61.9mg/L 90mg/L 275.38t 357t No Co., Ltd. emission factory area
Ammonia nitrogen Organised 1 At the boundary of 1.51mg/L 8mg/L 6.72t 34t No emission factory area
Sulphur dioxide Organised 1 Within factory area 5mg/m3 100mg/m3 7.39t 97t No emission
Nitrogen oxide Organised 1 Within factory area 36.07mg/m3 100mg/m3 53.34t 213t No emission
Smoke Organised 1 Within factory area 14.7mg/m3 30mg/m3 21.7t 51.66t No emission
Zhanjiang Chenming COD Organised 1 Within Zhanjiang 35.57mg/L 90mg/L 860.03t 1943t No Pulp& Paper Co., Ltd. emission Chenming factory
area
Ammonia nitrogen Organised 1 Within Zhanjiang 1.01mg/L 8mg/L 28.49t 43.90t No emission Chenming factory
area
Sulphur dioxide Organised 6 Within Zhanjiang Lime kiln: 0.26mg/m3 Lime kiln:400mg/m3 317.26t 620t No emission Chenming factory Alkali recovery: Alkali recovery:
area 26.41mg/m3 200mg/m31#,2#,3#
Electric power circulating fluidised
factory1#: bed boilers:
4.66mg/m3 100mg/m34#
Electric power circulating fluidised
factory2#: bed boilers: 35mg/m3
2.93mg/m3
Electric power
factory3#:
5.77mg/m3
Electric power
factory4#:
16.60mg/m3
VII Material Matters
XVIII. Fulfilment of Social Responsibility(Cont’d)
3. Environmental protection matters(Cont’d)
Pollutant
Name of major Number of emission
Name of company pollutants and emission Distribution Emission standards Total Approved Excessive or subsidiary specific pollutants Way of emission outlets of emission outlets concentration implemented emissions total emissionsemissions Nitrogen oxide Organised 6 Within Zhanjiang Lime kiln: Lime kiln: 1634.36t 2169.70t No emission Chenming factory 231.5mg/m3 300mg/m3
area Alkali recovery: Alkali recovery:
198.6mg/m3 200mg/m31#,2#,3#
Electric power factory circulating fluidised
1#: 21.55mg/m3 bed boilers:
Electric power factory 100mg/m?4#
2#: 20.09mg/m3 circulating fluidised
Electric power factory bed boilers: 50mg/m3
3#: 17.75mg/m3
Electric power factory
4#: 28.35mg/m3
Smoke Organised 6 Within Zhanjiang Lime kiln: Lime kiln:80mg/m3 190.87t 196t No emission Chenming factory Smoke 14.2mg/m3 Alkali recovery,1#,
area Alkali recovery: 2#,3# circulating
15.30mg/m3 fluidised bed
Electric power factory boilers: 30mg/m34#
1#: 14.12mg/m3 circulating fluidised
Electric power factory bed boilers: 10mg/m3
2#: 4.41mg/m3
Electric power factory
3#: 7.52mg/m3
Electric power factory
4#: 9.75mg/m3
VII Material Matters
XVIII. Fulfilment of Social Responsibility(Cont’d)
3. Environmental protection matters(Cont’d)
Construction and operation of facilities for pollution prevention and control
(1) The Company and its subsidiaries strictly comply with laws, regulations and relevant rules regarding environmental protection of the central and local government. The construction of projects strictly adheres to the “three simultaneities” on environmental protection. In order to ensure pollutants are discharged strictly in accordance with the requirements under laws and regulations and disposed properly, production and operation strictly comply with the national Law on the Prevention and Control of Environmental Pollution, Law on the Prevention and Control of Water Pollution, Law on the Prevention and Control of Air Pollution, Action Plan for Prevention and Control of Water Pollution and Law on the Prevention and Control of Environmental Pollution by Solid Waste and other laws.
(2) Both the Company and its subsidiaries are equipped with comprehensive environmental protection treatment facilities. The pre-treatment-aerobic-anaerobic-in-depth treatment technology is the major technology for water treatment, which can achieve standardised discharge of wastewater. Moreover, subsidiaries are equipped with recycling system for process effluent, and reuse treated wastewater to the greatest extent in order to minimise pollution. The Company has constructed a total of 9 water treatment plants, with daily treatment capacity of 350,000 m3. In addition, governmental authority will regularly visit the Company to conduct comparison of online monitoring data every quarter. All data meets the standards.
(3) Eachsubsidiary’s organised emission outlets are equipped with an online monitoring system for real-time monitoring. All subsidiaries have their own power plants. Each self-owned plant has its own environmental protection facilities for de-dusting, desulphurisation and denitrification. Denitrification is conducted through SCR or SNCR, while desulphurisation is primarily conducted through gypsum desulphurisation (ammonia desulphurisation is adopted in the self-owned plant of Jiangxi Chenming). Substantially all of the emissions indicators are below the national and local execution standards. Other alkali recovery boilers and lime kilns are also in compliance with the emission standards.
Environmental impact assessment of construction projects and other environmental protection administrative licensing
The Company has strictly complied with the environmental laws and regulations all along to carry out environmental impact assessment of construction projects. The construction projects are all subject to environmental impact assessment. During the construction process, a reasonable environmental protection project construction plan is formulated and strictly implemented. The environmental protection facilities and the main project are designed, constructed and put into operation at the same time. At present, all construction projects put into production have obtained environmental impact assessment approvals and acceptance approvals.
In June 2017, the Company and its subsidiaries completed the formalities for new discharge permits in accordance with the Measures for the Administration of Pollutant Discharge Permits of the Ministry of Environmental Protection, and the discharge permits of the new projects were renewed according to the environmental protection requirements in a timely manner.
VII Material Matters
XVIII. Fulfilment of Social Responsibility(Cont’d)
3. Environmental protection matters(Cont’d)
Emergency plan for emergency environmental incidents
The Company has strictly implemented emergency regulations for emergency environmental incidents, and formulated various emergency plans for emergency environmental incidents according to the technical requirements in the “Technical Guidelines for Emergency Environmental Pollution Accidents”. The plans are reviewed by and filed with the Environmental Protection Bureau, and regular emergency training and emergency drills are conducted. Emergency measures in relation to dangerous chemicals are formulated in accordance with the environmental protection requirements. At the same time, necessary emergency supplies are provided with regular inspections and updates. Environmental self-monitoring programme
The Company has strictly complied with self-monitoring laws and regulations, and conducted self-monitoring in accordance with the environmental protection requirements to establish and perfect the corporate environmental management ledgers and materials. At present, self-monitoring is a combination of manual monitoring and automatic monitoring. At the same time, qualified units are engaged to conduct regular monitoring. Automatically monitored items include: total wastewater discharge (COD, ammonia nitrogen, flow rate, total phosphorus, total nitrogen and PH); power plant, alkali recovery boilers and lime kiln exhaust emissions (sulphur dioxide, nitrogen oxide and smoke). Manually monitored items include: daily monitoring of COD, ammonia nitrogen, SS, chroma, PH, total phosphorus and total nitrogen indicators. Sewage and other monitoring items, unorganised exhaust emission, solid waste, and noise at the plant boundary, are monitored on a monthly or quarterly basis by qualified units engaged in accordance with the local environmental protection requirements in relation to each subsidiary.
The self-monitoring data and environmental monitoring programmes for pollutants discharge of various subsidiaries are published on the national key pollution source information disclosure website and the provincial key pollution source information disclosure websites.
Other environmental information to be disclosed
The relevant environmental protection information of the pollutant discharge permit information and the pollutant discharge permit requirements is announced on the national sewage discharge permit management information platform.
Other environmental protection related information
Other environmental protection related information is announced on theCompany’s website.
VII Material Matters
XIX. Other matters of significance
√ Applicable□ Not applicable
1. Issue of medium-term notes with an amount of RMB1,000 million
The public issue of the 2018 first tranche of medium-term notes in the national inter-bank bond market was launched by the Company on 16 March 2018. The amount of the issue was RMB1,000 million with a nominal value of RMB100 each at the interest rate of7.50%.
For details, please refer to relevant announcement (announcement no.: 2018-017) of the Company published on CNINFO on 22 March 2018.
2. Entering into the Developmental Financial Cooperation Agreement with China Development Bank On 29 March 2018, the Company and China Development Bank entered into the Developmental Financial Cooperation Agreement to establish a new strategic partnership for the all-rounded and in-depth cooperation between an industrial group and a financial group. Adhering to the principle of “planning first”, both parties will make full use of their respective advantages to carry out in-depth cooperation in areas such as medium and long-term project cooperation, loans for working capital, intermediary business and cross-border financing through project cooperation at the early stage and cooperation on financial products.
For details, please refer to relevant announcement (announcement no.: 2018-028) of the Company published on CNINFO on 1 April 2018.
3. Announcement on the Debt-to-equity Cooperation Framework Agreement Entered into with ICBC Investment
On 16 October 2018, the Company entered into the Market-based Debt-to-equity Cooperation Agreement with ICBC Financial Asset Investment Co., Ltd., pursuant to which the companies established a strategic relationship and jointly promoted the debt-to-equity business under the principle of development, win-win, equality and mutual benefit. For details, please refer to relevant announcement (announcement no.: 2018-143) of the Company published on CNINFO on 18 October 2018.
VII Material Matters
XIX. Other matters of significance(Cont’d)
4. Information disclosure index for 2018
Announcement No. Subject matter Date of publication Publication website and index 2018-001 Announcement on Result of the Issue of 2018 First 9 January 2018 http://www.cninfo.com.cn Tranche of Super& Short-term Commercial Paper
2018-002 Announcement on Resignation of Secretary to the Board 19 January 2018 http://www.cninfo.com.cn 2018-003 Announcement on Estimated Annual Results for 2017 19 January 2018 http://www.cninfo.com.cn 2018-004 Announcement on Result of the Issue of 2018 Second 19 January 2018 http://www.cninfo.com.cn Tranche of Super& Short-term Commercial Paper
2018-005 Second Supplementary Notice of the 2018 First 26 January 2018 http://www.cninfo.com.cn Extraordinary General Meeting
2018-006 Announcement in respect of Resolutions of the 30 January 2018 http://www.cninfo.com.cn Twentieth Extraordinary Meeting of the Eighth
Session of the Board of Directors
2018-007 Announcement on the Receipt of30% equity interest in Hongtai 30 January 2018 http://www.cninfo.com.cn Real Estate held by Guangdong Dejun and
GuangdongDejun’s Debt to Hongtai Real Estate and
Related Party Transaction
2018-008 Announcement on External Investment 30 January 2018 http://www.cninfo.com.cn 2018-009 Announcement in respect of Guarantee in Favour of Related 30 January 2018 http://www.cninfo.com.cn Subsidiaries for their Credit Facilities Applications
2018-010 Announcement on Additional Resolutions Proposed at the 30 January 2018 http://www.cninfo.com.cn 2018 First Extraordinary General Meeting
2018-011 Supplementary Notice of 2018 First Extraordinary General Meeting 30 January 2018 http://www.cninfo.com.cn 2018-012 Announcement on Result of the Issue of 2018 Third 8 February 2018 http://www.cninfo.com.cn Tranche of Super& Short-term Commercial Paper
2018-013 Poll Results Announcement of the 2018 First 14 February 2018 http://www.cninfo.com.cn Extraordinary General Meeting
2018-014 Indicative Announcement 1 March 2018 http://www.cninfo.com.cn 2018-015 Announcement in respect of Resolutions of the 10 March 2018 http://www.cninfo.com.cn Twenty-first Extraordinary Meeting of the Eighth
Session of the Board of Directors
2018-016 Announcement on the Distribution of Dividend for Preference Share 14 March 2018 http://www.cninfo.com.cn 2018-017 Announcement on Result of the Issue of 2018 First 22 March 2018 http://www.cninfo.com.cn Tranche of Medium-term Notes
2018-018 Announcement on Pledge of Shares held by Shareholders 22 March 2018 http://www.cninfo.com.cn 2018-019 Announcement on 2018 Public Issue of Corporate Bonds to 27 March 2018 http://www.cninfo.com.cn Qualified Investors (First Tranche)
2018-020 Announcement in respect of Resolutions of the Eighth Meeting 28 March 2018 http://www.cninfo.com.cn of the Eighth Session of the Board of Directors
2018-021 2017 Annual Report Summary 28 March 2018 http://www.cninfo.com.cn 2018-022 Announcement on Provision of Guarantee for General 28 March 2018 http://www.cninfo.com.cn Credit Lines of Relevant Subsidiaries
2018-023 Announcement in respect of Resolutions of the Ninth Meeting of 28 March 2018 http://www.cninfo.com.cn the Eighth Session of the Supervisory Committee
VII Material Matters
XIX. Other matters of significance(Cont’d)
4. Information disclosure index for 2018
Announcement No. Subject matter Date of publication Publication website and index 2018-024 Notice of 2017 Annual General Meeting 28 March 2018 http://www.cninfo.com.cn 2018-025 Announcement on the Appointment of the auditors for 2018 28 March 2018 http://www.cninfo.com.cn 2018-026 Announcement on the Coupon Rate of 2018 Public Issue 28 March 2018 http://www.cninfo.com.cn of Corporate Bonds to Qualified Investors (First Tranche)
2018-027 Announcement on Result of the Issue of 2018 Fourth 30 March 2018 http://www.cninfo.com.cn Tranche of Super& Short-term Commercial Paper
2018-028 Announcement on Entering into the Developmental 2 April 2018 http://www.cninfo.com.cn Financial Cooperation agreement with China Development Bank
2018-029 Announcement on the Receipt of an Arbitral Award by a Subsidiary 2 April 2018 http://www.cninfo.com.cn 2018-030 Announcement on the Result of 2018 Public Issue of 2 April 2018 http://www.cninfo.com.cn Corporate Bonds to Qualified Investors (First Tranche)
2018-031 Announcement on Pledge of Shares held by Shareholders 12 April 2018 http://www.cninfo.com.cn 2018-032 Announcement in Respect of Resolutions of the Twenty-Second 17 April 2018 http://www.cninfo.com.cn Extraordinary Meeting of the Eighth
Session of the Board of Directors
2018-033 Announcement on the Extension of the Validity Period of the 17 April 2018 http://www.cninfo.com.cn resolutions in Respect of the Non-public Issue of Shares of the
Company at the General Meeting and the Validity Period of the
Authorisation Granted to the Board to Deal with Related Matters
2018-034 Notice of 2018 Second Extraordinary General Meeting 17 April 2018 http://www.cninfo.com.cn 2018-035 Notice of the 2018 First Domestic Listed Share Class Meeting 17 April 2018 http://www.cninfo.com.cn and 2018 First Overseas Listed Share Class Meeting
2018-036 Announcement in respect of Resolutions of the Ninth 17 April 2018 http://www.cninfo.com.cn Extraordinary Meeting of the Eighth Session of the
Supervisory Committee
2018-037 Announcement on External Investment 17 April 2018 http://www.cninfo.com.cn 2018-038 Announcement on the Sale of Available-for-sale Financial Assets 17 April 2018 http://www.cninfo.com.cn 2018-039 Announcement in respect of Resolutions of the 27 April 2018 http://www.cninfo.com.cn Ninth Meeting of the Eighth Session of the Board of Directors
2018-040 2018 First Quarterly Report 27 April 2018 http://www.cninfo.com.cn 2018-041 Announcement on External Investment (I) 27 April 2018 http://www.cninfo.com.cn 2018-042 Announcement on External Investment (II) 27 April 2018 http://www.cninfo.com.cn 2018-043 Announcement on Result of the Issue of 2018 Fifth 27 April 2018 http://www.cninfo.com.cn Tranche of Super& Short-term Commercial Paper
2018-044 Announcement on the Cancellation of the General Meeting 27 April 2018 http://www.cninfo.com.cn and Postponement of the 2017 Annual General Meeting
2018-045 Notice on the Cancellation of the General Meeting and 27 April 2018 http://www.cninfo.com.cn Postponement of the 2017 Annual General Meeting
2018-046 Notice of the 2018 Second Domestic Listed Share Class 27 April 2018 http://www.cninfo.com.cn Meeting and 2018 Second Overseas Listed Share Class Meeting
VII Material Matters
XIX. Other matters of significance(Cont’d)
4. Information disclosure index for 2018
Announcement No. Subject matter Date of publication Publication website and index 2018-047 Announcement in respect of Resolutions of the Tenth Meeting 27 April 2018 http://www.cninfo.com.cn of the Eighth Session of the Supervisory Committee
2018-048 Announcement on the Change of the Name of the 3 May 2018 http://www.cninfo.com.cn Controlling Shareholder
2018-049 Announcement in Respect of Resolutions of the 5 May 2018 http://www.cninfo.com.cn Twenty-Third Extraordinary Meeting of the Eighth Session
of the Board of Directors
2018-050 Announcement on External Investment 5 May 2018 http://www.cninfo.com.cn 2018-051 Announcement on Resignation of the Vice Chairman 9 May 2018 http://www.cninfo.com.cn 2018-052 Announcement on Result of the Issue of 2018 Sixth Tranche of 11 May 2018 http://www.cninfo.com.cn Super& Short-term Commercial Paper
2018-053 Announcement on Entering into the Framework Agreement for 15 May 2018 http://www.cninfo.com.cn Strategic Cooperation between Banks and Enterprises
with Guangdong Nanyue Bank
2018-054 Indicative Announcement 15 May 2018 http://www.cninfo.com.cn 2018-055 Announcement in respect of Resolutions of the Twenty-fourth 16 May 2018 http://www.cninfo.com.cn Extraordinary Meeting of the Eighth Session of
the Board of Directors
2018-056 Announcement on Appointment of the Secretary of the Board 16 May 2018 http://www.cninfo.com.cn and Securities Affairs Representative
2018-057 Second Supplementary Notice of the 2018 Second 16 May 2018 http://www.cninfo.com.cn Extraordinary General Meeting
2018-058 Second Supplementary Notice of the 2018 First Domestic 16 May 2018 http://www.cninfo.com.cn Listed Share Class Meeting and 2018 First Overseas Listed
Share Class Meeting
2018-059 Announcement on Receipt of Government Subsidy 18 May 2018 http://www.cninfo.com.cn 2018-060 Announcement on Acquisition of Minority Interest in Subsidiaries 24 May 2018 http://www.cninfo.com.cn 2018-061 Announcement on Pledge of Shares held by Shareholders 25 May 2018 http://www.cninfo.com.cn and the Release of Pledge of Part of the Shares
2018-062 Announcement on the Progress of External Investment 29 May 2018 http://www.cninfo.com.cn 2018-063 Announcement on Additional Resolutions Proposed at the 30 May 2018 http://www.cninfo.com.cn 2017 Annual General Meeting
2018-064 Supplementary Notice of 2017 Annual General Meeting 30 May 2018 http://www.cninfo.com.cn 2018-065 Second Supplementary Notice of the 2018 Second Domestic 30 May 2018 http://www.cninfo.com.cn Listed Share Class Meeting and 2018 Second Overseas
Listed Share Class Meeting
2018-066 Announcement on Result of the Issue of 2018 Seventh Tranche 30 May 2018 http://www.cninfo.com.cn of Super& Short-term Commercial Paper
2018-067 Announcement on Pledge of Shares held by Shareholders 31 May 2018 http://www.cninfo.com.cn 2018-068 Announcement on the Listing of 2018 Public Issue of 31 May 2018 http://www.cninfo.com.cn Corporate Bonds to Qualified Investors (First Tranche)
VII Material Matters
XIX. Other matters of significance(Cont’d)
4. Information disclosure index for 2018
Announcement No. Subject matter Date of publication Publication website and index 2018-070 Shandong Chenming Paper Holdings Limited Announcement 5 June 2018 http://www.cninfo.com.cn in respect of Resolutions of the 25th Extraordinary Meeting of the
Eighth Session of the Board of Directors
2018-071 Announcement in respect of Resolutions of the Tenth Extraordinary 5 June 2018 http://www.cninfo.com.cn Meeting of the Eighth Session of the Supervisory Committee
2018-072 Announcement on Dilution of Current Returns and Remedial Measures 5 June 2018 http://www.cninfo.com.cn upon Non-public Offering (Fifth Revision)
2018-073 Announcement on Adjustment to the Price Determination Date 5 June 2018 http://www.cninfo.com.cn for the Non-public Issue of A Shares
2018-074 Announcement on Entering into Conditional Share Purchase 5 June 2018 http://www.cninfo.com.cn Agreement and Connected Transactions under the Non-public
Offering of A Share (Third Revision)
2018-075 Notice of 2018 Third Extraordinary General Meeting 5 June 2018 http://www.cninfo.com.cn 2018-076 Notice of the 2018 Third Domestic Listed Share Class Meeting and 5 June 2018 http://www.cninfo.com.cn 2018 Third Overseas Listed Share Class Meeting
2018-077 Announcement on Release of Pledge of Shares Held by Shareholders 5 June 2018 http://www.cninfo.com.cn 2018-078 Announcement on Fifth Revision of Non-public Offering for 2016 5 June 2018 http://www.cninfo.com.cn 2018-079 Announcement in Respect of Resolutions of 2017 Annual 14 June 2018 http://www.cninfo.com.cn General Meeting, 2018 Second Class Meeting For
Domestic Shareholders and 2018 Second Class Meeting
For Overseas Shareholders
2018-080 Shandong Chenming Paper Holdings Limited Announcement 23 June 2018 http://www.cninfo.com.cn in respect of Resolutions of the 26th Extraordinary Meeting of
the Eighth Session of the Board of Directors
2018-081 Announcement on New Ordinary Connected Transactions in 2018 23 June 2018 http://www.cninfo.com.cn 2018-082 Announcement on the Disposal of the40% Equity Interest in 23 June 2018 http://www.cninfo.com.cn Wan Xing Real Estate by Wuhan Chenming
2018-083 Announcement on Supplemental Pledge of Shares held by Shareholders 26 June 2018 http://www.cninfo.com.cn 2018-084 Announcement on Receipt of Government Subsidy 29 June 2018 http://www.cninfo.com.cn 2018-085 Announcement on Additional Resolutions Proposed at the 2018 30 June 2018 http://www.cninfo.com.cn Third Extraordinary General Meeting
2018-086 Supplemental Notice of 2018 Third Extraordinary General Meeting 30 June 2018 http://www.cninfo.com.cn 2018-087 Announcement on Result of the Issue of 2018 Eighth Tranche of 30 June 2018 http://www.cninfo.com.cn Super& Short-term Commercial Paper
2018-088 Announcement on Progress of Receipt of Government Subsidy 3 July 2018 http://www.cninfo.com.cn 2018-089 Announcement on Supplemental Pledge of Shares held by Shareholders 3 July 2018 http://www.cninfo.com.cn 2018-090 Announcement on Settlement of the 2015 First Tranche of 3 July 2018 http://www.cninfo.com.cn Medium-term Notes
2018-091 Announcement on Result of the Issue of 2018 Ninth Tranche of 6 July 2018 http://www.cninfo.com.cn Super& Short-term Commercial Paper
VII Material Matters
XIX. Other matters of significance(Cont’d)
4. Information disclosure index for 2018
Announcement No. Subject matter Date of publication Publication website and index 2018-092 Second Notice of the 2018 Third Extraordinary General Meeting 6 July 2018 http://www.cninfo.com.cn 2018-093 Second Supplementary Notice of the 2018 Third Domestic Listed Share 6 July 2018 http://www.cninfo.com.cn Class Meeting and 2018 Third Overseas Listed Share Class Meeting
2018-094 Announcement on Supplemental Pledge of Shares held by Shareholders 11 July 2018 http://www.cninfo.com.cn 2018-095 Announcement in respect of Resolutions of the 27th Extraordinary 12 July 2018 http://www.cninfo.com.cn Meeting of the Eighth Session of the Board of Directors
2018-096 Announcement on the Debt Transfer of Portion of the Financial 12 July 2018 http://www.cninfo.com.cn Leasing Business in Financial Leasing Companies
2018-097 Announcement on Resolution of the 28th Extraordinary 17 July 2018 http://www.cninfo.com.cn Meeting of the Eighth Session of the Board of Directors
2018-098 Announcement on the Commencement of Financial Leasing Business 17 July 2018 http://www.cninfo.com.cn and Provision of Guarantee of Subsidiary
2018-099 Announcement on Receipt of Financial Support and 17 July 2018 http://www.cninfo.com.cn Related Party Transaction
2018-100 Announcement on Receipt of Government Subsidy 18 July 2018 http://www.cninfo.com.cn 2018-101 Announcement in Respect of Resolutions of 2018 Third Extraordinary 21 July 2018 http://www.cninfo.com.cn General Meeting, 2018 Third Class Meeting For Domestic Shareholders
and 2018 Third Class Meeting For Overseas Shareholders
2018-102 Announcement on External Investment 25 July 2018 http://www.cninfo.com.cn 2018-103 Announcement on the Implementation of Dividend Distribution to Holders 6 August 2018 http://www.cninfo.com.cn and Conversion into Share Capital of A Shares and B Shares for 2017
2018-104 Announcement on the Implementation of the Distribution of 6 August 2018 http://www.cninfo.com.cn Residual Profits of 2017 to Preference Shareholders
2018-105 Announcement on the Distribution of Dividend for Second 9 August 2018 http://www.cninfo.com.cn Tranche of Preference Share
2018-106 Announcement on Release of Pledge of Shares held by Shareholders 9 August 2018 http://www.cninfo.com.cn 2018-107 Announcement on Progress of Disposal of Equity in Share 9 August 2018 http://www.cninfo.com.cn Participating Company by Wuhan Chenming(107KB)
2018-108 Announcement on Result of the Issue of 2018 Tenth Tranche of 11 August 2018 http://www.cninfo.com.cn Super& Short-term Commercial Paper
2018-109 Announcement on the Stimulated Conversion Price of Preference Shares 11 August 2018 http://www.cninfo.com.cn 2018-110 Indicative Announcement 14 August 2018 http://www.cninfo.com.cn 2018-111 Announcement on the 2018 Interest Payment of Corporate Bonds (Phase I) 15 August 2018 http://www.cninfo.com.cn 2018-112 Announcement in respect of Resolutions of the 29th Extraordinary 18 August 2018 http://www.cninfo.com.cn Meeting of the Eighth Session of the Board of Directors
2018-113 Announcement in respect of Resolutions of the 11th Extraordinary 18 August 2018 http://www.cninfo.com.cn Meeting of the Eighth Session of the Board of Directors
2018-114 Announcement on the 2016 Non-Public Issue of Shares and 18 August 2018 http://www.cninfo.com.cn Withdrawal of Application Documents
VII Material Matters
XIX. Other matters of significance(Cont’d)
4. Information disclosure index for 2018
Announcement No. Subject matter Date of publication Publication website and index 2018-115 Announcement on the Extension of the Expiry Date of the Resolution of 18 August 2018 http://www.cninfo.com.cn the General Meeting in Respect of the Issuance of Corporate Bonds
2018-116 Notice of 2018 Fourth Extraordinary General Meeting 18 August 2018 http://www.cninfo.com.cn 2018-117 Announcement on the Pledge of Shares by Shareholders and 18 August 2018 http://www.cninfo.com.cn Supplemental Pledge of Shares
2018-118 Announcement in respect of Resolutions of the Tenth Meeting of 28 August 2018 http://www.cninfo.com.cn the Eighth Session of the Board of Directors
2018-119 Announcement in respect of Resolutions of the 11th Meeting of the 28 August 2018 http://www.cninfo.com.cn Eighth Session of the Board of Directors
2018-120 2018 Interim Report Summary 28 August 2018 http://www.cninfo.com.cn 2018-121 Announcement on the Commencement of Financial Leasing Business 28 August 2018 http://www.cninfo.com.cn and Provision of Guarantee of Subsidiary
2018-122 Announcement on the Receipt of Notice Regarding Suspension of the 1 September 2018 http://www.cninfo.com.cn Examination Relevant to the Application for Administrative
Permission from CSRC
2018-123 Announcement on Release of Pledge of Shares Held by Shareholders 1 September 2018 http://www.cninfo.com.cn 2018-124 Announcement on Increase in Shareholding by the Chairman 3 September 2018 http://www.cninfo.com.cn 2018-125 Indicative Announcement 6 September 2018 http://www.cninfo.com.cn 2018-126 Announcement on Supplemental Pledge of Shares held by Shareholders 5 September 2018 http://www.cninfo.com.cn 2018-127 Announcement on Entering into Strategic Cooperation Agreements with 7 September 2018 http://www.cninfo.com.cn Qingdao Branch of China Merchants Bank and Merchants Securities
2018-128 Announcement on Intended Increase in Shareholding by the 11 September 2018 http://www.cninfo.com.cnCompany’s Largest Shareholder
2018-129 Announcement in respect of Resolutions of the 30th Meeting of the 13 September 2018 http://www.cninfo.com.cn Eighth Session of the Board of Directors
2018-130 Announcement on the Commencement of Financial Leasing Business 13 September 2018 http://www.cninfo.com.cn and Provision of Guarantee
2018-131 Announcement on the Distribution of Dividend for Third Tranche 14 September 2018 http://www.cninfo.com.cn of Preference Share
2018-132 Second Notice of the 2018 Fourth Extraordinary General Meeting 20 September 2018 http://www.cninfo.com.cn 2018-133 Announcement on External Investment 20 September 2018 http://www.cninfo.com.cn 2018-134 Announcement on the Receipt of an Arbitral Award by a Subsidiary 22 September 2018 http://www.cninfo.com.cn 2018-135 Announcement on the Completion of Industrial and 27 September 2018 http://www.cninfo.com.cn Commercial Registration
2018-136 Poll Results Announcement of the 2018 Fourth Extraordinary 10 October 2018 http://www.cninfo.com.cn General Meeting
2018-137 Announcement in respect of Resolutions of the 31st Extraordinary 12 October 2018 http://www.cninfo.com.cn Meeting of the Eighth Session of the Board of Directors
2018-138 Announcement on the Provision of Guarantee to Wholly-Owned Subsidiary 12 October 2018 http://www.cninfo.com.cn 2018-139 Announcement on Participation in the Acquisition of45% 12 October 2018 http://www.cninfo.com.cn Equity in Goldtrust Futures
VII Material Matters
XIX. Other matters of significance(Cont’d)
4. Information disclosure index for 2018
Announcement No. Subject matter Date of publication Publication website and index 2018-140 Announcement on Change of Financial Controller and 12 October 2018 http://www.cninfo.com.cn Resignation of Representative of Securities Affairs
2018-141 Notice of 2018 Fifth Extraordinary General Meeting 12 October 2018 http://www.cninfo.com.cn 2018-142 Announcement on the Release of Pledge and Supplemental 13 October 2018 http://www.cninfo.com.cn Pledge of Shares held by Shareholders
2018-143 Announcement on the Entering into of the Debt-to-equity 18 October 2018 http://www.cninfo.com.cn Cooperation Framework Agreement with CIBC Investment
2018-144 Indicative Announcement 18 October 2018 http://www.cninfo.com.cn 2018-145 Announcement on Progress of Participation in the Acquisition of 23 October 2018 http://www.cninfo.com.cn45% Equity in Goldtrust Futures
2018-146 Announcement in respect of Resolutions of the 11th Extraordinary 26 October 2018 http://www.cninfo.com.cn Meeting of the Eighth Session of the Board of Directors
2018-147 Announcement in respect of Resolutions of the 12th Extraordinary 26 October 2018 http://www.cninfo.com.cn Meeting of the Eighth Session of the Board of Directors
2018-148 2018 Third Quarterly Report 26 October 2018 http://www.cninfo.com.cn 2018-149 Announcement on Changes in Accounting Policies 26 October 2018 http://www.cninfo.com.cn 2018-150 Announcement on Pledge of Assets to the Syndicated Loan of 26 October 2018 http://www.cninfo.com.cn Huanggang Chenming
2018-151 Announcement on the Commencement of Financial Leasing 26 October 2018 http://www.cninfo.com.cn Business of Subsidiary
2018-152 Announcement on Result of the Issue of 2018 Eleventh Tranche of 31 October 2018 http://www.cninfo.com.cn Super& Short-term Commercial Paper
2018-153 Announcement on Release of Pledge of Shares held by Shareholders 6 November 2018 http://www.cninfo.com.cn 2018-154 Announcement in respect of Resolutions of the 32nd Extraordinary 10 November 2018 http://www.cninfo.com.cn Meeting of the Eighth Session of the Board of Directors
2018-155 Announcement on the Change and Rotation of the General Manager 10 November 2018 http://www.cninfo.com.cn 2018-156 Announcement on Proposed Introduction of Third-party Investors 10 November 2018 http://www.cninfo.com.cn for Capital Contribution to Certain Subsidiaries
2018-157 Announcement in respect of Resolutions of the Twelfth Extraordinary 10 November 2018 http://www.cninfo.com.cn Meeting of the Eighth Session of the Supervisory Committee
2018-158 Notice of 2018 Sixth Extraordinary General Meeting 10 November 2018 http://www.cninfo.com.cn 2018-159 Second Notice of 2018 Fifth Extraordinary General Meeting 16 November 2018 http://www.cninfo.com.cn 2018-160 Announcement on the Commencement of Production of the 27 November 2018 http://www.cninfo.com.cn Chemical Pulp Project of Huanggang Chenming
2018-161 Announcement in respect of Resolutions of the 33rd Extraordinary 1 December 2018 http://www.cninfo.com.cn Meeting of the Eighth Session of the Board of Directors
2018-162 Announcement on the Commencement of Financial Leasing Business 1 December 2018 http://www.cninfo.com.cn and Provision of Guarantee and Pledge of Assets of the Subsidiary
VII Material Matters
XIX. Other matters of significance(Cont’d)
4. Information disclosure index for 2018
Announcement No. Subject matter Date of publication Publication website and index 2018-163 Announcement on Resolution of the 2018 Fifth Extraordinary 1 December 2018 http://www.cninfo.com.cn General Meeting
2018-164 Announcement on the Retirement and Resignation of 1 December 2018 http://www.cninfo.com.cn Employee Representative Supervisor
2018-165 Announcement on Pledge of Shares by Shareholders 8 December 2018 http://www.cninfo.com.cn 2018-166 Supplementary Announcement of 2018 Sixth Extraordinary 13 December 2018 http://www.cninfo.com.cn General Meeting
2018-167 Supplementary Notice of 2018 Sixth Extraordinary General Meeting 13 December 2018 http://www.cninfo.com.cn 2018-168 Announcement on Release of Pledge of Shares Held by Shareholders 18 December 2018 http://www.cninfo.com.cn and Business Continuation
2018-169 Announcement in respect of Resolutions of the 34th Extraordinary 21 December 2018 http://www.cninfo.com.cn Meeting of the Eighth Session of the Board of Directors
2018-170 Announcement on the Introduction of Third-party Investors by 21 December 2018 http://www.cninfo.com.cn Jiangxi Chenming
2018-171 Announcement on the Acquisition of Minority Interest of a 21 December 2018 http://www.cninfo.com.cn Holding Subsidiary
2018-172 Announcement on Result of the Issue of 2018 Twelfth Tranche of 21 December 2018 http://www.cninfo.com.cn Short-term Commercial Paper
2018-173 Announcement on Pledge of Shares and Partial Release of 22 December 2018 http://www.cninfo.com.cn Pledge of Shares by Shareholders
2018-174 Poll Results Announcement of the 2018 Sixth Extraordinary 29 December 2018 http://www.cninfo.com.cn General Meeting
VII Material Matters
XX. Matters of significant of subsidiaries of the Company
√ Applicable□ Not applicable
1. Disposal of30% equity interest in Xuchang Chenming
At the eighteenth extraordinary meeting of the eighth session of the Board of the Company held on 27 November 2017, the Resolution on the disposal of30% equity interest in Xuchang Chenming was considered and approved, pursuant to which the Company proposed to dispose of30% equity interest in its controlling subsidiary Xuchang Chenming Paper Co., Ltd. (“Xuchang Chenming”) through public tender. For details, please refer to the Announcement on the Disposal of Equity Interest in Xuchang Chenming published by the Company on 28 November 2017 (announcement no.: 2017-147).
2. Receipt of Shanghai Chenming of30% equity interest in Shanghai Hongtai Real Estate held by Guangdong Dejun
Shanghai Chenming Industry Co., Ltd. and Guangdong Dejun Investment Co., Ltd. entered into the Equity Acquisition Agreement. Based on the appraised value of the totalshareholders’ equity of Shanghai Hongtai Real Estate Co., Ltd. of RMB3,908.397 million, Shanghai Chenming proposed to acquire30% equity interest in and the loan due from Hongtai Real Estate held by Guangdong Dejun at a consideration of RMB1,275,000,000, in which the equity interest amounted to RMB1,171,960,000 and loan amounted to RMB103,040,000.
For details, please refer to the relevant announcement (announcement no.: 2018-007) of the Company published on CNINFO on 30 January 2018.
3. Disposal of50% equity interest in Guangdong Dejun
Pursuant to the decision approved at the twenty-second extraordinary meeting of the eighth session of the Board of the Company held on 16 April 2018, the Company and Shanghai Zhongneng Enterprise Development (Group) Co., Ltd. (“Shanghai Zhongneng”) entered into the Equity Repurchase Agreement, under which the50% equity interest in Guangdong Dejun, being the available-for-sale financial asset, to Shanghai Zhongneng, with the aggregate of premium repurchase and investment income amounting to RMB2,634,041,400. The Company received the sum on 28 April 2018. Subsequent to the transfer, the Company no longer held any equity interests in Guangdong Dejun. 2018-038 For details, please refer to the relevant announcement (announcement no.: 2018-038) of the Company published on CNINFO on 17 April 2018.
VII Material Matters
XX. Matters of significant of subsidiaries of the Company(Cont’d)
4. Acquisition of14.2742% equity interest held by a minority shareholder of Wuhan Chenming
To better advance the strategic development positioning of the Company, optimise the management structure, streamline business layout and further elevate theCompany’s profitability, the Company intends to acquire14.2742% equity interest in Wuhan Chenming, a controlling subsidiary of the Company, held by Hubei Hanyang Paper Mill (“Hanyang Paper Mill”), a minority shareholder of Wuhan Chenming, by way of transfer through agreement. In accordance with the result of public tender, the Company received the abovementioned equity interest held by Hanyang Paper Mill at the consideration of RMB60,896,600. Subsequent to the completion of the equity transfer, the Company will hold65.205% of the equity interest in Wuhan Chenming. For details, please refer to the relevant announcement (announcement no.: 2018-060) of the Company published on CNINFO on 24 May 2018.
5. Disposal of40% equity interest in Wan Xing Real Estate by Wuhan Chenming
To further integrate theCompany’s resources, focus its advantages on the principal business and enhance quality and efficiency, Wuhan Chenming Hanyang Paper Holdings Co., Ltd. intends to dispose of40% equity interest in Wuhan Chenming Wan Xing Real Estate Co., Ltd., an investee, through public tender. The transferee will be determined by way of bidding, and the final price will be determined comprehensively according to the tender and auctioning with reference to the appraisal value.
On 7 August 2018, Wuhan Chenming and Hubei Zheshang Wan Xing Investment Co., Ltd. entered into the Equity Transaction Agreement on Hubei Equity Investment Transfer for a consideration of RMB131.60 million.
For details, please refer to the relevant announcement (announcement no.: 2018-082 and 2018-107) of the Company published on CNINFO on 23 June 2018 and 9 August 2018.
6. Announcement on the Commencement of Production of the Chemical Pulp Project of Huanggang Chenming
The 300,000-tonne chemical pulp project of Huanggang Chenming Pulp& Paper Co., Ltd. was considered and approved at the 2013 first extraordinary general meeting of the Company. The project, having gone through multiple discussions and adjustments in order to meet the requirements for ecological environment development of the Yangtze River Economic Zone, commenced production on 13 November 2018.
For details, please refer to the relevant announcement (announcement no.: 2018-160) of the Company published on CNINFO on 27 November 2018.
7. Announcement on the Introduction of Third-party Investors by Jiangxi Chenming
In order to actively yet prudently lower theCompany’s gearing ratio, optimise its capital structure, promote its comprehensive capital strength, Jiangxi Chenming Paper Co., Ltd., a subsidiary of the Company, intended to commence market-based and legal debt-to-share business with China Zheshang Bank Co., Ltd. Western Trust Co., Ltd.(西部信託有限公司), a co-operating practicing entity of China Zheshang Bank, increased the capital of Jinagxi Chenming by RMB500 million. In consideration of the operating situation of Jiangxi Chenming and the overall strategies of the Company, Chenming Paper, a shareholder of Jiangxi Chenming, and Chenming (HK) Limited, a subsidiary of Chenming Paper, will forfeit the rights of preferential subscription of capital contribution in the capital increase.
For details, please refer to the relevant announcement (announcement no.: 2018-170) of the Company published on CNINFO on 20 December 2018.
VIII Changes in Share Capital and Shareholders
I. Changes in shares
1. Changes in shares
Unit: share Opening balance Change during the reporting period(+/-) Closing balance Shares
Converted
Amount Percentage New issue Bonus issue from reserves Others Subtotal Amount Percentage I. Restricted shares 7,935,101 0.41% 0 0 3,967,550 79,991 4,047,541 11,982,642 0.41% Shares held by other
domestic investors 7,935,101 0.41% 0 0 3,967,550 79,991 4,047,541 11,982,642 0.41% Shares held by
domestic natural
persons 7,935,101 0.41% 0 0 3,967,550 79,991 4,047,541 11,982,642 0.41% II. Non-restricted shares 1,928,470,366 99.59% 0 0 964,235,183 -79,991 964,155,192 2,892,625,558 99.59% 1. RMB ordinary shares 1,105,389,555 57.08% 0 0 552,694,778 -79,991 552,614,787 1,658,004,342 57.08% 2. Domestic listed
foreign shares 470,877,311 24.32% 0 0 235,438,655 0 235,438,655 706,315,966 24.32% 3. Overseas listed
foreign shares 352,203,500 18.19% 0 0 176,101,750 0 176,101,750 528,305,250 18.19% III. Total number of shares 1,936,405,467 100.00% 0 0 968,202,733 0 968,202,733 2,904,608,200 100.00% The reasons for such changes
√ Applicable□ Not applicable
Pursuant to the profit distribution plan of the Company for 2017 approved at the 2017 annual general meeting, based on the total ordinary share capital of 1,936,405,467 shares as at the end of 2017, a cash dividend of RMB6.00 (tax inclusive) per 10 shares was distributed to all shareholders and a capitalisation issue to ordinary shareholders was made out of the capital reserves of 5 shares for every 10 shares held. Upon completion of the plan on 10 August 2018, the total share capital of the Company increased from 1,936,405,467 shares to 2,904,608,200 shares. 2. According to the Practice Guidance for theCompany’s Shares Held by the Directors, Supervisors and Senior Management of the Listed Companies of Shenzhen Stock Exchange, during the reporting period, 75,000 RMB ordinary shares (A shares) without restriction additionally acquired by Directors were put under restriction; and 4,991 RMB ordinary shares (A shares) without restriction additionally acquired by Directors and Senior Management were put under restriction.
Approval of changes in shareholding
√ Applicable□ Not applicable
The Plan of conversion of capital reserve into share capital was considered and approved on 13 June 2018 in the 2017 annual general meeting, the 2018 second domestic listed share class meeting and 2018 second overseas listed share class meeting. For details, please see the relevant announcements published by the Company on China Securities Journal, Shanghai Securities News, Securities Times, Securities Daily, Hong Kong Commercial Daily and CNINFO (www.cninfo.com.cn) on 14 June 2018 and on the website of the Stock Exchange (www.hkex.com.hk) on 14 June 2018.
Transfer of shares arising from changes in shareholding
□ Applicable√ Not applicable
VIII Changes in Share Capital and Shareholders
I. Changes in shares(Cont’d)
1. Changes in shares(Cont’d)
Progress of share repurchase
□ Applicable√ Not applicable
Progress of decrease in the holding of repurchased shares by way of bidding
□ Applicable√ Not applicable
The effects of changes in shareholding on financial indicators such as basic earnings per share, diluted earnings per share and net assets per share attributable to shareholders of ordinary shares of the Company for the latest year and the latest period
√ Applicable□ Not applicable
Before changes After changes in share capital in share capital Total share capital 1,936,405,467 2,904,608,200 Basic earnings per share (RMB/share) 0.765 0.51 Diluted earnings per share (RMB/share) 0.765 0.51 Net assets per share attributable to shareholders of the Company 12.94 8.62 Other information considered necessary by the Company or required by the securities regulatory authorities to be disclosed
□ Applicable√ Not applicable
VIII Changes in Share Capital and Shareholders
I. Changes in shares(Cont’d)
2. Changes in restricted shares
√ Applicable□ Not applicable
Unit: share Restricted shares Restricted shares Restricted shares Restricted shares
at the beginning released during increased during at the end
Name of shareholders of period the period the period of period Reason for restriction Date of release from restriction CHEN Hongguo 5,022,222 0 2,586,111 7,608,333 Locked up by senior management Under relevant requirements for shares held by senior management HU Changqing 0 0 1,857 1,857 Locked up by senior management Under relevant requirements for shares held by senior management GENG Guanglin 328,075 0 164,038 492,113 Locked up by senior management Under relevant requirements for shares held by senior management LI Feng 353,863 0 176,931 530,794 Locked up by senior management Under relevant requirements for shares held by senior management LI Dong 7,500 0 3,750 11,250 Locked up by senior management Under relevant requirements for shares held by senior management LI Weixian 0 0 3,599 3,599 Locked up by senior management Under relevant requirements for shares held by senior management LI Xueqin 322,011 0 161,005 483,016 Locked up by senior management Under relevant requirements for shares held by senior management YIN Tongyuan 1,817,730 0 908,865 2,726,595 Resignation 18 November 2019 XIAO Peng 83,700 0 41,850 125,550 Resignation 18 November 2019 Total 7,935,101 0 4,048,006 11,983,107— —
II. Issuance and listing of securities
1. Issuance of securities (excluding preference shares) during the reporting period
□ Applicable√ Not applicable
2. Changes in the total number of shares and structure of shareholders and the structure of the assets and liabilities of the Company
√ Applicable□ Not applicable
The 2017 dividend distribution plan of the Company is: based on the total share capital as at the end of 2017 of 1,936,405,467 shares, a cash dividend of RMB6.00 (tax inclusive) was to be paid to all shareholders and a capitalisation issue made out of the capital reserves of 5 shares for every 10 shares held will be distributed to ordinary shareholders. Upon the completion of the plan on 10 August 2018, the total capital of the Company increased from 1,936,405,467 to 2,904,608,200.
3. Existing staff shares
□ Applicable√ Not applicable
VIII Changes in Share Capital and Shareholders
III. Shareholders and beneficial controllers
1. Total number of shareholders and shareholdings
Unit: share Total number of 120,930, of which Total number of 120,878 of which Total number of 0 Total number of 0 shareholders of ordinary 100,438 were holders shareholders of 100,369 were holders shareholders of shareholders of
shares as at the end of of A shares, 20,124 ordinary shares as of A shares, 20,141 preference shares preference shares
the reporting period were holders of B at the end of the were holders of B with restored voting with restored voting
shares and 368 month prior to shares and 368 were right as at the end of right as at the end of
were holders of the publication date holders of H shares. the reporting period the month prior to the
H shares. of this annual report disclosure date of
the annual report
Shareholdings of shareholders interested in more than5% of the shares of the Company or Top 10 shareholders
Changes
Number of (increase or
shares held decrease)
at the end of during the Number of Number of
Percentage of the reporting Reporting restricted non-restrict
Name of shareholders Nature of shareholders shareholding period period shares held shares held Share pledged or locked-up Status of shares Number CHENMING HOLDINGS COMPANY LIMITED State-owned legal person 15.29% 444,146,128 4,640,643 — 444,146,128 Pledge 312,844,850 HKSCCNOMINEESLIMITED Overseas legal person 12.85% 373,287,875 -13,000 — 373,287,875 — — CHENMING HOLDINGS (HONG KONG) LIMITED Overseas legal person 12.54% 364,131,563 — — 364,131,563 — — CENTRAL HUIJIN ASSET MANAGEMENT LTD. State-owned legal person 2.07% 60,206,850 — — 60,206,850 — — NATIONAL SOCIAL SECURITY FUND 418 Others 0.64% 18,648,662 18,648,662 — 18,648,662 — — Agricultural Bank of China Limited - Others 0.49% 14,166,450 8,504,574 — 14,166,450 — — CHINA CSI 500 ETF
CHINA UNIVERSAL FUND - CHINA
CONSTRUCTION BANK - CHINA LIFE
INSURANCE - CHINA LIFEINSURANCE’S
EQUITY PORTFOLIO
ENTRUSTED TO CHINA UNIVERSAL FUND Others 0.47% 13,701,360 11,978,760 — 13,701,360 — — VANGUARD EMERGING MARKETS Overseas legal person 0.44% 12,912,357 — — 12,912,357 — — STOCK INDEX FUND
JIN Xing Domestic nature person 0.40% 11,724,750 3,040,950 — 11,724,750 — — VANGUARD TOTAL INTERNATIONAL Overseas legal person 0.38% 10,997,408 1,865,300 — 10,997,408 — — STOCK INDEX FUND
Related party relationship or acting in A shareholder, Chenming Holdings (Hong Kong) Limited, which is an overseas legal person, is a wholly-owned subsidiary of a shareholder, Shouguang Chenming concert among the above shareholders Holdings Company Limited, which is a state-owned legal person. Save for the above, it is not aware that any other shareholders of tradable shares are persons acting in concert and is also not aware that any other shareholders of tradable shares are connected with each other.
VIII Changes in Share Capital and Shareholders
III. Shareholders and beneficial controllers(Cont’d)
1. Total number of shareholders and shareholdings(Cont’d)
Shareholdings of the top ten shareholders of non-restricted shares
Number of
non-restricted
shares held as
at the end of the
Name of shareholders reporting period Class of shares
Class of shares Number CHENMING HOLDINGS COMPANY LIMITED 444,146,128 RMB ordinary shares 444,146,128 HKSCC NOMINEES LIMITED 373,287,875 Overseas listed 373,287,875 foreign shares
CHENMING HOLDINGS (HONG KONG) LIMITED 364,131,563 Overseas listed 210,717,563 foreign shares
Overseas listed 153,414,000 foreign shares
CENTRAL HUIJIN ASSET MANAGEMENT LTD. 60,206,850 RMB ordinary shares 60,206,850 NATIONAL SOCIAL SECURITY FUND 418 18,648,662 RMB ordinary shares 18,648,662 Agricultural Bank of China Limited - 14,166,450 RMB ordinary shares 14,166,450 CSI500 Index Open-ended Fund
CHINA UNIVERSAL FUND - CHINA 13,701,360 RMB ordinary shares 13,701,360 CONSTRUCTION BANK - CHINA LIFE
INSURANCE - CHINA LIFEINSURANCE’S
EQUITY PORTFOLIO ENTRUSTED TO
CHINA UNIVERSAL FUND
VANGUARD EMERGING 12,912,357 Domestic listed 12,912,357 MARKETS STOCK INDEX FUND foreign shares
JIN Xing 11,724,750 Domestic listed 11,724,750 foreign shares
VANGUARD TOTAL INTERNATIONAL 10,997,408 Domestic listed 10,997,408 STOCK INDEX FUND foreign shares
Connected relationship or connected party A shareholder, Chenming Holdings (Hong Kong) Limited, which relationship among the top ten shareholders is an overseas legal person, is a wholly-owned subsidiary of a of non-restricted shares, and between the shareholder, Shouguang Chenming Holdings Company Limited, top ten shareholders of non-restricted which is a state-owned legal person. Save for the above, it is not shares and the top ten shareholders aware that any other shareholders of tradable shares are persons acting in concert. It is also not aware that any other shareholders of tradable shares are related to each other.
Securities margin trading of top 10 ordinary Chenming Holdings Company Limited held 444,146,128 RMB shareholders, if any (see Note 4) ordinary shares, of which 393,146,128 shares were held through ordinary account and 51,000,000 shares were held through credit guarantee security account.
VIII Changes in Share Capital and Shareholders
III. Shareholders and beneficial controllers(Cont’d)
1. Total number of shareholders and shareholdings(Cont’d)
Whether an agreed repurchase transaction was entered into during the reporting period by the top 10 ordinary shareholders and top 10 shareholders of non-restricted shares of the Company
□ Yes√ No
The top 10 ordinary shareholders and top 10 shareholders of non-restricted ordinary shares of the Company did not enter into any agreed repurchase transaction during the reporting period.
2. Controlling shareholders of the Company
Nature of controlling shareholder: regional state-owned enterprise
Type of controlling shareholder: legal person
Legal
representative/
Name of controlling Person in charge Date of
shareholders of the unit establishment Enterprise code Principal business CHENMING HOLDINGS Chen Hongguo 30 December 78348518-9 Investment in paper COMPANY LIMITED 2005 making, electricity, heat and arboriculture by its own capital Shareholdings of controlling Save for the Company, Chenming Holdings Company Limited shareholders who have does not have control over or hold any equity interest of other control or hold shares in domestic or overseas listed companies.
other domestic or overseas
listed companies during
the reporting period
Change of controlling shareholders during the reporting period
□ Applicable√ Not applicable
There was no change in the controlling shareholders of the Company during the reporting period.
VIII Changes in Share Capital and Shareholders
III. Shareholders and beneficial controllers(Cont’d)
3. Beneficial controller of the Company and persons acting in concert
Nature of the beneficial controller: Regional state-owned assets administration authority
Type of the beneficial controller: legal person
Legal
representative/
Person in
charge of Date of
Name of beneficial controller the unit establishment Enterprise code Principal business State-owned Assets Fu Xingang 1 August 1991 F5108355-4 Responsible for the Supervision and management and Administration Office capital operation of the of Shouguang City state-owned assets of enterprises and business units in Shouguang city Shareholdings of beneficial controller who Save for the Company, State-owned Assets Supervision and has control or holds shares in other Administration Office of Shouguang City does not have control domestic or overseas listed companies over or hold any equity interest of other domestic or overseas during the reporting period listed companies.
Change of beneficial controller during the reporting period
□ Applicable√ Not applicable
There was no change in the beneficial owner of the Company during the reporting period.
VIII Changes in Share Capital and Shareholders
III. Shareholders and beneficial controllers(Cont’d)
3. Beneficial controller of the Company and persons acting in concert(Cont’d)
Chart illustrating the relationship between the Company and the beneficial controller
State-owned Assets Supervision and
Administration Office of Shouguang City
100.00%
Shandong Shouguang Jinxin Investment Holdings Limited
45.21%
Chenming Holdings Company Limited
100.00%
Chenming Holdings
15.29%
(Hong Kong) Limited
12.54%
Shandong Chenming Paper Holdings Limited
Beneficial controller controlling the Company through trust or other asset management method
□ Applicable√ Not applicable
4. Other legal person shareholders interested in over10% of the shares of the Company
□ Applicable√ Not applicable
5. Restrictions on decrease in shareholding by controlling shareholders, beneficial controller, reorganising party and other undertaking parties
□ Applicable√ Not applicable
IX Preference Shares
√ Applicable□ Not Applicable
I. Issue and listing of preference shares during the past three years at the end of the reporting period
√ Applicable□ Not Applicable
With listing
Issue price Coupon Issue size permission Information of Information of changes Method Issue date (RMB/share) rate (share) Listing date (share) Delisting date use of proceeds to proceeds Private 16 March 2016 100 4.36% 22,500,000 8 April 2016 22,500,000 Not applicable http://www.cninfo.com.cn Not applicable Private 16 August 2016 100 5.17% 10,000,000 12 September 2016 10,000,000 Not applicable http://www.cninfo.com.cn Not applicable Private 21 September 2016 100 5.17% 12,500,000 24 October 2016 12,500,000 Not applicable http://www.cninfo.com.cn Not applicable II. Holders of preference shares and their shareholdings
Unit: share Total number of shareholders of 7 Total number of shareholders of 7 preference shares as at the end of preference shares as at the end of
the reporting period the month prior to the publication date
of this annual report
Holders holdings more than5% of the preference shares of the Company or top ten holders of preference shares
Changes
Number of (increase or
shares held decrease)
at the end of during the Number of Number of
Percentage of the reporting reporting restricted non-restrict
Name of shareholders Nature of shareholders shareholding period period shares held shares held Share pledged or locked-up Status of shares Number BEIJING YIBEN ZHONGXING INVESTMENT Domestic non-state-owned 27.78% 12,500,000 — — 12,500,000 Pledged 12,500,000 MANAGEMENT CO., LTD. legal person
BANK OF COMMUNICATIONS Others 22.44% 10,100,000 — — 10,100,000 — — INTERNATIONAL TRUST CO., LTD.– HUILI
NO.167 SINGLE CAPITAL TRUST
BANK OF COMMUNICATIONS Others 14.22% 6,400,000 — — 6,400,000 — — INTERNATIONAL TRUST CO., LTD.– HUILI
NO.136 SINGLE CAPITAL TRUST
QILU BANK CO., LTD. - QILU BANK QUANXIN Others 13.33% 60,000,000 — — 6,000,000 — — WEALTH MANAGEMENT PRODUCT SERIES
HENGFENG BANK CO., LTD. Domestic non-state-owned 11.11% 5,000,000 — — 5,000,000 — — legal person
SHANGHAI STATE-OWNED State-owned legal person 6.67% 3,000,000 — — 3,000,000 — — ASSETS OPERATION CO., LTD.
NCF - MINSHENG BANK - CHINA FORTUNE Others 4.44% 20,000,000 — — 2,000,000 — — INTERNATIONAL TRUST - CHINA
FORTUNETRUST‧MIN XIN NO. 11
SINGLE CAPITAL TRUST
Connected relationship or connected party The aforesaid holders of preference shares, “BANK OF relationship among the top ten holders COMMUNICATIONS INTERNATIONAL TRUST CO., LTD. of preference shares, and between the - HUILI NO.167 SINGLE CAPITAL TRUST” and “BANK OF top ten holders of preference shares and COMMUNICATIONS INTERNATIONAL TRUST CO., LTD. - the top ten holders of ordinary shares HUILI NO.136 SINGLE CAPITAL TRUST”, are persons acting in concert. Save for the above, it is not aware that the remaining holders of preference shares are persons acting in concert, and it is also not aware whether there is any connected relationship
between the above holders of preference shares and top ten
holders of ordinary shares.
IX Preference Shares
III. Profit distribution for preference shares
√ Applicable□ Not Applicable
Profit distribution for preference shares during the reporting period
√ Applicable□ Not Applicable
Whether it is in
compliance with Whether it the conditions Whether participates Distributed and the relevant Way of it was an in distribution Dividend amount (RMB) procedures of dividend accumulated of remaining Date of Distribution Ratio (tax inclusive) distribution payment dividend profit 19 March 2018 4.36% 98,100,000.00 Yes Cash No Yes 10 August 2018 10.33% 464,716,006.88 Yes Cash No Yes 16 August 2018 5.17% 51,700,000.00 Yes Cash No Yes 21 September 2018 5.17% 64,625,000.00 Yes Cash No Yes
IX Preference Shares
III. Profit distribution for preference shares(Cont’d)
Distribution for preference shares of the Company for the past three years
Unit: RMB Explanation on Net profit shortfall attributable to Percentage accumulated to shareholders of to the net profit the next listed company attributable to accounting year under the shareholders of due to insufficient consolidated listed company distributable financial under the profits or portion Distributed statements consolidated can be allocated amount for the financial to remaining Year of distribution (tax inclusive) distribution year statements profit distribution 2018 493,494,767.52 2,509,928,858.47 19.66% Chenming You 01, Chenming You 02 and Chenming You 03 participated in the proposal of remaining profit distribution for RMB279,069,767.52 in 2018.
2017 679,141,006.88 3,769,325,450.93 18.02% Chenming You 01, Chenming You 02 and Chenming You 03 participated in the remaining profit distribution for RMB464,716,006.88 in 2017.
2016 119,277,108.41 1,998,578,788.75 5.97% Chenming You 01 participated in the remaining profit distribution for RMB119,277,108.41 in 2016.
Any adjustment or change in profit distribution policy for preference shares
□ Yes√ No
Both earnings of the Company and retained profit of the parent company are positive during the reporting period but without profit distribution for preference shares
□ Applicable√ Not applicable
IX Preference Shares
III. Profit distribution for preference shares(Cont’d)
Explanation on other matters regarding distribution for preference shares
√ Applicable□ Not applicable
Shareholders of preference shares participate in profit distribution in two portions, namely the fixed dividend distributed based on a fixed dividend rate and the distribution of retained earnings realised for the year.
1﹑ Distribution of fixed dividend
According to the Articles of Association, the Company shall distribute fixed dividends to holders of the preference shares at fixed dividend rate if there are distributable profits after making good losses and the contribution to reserve fund according to law. The Board is authorised by the general meeting to declare and pay all dividends on the preference shares in accordance with the issuance plan under the framework and principles considered and approved in the general meeting in respect of the preference shares. The general meeting of the Company has the right to cancel part of or all of the current dividends on the preference shares. However, when the general meeting of the Company will consider the cancellation of part of or all of the current dividends on the preference shares, the Company shall inform the shareholders of preference shares at least 10 working days before the date of dividend payment in accordance with the requirements of the related authorities.
2﹑ Participation in the distribution of retained earnings realised for the year
Holders of preference shares participate in the distribution of the retained earnings through receipt of cash which is non-cumulative and non-deferrable. In the event of making good losses and the contribution to reserve fund according to law, after receiving fixed dividends at fixed dividend rate as agreed, holders of preference shares can also participate in the distribution of the retained earnings for the year in proportion. Specific terms are as follows: the retained earnings for the year arises from net profit attributable to owners of the parent company on a consolidated basis upon distribution of relevant fixed income to holders of financial instruments such as the preference shares which may be classified under equity.50% of the retained earnings shall be distributed to holders of preference shares and ordinary shareholders. Holders of preference shares shall participate in the distribution of the retained earnings by receiving cash dividends, and the ordinary shareholders shall participate in the distribution of the retained earnings by receiving cash dividends or dividends on ordinary shares.
IX Preference Shares
IV. Repurchase or conversion
□ Applicable√ Not applicable
There was no repurchase or conversion during the reporting period.
V. Resumption of voting rights of preference shares
1. Resumption and exercise of voting rights
□ Applicable√ Not applicable
2. Shareholders and beneficial owner involved in resumption of voting rights of preference shares□ Applicable√ Not applicable
VI. Accounting policy and reasons thereof
√ Applicable□ Not applicable
Pursuant to requirements of Accounting Standard for Business Enterprises No. 22 - Recognition and Measurement of Financial Instruments, Accounting Standard for Business Enterprises No. 37 - Presentation of Financial Instruments and Provisions for Differentiation between Financial Instruments and Equity Instruments and Relevant Accounting Treatment, the preference shares were accounted for as equity instruments as their terms satisfied requirements for such treatments.
X Directors, Supervisors and Senior Management and Staff
I. Changes in shareholding of Directors, Supervisors and Senior Management
Shares held Increase in Decrease in
as at the the number of the number of Other changes Shares held as beginning of shares held shares held (increase or at the end of Start date End date the period during the during the decrease) the period Name Position Status Gender Age of the term of the term (shares) period (shares) period (shares) (shares) (shares) Chen Hongguo Chairman In office M 54 6 September 2001 18 May 2019 6,696,296 100,000 3,348,148 10,144,444 Hu Changqing Vice Chairman In office M 53 23 June 2018 18 May 2019 1,238 619 1,857 Li Weixian General manager In office M 37 9 November 2018 18 May 2019 4800 4,800 Geng Guanglin Director In office M 45 27 May 2009 18 May 2019 437,433 218,717 656,150 Li Feng Director In office M 45 19 April 2006 18 May 2019 471,818 235,909 707,727 Chen Gang Director In office M 46 14 June 2018 18 May 2019
Zhang Hong Director In office F 54 12 April 2010 18 May 2019
Yang Guihua Director In office F 53 9 May 2014 18 May 2019
Pan Ailing Independent Director In office F 54 15 May 2013 18 May 2019
Wang Fengrong Independent Director In office F 50 18 May 2016 18 May 2019
Huang Lei Independent Director In office M 62 18 May 2016 18 May 2019
Liang Fu Independent Director In office F 51 18 May 2016 18 May 2019
Li Dong Chairman of Supervisory Committee In office M 36 13 December 2016 18 May 2019 10,000 5,000 15,000 Sun Yinghua Supervisor In office F 50 18 May 2016 18 May 2019
Zhang Xiaofeng Supervisor In office M 41 18 May 2016 18 May 2019
Dong Lianming Financial controller In office M 44 12 October 2018 18 May 2019
Li Xueqin Deputy general manager In office F 53 1 September 2004 18 May 2019 429,348 214,674 644,022 Li Zhenzhong Deputy general manager In office M 45 20 March 2011 18 May 2019
Yang Weiming Deputy general manager In office M 44 18 May 2016 15 March 2019
Zhang Qingzhi Deputy general manager In office M 53 18 May 2016 18 May 2019
Poon Shiu Cheong Company secretary and In office M 49 28 May 2008 18 May 2019
qualified accountant
Yuan Xikun Secretary to the Board In office M 33 16 May 2018 18 May 2019
Yin Tongyuan Vice Chairman Resigned M 61 6 September 2001 8 May 2018 2,423,640 1,211,820 3,635,460 Yang Hongqin Supervisor Resigned F 51 30 April 2007 29 December 2018
Xiao Peng Secretary to the Board Resigned M 36 16 November 2016 18 January 2018 111,600 18,750 55,800 148,650 Hu Jinbao Financial controller Resigned M 52 16 November 2016 11 October 2018
X Directors, Supervisors and Senior Management and Staff
II. Changes of Directors, Supervisors and Senior Management of the Company
√ Applicable□ Not applicable
Name Position Type Date Reason
Hu Changqing Vice Chairman Elected 23 June 2018 Elected as the Vice Chairman of the eighth session of the Board. Chen Gang Director Elected 14 June 2018 Elected as a director of the eighth session of the Board. Xiao Peng Secretary to the Board Dismissed 19 January 2018 Resigned as the secretary to the Board due to personal work change.
Yuan Xikun Secretary to the Board Appointed 16 May 2018 Appointed by the Board as the Secretary to the Board. Li Weixian General manager Appointed 10 November 2018 Appointed by the Board as the general manager (subject to retire by rotation). Dong Lianming Financial controller Appointed 11 October 2018 Appointed by the Board as the financial controller. Yin Tongyuan Vice Chairman Resigned 9 May 2018 Reaching the statutory retirement age. Hu Jinbao Financial Controller Dismissed 11 October 2018 Resigned as the Financial Controller due to personal work change. Yang Hongqin Vice Chairman Resigned 1 December 2018 Reaching the statutory retirement age.
X Directors, Supervisors and Senior Management and Staff
III. Employment
Professional background, major working experiences and current duties at the Company of Directors, Supervisors and The Senior Management
1. Brief biographies of Directors
(1) Brief biographies of executive Directors
Mr. Chen Hongguo, with Chinese nationality but without the right of permanent residence abroad, joined the Company in 1987, had held different positions including chief officer of manufacturing section, chief officer of branch factory, the chairman of Wuhan Chenming Hanyang Paper Holdings Co., Ltd., deputy general manager, director and general manager of the Company etc. He is currently the chairman of the Company and the chairman and general manager of Chenming Holdings Company Limited. Mr. Chen Hongguo is the spouse of Ms. Li Xueqin, a deputy general manager of the Company.
Mr. Hu Changqing, with Chinese nationality but without the right of permanent residence abroad. He joined the Company in 1988 and had held positions as the chief of the technological reform department, chief officer of branch factory, deputy general manager and Director of the Company, etc. He is currently the director of Chenming Holdings Company Limited, a vice chairman of the Company.
Mr. Geng Guanglin, with Chinese nationality but without the right of permanent residence abroad, joined the Company in 1992, had held different positions including the chief officer of manufacturing section of the Company, the chairman of Wuhan Chenming Hanyang Paper Holdings Co., Ltd., the chairman of Jilin Chenming Paper Co., Ltd., the chairman of Jiangxi Chenming Paper Co., Ltd., the director of Chenming Holdings Company Limited and the general manager of the Company. He is currently the Director and the deputy general manager of the Company
Mr. Li Feng, with Chinese nationality but without the right of permanent residence abroad, joined the Company in 1992, had held different positions including the chief officer of manufacturing section and assistant to the general manager of the Company, deputy general manager and chairman of Wuhan Chenming Hanyang Paper Holdings Co., Ltd.. He is currently the Director of the Company in charge of the sales of cultural paper products. Mr. Li Feng is the brother of Ms. Li Xueqin, a deputy general manager of the Company.
Mr. Chen Gang, with Chinese nationality but without the right of permanent residence abroad, joined the Company in 1992, had held different positions including the chief officer of branch factory, general manager of Zhanjiang Chenming, general manager of Jilin Chenming, department head of Jiangxi Chenming, production assistant director of the Company and production deputy director of the Company. He is currently the Director of the Company.
X Directors, Supervisors and Senior Management and Staff
III. Employment(Cont’d)
1. Brief biographies of Directors(Cont’d)
(2) Brief biographies of non-executive Directors
Ms. Yang Guihua, with Chinese nationality but without the right of permanent residence abroad, is a doctor of engineering, an advisor to doctoral students and a candidate for the Ten Million Talents Project(百千萬人才工程國家級人選). Ms. Yang is a professor of Qilu University of Technology, a standing director of Shandong Technical Association of Paper Industry, a committee member of Nano and Composite Materials Committee of China Technical Association of Paper Industry(中國造紙學會納米纖維素及複合材料專業委員會) and evaluation experts in National Natural Science Foundation of China. She has served as a non-executive Director of the Company since May 2014.
Ms. Zhang Hong, with Chinese nationality but without the right of permanent residence abroad, holds a doctoral degree in Economics. She is currently a professor and advisor to doctoral students at Shandong University, head of a multinational corporation research institute, a non-practising member of the Chinese Institute of Certified Public Accountants, a director of China Association of International Trade, a director of Shandong Province External Trade Association, an independent director of Shandong Zhangqiu Blower Co., Ltd., an independent director of Shandong Delisi Food Co., Ltd. and an independent director of Cisen Pharmaceutical Co., Ltd.. She has served as a non-executive Director of the Company since April 2010.
(3) Brief biographies of independent non-executive Directors
Ms. Pan Ailing, with Chinese nationality but without the right of permanent residence abroad, is currently a professor of the School of Management, and the chief of the Investment and Financing Research Centre(投融資研究中心) in Shandong University. She is also a director of the Accounting Institute, Shandong Province(山東省會計學會), a council member of Shandong Comparative Management Association, a visiting professor at Soochow University in Taiwan, and a visiting scholar at University of Connecticut in the United States. She is also an independent director of Sinotruck Jinan Truck Co., Ltd.(中國重汽集團濟南卡車股份有限公司) and Inspir Software Co., Ltd. She has served as an independent non-executive director of the Company since May 2013. Ms. Wang Fengrong, with Chinese nationality but without the right of permanent residence abroad, is a Ph.D. in Economics and a visiting scholar at West Virginia University in the United States. She was previously a lecturer at the Department of Finance of Shandong Economic University(山東經濟學院財金系) and an associate professor at the Economic Research Center of Shandong University(山東大學經濟研究中心). She currently holds positions including professor and advisor to doctoral students at the Economic Research School of Shandong University(山東大學經濟研究院) and Shandong School of Development at Shandong University(山東大學山東發展研究院), evaluation experts in both National Social Science Fund and National Natural Science Foundation of China, guest analyst regarding policy implementation of currency and credit matters for the Jinan branch of thePeople’s Bank of China, as well as the executive director of Shandong Young Social Science Workers Association(山東省青年社會科學工作者協會). She concurrently serves as an independent director of Shandong Xinneng Taishan Power Generation Co., Ltd.(山東新能泰山發電股份有限公司) and Shandong Denghai Seeds Co., Ltd.
X Directors, Supervisors and Senior Management and Staff
III. Employment(Cont’d)
1. Brief biographies of Directors(Cont’d)
(3) Brief biographies of independent non-executive Directors(Cont’d)
Mr. Huang Lei, with Chinese nationality but without the right of permanent residence abroad, is a Ph.D. in Economics. He was the chief of the Department of Finance and the dean of School of Finance in Shandong University of Finance(山東財政大學). He currently holds the positions including the professor of School of Finance in Shandong University of Finance and Economics, the director of the professor committee and the deputy director of the academic committee of Shandong University of Finance and Economics, a member of the Guiding Committee on Education of Financial Majors(金融學類專業教學指導委員會) of the Ministry of Education, a deputy director of the Collaborative Innovation Centre for Financial Optimisation and Regional Development in Shandong(山東金融產業優化與區域管理協同創新中心), a director of the Taishan Capital Market Research Center(泰山資本市場研究中心) of the Shandong University of Finance and Economics, a director of the Shandong Capital Market Training Base(山東資本市場人才培訓基地) as well as an independent director of Wanjia Asset Management Co., Ltd.
Ms. Liang Fu, with Chinese nationality but without the right of permanent residence abroad, is a Ph.D. in management, a Young and Middle-aged Expert with Outstanding Contributions in Shandong Province(山東省有突出貢獻的中青年專家) and a visiting scholar at Tsinghua University. She concurrently holds the positions including a professor and an advisor to doctoral students of the business school of Shandong University of Finance and Economics, a visiting professor at Shandong Youth University of Political Science, an evaluation expert in National Social Science Fund, a director of Talents Research Association of Shandong Higher Education(山東省高等教育人才研究會), a director of Shandong Economic Association(山東省經濟學會), an executive director of Shandong Management Association(山東省管理學會) and an external director of Shandong Steel Group Co., Limited.
2. Brief biographies of Supervisors
Mr. Li Dong, with Chinese nationality but without the right of permanent residence abroad. After joining the Company in 2004, he had held different positions including the deputy chief of cost auditing section and the chief of general section under the financial department of the Company, the financial controller of Zhanjiang Chenming and the chief of financial department of the Group. He is currently the director and deputy general manager of Chenming Holdings Company Limited and the chairman of the supervisory committee of the Company.
Ms. Sun Yinghua, with Chinese nationality but without the right of permanent residence abroad, is an associate economist. She joined the Company in 1993, serving as price audit officer, audit director and other positions of the Company, and is currently an assistant to the general manager of the Company responsible for the audit department. Mr. Zhang Xiaofeng, with Chinese nationality but without the right of permanent residence abroad, graduated from the School of Management of Shandong University with adoctorate’s degree and his research direction was corporate strategies and corporate governance, traditional culture and modern management, etc. He currently serves as an associate professor of the Business Management Discipline and the deputy head of the Department of Business Management in the School of Management of Shandong University, offering management courses for undergraduate, MBA, EDP and EMBA students for a long time as well as providing training to large enterprises both inside and outside the province for hundreds of times. He concurrently holds positions including the committee member of the Professional Committee of Corporate Governance in the PRC(中國公司治理專業委員會), the part-time case researcher of China Europe International Business School and the secretary general of Shandong Young Social Science Workers Association(山東省青年社會科學工作者協會).
X Directors, Supervisors and Senior Management and Staff
III. Employment(Cont’d)
3. Brief biographies of Senior Management
Mr. Li Weixian, with Chinese nationality but without the right of permanent residence abroad, joined the Company in 2002, had held different positions including the deputy manager of a Shenzhen coated paper subsidiary of the Company, manager of Shandong Chenming Paper Sales Company Limited, vice chairman of a household paper company, deputy marketing director and marketing director of a sales company and vice president of a group. He is currently the deputy general manager of the Company.
Ms. Li Xueqin, with Chinese nationality but without the right of permanent residence abroad, is a deputy general manager of the Company. She joined the Company in 1987 and held the positions of the chief of audit department, deputy general manager, etc. Ms. Li has been a deputy general manager of the Company and a director of Chenming Holdings Company Limited since March 2003. Ms. Li Xueqin is the spouse of Mr. Chen Hongguo, chairman of the Company.
Mr. Li Zhenzhong, with Chinese nationality but without the right of permanent residence abroad, joined the Company in 1995. He had served as principal representative of the Shanghai management region of a sales company, sales manager of light weight coated cultural paper products. He is currently a deputy general manager of the Company and deputy marketing director of the Sales Company.
Mr. Zhang Qingzhi, with Chinese nationality but without the right of permanent residence abroad, joined the Company in 1982 and had held positions as the chief officer of branch factory, head of the production department, assistant to the general manager and vice production director. He is currently a deputy general manager of the Company. Mr. Dong Lianming, with Chinese nationality but without the right of permanent residence abroad, joined the Company in 1997 and had held positions as the chief of accounting and auditing section under the financial department of the Company, the deputy chief and chief of the financial department, chief accountant of Jiangxi Chenming, chief accountant of Shandong Chenming Panels, financial controller and deputy general manager of Zhanjiang Chenming and assistant to general manager of the Company. He is currently the financial controller of the Company.
Mr. Yuan Xikun, with Chinese nationality but without the right of permanent residence abroad, joined the Company in 2010 and had held positions as the accountant for consolidated financial statements in the financial department of the Company, security affairs specialist, manager of disclosure department, chief of the security investment section. He is currently the secretary to the Board of the Company.
Mr. Poon Shiu Cheong is a Fellow Certified Public Accountant of Hong Kong Institute of Certified Public Accountants and CPA Australia. He obtained a master degree in Accounting from Central Queensland University and a master degree in Business Administration from Southern Cross University. He joined the Company in 2008, and is currently the qualified accountant and company secretary of the Company.
X Directors, Supervisors and Senior Management and Staff
III. Employment(Cont’d)
3. Brief biographies of Senior Management(Cont’d)
Employment at the shareholder of the Company
√ Applicable□ Not Applicable
Whether receiving any remuneration Position at the or allowance from Name of shareholder shareholder of the shareholder of Name of employee of the Company the Company Start date of the term End date of the term the Company Chen Hongguo Chenming Holdings Chairman and 22 September 2016 29 December 2020 No Company Limited general manger
Hu Changqing Chenming Holdings Director 22 September 2016 29 December 2020 No Company Limited
Li Xueqin Chenming Holdings Director 22 September 2016 29 December 2020 No Company Limited
Li Dong Chenming Holdings Director 29 December 2017 29 December 2020 Yes Company Limited
Explanation of the Nil
employment at the
shareholder of
the Company
X Directors, Supervisors and Senior Management and Staff
III. Employment(Cont’d)
3. Brief biographies of Senior Management(Cont’d)
Employment at other units
√ Applicable□ Not Applicable
Whether receiving any remuneration Position at the or allowance Name of employee Name of other units other units Start date of the term End date of the term from other units Zhang Hong Shandong Zhangqiu Blower Independent director 12 July 2015 11 July 2018 Yes Co., Ltd.
Shandong Delisi Food Co., Ltd. Independent director 26 September 2017 25 September 2020 Yes Cisen Pharmaceutical Co., Ltd. Independent director 28 November 2017 27 November 2020 Yes Pan Ailing Sinotruck Jinan Truck Co., Ltd. Independent director 28 April 2017 27 April 2020 Yes Inspir Software Co., Ltd. Independent director 19 April 2017 18 April 2020 Yes Lu Thai Textile Co., Limited Independent director 6 June 2016 5 June 2019 Yes Wang Fengrong Shandong Xinneng Taishan Independent director 23 May 2017 22 May 2020 Yes Power Generation Co., Ltd.
Shandong Denghai Seeds Co., Ltd. Independent director 12 May 2016 11 May 2019 Yes Huang Lei Wanjia Asset Management Independent director 16 October 2015 15 October 2018 Yes Co., Ltd.
Shandong Road and Bridge Independent director 29 December 2016 28 December 2019 Yes Group Co., Ltd.
Liang Fu Shandong Steel Group External director 13 September 2017 13 September 2020 Yes Co., Limited
Explanation of the The twenty-ninth meeting of third session of the board of Shandong Zhangqiu Blower Co., Ltd. held on 1 March 2019 had considered and employment at the passed the resolution in relation to the re-election of the board. Zhang Hong, the independent director of the Company was nominated as other unit the independent director of the fourth session of the board of Shandong Zhangqiu Blower. Such nomination is subject to the approval in the first extraordinary general meeting of Shandong Zhangqiu Blower in 2019 which will be convened on 27 March 2019.
Sanctions against current Directors, Supervisors and Senior Management of the Company and those who resigned during the reporting period by securities regulatory authorities in the past three years
□ Applicable√ Not Applicable
X Directors, Supervisors and Senior Management and Staff
IV. Remuneration of Directors, Supervisors and Senior Management
Decision process, basis for determining the remuneration and actual payment for the remuneration of Directors, Supervisors and the Senior Management
(1) Determination basis for remuneration of Directors, Supervisors and the Senior Management: The annual remuneration of each of the executive Directors and the Senior Management of the Company was in the band of RMB0.20 million to 5.00 million and the specific amount for each of them was determined by the remuneration committee based on the main financial indicators and operation target completed by the Company, the scope of work and main responsibilities of the Directors and Senior Management of the Company, the target completion of the Directors and Senior Management as assessed by the duty and performance appraisal system, as well as business innovation capability and profit generation ability of the Directors and the Senior Management. During the reporting period, the Company paid each of the independent non-executive Directors and non-executive Directors of the Company allowance of RMB120,000 (before tax). The travel expenses for attending board meetings and general meetings of the Company and fees reasonably incurred in the performance of their duties under the Articles of Association by independent nonexecutive Directors and non-executive Directors are reimbursed as expensed. The annual remuneration of Supervisors assuming specific managerial duties in the Company were determined by the general manager office of the Company based on specific managerial duties assumed by them. Fixed annual remuneration policy was adopted on external Supervisors who did not hold actual management positions in the Company. During the reporting period, the remuneration of external Supervisors was RMB25,000 (before tax).
(2) Decision process for remuneration of Directors, Supervisors and Senior Management: In accordance with the relevant policies and regulations such as the Implementation Rules Of The Remuneration And Assessment Committee Under The Board, any remuneration plan for theCompany’s executive Directors proposed by the remuneration and assessment committee shall be agreed on by the Board and then submitted to the general meeting for consideration and approval prior to implementation. Any proposal of remuneration distribution plan for the Senior Management officers of the Company shall be submitted to the Board for approval. The remuneration of independent non-executive directors, non-executive directors and external supervisors of the Company shall be agreed on by the Board and then submitted to the general meeting for consideration and approval prior to implementation.
(3) The remuneration and assessment committee, which was set up by the Board according to the resolution of the general meeting, is mainly responsible to formulate the standards of, carry out appraisal in respect of the non- independent Directors and Senior Management of the Company; formulate and examine the remuneration policy and scheme of the non-independent Directors and Senior Management of the Company, and accountable to the Board.
X Directors, Supervisors and Senior Management and Staff
IV. Remuneration of Directors, Supervisors and Senior Management(Cont’d)
Remuneration of Directors, Supervisors and Senior Management during the reporting period
Unit:RMB’0,000 Total
remuneration Received before tax remuneration received from related from the parties of the Name Position Gender Age Status Company Company Chen Hongguo Chairman M 54 In office 499.00 No Hu Changqing Vice-chairman M 53 In office 200.00 No Geng Guanglin Director, Deputy general manager M 45 In office 154.21 No Chen Gang Director M 46 In office 186.09 No Li Feng Director M 46 In office 140.41 No Zhang Hong Director F 54 In office 12.00 No Yang Guihua Director F 53 In office 12.00 No Pan Ailing Independent Director F 54 In office 12.00 No Wang Fengrong Independent Director F 50 In office 12.00 No Huang Lei Independent Director M 62 In office 12.00 No Liang Fu Independent Director F 51 In office 12.00 No Li Dong Chairman of Supervisory Committee M 36 In office - Yes Zhang Xiaofeng Supervisor M 41 In office 2.50 No Sun Yinghua Supervisor F 50 In office 68.02 No Li Weixian General Manager M 37 In office 200.00 No Li Xueqin Deputy general manager F 53 In office 218.88 No Dong Lianming Financial controller M 44 In office 97.20 No Li Zhenzhong Deputy general manager M 45 In office 148.48 No Yang Weiming Deputy general manager M 44 In office 75.60 No Zhang Qingzhi Deputy general manager M 53 In office 71.66 No Yuan Xikun Secretary to the Board M 33 In office 40.82 No Poon Shiu Cheong Company secretary and M 49 In office 12.85 No qualified accountant
Yin Tongyuan Vice-chairman M 61 Resigned 124.20 No Xiao Peng Secretary to the Board M 36 Resigned 5.70 No Yang Hongqin Supervisor F 51 Resigned 15.90 No Hu Jinbao Financial controller M 52 Resigned 126.60 No Note: The total remuneration of the resigned senior management was the remuneration received during their respective tenure of office. Directors and Senior Management of the Company granted share options as incentives during the reporting period
□ Applicable√ Not applicable
X Directors, Supervisors and Senior Management and Staff
V. Personnel of the Company
1 Number of staff, specialty composition and education level
Number of staff at the Company (person) 3,869 Number of staff at major subsidiaries (person) 11,322 Total number of staff (person) 15,191 Total number of staff receiving remuneration during the period (person) 15,191 Number of retired/resigned staff the Company and its major
subsidiaries are required to compensate (person) 0 Specialty composition
Category of specialty composition Number of people (person) Production staff 10,508 Sales staff 607 Technical staff 596 Financial staff 222 Administrative staff 1,960 Other staff 1,298 Total 15,191 Education level
Category of education level Number of people (person) Postgraduate and above 58 Undergraduate 1,497 Post-secondary 3,649 Technical secondary and below 9,987 Total 15,191
X Directors, Supervisors and Senior Management and Staff
V. Personnel of the Company(Cont’d)
2. Remuneration policies
The remuneration of the employees of the Company includes their salaries, bonuses and other fringe benefits. Subject to the relevant laws and regulations, the Company adopts different standards of remuneration for different employees, which are determined based on their position, skill variety, performance etc. with reference to the remuneration level in the labour market, the average level of salary in the society and the corporate reference line set by the government. The Company provides various benefits to the employees, including social insurance, housing allowance and paid leaves etc.
3. Training programmes
The Company attaches importance to personnel training, implements the corporate spirit of “learning, surpassing and leading” and establishes a learning organisation. In 2019, the Company will further enhance cooperation with professional training institutions to enhance training quality. Meanwhile, we innovated our way of learning and built a practical online learning platform. We also developed quality training materials and improved existing ones by levels, initiating targeted training programs. For the junior level staff, the training focuses on professional skills and business knowledge. For the middle-level staff, the training focuses on team management and execution. For the senior management, training focuses on leadership. A team of excellent quality is built through training.
4. Labour outsourcing
□ Applicable√ Not applicable
XI Corporate Governance
I. Corporate governance in practice
The Company operated in compliance with the requirement of Companies Law(《公司法》), Securities Law(《證券法》), Code of Corporate Governance for Listed Companies(《上市公司治理準則》), Rules Governing Listing of Stocks on Shenzhen Stock Exchange(《深圳證券交易所股票上市規則》), the Listing Rules of Hong Kong Stock Exchange and the related requirements as required by CSRC, and continued to improve and optimise its legal person governance structure during the reporting period. The Company also continuously improved its internal control system and proactively carried out management works in relation to investor relations during the reporting period, so as to further improve corporate governance standards and promote theCompany’s standardised operations. As of the end of the reporting period, the actual practice of corporate governance complied with the requirements of the regulatory documents issued by the CSRC regarding the governance of listed companies.
(I) Shareholders and general meeting
The Company had established a corporate governance structure that ensuredshareholders’ ability to fully exercise their rights and enjoy equal status. Shareholders enjoyed their rights and undertook corresponding obligations in accordance with the shares held by them. The convening and holding of general meeting of the Company were legal and compliant, and on the premise of guaranteeing the legality and effectiveness of the general meeting, both on-site voting and online voting were provided as channels to participate in such meetings. Where significant matters which had an impact on the interests of minority investors were being considered, the votes by minority investors were counted separately for the convenience of shareholders and for the sake of making public and timely disclosures. At the same time, investors present at the general meeting could communicate with the management of the Company in person, which effectively safeguard the rights and demands of investors to participate in theCompany’s management. We ensured that all investors could participate in corporate governance on an equal basis, which effectively safeguarded the legitimate interests of shareholders, especially those of minority shareholders.
(II) Controlling shareholder and the listed company
During the reporting period, the Company remained independent of its controlling shareholder, beneficial controllers and related parties in terms of its business, assets, finance, personnel and organisations, and complied with the relevant provisions of the China Securities Regulatory Commission on the independence of listed companies. The controlling shareholders and beneficial controllers strictly regulated their behaviour, and exercised their rights and performed their obligations in accordance with the laws. The Company had business independence and self-operation capability. The Board, the Supervisory Committee and internal structure can operate independently.
(III) Directors and the Board
The composition of the Board of the Company complied with the laws and regulations and the requirements of the Articles of Association. Directors of the Company possessed the knowledge, skills, and qualities necessary to the performance of their duties. All of them were able to earnestly, faithfully, and diligently perform their duties and powers as stipulated in the Articles of Association. The convening and holding of Board meetings were in strict compliance with the Articles of Association and Rules of Procedure of Board Meetings and other relevant provisions. The four special committees under the Board of the Company, namely the Strategic Committee, the Audit Committee, the Nomination Committee and the Remuneration and Assessment Committee, performed their duties normally and provided scientific and professional opinions for the decision-making of the Board.
XI Corporate Governance
I. Corporate governance in practice(Cont’d)
(IV) Supervisors and the Supervisory Committee
The Supervisory Committee strictly followed the requirement of relevant laws and regulations including the Companies Law, the Articles of Associations and the Rules of Procedure of the Supervisory Committee in fulfilling its duties. In the spirit of being accountable to the shareholders and the Company, the Supervisory Committee independently and effectively exercised its supervision and inspection functions. By attending Board meetings and conducting regular inspections on the legal compliance of theCompany’s operations and finance, the Supervisory Committee supervised the decision-making procedures of the Board, resolutions and the legal compliance of theCompany’s operations, so as to safeguard the legitimate interests of the Company and the shareholders.
(V) Information disclosure and management of investor relations
In accordance with the requirements of the relevant rules, the Company strictly enforced the relevant information disclosure regulations and fully fulfilled its information disclosure obligations. The Company disclosed information in a timely and fair manner and ensured that the information disclosed was true, accurate and complete, and did not contain false information, misleading statements or major omissions. During the reporting period, the Company issued a total of more than 240 periodic reports, interim announcements, and related documents through the designated information disclosure media, and a total of 364 periodic reports, interim announcements, and related documents through the website of Hong Kong Stock Exchange. The Company performed its information disclosure obligations in a timely manner with respect to theCompany’s operations, related party transactions, external investment, external guarantees, and the implementation of annual profit distribution, so as to further safeguard the legitimate rights of investors.
Under the premise of strictly fulfilling disclosure obligations, the Company attached importance to the management of investor relations. The Company made public our address, contact number, facsimile, e-mail and other information on its official website and CNINFO, in an attempt to facilitateinvestors’ communication with the Company through the above channels. The Company also made full use of the investor hotline, Shenzhen StockExchange’s “EasyIR” platform, field investigation and research and other channels and methods to actively interact with investors and listen to what they had to say. We patiently answered questions from investors, and worked at enhancinginvestors’ understanding and recognition of the Company. We passedinvestors’ reasonable opinions and suggestions to the management of the Company in a timely manner, building a bridge between investors and the Company.
(VI) Management on registration of personnel with insider information
The Company strictly complied with the provisions of the “Registration Management System of Personnel with Insider Information” and other relevant systems to strengthen the confidentiality of insider information and improved the registration and management of personnel with insider information. The Directors, Supervisors, Senior Management and other related personnel of the Company were able to strictly observe their confidentiality obligations throughout the preparation of periodic reports, temporary announcements and the planning of major events. With the development of the Company, the Company will continue to strictly abide by the requirements of relevant laws and regulations and continuously promote corporate governance to ensure that the Company operates in a standardised manner.
Any material non-compliance of the regulatory documents on the governance of listed companies issued by theCSRC in respect of actual governance of the Company
□ Yes√ No
There was no material non-compliance of the regulatory documents on the governance of listed companies issued by the CSRC in respect of the actual governance of the Company.
XI Corporate Governance
II. Particulars about the independence in terms of businesses, personnel, assets, organisations, and finance from the controlling shareholder
The Company was completely separated from the controlling shareholder in terms of business, personnel, assets, organisations and finance. The Company had a comprehensive internal structure, independent and complete businesses as well as the capability of self-operation.
1. In terms of business: the Company had its ownR&D, production, procurement and sales system, and was completely independent of controlling shareholder in terms of business. The controlling shareholder and its other subsidiaries were not competitors of the Company in the same industry.
2. In terms of personnel: the Company had an independent workforce, and had established independent departments including the research and development department, production department, administration department, finance department, procurement department and sales department. The Company had also established a comprehensive management system with respect to labour, personnel and salary. Personnel of the Company were independent of the controlling shareholder. TheCompany’s Chairman was elected at the general meeting, while the general manager, deputy general manager, secretary to the Board, chief financial officer and other senior management members all worked at and received remuneration from the Company. They did not receive remuneration from related companies of the controlling shareholder, nor did they serve at any position therein other than a director or supervisor. The appointment of theCompany’s Directors, supervisors and senior management was conducted through legal procedures and in strict compliance with the relevant requirements of Companies Law and the Articles of Association. None of the controlling shareholders interfered with theCompany’s Board, or the appointment and dismissal decisions at general meetings.
3. In terms of assets: the title relationship between the Company and the controlling shareholder was clear, and theCompany’s funds, assets and other resources were not illegally occupied or dominated by the controlling shareholder. TheCompany’s assets were complete, and possessed production equipment, auxiliary production equipment, patents and other assets that were in line with its production and operation scope. The Company had complete control and dominance over all assets.
4. In terms of organisations: the Board, Supervisory Committee, management and other internal organisations of the Company operated independently. Each functional department was completely separated from the controlling shareholder in terms of authority, personnel, etc. There was no subordinate relationship between the controlling shareholder and its functional departments, and the Company and its functional departments. TheCompany’s independence in terms of its production, operation and management was not affected by the controlling shareholder. 5. In terms of finance: the Company had its own finance department, accounting and auditing system and financial management system, and was able to make independent financial decisions, with a standardised financial accounting system and financial management system for subsidiaries. None of the controlling shareholders interfered with theCompany’s finance and accounting activities. The Company had a separate account in a commercial bank and there was no sharing of bank accounts with the controlling shareholder. The Company reported on tax return and fulfilled its tax obligations independently in accordance with the law.
XI Corporate Governance
III. Competition in the industry
□ Applicable√ Not applicable
IV. Annual general meeting and extraordinary general meeting convened during the reporting period
1. General meetings during the reporting period
Attendance
rate of
Meeting Type of meeting investors Convening date Disclosure date Disclosure index 2018 first extraordinary Extraordinary 33.09% 13 February 2018 14 February 2018 http:/www.cninfo.com.cn general meeting general meeting
2018 second extraordinary Extraordinary 33.18% 1 June 2018 2 June 2018 http:/www.cninfo.com.cn general meeting general meeting
2018 first domestic listed Extraordinary 34.14% 1 June 2018 2 June 2018 http:/www.cninfo.com.cn share class meeting general meeting
2018 first overseas listed Extraordinary 40.83% 1 June 2018 2 June 2018 http:/www.cninfo.com.cn share class meeting general meeting
2017 annual general meeting Annual 33.10% 13 June 2018 14 June 2018 http:/www.cninfo.com.cn general meeting
2018 second domestic Extraordinary 31.36% 13 June 2018 14 June 2018 http:/www.cninfo.com.cn listed share class meeting general meeting
2018 second overseas Extraordinary 41.00% 13 June 2018 14 June 2018 http:/www.cninfo.com.cn listed share class meeting general meeting
2018 third extraordinary Extraordinary 26.70% 20 July 2018 21 July 2018 http:/www.cninfo.com.cn general meeting general meeting
2018 third domestic listed Extraordinary 30.93% 20 July 2018 21 July 2018 http:/www.cninfo.com.cn share class meeting general meeting
2018 third overseas listed Extraordinary 7.68% 20 July 2018 21 July 2018 http:/www.cninfo.com.cn share class meeting general meeting
2018 fourth extraordinary Extraordinary 30.07% 9 October 2018 10 October 2018 http:/www.cninfo.com.cn general meeting general meeting
2018 fifth extraordinary Extraordinary 30.68% 30 November 2018 1 December 2018 http:/www.cninfo.com.cn general meeting general meeting
2018 sixth extraordinary Extraordinary 31.23% 28 December 2018 29 December 2018 http:/www.cninfo.com.cn general meeting general meeting
2. Extraordinary general meeting requested by holders of the preference shares with voting rights restored
□ Applicable√ Not applicable
XI Corporate Governance
V. Performance of Independent Directors during the reporting period
1. Attendance of Independent Directors at Board meetings and general meetings
Attendance of Independent Directors at Board meetings and general meetings
Number of
attendance
required for Board Attendance Attendance Absent from
meetings during Attendance at at Board at Board Absence Board meetings Attendance Name of the reporting Board meetings meetings by meetings from Board twice in a row at general Independent Directors period in person communication by proxy meetings (in person) meetings Pan Ailing 19 0 18 1 0 No 0 Wang Fengrong 19 1 18 0 0 No 0 Huang Lei 19 1 18 0 0 No 0 Liang Fu 19 1 18 0 0 No 0 None of the independent Directors was absent from the Board meeting twice in a row.
2. Objections from Independent Directors on related issues of the Company
Were there any objections on related issues of the Company from the Independent Directors?
□ Yes√ No
There was no objection on related issues of the Company from the Independent Directors during the reporting period. 3. Other details about the performance of duties by the independent Directors
Were there any suggestions from the independent Directors adopted by the Company?
√ Yes□ No
XI Corporate Governance
V. Performance of Independent Directors during the reporting period(Cont’d)
3. Other details about the performance of duties by the independent Directors(Cont’d)
Explanation on the adoption or non-adoption with related suggestions from the independent Directors
During the reporting period, the independent Directors of the Company focused on the operation of the Company and performed their duties strictly in accordance with relevant laws and regulations and the Articles of Association. They provided a lot of valuable professional recommendations on optimising theCompany’s system and decision on daily operation. They also issued independent and fair opinion on matters arising during the reporting period which requested opinions from Independent Directors. This helped optimise the supervisory system of the Company, as well as protecting the legal rights of the Company and all shareholders.
Publication time Subject matter Opinion 30 January 2018 Independent opinions on the receipt of30% equity interest in Hongtai Agreed Real Estate held by Guangdong Dejun and GuangdongDejun’s Debt
to Hongtai Real Estate and related party transaction, and independent
opinions of Independent Directors on guarantee in favour of related
subsidiaries for their credit facilities applications
28 March 2018 Independent opinions on theCompany’s internal control self-assessment Agreed report, particulars and independent opinions on external guarantees, the
determination of remuneration of directors and senior management for
2017, use of proceeds by related parties and related party transactions,
provision of guarantee for comprehensive credit line of relevant
subsidiaries and appointment of accounting firm.
17 April 2018 Independent opinions on the extension of the validity of the resolutions in Agreed respect of the non-public issue of shares at the general meeting
27 April 2018 Independent opinions on the appointment of additional directors Agreed 16 May 2018 Independent opinions on the appointment of additional directors and Agreed independent opinions on the appointment of secretary to the board
5 June 2018 Independent opinions on matters relating to the non-public issue of Agreed shares and the related party transactions and entering into of conditional
share subscription agreement with specific parties
23 June 2018 Independent opinions on new ordinary connected transactions in 2018 Agreed and the disposal of the40% equity interest in Wan Xing Real Estate by
Wuhan Chenming
17 July 2018 Independent opinions on accepting financial assistance and the related Agreed party transaction
18 August 2018 Independent opinions on the termination of non-public issue of the AgreedCompany’s shares and the withdrawal of application documents in 2016
28 August 2018 Independent opinions on the use of proceeds by controlling shareholders Agreed and other related parties and on external guarantees
12 October 2018 Independent opinions on the appointment of financial controller and the Agreed provision of guarantee for wholly-owned subsidiaries
26 October 2018 Independent opinions on the change of accounting policy Agreed 10 November 2018 Independent opinions on the formulation of rotation system for general Agreed manager (President)
1 December 2018 Independent opinions on pledge of assets by a subsidiary for the Agreed commencement of financial leasing business by Shouguang Meilun
21 December 2018 Independent opinions of the Independent Directors on the introduction of Agreed third-party investor for Jiangxi Chenming
XI Corporate Governance
VI. Performance of duties by special committees under the Board during the reporting period (I) Audit Committee
1. The following major tasks were completed in 2018:
(1) it conducted pre-audit communication with external auditing institution engaged by the Company in respect of the 2017 financial report auditing, reviewed the 2017auditors’ report and financial report, which were submitted to the Board of the Company for consideration and approval;
(2) it reviewed the 2018 first quarter report of the Company as of 31 March 2018, which was submitted to the Board for consideration and approval;
(3) it reviewed the 2018 interim financial statements as of 30 June 2018, which were submitted to the Board for consideration and approval;
(4) it reviewed the 2018 third quarter report of the Company as of 30 September 2018, which was submitted to the Board for consideration and approval.
2. Auditing work conducted on the 2018 financial report of the Company is as follows:
(1) it convened a meeting to review with due consideration the 2018 auditing plan and the related information of the Company with the auditing certified public accountants and the finance department of the Company prior to the on-site audit, and negotiated and determined the schedule of an audit of the 2018 financial statements of the Company with Ruihua Certified Public Accountants, which was responsible for theCompany’s auditing work during the year;
(2) with due consideration, it reviewed the draft of financial statements of the Company prior to an annual onsite audit performed by the auditing certified public accountants and issued its approval to audit; (3) it kept in close contact with the auditors upon the annual on-site audit performed by the auditing certified public accountants and issued a letter to the auditors to urge that they submit theauditors’ report on schedule;
(4) it reviewed the financial statements of the Company again upon the issue of preliminary opinion on the annual audit by the auditing certified public accountants appointed for the annual audit, and considered the financial statements of the Company to be true, accurate and complete to reflect the overall position of the Company;
(5) at the first meeting of the Audit Committee in 2019, the audit summary on the annual audit issued by the accounting firm was approved and submitted to the Board;
(6) it reviewed the 2018 report on internal audit and self-assessment report on internal controls of the Company as of 31 December 2018.
XI Corporate Governance
VI. Performance of duties by special committees under the Board during the reportingperiod(Cont’d)
(II) Remuneration and Assessment Committee
The Remuneration and Assessment Committee under the Board of the Company were primarily responsible for formulating the remuneration and assessment for the Directors and the Senior Management of the Company and formulating and examining the remuneration package of the Directors and the Senior Management of the Company, and accountable to the Board. During the reporting period, the Remuneration and Assessment Committee formulated the 2017 remuneration package of the Directors and the Senior Management of the Company, which was arrived at based on the operation conditions of 2017 and assessment of the Directors and the Senior Management of the Company. The remuneration package was then submitted to the Board for consideration.
(III) Strategy Committee
The Strategy Committee conducted research on major investment decisions of the Company and made recommendations, and inspected and evaluated the implementation of related matters. At the same time, the Strategy Committee actively discussed theCompany’s future long-term strategic development plan based on theCompany’s industry characteristics and development stage in combination with theCompany’s production and operation conditions, providing valuable and constructive opinions for thecompany’s steady development.
During the reporting period, the Strategy Committee held four meetings. The first meeting in 2018 considered resolutions in relation to “the receipt of30% equity interest in Hongtai Real Estate held by Guangdong Dejun and related party transactions”, “the establishment of Beijing Chenming Financial Leasing Company” and “the establishment of Wuhan Chenming Financial Leasing Company”, which were submitted to the 20th extraordinary meeting of the eighth session of the Board of the Company for consideration and approval. The second meeting in 2018 considered the resolution in relation to “the subscription for the new shares of Guangdong Nanyue Bank through private placing by Zhanjiang Chenming and the transfer of the shares of Guangdong Nanyue Bank held by other shareholders to Zhanjiang Chenming”, which was submitted to the 23rd extraordinary meeting of the eighth session of the Board of the Company for consideration and approval. The third meeting in 2018 considered the resolution in relation to “the acquisition of45% of equity interest in Goldtrust Futures”, which was submitted to the 31st extraordinary meeting of the eighth session of the Board of the Company for consideration and approval. The third meeting in 2018 considered the resolution in relation to “the acquisition of minority interest in controlling subsidiaries”, which was submitted to the 34th extraordinary meeting of the eighth session of the Board of the Company for consideration and approval.
(IV) Nomination Committee
During the reporting period, the Nomination Committee held four meetings. The first meeting in 2018 considered the resolution in relation to “the election of additional directors”, which was submitted to the 9th meeting of the eighth session of the Board of the Company for consideration and approval. The second meeting in 2018 considered the resolution in relation to “the election of additional directors”, which was submitted to the 24th extraordinary meeting of the eighth session of the Board of the Company for consideration and approval. The third meeting in 2018 considered the resolution in relation to “the appointment of financial controller”, which was submitted to the 31st extraordinary meeting of the eighth session of the Board of the Company for consideration and approval. The fourth meeting in 2018 considered the resolutions in relation to “the appointment of rotating general managers” and “the appointment of the senior management”, which were submitted to the 32nd extraordinary meeting of the eighth session of the Board of the Company.
XI Corporate Governance
VII. Performance of duties by the Supervisory Committee
Were there any risks of the Company identified by the Supervisory Committee when performing its duties during the reporting period?
□ Yes√ No
None of those issues under the supervision was objected by the Supervisory Committee during the reporting period. VIII. Assessment and incentive mechanism for the Senior Management
The senior management of the Company is assessed on monthly and annually basis. Monthly assessments were conducted in line with the direction of the annual major tasks, and were focused on appraisals of two fixed indicators, namely the completion status of each month and the evaluation on important performance indicators. It was carried out monthly by way of cross assessment and supervision among the related departments. The annual assessments were carried out by the Remuneration and Assessment Committee with reference to the results of monthly assessments and overall performances during the year, including the integrated quality of Senior Management and internal training of talents.
IX. Internal control
1. Particulars of material deficiencies in internal control detected during the reporting period
□ Yes√ No
2. Self-assessment Report on Internal Controls
Date of Disclosure of Assessment Report on Internal Controls 30 March 2019
Index of Assessment Report on Internal Controls Disclosure http://www.cninfo.com.cn Percentage of Total Assets Included in Assessment to Total
Assets in Consolidated Financial Statements of the Company 99.20%
Percentage of Revenue Included in Assessment to Revenue in
Consolidated Financial Statements of the Company 99.60%
XI Corporate Governance
IX. Internal control(Cont’d)
2. Self-assessment Report on Internal Controls(Cont’d)
Basis for identifying deficiencies
Type Financial reporting Non-financial reporting
Qualitative criteria (1) Indicators of material deficiencies in the Indicators of material deficiencies in the internal control of financial reporting include: internal control of non-financial reporting ineffective control environment, material loss include: major failure as a result of the decision to and adverse impact on the Company as a making process; lack of control system or result of misconduct by Directors, Supervisors occurrence of systematic failure in principal and senior management; material misstatement activities and lack of effective compensation of non-exceptional incidents; ineffectiveness in control, high turnover rate of mid to senior level supervision of internal control of the Company management and senior technical staff; failure by the Board, or its delegated authorities, and to address the findings of internal control the internal audit department. (2) Indicators of assessment, in particular material deficiencies; major deficiencies in internal control of financial and other factors which impose material reporting include: failure in selecting and adverse impact on the Company. Indicators applying accounting policies in accordance of major deficiencies in internal control of with generally accepted accounting principles; nonfinancial reporting include: general failure failure to establish procedures and control as a result of the decision-making process; measures to prevent corrupt practices; deficiencies in major business procedure or failure to establish corresponding control system; high turnover rate of key staff; failure mechanism for the accounting of unusual or to address the findings of internal control special transactions or failure to implement assessment, in particular major deficiencies; or set up the corresponding compensation and other factors which impose great adverse control; failure to reasonably ensure the impact to the Company. Indicators of general truthfulness and accuracy in the preparation of deficiencies in internal control of non-financial financial statement, as a result of one or more reporting include: low efficiency of decision- deficiencies in the control of financial reporting making process; deficiencies in general as of the end of the period. (3) General business procedure or system; high turnover deficiencies: other deficiencies in internal rate of employees; and failure to rectify general control that do not constitute material or major deficiencies.
deficiencies.
Quantitative criteria General deficiencies: deviation of less than or General deficiencies: quantitative criterion equal to0.1% from the target of accounting (financial loss) less than RMB5,000,000; error/the total revenue; Major deficiencies: major deficiencies: quantitative criterion deviation of0.1% -0.5% from the target of (financial loss) between RMB5,000,000 accounting error/the total revenue; material and RMB20,000,000; material deficiencies: deficiencies: deviation greater than0.5% quantitative criterion (financial loss) over from the target of accounting error/the total RMB20,000,000.
revenue.
Number of material deficiencies in financial reporting: (number) 0
Number of material deficiencies in non-financial reporting: (number) 0
Number of major deficiencies in financial reporting: (number 0
Number of major deficiencies in non-financial reporting: (number) 0
XI Corporate Governance
X.Auditors’ report on internal control
√ Applicable□ Not applicable
Auditors’ opinion contained in theAuditors’ report on internal control
We are of the opinion that Shandong Chenming Paper Holdings Limited had in all material aspects maintained effective internal control over the financial statements in accordance with the Basic Internal Control Norms for Enterprises as of 31 December 2018.
Disclosure ofAuditors’ Report on Internal Control Disclosed
Date of Disclosure ofAuditors’ report on internal control 30 March 2019
Index ofAuditors’ Report on Internal Control Disclosure http://www.cninfo.com.cn
Type of Opinion inAuditors’ Report on Internal Control Standard and unqualified opinion
Material deficiencies in non-financial reporting No
Any opinions of non-standardisation set out in theAuditors’ Report on Internal Control issued by accountants
□ Yes√ No
Auditors’ Report on Internal Control issued by accountants was in line withDirectors’ opinions contained in Self-assessment Report
√ Yes□ No
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of Hong Kong Limited
(I) Compliance with the Code on Corporate Governance
The Company maintained high standards of corporate governance through various internal controls. The Board reviewed the corporate governance practices of the Company from time to time to enhance the corporate governance standards of the Company.
Save for the details set out in III Board, IV Chairman and General Manager and XVII Communications with shareholders in this section, the Company had fully complied with all the principles and code provisions of the Code on Corporate Governance as set out in Appendix 14 to the Hong Kong Listing Rules during the reporting period. (II) Securities transactions by Directors
The Directors of the Company confirmed that the Company had adopted the Model Code for Securities Transactions by Directors of Listed Companies as set out in Appendix 10 to the Hong Kong Listing Rules. Having made adequate enquiries with all Directors and Supervisors of the Company, the Company was not aware of any information that reasonably suggested that the Directors and Supervisors had not complied with the requirements as stipulated in this code during the reporting period.
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of Hong Kong Limited(Cont’d)
(III) Board
The members of the Board of the Company are elected at the general meeting and held accountable to the general meeting, and shall exercise the following functions and powers: (1) to be responsible for convening the general meeting and to report on its work to the general meeting; (2) to carry out the resolutions of general meetings; (3) to decide on the business plans and investment proposals of the Company; (4) to formulate the proposed annual financial budget and final accounts of the Company; (5) to formulate the plan for profit distribution and the plan making up losses of the Company; (6) to formulate plans for the increase or reduction in the registered capital of the Company and for the issue and listing ofCompany’s debentures or other securities; (7) to draft plans for material acquisition and repurchase of theCompany’s own shares; (8) to draft plans for the merger, division or dissolution or the change of formation of the Company; (9) to decide on external investment, acquisition and disposal of assets, pledge of assets, matter in relation to external guarantee, entrusted wealth management, connected transactions, etc. within the scope of mandate of the general meeting; (10) to decide on the establishment of theCompany’s internal management organisation; (11) to employ or dismiss the manager or secretary to the Board of the Company; to employ or dismiss the Senior Management, such as the deputy general manager(s) and personnel in charge of financial affairs, as proposed by the general manager; and to decide on their remuneration and rewards and punishments; (12) to formulate the basic management system of the Company; (13) to formulate proposals for amending the Articles of Association; (14) to administrate matter related to information disclosure of the Company; (15) to propose to the general meeting for the engagement or replacement of accounting firm performing audit for the Company; (16) to review work reports from managers of the Company and to inspect on their work; (17) to exercise the functions and powers as conferred upon by the Articles of Association or the general meeting.
The Board comprised five executive Directors: Chen Hongguo (Chairman), Hu Changqing, Geng Guanglin, Li Feng and Chen Gang; two non-executive Directors: Yang Guihua and Zhang Hong; and four independent non-executive Directors: Pan Ailing, Wang Fengrong, Huang Lei and Liang Fu. Please refer to section VIII of this Annual Report for their brief biographies.
The Board is responsible for leading and monitoring the Company, and is wholly responsible for the administration and supervision of theCompany’s businesses to facilitate its success. The Executive Director or the senior management is authorised to be responsible for the various divisions and functions and management of the processing. Directors of the Company shall act objectively and make decisions in the interests of the Company. The management and senior management of the Company held regular meetings with the Board to discuss the ordinary business operations and performance of the Company, and carried out the relevant decisions of the Board. The Company will arrange independent legal advice upon the request from the Directors or any committees of the Board, if the Board or any committees of the Board consider it necessary to seek for independent professional advice.
Pursuant to Code A.1.8 of the code provisions, the Company should arrange appropriate insurance cover in respect of legal action against its Directors. As at the date of this report, the Company has not reached an agreement with the original insurance company, and therefore has not arranged relevant insurance cover for directors. However, the Company is currently under negotiation with another insurance Company with respect to director liability insurance in 2019.
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of Hong Kong Limited(Cont’d)
(III) Board(Cont’d)
During the reporting period, the Board held 19 meetings, 4 of which were regular meetings and 15 were extraordinary meetings. Due to health reasons, Pan Ailing, an independent director, appointed Wang Fengrong, another independent director, to attend the 8th meeting of the eighth session of the Board on 27 March 2018. None of the directors were absent from the remaining 18 Board meetings.
Name Position Attendance at the relevant meetings (attention required/attended)
Remuneration
Audit Nomination and assessment Strategic
committee committee committee committee General Board meetings meetings meetings meetings meetings meetings I. Executive Directors
Chen Hongguo Chairman 19/19 N/A 1/1 N/A 2/2 10/2 Hu Changqing Vice Chairman 19/19 N/A N/A N/A 2/2 10/5 Geng Guanglin Director 19/19 N/A N/A N/A N/A 10/5 Li Feng Director 19/19 N/A N/A N/A N/A 10/0 Chen Gang Director 19/19 N/A N/A N/A N/A 10/0 II. Non-executive Directors
Yang Guihua Director 19/19 7/7 N/A N/A N/A 10/2 Zhang Hong Director 19/19 N/A N/A 1/1 N/A 10/2 III. Independent non-executive Directors
Pan Ailing Independent Director 19/18 7/7 N/A N/A N/A 10/0 Wang Fengrong Independent Director 19/19 7/7 1/1 N/A N/A 10/2 Huang Lei Independent Director 19/19 N/A N/A 1/1 2/2 10/0 Liang Fu Independent Director 19/19 N/A 1/1 1/1 N/A 10/2 Save for those disclosed in the brief profile of Directors of the Company in this Report, none of the members of the Board had any financial, business, family relations or material connections with each other.
The Board held 4 regular meetings during the year, each by giving a 10-day notice in advance to ensure that all Directors could participate in discussions of matters in the agenda. Reasonable prior notification was given for the other meetings of the Board to ensure all Directors could take time to attend.
All Directors had access to opinions and services of the secretary to the Board to ensure the procedures governing the Board and all applicable regulations and rules were complied with.
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of Hong Kong Limited(Cont’d)
(III) Board(Cont’d)
Directors’ training and professional development
All newly appointed Directors are provided with necessary orientation information, with an aim to ensure that they will have a better understanding of operations and business of the Company as well as relevant laws and regulations and obligations under the Listing Rules.
Directors and Supervisors of the Company were arranged by the Company to attend the 1st and the 2nd session of training courses 2018 for directors and supervisors held by China Securities Regulatory Commission, Shandong; and, briefing paper in respect of amendments to Hong Kong Listing Rules prepared by Advisor to Hong Kong Law of the Company was distributed to all Directors and Supervisors, the above of which were to ensure all Directors and Supervisors to comply with relevant laws and sound corporate governance practice, and enhance their awareness of sound corporate governance practice.
(IV) Chairman and General Manager
The chairman of the Company is Mr. Chen Hongguo, and the general manager of the Company is Mr. Li Weixian. Please refer to section X of this annual report for his brief biographies.
According to the Articles of Association of the Company, the chairman shall exercise the following powers: (1) presiding over general meetings, and convening and presiding over Board meetings; (2) supervising and inspecting the implementation of the resolutions of the Board; (3) signing the shares, the securities and bonds issued by the Company; (4) signing important documents of the Board and other documents which are required to be signed by legal representative of the Company; (5) performing the powers of a legal representative; (6) nominating candidates for general manager for the Board; (7) exercising the special right to operate the Company in accordance with the laws and acting for the benefits of the Company in the event of emergency situation as a result of act of God or natural disaster, and reporting to the Board meetings and general meeting afterwards; and (8) exercising other powers authorised by the Board.
The general manager shall exercise the following powers: (1) in charge of the operation and management of the Company, and organising the implementation of the resolutions of the Board; (2) organising the implementation of theCompany’s annual business plans and investment plans; (3) drafting plans for the establishment of the internal organisational structure of the Company; (4) drafting the basic management system of the Company; (5) formulating specific rules and regulations for the Company; (6) proposing the appointment or dismissal of the deputy general manager and chief financial officer; (7) appointing or dismissing management personnel other than those required to be appointed or dismissed by the Board; (8) proposing the wages, welfare, rewards, and penalties of staff and to decide the appointment or dismissal of staff of the Company; (9) proposing the convening of extraordinary meeting of the Board; and (10) exercising other powers conferred by the Articles of Association of the Company and the Board.
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of Hong Kong Limited(Cont’d)
(V) Independent Non-executive Directors
There are four independent non-executive Directors in the Board, which is in compliance with the minimum requirement of the number of independent non-executive directors set out in the Hong Kong Listing Rules. Wang Fengrong and Pan Ailing, the independent non-executive Directors of the Company, have appropriate accounting or related financial management expertise, which is compliance with the requirement of Rule 3.10 of the Hong Kong Listing Rules. Please refer to section X of this annual report for their brief biographies. The Company has received from each of the independent non-executive Directors a confirmation of independence for the year pursuant to Rule 3.13 of the Hong Kong Listing Rules and considered all of the independent non-executive Directors to be independent during the year.
(VI) Terms of Directors
According to the Articles of Association of the Company, all Directors, including non-executive Directors, are elected at general meetings with a term of three years from May 2016 to May 2019. They may be re-elected for another term upon expiry of tenure.
(VII)Directors’ Responsibility for the Financial Statements
The Directors acknowledged their responsibility to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company. The Directors believed that the Company had adopted and applied consistently appropriate accounting policies in preparing the financial statements in compliance with all related accounting standards.
(VIII) Board Committees
Pursuant to Code on Corporate Governance, the Board has established three committees, namely, Audit Committee, Remuneration and Assessment Committee and Nomination Committee, for overseeing particular aspects of theCompany’s affairs. Each Board Committee has its own defined written terms of reference. The written terms of reference of each Board Committee are published on websites of stock exchange and the Company.
Save for requirements of Code on Corporate Governance, the Company also set up Strategic Committee, for overseeing and studying long-term strategic development plan of the Company and making recommendations.
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of Hong Kong Limited(Cont’d)
(IX) Audit Committee
The Audit Committee of the Company comprises three members, including Pan Ailing (as the chairman), Yang Guihua and Wang Fengrong. Two of them, including the chairman, are independent non-executive Directors. The primary duties of the Audit Committee are serving as a communication media between internal and external audit and the related review and supervision. Pan Ailing and Wang Fengrong have appropriate professional qualifications or appropriate accounting or related financial management expertise, which is in compliance with the requirement of the Hong Kong Listing Rules.
The primary duties of the Audit Committee of the Company are: (1) proposing the appointment or dismissal of the external auditors; (2) supervising the internal control system of the Company and its implementation; (3) serving as a communication media between internal and external audit; (4) auditing the financial information of the Company and its disclosures; (5) reviewing the financial control, risk control and internal control system of the Company and audit the significant connected transactions; (6) discussing the risk management and internal control system with the management to ensure the management has performed its duties to establish effective systems. The discussion should include the adequacy of resources, staff qualifications and experience, training programs and budget of the accounting and financial reporting functions of the Company; (7) studying the major investigation findings on risk management and internal control matters on its own initiative or as delegated by the Board and themanagement’s response to these findings; (8) where the annual report includes statements in relation to the risk management and internal control system of the Company, reviewing such statements prior to submission to the Board for approval; and (9) dealing with other matters as delegated by the Board.
The Audit Committee discussed with the management of the Company the accounting standards and practices adopted by the Group and discussed and reviewed this report, including the review of the financial statements of the Group for the year ended 31 December 2018 prepared in accordance with China Accounting Standards for Business Enterprises.
Particulars of the meetings held by the Audit Committee during the reporting period were detailed in part VI of this section.
Risk Management and Internal Control
The Board is responsible for the risk management and internal control systems and reviewing their effectiveness. Such systems are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable but not absolute assurance against material misstatement or loss.
The Audit Committee (on behalf of the Board) oversees management in the design, implementation and monitoring of the risk management and internal control systems, and the management has provided confirmation to the Audit Committee (and the Board) on the effectiveness of these systems for the year ended 31 December 2018.
In respect of internal control system, procedures have been designed for safeguarding assets against unauthorised use or disposition, ensuring the maintenance of proper accounting records for the provision of reliable financial information for internal use or for publication, and ensuring compliance of applicable laws, rules and regulations.
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of Hong Kong Limited(Cont’d)
(X) Remuneration and Assessment Committee
The Remuneration and Assessment Committee of the Company comprises three members, including Liang Fu, the Chairman, and other members, namely Zhang Hong and Huang Lei. Two members, including the Chairman, are independent non-executive Directors, which is in compliance with Code on Corporate Governance Practices. The Remuneration and Assessment Committee is primarily responsible for formulating the criteria of appraisal of the Directors and managers and conducting the appraisal, and studying and formulating the remuneration policy and package of the Directors and the Senior Management of the Company. The Remuneration and Assessment Committee is accountable to the Board.
The primary duties of the Remuneration and Assessment Committee of the Company are: (1) formulating the remuneration plan or package based on the major scope of work, duties and importance of the Directors and the management and the remuneration level of other counterparts; (2) formulating the remuneration plan or package which mainly includes but not limited to standards, procedures and a system for performance appraisals as well as major plans and a system for rewards and sanctions; (3) examining the performance of the Directors, excluding the independent non-executive Directors, and the Senior Management and conduct annual performance appraisals for them; (4) supervising the implementation of the remuneration policy of the Company; and (5) dealing with other matters as delegated by the Board.
Particulars of the meetings held by the Remuneration and Assessment Committee during the reporting period are detailed in part VI of this section.
(XI) Nomination Committee
The Nomination Committee of the Company comprises three members, including Wang Fengrong (as the chairman), Chen Hongguo and Liang Fu. Two of them, including the chairman, are independent non-executive Directors, which is in compliance with Code on Corporate Governance Practices. The Nomination Committee is primarily responsible for selecting candidates for directors and the management of the Company, determining the selection criteria and procedure and making recommendations.
The primary duties of the Nomination Committee are (1) advising the Board on the size and composition of the Board in light of theCompany’s operating activities, asset scale and shareholding structure; (2) studying the selection criteria and procedure for Directors and the management and advising the Board on the same; (3) extensively identifying qualified candidates for Directors and the management; (4) examining candidates for Director and the management and advising on the same; (5) examining other Senior Management staff pending referral to the Board for decision on their employment and advising on the same; (6) advising to the Board on appointment and re-appointment of directors and on skills, knowledge, experience, background, gender and other characteristics required in serving as a director taking into consideration diversity, balance and efficiency of the Board and benefits thereto; (7) reviewing the Board diversity policy, revising thereon in a timely manner and making relevant disclosure in the corporate governance report in the corresponding annual report; and (8) dealing with other matters as delegated by the Board.
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of Hong Kong Limited(Cont’d)
(XI) Nomination Committee(Cont’d)
During the reporting period, the Nomination Committee, after studying the needs of the Company for new Directors and managerial personnel and taking into consideration the Board diversity policy, identified suitable candidates for Director and managerial positions through various channels (including from the Group internally and from the human resources market). Upon acceptance of nomination by the nominated person, the Nomination Committee performed qualification review on preliminary candidates by holding meetings, review criteria include the academic qualifications, relevant experience and specialised skills of the preliminary candidates. One to two months prior to election of new Directors, the Nomination Committee submitted recommendations and relevant materials of the directorial candidates to the Board; prior to engaging new Senior Management, the Nomination Committee submitted recommendations and relevant materials of the new Senior Management personnel to the Board.
Particulars of the meetings held by the Nomination Committee during the reporting period are detailed in part VI of this section.
(XII) Strategic Committee
The Company set up a Strategic Committee which comprised three members, including Chen Hongguo, the Chairman, and other members, namely, Hu Changqing and Huang Lei. The Strategic Committee is primarily responsible for studying the long term strategic development and major investments of the Company and making recommendations.
The primary duties of the Strategic Committee are (1) conducting research and submitting proposals regarding the long term development strategic plan; (2) conducting research and submitting proposals regarding the financing plans for major investments which require approval from the Board as stipulated in the Articles of Association of the Company; (3) conducting research and submitting proposals regarding major capital operations and assets operation projects which require approval from the Board as stipulated in the Articles of Association of the Company; (4) conducting research and submitting proposals regarding other material matters that may affect the development of the Company; (5) carrying out examination on the implementation of the above matters; (6) dealing with other matters as delegated by the Board.
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of Hong Kong Limited(Cont’d)
(XIII) Auditors
On 13 December 2016, the 2016 fourth extraordinary general meeting of the Company agreed to continue to engage Ruihua Certified Public Accountants (Special General Partnership) as the domestic auditors of the Company for 2016 and be responsible for domestic auditing of the Company for 2016.
On 24 July 2017, the 2017 second extraordinary general meeting of the Company agreed to continue to engage Ruihua Certified Public Accountants (Special General Partnership) as the domestic auditors of the Company for 2017 and be responsible for domestic auditing of the Company for 2017.
On 13 June 2018, the 2017 annual general meeting of the Company agreed to continue to engage Ruihua Certified Public Accountants (Special General Partnership) as the domestic auditors of the Company for 2018 and be responsible for domestic auditing of the Company for 2018.
(XIV) Remuneration for the Auditors
The financial statements for 2018 prepared in accordance with Accounting Standards for Business Enterprises by the Group were audited by Ruihua Certified Public Accountants (Special General Partnership). In 2018, the Company paid the auditors in aggregate RMB2,500,000 and RMB800,000 in respect of audit financial statements and non-audit services in relation to internal control respectively. Save the above, no other non-audit fee was incurred during the year.
Ruihua Certified Public Accountants (Special General Partnership) have stated their reporting responsibilities on the financial statements of the Group in XII. Financial Report.
(XV) Supervisors and Supervisory Committee
The Supervisory Committee is accountable to the shareholders. It monitors the financial position of the Company and the performance of the Directors, managers and Senior Management of the Company as to whether they are in accordance with relevant requirements of the laws and regulations to protect the lawful rights of the Company and the shareholders. The Supervisory Committee comprises two shareholder representatives and one staff representatives. The shareholder representatives shall be elected and removed at a general meeting and the staff representatives shall be elected and removed democratically by the staff of the Company.
Details of the work of the Supervisory Committee during the reporting period are set forth in part VII of this section.
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of Hong Kong Limited(Cont’d)
(XVI) Company Secretary
During the year, the company secretary confirmed that he has received relevant professional training for not less than 15 hours in accordance with Rule 3.29 of the Listing Rules.
(XVII) Communications with Shareholders
The Company considers effective communication with Shareholders is essential to enable them to have a clear assessment of theGroup’s performance as well as accountability of the Board. Principal means of communication with Shareholders of the Company are as follows:
Information disclosure on theCompany’s website
The Company endeavours to disclose all material information about the Group to all interested parties as widely and timely as possible. The Company maintains its website at www.chenmingpaper.com where important information about theGroup’s activities and corporate matters such as annual reports and interim reports to Shareholders, announcements, business development and operations, corporate governance practices and other information are available for review by Shareholders and other stakeholders.
When announcements are made through the Stock Exchange, the same information will be made available on theCompany’s website.
General meetings
TheCompany’s annual general meeting provides a useful platform for direct communication between the Board and Shareholders. Various resolutions are proposed on each substantially separate issue at the general meetings. Save for the annual general meeting held on 13 June 2018 by the Company, six extraordinary general meetings and three class meetings were convened in 2018. The attendance record of Directors at each general meeting is set out below: Name Directors attending general meetings in person
2017 Annual General Meeting Geng Guanglin, Zhang Hong, Wang Fengrong,
Liang Fu and Yang Guihua
2018 First extraordinary general meeting Yin Tongyuan and Geng Guanglin
2018 Second extraordinary general meeting Chen Hongguo and Geng Guanglin
2018 Third extraordinary general meeting Hu Changqing
2018 Fourth extraordinary general meeting Hu Changqing
2018 Fifth extraordinary general meeting Hu Changqing
2018 Sixth extraordinary general meeting Hu Changqing
2018 First domestic and overseas listed Chen Hongguo and Geng Guanglin
share class meeting
2018 Second domestic and overseas listed Geng Guanglin, Zhang Hong, Wang Fengrong,
share class meeting Liang Fu and Yang Guihua
2018 Third domestic and overseas listed Hu Changqing
share class meeting
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of Hong Kong Limited(Cont’d)
(XVII) Communications with Shareholders(Cont’d)
General meetings(Cont’d)
TheCompany’s external auditor also attended the Annual General Meeting.
Code E.1.2 of the code provisions– This code provision requires the chairman to invite the chairmen of the audit, remuneration and nomination committees to attend the Annual General Meeting.
Mr. Chen Hongguo, the chairman of the Company and its strategy committee, and Ms. Pan Ailing, the chairman of the audit committee, were absent from the annual general meeting due to business commitments.
Code A.6.7 of the code provisions– This code provision requires independent non-executive Directors and other non-executive Directors, as equal board members, should give the Board and any committees on which they serve the benefit of their skills, expertise and varied backgrounds and qualifications through regular attendance and active participation. They should also attend general meetings and develop a balanced understanding of the views of shareholders.
Ms. Pan Ailing and Mr. Huang Lei were absent from the 2017 annual general meeting due to business commitments. Ms. Zhang Hong, Ms. Yang Guihua, Ms. Pan Ailing, Ms. Wang Fengrong, Ms. Liang Fu and Mr. Huang Lei were absent from the 2018 first extraordinary general meeting due to business commitments.
Ms. Zhang Hong, Ms. Yang Guihua, Ms. Pan Ailing, Ms. Wang Fengrong, Ms. Liang Fu and Mr. Huang Lei were absent from the 2018 second extraordinary general meeting due to business commitments.
Ms. Zhang Hong, Ms. Yang Guihua, Ms. Pan Ailing, Ms. Wang Fengrong, Ms. Liang Fu and Mr. Huang Lei were absent from the 2018 third extraordinary general meeting due to business commitments.
Ms. Zhang Hong, Ms. Yang Guihua, Ms. Pan Ailing, Ms. Wang Fengrong, Ms. Liang Fu and Mr. Huang Lei were absent from the 2018 fourth extraordinary general meeting due to business commitments.
Ms. Zhang Hong, Ms. Yang Guihua, Ms. Pan Ailing, Ms. Wang Fengrong, Ms. Liang Fu and Mr. Huang Lei were absent from the 2018 fifth extraordinary general meeting due to business commitments.
Ms. Zhang Hong, Ms. Yang Guihua, Ms. Pan Ailing, Ms. Wang Fengrong, Ms. Liang Fu and Mr. Huang Lei were absent from the 2018 sixth extraordinary general meeting due to business commitments.
Ms. Zhang Hong, Ms. Yang Guihua, Ms. Pan Ailing, Ms. Wang Fengrong, Ms Liang Fu and Mr. Huang Lei were absent from the 2018 first domestic and overseas listed share class meeting due to business commitments.
Ms. Pan Ailing and Mr. Huang Lei were absent from the 2018 second domestic and overseas listed share class meeting due to business commitments.
Ms. Zhang Hong, Ms. Yang Guihua, Ms. Pan Ailing, Ms. Wang Fengrong, Ms Liang Fu and Mr. Huang Lei were absent from the 2018 third domestic and overseas listed share class meeting due to business commitments.
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of Hong Kong Limited(Cont’d)
(XVII) Communications with Shareholders(Cont’d)
Voting by poll
Resolutions put to vote at the general meetings of the Company are taken by poll. Procedures regarding the conduct of the poll are explained to the shareholders at the commencement of each general meeting, and questions from shareholders regarding the voting procedures are answered. The poll results are posted on the websites of the Stock Exchange and the Company respectively on the same day.
Shareholders’ right
1. Procedures for convening an extraordinary general meeting by Shareholder
Pursuant to Article 90 of the Articles of Association of the Company, Shareholder(s) alone or in aggregate holding10% or more of theCompany’s shares shall be entitled to request the Board to convene extraordinary general meetings, provided that such request shall be made in writing. The Board shall, in accordance with provisions of the laws, administrative regulations and the Articles of Association, furnish a written reply stating its agreement or disagreement to the convening of an extraordinary general meeting within ten days after receiving such proposal of the same.
In the event that the Board agrees to convene an extraordinary general meeting, the notice of general meeting shall be issued within five days after the passing of the relevant resolution of the Board. Any changes in the original request made in the notice shall require prior approval of Shareholders concerned.
In the event that the Board does not agree to convene an extraordinary general meeting or does not furnish any reply within ten days after receiving such proposal, Shareholder(s) alone or in aggregate holding10% or more of theCompany’s Shares shall be entitled to propose to the Supervisory Committee the convening of extraordinary general meeting, provided that such proposal shall be made in writing.
In the event that the Supervisory Committee agrees to convene an extraordinary general meeting, the notice of general meeting shall be issued within five days after receiving such request. Any changes in the original request made in the notice shall require prior approval of Shareholders concerned.
Failure of the Supervisory Committee to issue a notice of general meeting within the stipulated period shall be deemed as failure of the Supervisory Committee to convene and preside over a general meeting, and Shareholder(s) alone or in aggregate holding10% or more of theCompany’s shares for ninety consecutive days or more shall be entitled to convene and preside over the meeting on a unilateral basis.
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of Hong Kong Limited(Cont’d)
(XVII) Communications with Shareholders(Cont’d)
Shareholders’ right(Cont’d)
1. Procedures for convening an extraordinary general meeting by Shareholder(Cont’d)
Pursuant to Article 91 of the Articles of Association of the Company, if Shareholders determine to convene a general meeting on their own, they shall give a written notice to the Board and file the same with the local office of CSRC at the place where the Company is located and the stock exchange for records. The shareholding percentage of shareholders who convened shall not be lower than10% prior to the announcement of resolutions of the general meeting.
Shareholders who convened shall submit relevant certifications to the local office of CSRC at the place where the Company is located and the stock exchange upon the issuance of the notice of general meeting and the announcement of resolutions of the general meeting.
The Board and its secretary shall cooperate with respect to matters relating to general meetings convened by Shareholders on their own. The Board shall provide Shareholder registers as of the date of shareholding register. If a general meeting is convened by shareholders on their own, all necessary expenses incurred shall be borne by the Company.
2. Procedures for sendingshareholders’ enquiries to the Board
Shareholders may at any time send their enquiries and concerns to the Board of the Company in writing through the Company Secretary/Secretary to the Board whose contact details are as follows:
Company Secretary Secretary to the Board
Poon Siu Cheong Yuan Xikun
Address: 22nd Floor, World Wide House, Central, Address: No. 2199 East Nongsheng Road,
Hong Kong Shouguang City, Shandong Province
Email Address:kentpoon_1009@yahoo.com.hk Email Address:chenmmingpaper@163.com
Telephone: (852)-2501 0088 Telephone: (86)-0536- 2158008
Facsimile: (852)-2501 0028 Facsimile: (86)-0536-2158977
The Company Secretary and the secretary to the Board shall forwardshareholders’ enquiries and concerns to the Board and/or relevant Board Committees of the Company, where appropriate, to answershareholders’ questions.
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of Hong Kong Limited(Cont’d)
(XVII) Communications with Shareholders(Cont’d)
Shareholders’ right(Cont’d)
3. Procedures for putting forward proposals of Shareholders at general meetings
Pursuant to Article 102 of the Articles of Association of the Company, shareholders individually or jointly holding over3% of the total shares of the Company are entitled to propose motions to the Company.
Shareholders individually or jointly holding over3% of the total shares of the Company may submit extraordinary motions to the Board or the secretary to the Board ten working days before the convening of the General Meeting. The Board or the secretary to the Board shall issue supplementary notice of the General Meeting to announce the extraordinary motions within two working days after receiving the proposed motions.
Save for provided above, the Board or Secretary to the Board shall not amend proposals stated in the notice of general meeting or add new proposals therein following the notice of general meeting has been issued. No voting or resolution shall be effected or adopted at the general meeting for proposals that have not been stated in the notice of general meeting or that do not comply with provisions of the Articles of Association. Extraordinary general meeting shall not resolve issues that are not contained in the notice.
Relationships with investors
The Company recognises its responsibility to explain its activities to those with a legitimate interest and to respond to their questions. Investors are received and visited at appropriate times to explain theGroup’s business. In addition, questions received from the general public and individual shareholders are answered promptly. In all cases, great care is taken to ensure that no price-sensitive information is disclosed selectively.
(XVIII) Internal Control
For details of internal control of the Company, please refer to IX. Internal Control hereunder.
(XIX) Articles of Association
On 29 December 2018, the Company amended the Articles of Association. The amendments were primarily relating to the number of Supervisor. Memorandum of Association and the amended version of the new Articles of Association of the Company are available on websites of the Company and Stock Exchange.
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of Hong Kong Limited(Cont’d)
(XX) Board Diversity
On 21 August 2013, the Company formulated policies to diversify Board members and amended the implementing rules of the nomination committee. Pursuant to the new policies, the nomination committee shall regularly review the Board diversity policy to improve efficiency and ensure interest thereof.
Such policies are summarised as follows:
The Company recognises and embraces the benefits of having a diverse Board, and sees diversity at Board level as an essential element in maintaining a competitive advantage. A truly diverse Board will include and make good use of differences in the talents, skills, regional and industry experience, backgrounds, genders and other qualities of the members of the Board. These differences will be considered in determining the optimum composition of the Board and when possible should be balanced appropriately. All appointments of the members of the Board are made on merit, and in the context of the talents, skills and experience of the Board as a whole.
The Nomination Committee of the Company reviews and assesses the composition of the Board and makes recommendations to the Board on appointment of new directors of the Company. The Nomination Committee also oversees the conduct of the annual review of the effectiveness of the Board. In reviewing and assessing the composition of the Board, the Nomination Committee will consider the benefits of all aspects of diversity, including without limitation those described above, in order to maintain an appropriate range and balance of talents, skills, experience and backgrounds on the Board. In recommending candidates for appointment to the Board, the Nomination Committee will consider candidates on merit against objective criteria and with due regard for the benefits of diversity on the Board.
The composition of the Board of the Company is basically diversified. For details, please refer to (III) Composition of the Board under section XI.
(XXI) Dividend policy
Based on the total ordinary share capital of 2,904,608,200 shares and the 1,162,790,698 simulated ordinary shares converted from the preference shares using a conversion ratio of 1 share valued at RMB3.87 as at the end of 2018, a cash dividend of RMB2.4 (tax inclusive) per 10 shares will be distributed to holders of ordinary shares; a cash dividend of RMB2.4 (tax inclusive) per 10 simulated ordinary shares converted from the preference shares will be distributed to holders of preference shares. No bonus shares will be issued and no capitalisation issue will be made out of the reserves. A cash dividend of RMB697,105,968 will be distributed to holders of ordinary shares and a variable cash dividend of RMB279,069,767.52 will be distributed to holders of preference shares. In other words, a cash dividend of RMB6.20 (tax inclusive) per preference share with a nominal value of RMB100 each will be distributed to holders of preference shares.
XII Corporate bonds
Are there any corporate bonds offered to the public and listed on stock exchanges which do not become due as at the date of approval of annual report or overdue but not fully settled?
Yes
I. Basic information on corporate bonds
Outstanding
amount of
the bonds
Name of bond Bond abbreviation Bond code Issue date Maturity date(RMB’0,000) Interest rate Payment method
The public issuance of the 17 Chenming 112570 17 August 21 August 120,000 6.50% Interest is paid annually. The principal corporate bonds of Shandong Bond 01 2017 2022 amount and the last interest payment Chenming Paper Holdings will be paid on the maturity date. Limited to qualified investors
in 2017 (phase I)
The public issuance of the 18 Chenming 112641 29 March 2 April 90,000 7.28% Interest is paid annually. The principal corporate bonds of Bond 01 2018 2023 amount and the last interest payment Shandong Chenming will be paid on the maturity date. Paper Holdings Limited to qualified
investors in 2018 (phase I)
Stock exchange on which corporate Shenzhen Stock Exchange
bonds are listed or transferred
Investor eligibility arrangement Online subscription: Public investors with A share security account opened under China Securities Depository and Clearing Co., Ltd. Offline subscription: Institutional investors with A share security account opened under China Securities Depository and Clearing Co., Ltd.
Interest payment of corporate The payment of interest on 17 Chenming Bond 01 was completed on 21 August bonds during the reporting period 2018. For details, please refer to the Announcement on payment of 2018 interest with respect to the first tranche of corporate bonds publicly issued to qualified investors in 2017(《2017年面向合格投資者公開發行公司債券(第一期)2018年付息公告》), which was published by the Company on 15 August 2018.
Performance of relevant terms Both 17 Chenming Bond 01 and 18 Chenming Bond 01 attach with options for the during the reporting period, issuer to adjust the coupon rate and for investors to resell. The issuer has the right for special terms such as issuer to determine the adjustment to the coupon rate for the following 3 years at the end or investor option and of the second year and the adjustment to the coupon rate for the following year as interchangeable for corporate bonds the end of the fourth year. After issuing the announcement on whether the coupon (if any). rate of the relevant tranche of bonds will be adjusted and the range of adjustment, the investors have the right to register for reselling during the period as announced to resell all or part of the relevant tranche of bonds held to the issuer at par value.
XII Corporate bonds
II. Information on bond custodian and credit rating agency
Bond custodian:
Name GF Securities Co., Ltd. Office address 38th Floor, Metro Plaza, Contact person Xu Duwei Telephone of 020-87555888 No.183 Tianhe North Road, contact person
Guangzhou
Credit rating agency(ies) which conducted rating on corporate bonds during the reporting period:
Name China Chengxin Office address 21/F, Anji Building,
Securities Rating Co., Ltd. 760 Xizang South Road,
Huangpu District,
Shanghai
Reason of change, procedures to be performed No change during the
and impacts on interests of investors, etc. in case reporting period.
the bond trustee and credit rating agency engaged
by the Company during the reporting period
have changed (if applicable)
III. Use of proceeds from corporate bonds
Use of proceeds from corporate bonds and The use of proceeds from issuance of corporate bonds has strictly its implementation completed relevant application and approval procedures. As at the end of the reporting period, the proceeds from 17 Chenming Bond 01 and 18 Chenming Bond 01 were fully used.
Balance as at the end of the year(RMB’0,000) 0 Operation of special account for proceeds Special account for proceeds is used for the deposit of special capital from bonds.
Is the use of proceeds consistent with the Yes use of proceeds guaranteed under the prospectus,
proposed use of proceeds and other agreement?
IV. Credit rating of corporate bonds
The credit rating of 18 Chenming Bond 01 as granted by China Chengxin Securities Rating Co., Ltd. wasAA+, and the credit rating for the Company remained atAA+ (stable outlook). The 2018 public issuance of the corporate bonds (tranche I) updated rating report (2018) was published on CNINFO on 14 June 2018.
The credit rating of 17 Chenming Bond 01 as granted by China Chengxin Securities Rating Co., Ltd. remained atAA+, and the credit rating for the Company wasAA+ (stable outlook). The 2017 public issuance of the corporate bonds (tranche I) updated rating report (2018) was published on CNINFO on 14 June 2018.
V. Credit enhancement mechanism, repayment plan and other repayment guarantee measures for corporate bonds
There was no change in credit enhancement mechanism, repayment plan and other repayment guarantee measures, which were consistent with relevant commitments as set out in the prospectuses, during the reporting period.
XII Corporate bonds
VI. Convening of meeting for bondholders during the reporting period
Not applicable.
VII. Performance of bond custodian during the reporting period
The bond custodian performed its duties in accordance with the agreement during the reporting period.
VIII. Major accounting data and financial indicators of the Company over the past two years as at the end of the reporting period
Unit:RMB’0,000 Year-on-year increase/decrease Item 2018 2017 in percentage EBITDA 655,492.30 682,958.92 -4.02% Current ratio 78.10% 86.32% -8.22% Gearing ratio 75.43% 71.34% 4.09% Quick ratio 67.27% 75.80% -8.53% Proportion of EBITDA to total debts 8.25% 9.06% -0.81% Interest coverage ratio 1.87 2.83 -33.92% Cash interest coverage ratio 3.84 0.01 38,300% EBITDA interest coverage ratio 2.47 2.83 -12.72% Loans payment ratio 100.00% 100.00% — Interest payment ratio 100.00% 100.00% — Major reason for more than30% in year-on-year change for the above accounting data and financial indicators
√ Applicable□ Not applicable
① The interest coverage ratio was 1.87 for the period, a decrease of33.92% over 2.83 of the same period of last year, which was mainly due to the decline in the market price of machine-made paper and the national macro-control policy on financial deleveraging, resulting in year-on-year decrease in profitability and year-on-year increase in finance expenses of the Company.
② The cash interest coverage ratio was 3.84 for the period, an increase of38,300% over 0.01 of the same period of last year, which was mainly due to the year-on-year increase of 592 times of the net cash flow from operating activities of the Company during the reporting period.
XII Corporate bonds
IX. Interest payment on other bonds, debt and financing instruments during the reporting period Unit: RMB Amount of Item interest payment Corporate bonds 78,000,000.00 Privately placed bonds 1,064,800,000.00 Medium-term notes 2,947,140,000.00 Super& short-term commercial papers 17,990,667,945.05 Total 22,080,607,945.05 X. Bank credit obtained, its use and repayment of bank loans during the reporting period During the reporting period, the Company obtained bank credit of RMB81,750 million, of which RMB52,156 million was utilised with RMB29,594 million outstanding. The Company repaid bank loans of RMB39,526 million.
XI. Performance of relevant agreements or commitments under the prospectus of corporate bonds during the reporting period
Nil
XII. Matters of significance during the reporting period
Nil
XIII. Is there any guarantor for corporate bonds?
□ Yes√ No
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I. Auditors’ Report
Type ofauditors’ opinion Standard and unqualified opinions
The date of the audit report signed 29 March 2019
Name of the auditor Ruihua Certified Public Accountants (Special General Partnership) Reference number of theauditors’ report Rui Hua Shen Zi[2019] No. 37120004
Name of certified public accountants Liu Jian and Jiang Lei
Text of theauditor’s report
To shareholders of Shandong Chenming Paper Holdings Limited:
I. Auditor’s opinion
We have audited the financial statements of Shandong Chenming Paper Holdings Limited (hereinafter “Chenming Paper Company”), which comprise the consolidated and company balance sheets as at 31 December 2018, the consolidated and company income statements, the consolidated and company cash flow statements and the consolidated and company statements of changes inshareholders’ equity for 2018 and notes to the relevant financial statements.
In our opinion, the accompanying financial statements were prepared in accordance with the Accounting Standards for Business Enterprises in all material aspects and give a true and fair view of the consolidated and company financial position of Chenming Paper Company as at 31 December 2018 and of its consolidated and company operating results and cash flows for 2018.
II. Basis of opinions
We have conducted our audit in accordance with the Chinese Auditing Standards issued by the Chinese Institute of Certified Public Accountants. Our responsibilities under those standards are further described in the responsibilities of certified public accountants for the audit of the financial statements section of theauditors’ report. We are independent of Chenming Paper Company in accordance with the ethical codes of Chinese certified public accountants, and we have fulfilled our other ethical responsibilities in accordance with the codes. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
III. Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the current period. These matters were addressed in the context of our audit of the financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters. The key audit matter we identified is as follows:
(I) Consumable biological assets measured at fair value
1. Details
For detailed disclosures of relevant information, please see notes V.13, V.21 and VII.6 to the financial statements.
As at 31 December 2018, the balance of consumable biological assets reflected in the notes to the financial statements of Chenming Paper Company amounted to RMB1,511,542,600 thousand, of which the balance of consumable biological assets measured at fair value amounted to RMB926,416,600.
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Consumable biological assets of Chenming Paper Company without a stock are measured at actual cost, and at fair value when there is a stock. Changes in fair value shall be recognised as profit or loss for the current period. As there is no active market price for the consumable biological assets of Chenming Paper Company, the management shall determine the fair value of consumable biological assets which have formed a stock based on the valuation techniques adopted by external valuation institutions engaged by the Company.
As changes in the fair value of the consumable biological assets of Chenming Paper Company (the “biological assets”) will significantly impact the financial statements, and involve significant judgments from the management, we have regarded the measurement of consumable biological assets as a key audit matter.
2. Application for auditing
When addressing the fair value measurement of the Biological Assets, the key auditing procedures we implemented mainly include:
(1) we assessed the design and implementation of internal control of Chenming Paper Company relating to the Biological Assets;
(2) we comprehended and evaluated the definition and judgment of the management relating to stock; (3) we evaluated the independence, objectivity, experience and quality of the external valuer engaged by the management;
(4) We obtained the valuation report, and our valuation experts assessed the valuation method, valuation parameters and the discount rate used in the valuation report.
(II) Measurement of lease receivables
1. Details
For detailed disclosures of relevant information, please see notes IV.8, VI.7, VI.8 and VI.9 to the financial statements.
As at 31 December 2018, the carrying amount of lease receivables in the notes to the financial statements of Chenming Paper Company amounted to RMB18,279,286,700 in aggregate, accounting for17.36% of total consolidated assets, and including lease receivables due within one year, long-term receivables due within one year and long-term receivables. Lease receivables were mainly created in the financial leasing- related business carried out in the financial business segment of Chenming Paper Company, and were categorised as financial assets with higher risks.
The management of Chenming Paper Company judges whether or not to make bad debt provision of financial lease receivables based on the assessment of the recoverability of financial lease receivables. The recognition of the lease receivables, changes in unsecured balance and provision for bad debt involvemanagement’s significant judgment.
We are concerned about the foregoing matters because the carrying value of lease receivables is significant for the consolidated financial statements of Chenming Paper Company, and the measurement of lease receivables involve significant judgment. Therefore, we have regarded the measurement of lease receivables as a key audit matter.
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2. Application for auditing
When addressing the fair value measurement of lease receivables, the key auditing procedures we implemented mainly include:
(1) we have identified, evaluated and tested the internal control related to the financial leasing business including ageing analysis and overdue analysis of lease receivables and periodic assessment of the recoverability of the balance of lease receivables;
(2) we reviewed financial leasing contracts and related information on early investigation of customers, conducted interviews with management to understand the operations of financial leasing business and the policy on revenue recognition;
(3) we examined the ownership of the leased properties in the financial leasing contracts, for example, examined other rights of the leased properties;
(4) we examined and estimated the entry value and the term of amortisation of unrecognised financing income; and examined whether the payment status of the lessees is consistent with the contractual payment terms;
(5) we have obtained the documents on themanagement’s assessment of the recoverability of the lease receivables, in particular the amounts of provision for impairment categorised by the management as individually made or made by credit risk characteristics; verified the reasonableness of management judgement through evidence obtained from procedures such as investigations on the background, business status and cash flow of customers, interviews with customers and reviews on historical transactions and repayments;
(6) we determined the likelihood of impairment and the accuracy of bad debt provision in accordance with theCompany’s accounting policy by checking the follow-up guarantee procedures of the customers, the financial strength of the guarantor, and the inventory and value determination of the collaterals;
(7) we sought external confirmations for lease receivables with balances of significant amount and, in certain cases, with balances of smaller amount at the end of the year.
(III) Recognition of revenue from machine-made paper
1. Details
For detailed disclosures of relevant information, please see notes IV.23 and VI.42 to the financial statements.
In 2017, Chenming Paper Company recorded revenue of RMB28,875,756,200, of which RMB24,303,557,400 was attributed to revenue of machine-made paper, accounting for84.17% of the revenue.
Revenue of machine-made paper is recognised when Chenming Paper Company transferred to the customers the control of the machine-made papers. Differentiated accounting methods were applied when addressing the differences in business models of domestic and overseas operations: in terms of domestic sales of machine-made paper, revenue is recognised when goods are delivered to the customers and such deliveries are confirmed; while in terms of overseas sales of machine-made paper, revenue is recognised on the day when goods are loaded on board and declared.
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Revenue is one of the key performance indicators of Chenming Paper Company, and the revenue from machine-made paper accounted for a relatively large proportion of the total revenue due to enormous sales, there may be potential misstatement in relation to whether revenue recognition is accounted for in the appropriate period of the financial statements, therefore, we identified recognition of revenue from machine-made paper as a key audit matter.
2. Application for auditing
When addressing the fair value measurement of machine-made paper, the key auditing procedures we implemented mainly include:
(1) we identified and evaluated the effectiveness of the design and operation of key internal controls conducted by the management related to revenue recognition;
(2) we conducted sampling inspections on sales contracts, identified contract terms and conditions related to the transfer of control of the goods, assessed whether the timing of recognition of sales revenue from Chenming Paper Company meets the requirements of the Accounting Standards for Business Enterprises;
(3) we conducted sampling inspections on transactions recorded during the year and verified with sales invoices, sales contracts, letters of credit, letters of guarantee, declaration forms,customers’ confirmation of receipt and delivery orders, etc.; evaluated whether the relevant revenue recognition meets the accounting policy on revenue recognition of Chenming Paper Company;
(4) we analysed revenue and gross profit by taking into account product types and identified abnormal fluctuations in the amount of revenue in the current period;
(5) we collected samples from sales revenue recorded around the balance sheet date for cut-off tests; verified delivery orders and other supporting documents to assess whether sales revenue is recorded in the appropriate accounting period; inspected the occurrence of on-the-spot recognition of sales at the end of the inspection period and inspected goods returns after the inspection period to determine the accuracy of revenue recognition during the period;
(6) we sought external confirmations for clients with larger sales during the period.
IV. Other information
Chenming PaperCompany’s management is responsible for other information. Other information includes the information covered in the 2018 annual report, but does not include the financial statements and our audit report. Our audit opinions published in the financial statements do not cover other information and we do not publish any form of assurance conclusion on other information.
In conjunction with our audit of the financial statements, our responsibility is to read other information, during which we consider whether there is significant inconsistency or other material misstatement of other information with the financial statements or what we have learned during the audit.
Based on the work we have performed, if we determine that there is a material misstatement of other information, we should report that fact. In this regard, we have nothing to report.
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V. Management and management responsibility for financial statements
The management of Chenming Paper Company (hereinafter referred to as “the management”) is responsible for the preparation of financial statements in accordance with the requirements of the Accounting Standards for Business Enterprises to enable them to achieve fair reflection, and to achieve the design, implementation and maintenance of necessary internal controls so that the financial statements are free of material misstatements due to fraud or errors. In the preparation of the financial statements, the management is responsible for assessing the continuing operations capabilities of Chenming Paper Company, disclosing issues related to going concern (if applicable), and applying the going concern assumption unless management plans to liquidate Chenming Paper Company, terminate operations or have no other realistic options.
The management is responsible for supervising the financial reporting process of Chenming Paper Company. VI.Auditor’s responsibility for auditing financial statements
Our objective is to obtain reasonable assurance as to whether the entire financial statements are free from material misstatement due to fraud or errors and to issue an audit report containing audit opinions. Reasonable assurance is a high level of assurance, but it does not guarantee that an audit performed in accordance with auditing standards can always discover a major misstatement when it exists. Misstatements are generally considered to be material if it is reasonably expected that misstatements, individually or in aggregate, may affect the economic decision made by users of financial statements based on the financial statements.
In the process of conducting audit work in accordance with auditing standards, we use professional judgment and maintain professional suspicion. At the same time, we also perform the following tasks:
I. To identify and assess risks of material misstatement of financial statements due to fraud or errors, design and implement audit procedures to address these risks, and obtain adequate and appropriate audit evidence, together perform as a basis for issuing audit opinions. Since fraud may involve collusion, falsification, intentional omission, misrepresentation or override of internal controls, the risk of failing to detect a material misstatement due to fraud is higher than the risk of failing to detect a material misstatement due to an error.
II. To understand audit-related internal controls to design appropriate audit procedures.
III. To evaluate the appropriateness of accounting policies adopted by the management and the reasonableness of accounting estimates and related disclosures.
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IV. To conclude on the appropriateness ofmanagement’s use of the continuing operation assumption. At the same time, according to the audit evidence obtained, it may lead to conclusions as to whether there are significant uncertainties in matters or circumstances that have significant doubts about the ability of Chenming Paper Company to continue its operations. If we conclude that there are significant uncertainties, the auditing standards require us to request the users of the report to pay attention to the relevant disclosures in the financial statements in the audit report; if the disclosure is not sufficient, we should publish modified audit report. Our conclusions are based on the information available as of the date of the audit report. However, future events or circumstances may cause Chenming Paper Company to not continue its operations.
V. Evaluate the overall presentation, structure, and content (including disclosures) of the financial statements and evaluate whether the financial statements fairly reflect the relevant transactions and matters.
VI. To obtain sufficient and appropriate audit evidence on the financial information of entities or business activities in Chenming Paper Company to express opinions on the financial statements. We are responsible for guiding, supervising and executing group audits. We take full responsibility for the audit opinion.
We communicate with the management on planned audit scope, time arrangements and major audit findings, including communication of the internal control deficiencies that we identified during the audit.
We also provide statements to the management on compliance with ethical requirements related to independence, and communicate with the management on all relationships and other matters that may reasonably be considered to affect our independence, as well as related preventive measures (if applicable).
From the matters we communicated with the management, we determine which matters are most important for the audit of the financial statements for the current period and thus constitute the key audit matters. We describe these matters in our audit report, unless laws and regulations prohibit the public disclosure of these matters, or in rare cases, if it is reasonably expected that the negative consequences of disclosing something in the audit report will outweigh the benefits to the public interest, we determine that the matter should not be reported in the audit report Ruihua Certified Public Accountants
(Special General Partnership) Chinese Certified Public Accountant (Project Partner): Liu Jian Beijing, China Chinese Certified Public Accountant: Jiang Lei
29 March 2019
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II. Financial Statements
The unit in the notes to the financial statements is: RMB
1. Consolidated Balance Sheet
Prepared by: Shandong Chenming Paper Holdings Limited
31 December 2018
Unit: RMB Item 31 December 2018 1 January 2018 31 December 2017 CURRENT ASSETS:
Monetary funds 19,292,774,747.79 14,443,492,461.43 14,443,492,461.43 Held-for-trading financial assets 94,000,000.00
Financial assets measured at fair
value through profit or loss 94,000,000.00 Bills receivable and accounts receivable 4,617,603,496.05 7,886,097,430.59 7,886,097,430.59 Including: Bills receivable 1,213,116,491.46 4,220,231,853.56 4,220,231,853.56 Accounts receivable 3,404,487,004.59 3,665,865,577.03 3,665,865,577.03 Prepayments 863,739,020.74 1,962,151,473.35 1,962,151,473.35 Other receivables 2,133,089,983.39 538,734,656.55 538,734,656.55 Including: interest receivable 198,577,632.43 15,295,213.24 15,295,213.24 Inventories 6,771,488,433.74 6,022,805,491.17 6,022,805,491.17 Non-current assets due within one year 4,007,503,281.86 6,901,695,875.94 6,901,695,875.94 Other current assets 10,281,312,825.13 11,568,757,330.26 11,568,757,330.26 Total current assets 47,967,511,788.70 49,417,734,719.29 49,417,734,719.29 NON-CURRENT ASSETS:
Available-for-sale financial assets 2,453,000,000.00 Long-term receivables 7,926,610,770.86 9,400,862,089.18 9,400,862,089.18 Long-term equity investments 484,674,282.77 391,868,827.45 391,868,827.45 Other non-current financial assets 103,000,000.00 2,453,000,000.00
Investment properties 4,844,993,039.62 4,809,535,109.82 4,809,535,109.82 Fixed assets 27,913, 986,152.68 28,227,509,503.05 28,227,509,503.05 Construction in progress 11,871,350,821.55 7,683,945,044.32 7,683,945,044.32 Intangible assets 1,939,355,274.98 2,059,221,379.09 2,059,221,379.09 Goodwill 5,969,626.57 20,283,787.17 20,283,787.17 Long-term prepaid expenses 134,916,241.81 139,122,569.45 139,122,569.45 Deferred income tax assets 603,873,698.62 522,288,850.40 522,288,850.40 Other non-current assets 1,522,493,129.66 499,724,197.70 499,724,197.70 Total non-current assets 57,351,223,039.12 56,207,361,357.63 56,207,361,357.63 Total assets 105,318,734,827.82 105,625,096,076.92 105,625,096,076.92
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Item 31 December 2018 1 January 2018 31 December 2017 CURRENT LIABILITIES:
Short-term borrowings 40,227,945,361.89 35,096,574,873.03 35,096,574,873.03 Bills payable and accounts payable 8,369,198,199.59 5,292,331,618.45 5,292,331,618.45 Advance receipts 243,182,891.22 Contract liabilities 419,540,133.74 243,182,891.22
Staff remuneration payables 135,373,407.70 185,130,892.10 185,130,892.10 Taxes payable 451,651,198.64 496,626,014.68 496,626,014.68 Other payables 1,777,718,017.48 1,512,109,925.73 1,512,109,925.73 Including: Interest payable 226,788,777.59 85,480,380.32 85,480,380.32 Non-current liabilities due within one year 7,216,305,771.01 3,625,430,347.40 3,625,430,347.40 Other current liabilities 2,816,956,481.68 10,797,248,631.76 10,797,248,631.76 Total current liabilities 61,414,688,571.73 57,248,635,194.37 57,248,635,194.37 NON-CURRENT LIABILITIES:
Long-term borrowings 7,798,934,484.94 7,646,122,995.91 7,646,122,995.91 Bonds payable 2,097,562,500.00 2,196,261,279.57 2,196,261,279.57 Long-term payables 3,900,255,693.44 5,550,881,435.64 5,550,881,435.64 Long-term employee benefits payable
Provisions 325,259,082.28 325,259,082.28 325,259,082.28 Deferred income 1,862,395,197.61 2,133,757,550.21 2,133,757,550.21 Other non-current liabilities 2,047,948,069.73 250,000,000.00 250,000,000.00 Total non-current liabilities 18,032,355,028.00 18,102,282,343.61 18,102,282,343.61 Total liabilities 79,447,043,599.73 75,350,917,537.98 75,350,917,537.98
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Item 31 December 2018 1 January 2018 31 December 2017Owners’ equity:
Share capital 2,904,608,200.00 1,936,405,467.00 1,936,405,467.00 Other equity instruments 7,465,500,000.00 10,048,300,000.00 10,048,300,000.00 Including: Preference shares 4,477,500,000.00 4,477,500,000.00 4,477,500,000.00 Perpetual bonds 2,988,000,000.00 5,570,800,000.00 5,570,800,000.00 Capital reserves 5,091,449,915.14 6,149,257,784.90 6,149,257,784.90 Less: treasury shares
Other comprehensive income -736,520,181.01 -354,165,127.80 -354,165,127.80 Special reserves 3,257,998.47
Surplus reserves 1,148,888,912.11 1,132,116,106.40 1,132,116,106.40 General risk provisions 64,123,919.23
Retained profit 9,107,422,690.85 8,866,614,844.40 8,866,614,844.40 Total equity attributable to owners of the Company 25,048,731,454.79 27,778,529,074.90 27,778,529,074.90 Minority interest 822,959,773.30 2,495,649,464.04 2,495,649,464.04 Totalowners’ equity 25,871,691,228.09 30,274,178,538.94 30,274,178,538.94 TOTAL LIABILITIES ANDOWNERS’ EQUITY 105,318,734,827.82 105,625,096,076.92 105,625,096,076.92 Legal Representative: Financial controller: Head of the financial department: Chen Hongguo Dong Lianming Zhang Bo
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2. Balance sheet of the Company
Unit: RMB Item 31 December 2018 1 January 2018 31 December 2017 CURRENT ASSETS:
Monetary funds 8,160,234,434.15 9,580,548,200.88 9,580,548,200.88 Held-for-trading financial assets 94,000,000.00
Financial assets measured at fair
value through profit or loss 94,000,000.00 Bills receivable and accounts receivable 1,785,939,152.84 795,283,825.96 795,283,825.96 Including: Bills receivable 436,662,187.80 787,095,075.51 787,095,075.51 Accounts receivable 1,349,276,965.04 8,188,750.45 8,188,750.45 Prepayments 1,584,388,551.00 742,107,273.09 742,107,273.09 Other receivables 19,405,314,961.24 22,351,203,484.83 22,351,203,484.83 Including: Interest receivable 77,257,506.25 55,570,669.83 55,570,669.83 Inventories 1,133,888,230.37 751,426,520.51 751,426,520.51 Contract assets
Assets held for sale
Non-current assets due within one year
Other current assets 140,126,157.18 2,488,977.72 2,488,977.72 Total current assets 32,209,891,486.78 34,317,058,282.99 34,317,058,282.99
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Item 31 December 2018 1 January 2018 31 December 2017 NON-CURRENT ASSETS:
Available-for-sale financial assets 2,453,000,000.00 Long-term receivables 516,925,607.06 456,925,607.06 456,925,607.06 Long-term equity investments 22,487,417,443.24 18,671,034,243.49 18,674,034,243.49 Investment in other equity instruments 3,000,000.00 3,000,000.00
Other non-current financial assets 103,000,000.00 2,453,000,000.00
Fixed assets 2,103,164,588.93 2,364,990,246.94 2,364,990,246.94 Construction in progress 2,014,493,138.68 973,375,557.42 973,375,557.42 Intangible assets 458,365,862.52 470,379,203.58 470,379,203.58 Deferred income tax assets 303,861,021.95 186,935,887.68 186,935,887.68 Other non-current assets 9,800,000.00 54,800,000.00 54,800,000.00 Total non-current assets 28,000,027,662.38 25,634,440,746.17 25,634,440,746.17 Total assets 60,209,919,149.16 59,951,499,029.16 59,951,499,029.16 CURRENT LIABILITIES:
Short-term borrowings 7,668,689,104.31 7,522,637,247.14 7,522,637,247.14 Bills payable and accounts payable 11,318,835,274.79 6,945,776,495.21 6,945,776,495.21 Advance receipts 956,040,917.07 Contract liabilities 3,299,778,982.47 956,040,917.07
Staff remuneration payables 53,899,651.15 47,546,116.66 47,546,116.66 Taxes payable 59,595,083.56 116,173,781.96 116,173,781.96 Other payables 5,465,488,890.52 2,190,981,135.04 2,190,981,135.04 Including: Interest payable 139,444,333.34 28,428,028.58 28,428,028.58 Dividend payable
Non-current liabilities due within one year 3,256,715,148.39 1,318,429,260.12 1,318,429,260.12 Other current liabilities 3,527,956,481.68 10,797,248,631.76 10,797,248,631.76 Total current liabilities 34,650,958,616.87 29,894,833,584.96 29,894,833,584.96
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Item 31 December 2018 1 January 2018 31 December 2017 NON-CURRENT LIABILITIES:
Long-term borrowings 1,335,482,969.43 908,182,122.65 908,182,122.65 Bonds payable 2,097,562,500.00 1,198,305,304.75 1,198,305,304.75 Long-term payables 2,072,502,840.48 4,605,691,332.13 4,605,691,332.13 Provisions 325,259,082.28 325,259,082.28 325,259,082.28 Deferred income 46,412,014.99 50,753,189.60 50,753,189.60 Other non-current liabilities 1,592,166,670.00 250,000,000.00 250,000,000.00 Total non-current liabilities 7,469,386,077.18 7,338,191,031.41 7,338,191,031.41 TOTAL LIABILITIES 42,120,344,694.05 37,233,024,616.37 37,233,024,616.37OWNERS’ EQUITY:
Share capital 2,904,608,200.00 1,936,405,467.00 1,936,405,467.00 Other equity instruments 7,465,500,000.00 10,048,300,000.00 10,048,300,000.00 Including: Preference shares 4,477,500,000.00 4,477,500,000.00 4,477,500,000.00 Perpetual bonds 2,988,000,000.00 5,570,800,000.00 5,570,800,000.00 Capital reserves 4,953,557,435.19 5,938,960,168.19 5,938,960,168.19 Surplus reserves 1,136,699,330.20 1,119,926,524.49 1,119,926,524.49 Retained profit 1,629,209,489.72 3,674,882,253.11 3,674,882,253.11 Totalowners’ equity 18,089,574,455.11 22,718,474,412.79 22,718,474,412.79 TOTAL LIABILITIES ANDOWNERS’ EQUITY 60,209,919,149.16 59,951,499,029.16 59,951,499,029.16
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3. Consolidated Income Statement
Unit: RMB Item 2018 2017 I. Total revenue 28,875,756,163.56 29,472,453,563.98 Including: Revenue 28,875,756,163.56 29,472,453,563.98 II. Total operating costs 26,218,114,318.70 25,420,763,580.37 Including: Operating costs 19,845,756,818.51 19,729,190,475.09 Taxes and surcharges 250,358,478.10 219,074,379.63 Sales and distribution expenses 1,190,499,238.49 1,304,465,552.27 General and administrative expenses 967,840,641.90 892,063,618.67 Research and development expense 929,873,688.40 1,017,306,281.19 Finance expenses 2,741,486,438.03 2,117,302,131.72 Including: Interest expenses 3,348, 606,907.65 2,293,110,650.05 Interest income 692,370,142.41 606,383,791.43 Loss on impairment of assets 164,654,098.54 141,361,141.80 Credit impairment loss 127,644,916.73
Plus: Other income 97,814,340.42 135,530,257.77 Investment income (“-” denotes loss) 248,962,910.68 161,009,000.23 Including: Investment income from associates and joint ventures -20,475,760.38 18,506,834.57 Gain on change in fair value (“-” denotes loss) -115,464,400.65 72,999,957.67 Gain on disposal of assets (“-” denotes loss) 17,149,722.72 -2,757,178.42 III. Operating profit (“-” denotes loss) 2,906,104,418.03 4,418,472,020.86 Plus: Non-operating income 319,396,237.27 445,266,368.30 Less: Non-operating expenses 19,184,539.11 327,259,815.63 IV. Total profit (“-” denotes total loss) 3,206,316,116.19 4,536,478,573.53 Less: Income tax expenses 641,577,494.92 777,515,726.86
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Item 2018 2017 V. Net profit (“-” denotes net loss) 2,564,738,621.27 3,758,962,846.67 (I) Net profit from continuing operations (“-” denotes net loss) 2,564,738,621.27 3,758,962,846.67 Net profit attributable to shareholders of the Company 2,509,828,858.47 3,769,325,450.93 Profit or loss of minority interest 54,909,762.80 -10,362,604.26 VI. Net other comprehensive income after tax -382,355,053.21 451,080,644.09 Net other comprehensive income after tax attributable to shareholders of the
Company -382,355,053.21 451,080,644.09 (I) Other comprehensive income that cannot be reclassified to profit
and loss in subsequent periods
(II) Other comprehensive income that will be reclassified to profit
and loss in subsequent periods -382,355,053.21 451,080,644.09 Exchange differences on translation of foreign operations -382,355,053.21 451,080,644.09 Other comprehensive income attributable to minority interest, net of tax
VII. Total comprehensive income 2,182,383,568.06 4,210,043,490.76 Total comprehensive income attributable to shareholders of the Company 2,127,473,805.26 4,220,406,095.02 Total comprehensive income attributable to minority interest 54,909,762.80 -10,362,604.26 VIII. Earnings per share:
(I) Basic earnings per share 0.51 1.13 (II) Diluted earnings per share 0.51 1.13 Legal representative: Financial controller: Head of the financial department: Chen Hongguo Dong Lianming Zhang Bo
XIII Financial Report
4. Income statement of the Company
Unit: RMB Item 2018 2017 I. Revenue 5,674,841,840.67 7,200,923,503.96 Less: Operating costs 4,280,788,382.36 4,991,353,566.95 Taxes and surcharges 70,504,281.15 70,868,721.40 Sales and distribution expenses 170,956,908.96 246,355,160.28 General and administrative expenses 313,006,816.72 324,196,060.08 Research and development expense 217,377,973.03 291,249,441.11 Finance expenses 1,370,330,815.22 833,482,860.73 Including:Interest expense 2,392,019,845.76 2,123,134,292.34 Interest income 1,196,235,406.95 1,434,029,033.02 Impairment loss of assets 5,617,450.00 19,570,118.05 Credit impairment loss 2,970,370.50
Plus: Other income 4,341,174.61 15,298,245.10 Investment income (“-” denotes loss) 728,792,644.01 138,737,944.94 Including: Investment income from associates
and joint ventures -16,957,355.99 -3,265,824.03 Gain on change in fair value (“-” denotes loss) -94,000,000.00 94,000,000.00 Gain on disposal of assets (“-” denotes loss) 17,006,032.16 -2,279,308.98 II. Operating profit (“-” denotes loss) -100,571,306.49 669,604,456.42 Plus: Non-operating income 158,610,672.64 165,438,580.73 Less: Non-operating expenses 7,236,443.34 325,759,082.28 III. Total profit (“-” denotes total loss) 50,802,922.81 509,283,954.87 Less: Income tax expenses -116,925,134.27 -22,796,697.41 IV. Net profit (“-” denotes net loss) 167,728,057.08 532,080,652.28 (I) Net profit from continuing operations (“-” denotes net loss) 167,728,057.08 532,080,652.28 V. Net other comprehensive income after tax
VI. Total comprehensive income 167,728,057.08 532,080,652.28 VII. Earnings per share:
(I) Basic earnings per share
(II) Diluted earnings per share
XIII Financial Report
5. Consolidated cash flow statement
Unit: RMB Item 2018 2017 I. Cash flows from operating activities:
Cash received from sales of goods and rendering of services 32,087,951,780.92 24,349,119,464.84 Tax rebates received 60,796,324.64 8,465,388.45 Cash received relating to other operating activities 6,920,381,377.58 828,266,108.48 Subtotal of cash inflows from operating activities 39,069,129,483.14 25,185,850,961.77 Cash paid for goods and services 19,899,777,030.88 14,516,886,986.15 Cash paid to and for employees 1,263,770,142.64 1,022,490,275.52 Payments of taxes and surcharges 2,104,645,214.45 1,631,366,603.20 Cash paid relating to other operating activities 1,701,235,208.13 7,991,341,053.97 Subtotal of cash outflows from operating activities 24,969,427,596.10 25,162,084,918.84 Net cash flows from operating activities 14,099,701,887.04 23,766,042.93 II. Cash flows from investing activities:
Cash received from investments 2,390,000,000.00
Cash received from investment income 375,641,400.00 16,861,111.11 Net cash received from disposal of fixed assets, intangible assets
and other long-term assets 698,360.18 2,165,782.79 Net cash received from disposal of subsidiaries and other business
units 19,610,260.70
Cash received relating to other investing activities 999,341,073.00 Subtotal of cash inflows from investing activities 2,785,950,020.88 1,018,367,966.90 Cash paid for purchase of fixed assets, intangible assets and other
long-term assets 3,608,698,828.73 2,252,963,203.35 Cash paid on investments 118,200,000.00 813,511,220.00 Net cash paid for acquiring subsidiaries and other business units 1,582,745,899.31 Cash paid relating to other investing activities 838,042,210.54
Subtotal of cash outflows from investing activities 4,564,941,039.27 4,649,220,322.66 Net cash flows from investing activities -1,778,991,018.39 -3,630,852,355.76
XIII Financial Report
Item 2018 2017 III. Cash flows from financing activities:
Cash received from investments 500,000,000.00 40,000,000.00 Including: Cash received from by subsidiaries
from minority investment 500,000,000.00 40,000,000.00 Cash received from borrowings 43,668,959,703.07 44,462,208,111.60 Cash received from issuance of bonds 898,650,000.00
Cash received relating to other financing activities 16,718,183,724.57 22,416,411,567.84 Subtotal of cash inflows from financing activities 61,785,793,427.64 66,918,619,679.44 Cash repayments of amounts borrowed 38,860,270,293.67 36,461,483,259.93 Cash paid for dividend and profit distribution or interest payment 3,749,772,244.77 2,998,835,276.61 Including: Dividend and profit paid by subsidiaries
to minority shareholders
Cash paid relating to other financing activities 32,028,908,989.58 22,981,164,342.75 Subtotal of cash outflows from financing activities 74,638,951,528.02 62,441,482,879.29 Net cash flows from financing activities -12,853,158,100.38 4,477,136,800.15 IV. Effect of foreign exchange rate changes on cash and cash
equivalents 109,597,099.79 -45,503,158.48 V. Net increase in cash and cash equivalents -422,850,131.94 824,547,328.84 Plus: Balance of cash and cash equivalents as at
the beginning of the period 2,804,408,374.46 1,979,861,045.62 VI. Balance of cash and cash equivalents as at the end of the period 2,381,558,242.52 2,804,408,374.46
XIII Financial Report
6. Cash flow statement of the Company
Unit: RMB Item 2018 2017 I. Cash flows from operating activities:
Cash received from sales of goods and rendering of services 6,040,539,799.02 3,463,130,926.30 Cash received relating to other operating activities 1,899,284,149.44 1,689,891,672.88 Subtotal of cash inflows from operating activities 7,939,823,948.46 5,153,022,599.18 Cash paid for goods and services 3,280,788,382.36 2,236,436,321.89 Cash paid to and for employees 388,826,518.74 391,883,575.09 Payments of taxes and surcharges 296,043,362.00 357,296,733.15 Cash paid relating to other operating activities 1,861,866,604.79 1,054,760,413.57 Subtotal of cash outflows from operating activities 5,827,524,867.89 4,040,377,043.70 Net cash flows from operating activities 2,112,299,080.57 1,112,645,555.48 II. Cash flows from investing activities:
Cash received from investments 2,288,400,000.00
Cash received from investment income 965,641,400.00 16,861,111.11 Net cash received from disposal of fixed assets, intangible assets
and other long-term assets 290,680.96 1,686,062.41 C ash received relating to other investing activities 900,000,000.00 Subtotal of cash inflows from investing activities 3,254,332,080.96 918,547,173.52 Cash paid for purchase of fixed assets, intangible assets and other
long-term assets 338,672,140.85 95,795,315.34 Cash paid on investments 3,794,390,597.05 4,823,511,220.00 Subtotal of cash outflows from investing activities 4,133,062,737.90 4,919,306,535.34 Net cash flows from investing activities -878,730,656.94 -4,000,759,361.82
XIII Financial Report
Item 2018 2017 III. Cash flows from financing activities:
Cash received from borrowings 10,473,500,000.00 26,018,893,778.41 Cash received from issuance of bonds 898,650,000.00
Cash received relating to other financing activities 25,438,933,017.20 22,716,411,567.84 Subtotal of cash inflows from financing activities 36,811,083,017.20 48,735,305,346.25 Cash repayments of amounts borrowed 12,527,601,933.33 22,130,699,777.14 Cash paid for dividend and profit distribution or interest payment 1,602,928,591.75 3,596,708,489.03 Cash paid relating to other financing activities 24,309,884,284.53 19,674,703,816.85 Subtotal of cash outflows from financing activities 38,440,414,809.61 45,402,112,083.02 Net cash flows from financing activities -1,629,331,792.41 3,333,193,263.23 IV. Effect of foreign exchange rate changes on cash and cash
equivalents -16,693,638.05 -7,395,813.66 V. Net increase in cash and cash equivalents -412,457,006.83 437,683,643.23 Plus:Balance of cash and cash equivalents as at the beginning of the
period 1,020,262,069.85 582,578,426.62 VI. Balance of cash and cash equivalents as at the end of the period 607,805,063.02 1,020,262,069.85
XIII Financial Report
2018 ANNUAL REPORT 161 ytiuqe
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XIII Financial Report
162 SHANDONG CHENMING PAPER HOLDINGS LIMITED
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XIII Financial Report
2018 ANNUAL REPORT 163 ynapmoC
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XIII Financial Report
164 SHANDONG CHENMING PAPER HOLDINGS LIMITED
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XIII Financial Report
III. General Information of the Company
Shandong Chenming Paper Holdings Limited (hereinafter referred to as the “Company”) was incorporated in May 1993 in Shouguang City, Shandong Province, with its headquarters at No. 2199 Nongsheng Road East, Shouguang City, Shandong Province.
The Company and its subsidiaries are principally engaged in, among other things, processing and sale of paper products (including machine-made paper and paper board), paper making raw materials and machinery; generation and sale of electric power and thermal power; forestry, saplings growing, processing and sale of timber; manufacturing, processing and sale of wood products; and manufacturing and sale of laminated boards and fortified wooden floorboards, hotel service, equipment financial and operating leasing, magnesite mining, processing and sales of talc.
The financial statements were considered and approved by the board of directors of the Company (the “Board”) on 29 March 2019. According to the Articles of Association, these financial statements will be submitted to the general meeting for its approval.
Subsidiaries of the Company included in the scope of consolidation in 2018 totalled 66. For details, please refer to Note VIII “Equity in other entities”. The scope of consolidation of the Company during the year had 4 more companies included and one companies excluded compared to the prior year. For details, please refer to Note VII “Changes in the scope of consolidation”.
IV. Basis of Preparation of the Financial Statements
1. Basis of preparation
TheCompany’s financial statements are prepared on a going concern and based on actual transactions and events, in accordance with the Accounting Standards for Business Enterprises-Basic Standards promulgated by the Ministry of Finance (Order of Ministry of Finance No. 33, as amended by Order of Ministry of Finance No. 76) and 42 specific accounting standards as promulgated and amended on and after 15 February 2006, the application guidelines of the Accounting Standards for Business Enterprises, interpretations and other related rules of the Accounting Standards for Business Enterprises (hereinafter referred to as “ASBEs”), and the disclosure requirements of the “Regulation on the Preparation of Information Disclosures of Companies Issuing Public Shares, No. 15: General Requirements for Financial Reports” (revised in 2014) of China Securities Regulatory Commission.
TheCompany’s financial statements have been prepared on an accrual basis in accordance with the ASBEs. Except for certain financial instruments, the financial statements are prepared under the historical cost convention. Held-for- sale non-current assets are measured at the lower of the difference of fair value less expected expenses or the original carrying amount when meeting the conditions of holding for sale. In the event that depreciation of assets occurs, a provision for impairment is made accordingly in accordance with the relevant regulations.
2. Going concern
No facts or circumstances comprise a material uncertainty about theCompany’s going concern basis within 12 months since the end of the reporting period.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates
Whether the Company needs to comply with the disclosure requirements for specific industries
No
Specific accounting policies and accounting estimates are indicated as follows:
The Company and its subsidiaries are principally engaged in machine-made paper, electricity and heat, construction materials, paper making chemical products, financial leasing, hotel management and other operations. The Company and its subsidiaries formulated certain specific accounting policies and accounting estimates for the transactions and matters such as revenue recognition, determination of performance progress andR&D expenses based on their actual production and operation characteristics pursuant to the requirements under the relevant accounting standards for business enterprises. For details, please refer to this Note V. 29 “Revenue”. For the critical accounting judgments and estimates made by the management, please refer to Note V. 33 “Change of Significant accounting policies and accounting estimates”.
1. Statement of compliance with the Accounting Standards for Business Enterprises
The financial statements have been prepared by the Company in conformity with the ASBEs, which truly and fully reflect the financial position of the Company as at 31 December 2018 and relevant information such as the operating results and cash flows for 2018. In addition, the financial statements of the Company also comply with, in all material respects, the disclosure requirements of the “Regulation on the Preparation of Information Disclosures of Companies Issuing Public Shares, No. 15: General Requirements for Financial Reports” revised by the China Securities Regulatory Commission in 2014 and the notes thereto.
2. Accounting period
The accounting periods of the Company are divided into annual periods and interim periods. Interim periods refer to reporting periods that are shorter than a full accounting year. The accounting year of the Company is from 1 January to 31 December of each calendar year.
3. Operating cycle
Ordinary operating cycle refers to the period from acquisition of assets used for processing by the Company until their realisation in cash or cash equivalents. The operating cycle of the Company lasts for 12 months, and acts as an indicator for classification of liquidity of assets and liabilities.
4. Functional currency
The Company and its domestic subsidiaries recognise RMB as their functional currency according to the primary economic environment in which they operate. The functional currency of the Company and its domestic subsidiaries is Renminbi (“RMB”). Overseas subsidiaries of the Company recognise U.S. dollar (“USD” or“US$”), Japanese yen (“JPY”), Euro (“EUR”) and South Korean Won (“KRW”) as their respective functional currency according to the general economic environment in which these subsidiaries operate. The Company prepares its financial statements in RMB.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
5. Accounting treatment of business combinations under common control and not under common control
Business combinations refer to the transactions or events in which two or more separate enterprises merged as a single reporting entity. Business combinations are divided into business combinations under common control and not under common control.
(1) Business combinations under common control
A business combination involving enterprises under common control is a business combination in which all of the combining enterprises are ultimately controlled by the same party or parties before and after the combination, and that control is not transitory. The party that, on the combination date, obtains control of another enterprise participating in the combination is the absorbing party, while that other enterprise participating in the combination is a party being absorbed. The combination date is the date on which the absorbing party effectively obtains control of the party being absorbed.
Assets and liabilities obtained by the absorbing party are measured at their carrying amount at the combination date as recorded by the party being merged. The difference between the carrying amount of the net assets obtained and the carrying amount of the consideration paid for the combination (or the aggregate nominal value of shares issued as consideration) is charged to the capital reserve (share capital premium). If the capital reserve (share capital premium) is not sufficient to absorb the difference, any excess shall be adjusted against retained earnings.
Cost incurred by the absorbing party that is directly attributable to the business combination shall be charged to profit or loss in the period in which they are incurred.
(2) Business combination not under common control
A business combination not involving enterprises under common control is a business combination in which all of the combining enterprises are not ultimately controlled by the same party or parties before and after the combination. For a business combination not involving enterprises under common control, the party that, on the acquisition date, obtains control of another enterprise participating in the combination is the acquirer, while that other enterprise participating in the combination is the acquiree. The acquisition date is the date on which the acquirer effectively obtains control of the acquiree.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
5. Accounting treatment of business combinations under common control and not under common control(Cont’d)
(2) Business combination not under common control(Cont’d)
For business combination involving entities not under common control, the cost of a business combination is the aggregate of the fair values, on the date of acquisition, of assets given, liabilities incurred or assumed, and equity instruments issued by the acquirer to be paid by the acquirer, in exchange for control of the acquire plus agency fee such as audit, legal service and evaluation consultation and other management fees charged to the profit or loss for the period when incurred. Transaction cost attributable to equity or debt securities issued by the acquirer as consideration is included in the initial costs. Contingent consideration involved is charged to the combination cost at its fair value on the acquisition date, in the event that adjustment on the contingent consideration is required as a result of new or additional evidence in relation to circumstances existed on the acquisition date emerges within 12 months from the acquisition date, the combination goodwill shall also be adjusted. The combination cost incurred by the acquirer and the identifiable net assets acquired from the combination are measured at their fair values on the acquisition date. Where the cost of a business combination exceeds theacquirer’s interest in the fair value of theacquiree’s identifiable net assets on the acquisition date, the difference is recognised as goodwill. Where the cost of a business combination is less than theacquirer’s interest in the fair value of theacquiree’s identifiable net assets, the acquirer shall first reassess the measurement of the fair value of theacquiree’s identifiable assets, liabilities and contingent liabilities and the measurement of the cost of combination. If after such reassessment the cost of combination is still less than theacquirer’s interest in the fair value of theacquiree’s identifiable net assets, the difference is charged to profit or loss for the period.
In relation to the deductible temporary difference acquired from the acquiree, which was not recognised as deferred tax assets due to non-fulfilment of the recognition criteria at the date of the acquisition, if new or further information that is obtained within 12 months after the acquisition date indicates that related conditions at the acquisition date already existed, and that the implementation of the economic benefits brought by the deductible temporary difference of the acquiree can be expected, the relevant deferred tax assets shall be recognised and goodwill shall be deducted. When the amount of goodwill is less than the deferred tax assets that shall be recognised, the difference shall be recognised in the profit or loss of the period. Except for the above circumstances, deferred tax assets in relation to business combination are recognised in the profit or loss of the period.
For combination of business not under common control achieved by several transactions, these several transactions will be judged whether they belong to “transactions in a basket” in accordance with the judgement standards on “transactions in a basket” as set out in the Notice of the Ministry of Finance on Issuing Accounting Standards for Business Enterprises Interpretation No. 5 (Cai Kuai[2012] No. 19) and Rule of 51 to “Accounting Standard for Business Enterprises No. 33– Consolidated Financial Statements”. If they belong to “transactions in a basket”, they are accounted for with reference to the descriptions as set out in the previous paragraphs of this section and Note V. 16 “Long-term equity investments”, and if they do not belong to “transactions in a basket”, they are accounted for in separate financial statements and consolidated financial reports:
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
5. Accounting treatment of business combinations under common control and not under common control(Cont’d)
(2) Business combination not under common control(Cont’d)
In separate financial statements, the initial equity investment cost is the aggregate of the carrying amount of the equity investment in the acquiree held prior to the acquisition date and the investment cost newly added as at the acquisition date. In respect of any other comprehensive income attributable to the equity interest in the acquiree prior to the acquisition date, other comprehensive income is accounted for on the same accounting treatment as direct disposal of relevant asset or liability by the acquiree at the time of disposal (i.e. to be transferred to investment income for the period, except for the changes arising from remeasuring net assets or net liabilities of defined benefit plan using the equity method attributable to the acquiree).
In consolidated financial statements, the equity interest in the acquiree held prior to the acquisition date is remeasured at fair value as at the acquisition date, and the difference between the fair value and the carrying amount is recognised as investment income for the current period. In respect of any other comprehensive income attributable to the equity interest in the acquiree held prior to the acquisition date, other comprehensive income is accounted for on the same accounting treatment as direct disposal of relevant asset or liability by the acquiree (i.e. to be transferred to investment income at the acquisition date, except for the changes arising from remeasuring net assets or net liabilities of defined benefit plan using the equity method attributable to the acquiree) is transferred to investment income in the period of the acquisition date.
6. Preparation of consolidated financial statements
(1) Basis for principle of determining the scope of consolidated financial statements
The scope of consolidation of the consolidated financial statements is determined on the basis of control. The term “control” refers to the fact that the Company has power over the investee and is entitled to variable returns from its involvement with the investee and the ability to use its power over the investee to affect the amount of those returns. The scope of consolidation includes the Company and all of its subsidiaries. A subsidiary is an entity controlled by the Company.
The Company will conduct reassessment in the event there are changes in actual condition and situation causing changes in relevant elements involved in the definition of control above.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
6. Preparation of consolidated financial statements(Cont’d)
(2) Basis for preparation of the consolidated financial statements
Subsidiaries are consolidated from the date on which the Company obtains net assets and the effective control of decision making of production and operation and are deconsolidated from the date that such control ceases. For disposal of subsidiaries, the operating results and cash flows of such subsidiaries before the date of disposal are properly included into the consolidated income statement and consolidated cash flow statements; for disposal of subsidiaries during the reporting period, no adjustment shall be made to the opening balance of the consolidated balance sheet. For those subsidiaries acquired through business combination not under common control, the operating results and cash flows after the acquisition date have been properly included in the consolidated income statements and consolidated cash flow statements. No adjustments shall be made to the opening balance of the consolidated balance sheet and the comparative consolidated financial statements amount. For those subsidiaries acquired through business combinations under common control, the operating results and cash flows from the beginning of the consolidation period to the consolidation date are also presented in the consolidated income statement and the consolidated cash flow statements. The comparative amounts presented in the consolidated financial statements are also adjusted accordingly.
The financial statements of the subsidiaries are adjusted in accordance with the accounting policies and accounting period of the Company in the preparation of the consolidated financial statements, where the accounting policies and the accounting periods are inconsistent between the Company and the subsidiaries. For acquisition of subsidiaries arising from merger of entities not under same control, the financial statements of the subsidiaries will be adjusted according to the fair value of the identifiable net assets at the acquisition date. All intra-company significant balances, transactions and unrealised profit are eliminated in the consolidated financial statements.
Theshareholders’ equity and the portion of the profit or loss for the period of the subsidiaries that are not attributable to the Company are presented undershareholders’ equity and net profit in the consolidated financial statements as minority interests and net profit of minority interest respectively. The portion of net profit or loss of subsidiaries for the period attributable to minority interest is presented in the consolidated income statement under the “profit or loss of minority interest”. When the amount of loss attributable to the minority shareholders of a subsidiary exceeds the minorityshareholders’ portion of the opening balance ofowners’ equity of the subsidiary, the excess amount shall be allocated against minority interest.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
6. Preparation of consolidated financial statements(Cont’d)
(2) Basis for preparation of the consolidated financial statements(Cont’d)
For the loss of control over a subsidiary due to disposal of a portion of the equity investment or other reasons, the remaining equity is measured at fair value on the date when the control is lost. The difference arising from the sum of consideration received for disposal of equity interest and the fair value of remaining equity interest over the share of net assets of the former subsidiary calculated continuously since the purchase date based on the shareholding percentage before disposal are recognised as investment income in the period when the control is lost. Other comprehensive income related to equity investment in the subsidiary is accounted for on the same accounting treatment as direct disposal of relevant asset or liability by the acquiree at the time when the control is lost (i.e. to be transferred to investment income, except for the changes arising from remeasuring net assets or net liabilities of defined benefit plan of the subsidiary using the equity method). The remaining equity interests are measured subsequently according to “Accounting Standard for Business Enterprises No. 2– Long-term Equity Investments” or “Accounting Standard for Business Enterprises No. 22– Recognition and Measurement of Financial Instruments”. See Note V. 16 “Long-term equity investments” or Note V. 10 “Financial instruments” for details.
When the Company disposes of equity investment in a subsidiary by a stage-up approach with several transactions until the control over the subsidiary is lost, it shall determine whether these several transactions related to the disposal of equity investment in a subsidiary until the control over the subsidiary is lost belong to “transactions in a basket”. Usually, these several transactions related to the disposal of equity investment in a subsidiary are accounted for as transactions in a basket when the terms, conditions and economic impacts of these several transactions meet the following one or more conditions:① these transactions are entered into at the same time or after considering their impacts on each other;② these transactions as a whole can reach complete business results;③ the occurrence of a transaction depends on at least the occurrence of another transaction;④ an individual transaction is not deemed as economic, but is deemed as economic when considered with other transactions. If they are not transactions in a basket, each of which are accounted for in accordance with applicable rules in “partial disposal of long-term equity investment of a subsidiary without losing control over a subsidiary” separately, and “the control over a subsidiary is lost due to partial disposal of equity investment or other reasons” (see the preceding paragraph). When several transactions related to the disposal of equity investment in a subsidiary until the control over the subsidiary is lost belong to transactions in a basket, each of which is accounted for as disposal of a subsidiary with a transaction until the control over a subsidiary is lost; however, the different between the amount of disposal prior to the loss of control and the net assets of a subsidiary attributable to the disposal investment shall be recognised as other comprehensive income in consolidated financial statements and transferred to profit or loss at the time when the control is lost.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
7. Classification of joint arrangements and accounting treatment for joint ventures
A joint arrangement refers to an arrangement of two or more parties have joint control. In accordance with theCompany’s rights and obligations under a joint arrangement, the Company classifies joint arrangements into: joint ventures and joint operations. Joint operations refer to a joint arrangement during which the Company is entitled to relevant assets and obligations of this arrangement. Joint ventures refer to a joint arrangement during which the Company only is entitled to net assets of this arrangement.
The Company treats investments in joint ventures by using the equity method of accounting in accordance with accounting policies as set out in Note V. 16 (2)②“long-term equity investments by using equity method of accounting”.
The Company shall, as a joint venture, recognise the assets held and obligations assumed solely by the Company, and recognise assets held and obligations assumed jointly by the Company in appropriation to the share of the Company; recognise revenue from disposal of the share of joint operations of the Company; recognise fees solely occurred by Company and recognise fees from joint operations in appropriation to the share of the Company. When the Company, as a joint venture, invests or sells assets (the assets does not constitute a business, the same below) to or purchase assets from joint operations, the Company shall only recognise the part of profit or lost from this transaction attributable to other parties of joint operations before these assets are sold to the third party. If the occurrence of these assets meet the impairment loss of asset as set out in “Accounting Standard for Business Enterprises No. 8– Asset Impairment”, the Company shall recognise the full amount of this loss in relation to the Company invests in or sells assets to joint operations; the Company recognise the loss according to theCompany’s share of commitment in relation to the Company purchase assets from joint operations.
8. Standards for recognising cash and cash equivalents
Cash and cash equivalents of the Company include cash on hand, deposits readily available for payment purpose and short-term (normally fall due within three months from the date of acquisition) and highly liquid investments held the Company which are readily convertible into known amount of cash and which are subject to insignificant risk of value change.
9. Foreign currency operations and translation of statements denominated in foreign currency
(1) Basis for translation of foreign currency transactions
The foreign currency transactions of the Company, when initially recognised, are translated into the functional currency at the prevailing spot exchange rate on the date of exchange, i.e. usually the middle price of RMB exchange rate published by thePeople’s Bank of China on that date in general and the same hereinafter, while the foreign currency exchange operations and transactions of the Company in connection with foreign currency exchange shall be translated into the functional currency at the exchange rate actually adopted.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
9. Foreign currency operations and translation of statements denominated in foreign currency(Cont’d) (2) Basis for translation of foreign currency monetary items and foreign currency non-monetary items On the balance sheet date, foreign currency monetary items shall be translated at the spot exchange rate on the balance sheet date. All differences are included in the profit or loss in the period, except for:① the differences arising from foreign currency borrowings related to the acquisition or construction of fixed assets that are qualified for capitalisation will be accounted for according to the principle of capitalisation; and② exchange difference arising from change in balance of carrying amount other than amortised cost of available for sale foreign monetary items will be included in other comprehensive income.
Exchange differences arising from change in exchange rate where the preparation of consolidated financial statements relates to foreign operations and foreign currency monetary items materially constitute net investment in foreign operations shall be recorded into “other comprehensive income”; disposal of foreign operations shall be included into profits and losses on disposal in the current period.
The foreign currency non-monetary items measured at historical cost shall still be measured by the functional currency translated at the spot exchange rate on the date of the transaction. Foreign currency non-monetary items measured at fair value are translated at the spot exchange rate on the date of determination of the fair value. The difference between the amounts of the functional currency before and after the translation will be treated as changes in fair value (including changes in foreign exchange rates) and recognised in profit or loss for the period or recognised as other comprehensive income.
(3) Basis for translation of foreign currency financial statements
Exchange differences arising from change in exchange rate where the preparation of consolidated financial statements relates to foreign operations and foreign currency monetary items materially constitute net investment in foreign operations shall be recorded into “other comprehensive income” under “translation reserve”; disposal of foreign operations shall be included into profits and losses on disposal in the current period.
The financial statements denominated in foreign currency of a foreign operation are translated to RMB in compliance with the following requirements: assets and liabilities on the balance sheet are translated at the spot exchange rate prevailing at the balance sheet date;owner’s equity items except for “retained profit” are translated at the spot exchange rates at the dates on which such items arose; income and expenses items in the income statement are translated at the average exchange rate for the period in which the transaction occurred. The retained profit brought forward are reported at the prioryear’s closing balance; the retained profit as at the end of the year are presented after translated the profit appropriation items; differences between the aggregate of asset and liability items andowners’ equity items are recognised as “translation differences arising on the translation of financial statements denominated in foreign currencies” in other comprehensive income. On disposal of foreign operations and loss of control, exchange differences arising from the translation of financial statements denominated in foreign currencies related to the disposed foreign operations which has been included inowners’ equity in the balance sheet, shall be transferred to profit or loss in whole or in proportionate share in the period in which the disposal took place.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
9. Foreign currency operations and translation of statements denominated in foreign currency(Cont’d) (3) Basis for translation of foreign currency financial statements(Cont’d)
Cash flow dominated in foreign currency or from foreign subsidiaries shall be translated at the average exchange rate for the period in which the transaction occurred. Effects arising from changes of exchange rate of cash shall be presented separately in the cash flow statements.
The opening balance and the prioryear’s figures are presented according to the translated amounts of the prior year.
On disposal of the entireowners’ equity in a foreign operation of the Company, or upon a loss of control over a foreign operation due to disposal of certain equity investment or other reasons, the Company transfers the exchange differences arising on translation of financial statements of this foreign operation attributable toowners’ equity of parent company presented underowners’ equity in the balance sheet, to profit or loss in the period in which the disposal took place.
In case of partial disposal of equity investment or other reason that result in reduction in shareholding in a foreign operation without losing control over it, the proportionate share of exchange differences arising from the translation of financial statements will be attributable to minority interests and will not recognised in profit or loss. For partial disposals of equity interests in foreign operations which are associates or joint ventures, the proportionate share of the exchange differences arising from the translation of financial statements of foreign operations is reclassified to profit or loss.
10. Financial instruments
Financial asset or financial liability will be recognised when the Company became one of the parties under a financial instrument contract.
(1) Classification, recognition and measurement of financial assets
The Company classifies the financial assets according to the business model for managing the financial assets and characteristics of the contractual cash flows as follows: financial assets measured at amortised cost, financial assets measured at fair value through other comprehensive income, and financial assets measured at fair value through profit or loss.
Financial assets are measured at fair value upon initial recognition. For financial assets measured at fair value through profit or loss, relevant transaction costs are directly recognised in profit or loss for the period. For other categories of financial assets, relevant transaction costs are included in the amount initially recognised. Accounts receivable or bills receivable arising from sales of goods or rendering services or without significant financing component, are initially recognised based on the transaction price expected to be entitled by the Company.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
10. Financial instruments(Cont’d)
(1) Classification, recognition and measurement of financial assets(Cont’d)
① Financial assets measured at amortised cost
TheCompany’s business model for managing the financial assets measured at amortised cost is to collect the contractual cash flows, and the contractual cash flow characteristics of such financial assets are consistent with the basic lending arrangements. That is, the cash flows generated on a specific date, represent solely payment of the principal and interest on the outstanding principal amount. The Company subsequently measures such financial assets at amortised cost using effective interest method, and the gains or losses from amortisation or impairment is recognised in profit or loss for the current period.② Financial assets measured at fair value through other comprehensive income
TheCompany’s business model for managing such financial assets is achieved both by collecting contractual cash flows and selling of these assets. The contractual cash flow characteristics of such financial assets are consistent with the basic lending arrangements. Such financial assets are measured by the Company at fair value through other comprehensive income, but the impairment losses or gains, exchange gains or losses, and interest income calculated by effective interest method are recognised in profit or loss for the current period.
In addition, the Company designates certain equity instruments not held for trading as financial assets measured at fair value through other comprehensive income. The Company recognises the dividends related to such financial assets in profit or loss for the current period. Upon derecognition of such financial assets, the accumulated gains or losses previously included in other comprehensive income will be transferred from other comprehensive income to retained earnings, and will not be included in profit or loss for the current period.
③ Financial assets measured at fair value through profit or loss
The Company classifies the financial assets other than those measured at amortised cost and measured at fair value through other comprehensive as financial assets measured at fair value through profit or loss. In addition, upon initial recognition, the Company designates some financial assets as financial assets measured at fair value through profit or loss in order to eliminate or significantly reduce accounting mismatch. The Company subsequently measures such financial assets at fair value, and the changes in fair value are recognised in profit or loss for the current period.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
10. Financial instruments(Cont’d)
(2) Classification, recognition and measurement of financial liabilities
Financial liabilities are classified as financial liabilities measured at fair value through profit or loss and other financial liabilities at initial recognition. For financial liabilities measured at fair value through profit or loss, relevant transaction costs are directly recognised in profit or loss for the period. For other financial liabilities, relevant transaction costs are included in the amount initially recognised.
① Financial liabilities measured at fair value through profit or loss
Financial liabilities measured at fair value through profit or loss comprise held-for-trading financial liabilities (including derivatives under financial liabilities) and financial liabilities designated as measured at fair value through profit or loss upon initial recognition.
Held-for-trading financial liabilities (including derivatives under financial liabilities) are subsequently measured at fair value, and the changes in fair value are recognised in profit or loss for the current period, except for those related to hedging accounting.
The changes in fair value attributable to the changes in theCompany’s own credit risk of the financial liabilities designated as measured at fair value through profit or loss are recognised in other comprehensive income, and the accumulated changes in fair value attributable to the changes in theCompany’s own credit risk which were recognised in other comprehensive income are transferred to retained earnings upon derecognition of such liabilities. The remaining changes in fair value are recognised in profit or loss for the current period. In case that the above accounting treatment for the effect of changes in such financialliabilities’ own credit risk would create, or enlarge, an accounting mismatch, the Company will recognise all gains or losses (including the amount affected by the changes in theCompany’s own credit risk) of such financial liabilities in profit or loss for the current period.② Other financial liabilities
Other financial liabilities, except for financial liabilities arising from transfer of financial assets not satisfying derecognition criteria or continue involvement of transferred financial assets and financial guarantee contracts liability, are classified as financial liabilities measured at amortised cost and are subsequently measured at amortised cost, and the gains or losses arising from derecognition or amortisation are recognised in profit or loss for the current period.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
10. Financial instruments(Cont’d)
(3) Recognition and measurement of transfers of financial asset
Financial asset that satisfied any of the following criteria shall be derecognised:① the contract right to receive the cash flows of the financial asset has terminated;② the financial asset, along with substantially all the risk and return arising from the ownership of the financial asset, has been transferred to the transferee; and③ the financial asset has been transferred to the transferee, and the transferor has given up the control on such financial asset, though it does not assign maintain substantially all the risk and return arising from the ownership of the financial asset.
When the entity does not either assign or maintain substantially all the risk and return arising from the ownership of the financial asset and does not give up the control on such financial asset, to the extent of its continuous involvement in the financial asset, the entity recognises such financial asset and the relevant liability accordingly. The extent of the continuous involvement is the extent to which the entity exposes to changes in the value of such financial assets.
If all criteria of recognition of transfer of financial assets are satisfied, the difference between the carrying amount of the financial assets transferred and the sum of the consideration received from the transfer and the accumulated changes in fair value originally included in other comprehensive income shall be recognised in the profit or loss for the period.
If a part of the financial assets is qualified for derecognition, the carrying amount of the financial asset is allocated between the part that continues to be recognised and the part that qualifies for derecognition, based on the fair values of the respective parts. The difference between the following amounts is recognised in profit or loss for the period: the sum of the consideration received and the carrying amount of the part that qualifies for derecognition and the aforementioned carrying amount.
For financial assets that are sold or transferred with recourse or endorsement, the Company needs to determine whether the risk and rewards of ownership of the financial asset have been substantially transferred. If the risk and rewards of ownership of the financial asset have been substantially transferred, the financial assets shall be derecognised. If the risk and rewards of ownership of the financial asset have been retained, the financial assets shall not be derecognised. If the Company neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, the Company shall assess whether the control over the financial asset is retained, and the financial assets shall be accounting for according to the above paragraphs.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
10. Financial instruments(Cont’d)
(4) Derecognition of financial liabilities
Financial liabilities (or a part thereof) are derecognised only when the present obligation is discharged in full or in part. An agreement is entered between the Company (debtor) and a creditor to replace the original financial liabilities with new financial liabilities with substantially different terms, derecognise the original financial liabilities as well as recognise the new financial liabilities. In case that the Company makes substantial changes to the contractual terms of the original financial liabilities (or a part thereof), the original financial liabilities are derecognised, and the new financial liabilities are recognised in accordance with the revised terms.
When financial liabilities (or a part thereof) are derecognised, the difference between the carrying amount of the financial liabilities derecognised and the consideration paid (including transferred non-cash assets or assumed financial liability) is recognised in profit or loss for the current period.
(5) Offset of financial assets and financial liabilities
If the Company owns the legitimate rights of offsetting the recognised financial assets and financial liabilities, which are enforceable currently, and the Company plans to realise the financial assets or to clear off the financial liabilities on a net amount basis or simultaneously, the net amount of financial assets and financial liabilities shall be reported in the balance sheet upon offsetting. Otherwise, financial assets and financial liabilities are presented separately in the balance sheet without offsetting.
(6) Determination of fair values for financial assets and financial liabilities
The fair value refers to the price that will be received when selling an asset or the price to be paid to transfer a liability in an orderly transaction between market participants on the date of measurement. Financial instruments exist in an active market. Fair value is determined based on the quoted price in such market. An active market refers to where pricing is easily and regularly obtained from exchanges, brokers, industrial organisations and price fixing service organisations, representing the actual price of a market transaction that takes place in a fair deal. While financial instruments do not exist in an active market, the fair value is determined using valuation techniques. Valuation technologies include reference to be familiar with situation and prices reached in recent market transactions entered into by both willing parties, reference to present fair values of similar other financial instruments, cash flow discounting method and option pricing models. During the valuation process, the Company uses valuation techniques appropriate to the prevailing circumstances with the support of sufficient data and other information available, selects inputs consistent with the characteristics of the assets or liabilities considered in the transactions of relevant assets or liabilities by market participants, and gives priority to relevant observable inputs. Unobservable inputs are used only when relevant observable inputs are not accessible or the access to which is impracticable.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
10. Financial instruments(Cont’d)
(7) Equity instruments
Equity instruments are any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. The issuance (including refinancing), repurchase, sale or cancellation of equity instruments by the Company is accounted for movement in equity. Transaction costs related to equity transactions are deducted from equity. The Company does not recognise the movement in fair value of equity instruments. The dividends distributed by the Company for its equity instruments (including the “interest” arising from the instruments classified as equity instruments) during the existence period are accounted for as profit distribution. 11. Bills receivable and accounts receivable
(1) Method for determining the expected credit loss of bills receivable
The Company measures the loss provisions for bills receivable in accordance with the expected credit loss amount for the entire period. Based on the credit risk characteristics of bills receivable, bills receivable are divided into different groups:
Item Basis for determining the groups
Bank acceptance bills The acceptance party is a bank with less credit risk
Commercial acceptance bills The acceptance party is a company with higher credit risk
(2) Method for determining the expected credit loss of accounts receivable
For receivables and contract assets that do not contain significant financing components, the Company measures loss provisions based on the expected credit loss amount for the entire period.
For receivables, contract assets and lease receivables that contain significant financing components, the Company chooses to always measure the loss provision based on the expected credit loss amount for the entire period.
In addition to accounts receivable and contract assets which are individually assessed for credit risk, they are also classified into different groups based on their credit risk characteristics:
Item Basis for determining the groups
Amount due from related parties This group comprises amounts due from related parties with lower risks. Factoring receivables This group comprises factoring receivables with special risks.
Amount due from This group comprises receivables with their ageing as credit risk distributor customers characteristics.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
12. Other receivables
The Company measures impairment losses using the expected credit losses amount in the next 12 months or the entire duration, based on whether the credit risk of other receivables has increased significantly upon initial recognition. In addition to other receivables which are individually assessed for credit risk, they are also classified into different groups based on their credit risk characteristics:
Item Basis for determining the groups
Dividends receivable This group comprises dividends receivable.
Interest receivable This group comprises interest due from financial institutions.
Amount due from This group comprises amount due from government agencies with less risks. government agencies
Amount due from related parties This group comprises amount due from related parties with less risks.
Other receivables This group comprises for all types of deposits, advances and premiums receivable during daily and recurring activities.
13. Inventories
Whether the Company needs to comply with the disclosure requirements for specific industries
No
(1) Classification of inventories
Inventories mainly include raw materials, work in progress and semi-finished products, turnover materials, finished products and goods etc.
(2) Pricing of inventories received and dispatched
Inventories are measured at their planned cost when obtained. Cost of an inventory consists of purchase costs, processing costs and other costs. The difference between the planned cost and the actual cost is calculated by cost variance account, and the cost difference assumed for the inventories will be pay by instalment, so as to adjust the planned cost to the actual cost.
Consumable biological assets refer to biological assets held-for-sale which include growing timber. Consumable biological assets without a stock are stated at historical cost at initial recognition, and subsequently measured at fair value when there is a stock. Changes in fair values shall be recognised as profit or loss in the current period. The cost of self-planting, self-cultivating consumable biological assets is the necessary expenses directly attributable to such assets prior to canopy closure, including borrowing costs eligible for capitalisation. Subsequent expenses such as maintenance cost incurred after canopy closure shall be included in profit or loss for the current period.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
13. Inventories(Cont’d)
(3) Recognition of net realisable value of inventory and provision for inventory impairment
Net realisable value refers to the amount of the estimated price of inventories less the estimated cost incurred upon completion, estimated sales expenses and taxes and levies in daily operation. The realisable value of inventories shall be determined on the basis of definite evidence, purpose of holding the inventories and effect of after-balance-sheet-date events.
At the balance sheet date, inventories are calculated at the lower of cost and net realisable value. Usually, provision for inventory impairment is made when the net realisable value is lower than the cost. Provisions for impairment of inventory shall be made according to the amount by which the cost of a single item exceeds its net realisable value. For large quantity and low value items of inventories, provision may be made based on categories of inventories. For items of inventories relating to a product line that is produced and marketed in the same geographical area and with the same or similar end uses or purposes, which cannot be practicable valued separately from other items in that product line, provision for decline in value of inventories may be determined on an aggregate basis.
After making the provision for inventory impairment, in case the factors causing inventory impairment no longer exists, and the net realisable value of an inventory is higher than its book-value, the original provision for inventory impairment shall be transferred back and incorporated into the profit or loss for the current period. (4) We implement permanent inventory system as our inventory stock taking system.
(5) Amortisation of low-value consumables and packaging materials
Low-value consumables and packaging materials are amortised when issued for use.
14. Other non-current financial assets
TheCompany’s business model for managing such financial assets is achieved both by collecting contractual cash flows and selling of these assets. The contractual cash flow characteristics of such financial assets are consistent with the basic lending arrangements. Such financial assets are measured by the Company at fair value through other comprehensive income, but the impairment losses or gains, exchange gains or losses, and interest income calculated by effective interest method are recognised in profit or loss for the current period.
In addition, the Company designates certain equity instruments not held for trading as financial assets measured at fair value through other comprehensive income. The Company recognises the dividends related to such financial assets in profit or loss for the current period. Upon derecognition of such financial assets, the accumulated gains or losses previously included in other comprehensive income will be transferred from other comprehensive income to retained earnings, and will not be included in profit or loss for the current period.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
15. Long-term receivables
The Company measures the impairment loss of long-term receivables at an amount equal to the expected credit loss in the next 12 months or the lifetime expected credit loss ECL, depending on whether its credit risk has significantly increased upon initial recognition. Other than the long-term receivables assessed individually for credit risks, long- term receivables are classified into different groups based on their credit risk characteristics:
Item Basis for determining the groups
Long-term receivables not yet past due This group is comprised of long-term receivables not yet past due with normal exposures.
long-term receivables overdue This group is comprised of long-term receivables with higher past due exposures.
16. Long-term equity investments
Long-term equity investments under this section refer to long-term equity investments in which the Company has control, joint control or significant influence over the investee. Long-term equity investment without control or joint control or significant influence of the Company is accounted for as financial assets measured at fair value through profit or loss. In case such equity investment is not held for sale, then the Company may choose to designate such equity investment as financial assets measured at fair value through other comprehensive income. Details on its accounting policy please refer to Note V. 10 “Financial instruments”.
Joint control is theCompany’s contractually agreed sharing of control over an arrangement, which relevant activities of such arrangement must be decided by unanimously agreement from parties who share control. Significant influence is the power of the Company to participate in the financial and operating policy decisions of an investee, but to fail to control or joint control the formulation of such policies together with other parties.
(1) Determination of investment cost
For a long-term equity investment acquired through a business combination involving enterprises under common control, the initial investment cost of the long-term equity investment shall be the absorbingparty’s share of the carrying amount of theshareholders’ equity under the consolidated financial statements of the ultimate controlling party on the date of combination. The difference between the initial cost of the long-term equity investment and the cash paid, non-cash assets transferred as well as the carrying amount of the debts borne by the absorbing party shall offset against the capital reserve. If the capital reserve is insufficient to offset, the retained earnings shall be adjusted. If the consideration of the merger is satisfied by issue of equity securities, the initial investment cost of the long-term equity investment shall be the absorbingparty’s share of the carrying amount of theshareholders’ equity under the consolidated financial statements of the ultimate controlling party on the date of combination. With the total face value of the shares issued as share capital, the difference between the initial cost of the long-term equity investment and total face value of the shares issued shall be used to offset against the capital reserve. If the capital reserve is insufficient to offset, the retained earnings shall be adjusted. For business combination resulted in an enterprise under common control by acquiring equity of the absorbing party under common control through a stage-up approach with several transactions, these transactions will be judged whether they shall be treat as “transactions in a basket”. If they belong to “transactions in a basket”, these transactions will be accounted for a transaction in obtaining control. If they do not belong to “transactions in a basket”, the initial investment cost of the long-term equity investment shall be the absorbingparty’s share of the carrying amount of theshareholders’ equity under the consolidated financial statements of the ultimate controlling party on the date of combination. The difference between the initial cost of the long-term equity investment and the aggregate of the carrying amount of the long-term equity investment before merging and the carrying amount the additional consideration paid for further share acquisition on the date of combination shall offset against the capital reserve. If the capital reserve is insufficient to offset, the retained earnings shall be adjusted. Other comprehensive income recognised as a result of the
previously held equity investment accounted for using equity method on the date of combination or recognised
for financial assets measured at fair value through other comprehensive income will not be accounted for.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
16. Long-term equity investments(Cont’d)
(1) Determination of investment cost(Cont’d)
For a long-term equity investment acquired through a business combination involving enterprises not under common control, the initial investment cost of the long-term equity investment shall be the cost of combination on the date of acquisition. Cost of combination includes the aggregate fair value of assets paid by the acquirer, liabilities incurred or borne and equity securities issued. For business combination resulted in an enterprise not under common control by acquiring equity of the acquiree under common control through a stage-up approach with several transactions, these transactions will be judged whether they shall be treat as “transactions in a basket”. If they belong to “transactions in a basket”, these transactions will be accounted for a transaction in obtaining control. If they do not belong to “transactions in a basket”, the initial investment cost of the long- term equity investment accounted for using cost method shall be the aggregate of the carrying amount of equity investment previously held by the acquiree and the additional investment cost. For previously held equity accounted for using equity method, relevant other comprehensive income will not be accounted for.
Agent fees incurred by the absorbing party or acquirer for the acquisition such as audit, legal service, and valuation and consultation fees, and other related administration expenses are charged to profit or loss in the current period at the time such expenses incurred.
The long-term equity investment acquired through means other than a business combination shall be initially measured at its cost. Such cost is depended upon the acquired means of long-term equity investments, which is recognised based on the purchase cost actually paid by the Company in cash, the fair value of equity securities issued by the Company, the agreed value of investment contract or agreement, the fair value or original carrying amount of the non-monetary asset exchange transaction which the asset will be transferred out of the Company, and the fair value of long-term equity investment itself. The costs, taxes and other necessary expenses that are directly attributable to the acquisition of the long-term equity investments are also included in the investment cost. For additional equity investment made in order to obtain significant influence or common control over investee without resulted in control, the relevant cost for long-term equity investment shall be the aggregate of fair value of previously held equity investment and additional investment cost determined according to “Accounting Standard for Business Enterprises No. 22– Recognition and measurement of Financial Instruments”.
(2) Subsequent measurement and method for profit or loss recognition
Long-term equity investments with joint control (excluding those constitute joint ventures) or significant influence on the investee are accounted for using equity method. In addition, long-term equity investments with control on the investee are accounted for using cost method and record in theCompany’s financial statements.① Long-term equity investments accounted for using the cost method
Under the cost method, a long-term equity investment is measured at its initial investment cost. The cost for long-term equity investment is adjusted in the event of additional investment or investment recovery. Except receiving the actual consideration paid for the investment or the declared but not yet distributed cash dividends or profits which is included in the consideration, investment gains for the period is recognised as the cash dividends or profits declared by the investee.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
16. Long-term equity investments(Cont’d)
(2) Subsequent measurement and method for profit or loss recognition(Cont’d)
② Long-term equity investments accounted for using the equity method
Under the equity method, where the initial investment cost of a long-term equity investment exceeds theinvestor’s interest in the fair value of theinvestee’s identifiable net assets at the acquisition date, no adjustment shall be made to the initial investment cost. Where the initial investment cost is less than theinvestor’s interest in the fair value of theinvestee’s identifiable net assets at the acquisition date, the difference shall be charged to profit or loss for the current period, and the cost of the long-term equity investment shall be adjusted accordingly.
Under the equity method, investment gain and other comprehensive income shall be recognised based on theCompany’s share of the net profits or losses and other comprehensive income made by the investee, respectively. Meanwhile, the carrying amount of long-term equity investment shall be adjusted. The carrying amount of long-term equity investment shall be reduced based on theCompany’s share of profit or cash dividend distributed by the investee. In respect of the other movement of net profit or loss, other comprehensive income and profit distribution of investee, the carrying amount of long-term equity investment shall be adjusted and included in the capital reserves. The Company shall recognise its share of theinvestee’s net profits or losses based on the fair values of theinvestee’s individual separately identifiable assets at the time of acquisition, after making appropriate adjustments thereto. In the event of inconformity between the accounting policies and accounting periods of the investee and the Company, the financial statements of the investee shall be adjusted in conformity with the accounting policies and accounting periods of the Company. Investment gain and other comprehensive income shall be recognised accordingly. In respect of the transactions between the Company and its associates and joint ventures in which the assets disposed of or sold are not classified as operation, the share of unrealised gain or loss arising from internal transactions shall be eliminated by the portion attributable to the Company. Investment gain shall be recognised accordingly. However, any unrealised loss arising from internal transactions between the Company and an investee is not eliminated to the extent that the loss is impairment loss of the transferred assets. In the event that the Company disposed of an asset classified as operation to its joint ventures or associates, which resulted in acquisition of long-term equity investment by the investor without obtaining control, the initial investment cost of additional long-term equity investment shall be the fair value of disposed operation. The difference between initial investment cost and the carrying amount of disposed operation will be fully included in profit or loss for the current period. In the event that the Company sold an asset classified as operation to its associates or joint ventures, the difference between the carrying amount of consideration received and operation shall be fully included in profit or loss for the current period. In the event that the Company acquired an asset which formed an operation from its associates or joint ventures, relevant transaction shall be accounted for in accordance with “Accounting Standards for Business Enterprises No. 20 - Business combination”. All profit or loss related to the transaction shall be accounted for.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
16. Long-term equity investments(Cont’d)
(2) Subsequent measurement and method for profit or loss recognition(Cont’d)
② Long-term equity investments accounted for using the equity method(Cont’d)
TheCompany’s share of net losses of the investee shall be recognised to the extent that the carrying amount of the long-term equity investment together with any long-term interests that in substance form part of theinvestor’s net investment in the investee are reduced to zero. If the Company has to assume additional obligations, the estimated obligation assumed shall be provided for and charged to the profit or loss as investment loss for the period. Where the investee is making profits in subsequent periods, the Company shall resume recognising its share of profits after setting off against the share of unrecognised losses.
If there is debit variation in relation to the long-term equity investments in associates and joint venture held prior to first adoption of the Accounting Standards for Business Enterprises by the Company on 1 January 2007, the amounts amortised over the original residual term using the straight-line method is included in the profit or loss for the period.
③ Acquisition of minority interest
Upon the preparation of the consolidated financial statements, capital reserve is adjusted based on the difference between the additional long term equity investment from acquisition of minority interest and the share of net assets of the subsidiary attributable to the additional shareholding from the date of acquisition (or date of combination). In the case of insufficient capital surplus to offset impairment, retained earnings shall be adjusted.
④ Disposal of long-term equity investments
In these consolidated financial statements, for disposal of a portion of the long-term equity investments in a subsidiary without loss of control, the difference between disposal cost and disposal of long-term equity investments relative to the net assets of the subsidiary is charged to theowners’ equity. If disposal of a portion of the long-term equity investments in a subsidiary by the parent company results in a loss in control, it shall be accounted for in accordance with the relevant accounting policies as described in Note V. 6. (2) “Preparation Method of the Consolidated Financial Statements”.
On disposal of a long-term equity investment otherwise, the difference between the carrying amount of the investment and the actual consideration paid is recognised through profit or loss in the current period.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
16. Long-term equity investments(Cont’d)
(2) Subsequent measurement and method for profit or loss recognition(Cont’d)
④ Disposal of long-term equity investments(Cont’d)
In respect of long-term equity investment accounted for using equity method with the remaining equity interest after disposal also accounted for using equity method, other comprehensive income previously underowners’ equity shall be accounted for in accordance with the same accounting treatment for direct disposal of relevant asset or liability by investee on pro rata basis at the time of disposal. Theowners’ equity recognised for the movement of otherowners’ equity (excluding net profit or loss, other comprehensive income and profit distribution of investee) shall be transferred to profit or loss for the current period on pro rata basis.
In respect of long-term equity investment accounted for using cost method with the remaining equity interest after disposal also accounted for using cost method, other comprehensive income recognised using equity method or the recognition and measurement standard of financial instruments before obtaining control over the investee shall be accounted for in accordance with the same accounting treatment for direct disposal of relevant asset or liability by investee, and transferred to profit or loss for the current period on pro rata basis. Movement of otherowners’ equity (excluding net profit or loss, other comprehensive income and profit distribution under net asset of investee accounted for and recognised using equity method) shall be transferred to profit or loss for the current period on pro rata basis. In the event of loss of control over investee due to partial disposal of equity investment by the Company, in preparing separate financial statements, the remaining equity interest which can apply common control or impose significant influence over the investee after disposal shall be accounted for using equity method. Such remaining equity interest shall be treated as accounting for using equity method since it is obtained and adjustment was made accordingly. For the remaining equity interest which cannot apply common control or impose significant influence over the investee after disposal, it shall be accounted for using the recognition and measurement standard of financial instruments. The difference between its fair value and carrying amount as at the date of losing control shall be included in profit or loss for the current period. In respect of other comprehensive income recognised using equity method or the recognition and measurement standard of financial instruments before the Company obtained control over the investee, it shall be accounted for in accordance with the same accounting treatment for direct disposal of relevant asset or liability by investee at the time when the control over investee is lost. Movement of otherowners’ equity (excluding net profit or loss, other comprehensive income and profit distribution under net asset of investee accounted for and recognised using equity method) shall be transferred to profit or loss for the current period at the time when the control over investee is lost. Of which, for the remaining equity interest after disposal accounted for using equity method, other comprehensive income and otherowners’ equity shall be transferred on pro rata basis. For the remaining equity interest after disposal accounted for using the recognition and measurement standard of financial instruments, other comprehensive income and otherowners’ equity shall be fully transferred.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
16. Long-term equity investments(Cont’d)
(2) Subsequent measurement and method for profit or loss recognition(Cont’d)
④ Disposal of long-term equity investments(Cont’d)
In the event of loss of common control or significant influence over investee due to partial disposal of equity investment by the Company, the remaining equity interest after disposal shall be accounted for using the recognition and measurement standard of financial instruments. The difference between its fair value and carrying amount as at the date of losing common control or significant influence shall be included in profit or loss for the current period. In respect of other comprehensive income recognised under previous equity investment using equity method, it shall be accounted for in accordance with the same accounting treatment for direct disposal of relevant asset or liability by investee at the time when equity method was ceased to be used. Movement of otherowners’ equity (excluding net profit or loss, other comprehensive income and profit distribution under net asset of investee accounted for and recognised using equity method) shall be transferred to profit or loss for the current period at the time when equity method was ceased to be used.
The Company disposes its equity investment in subsidiary by a stage-up approach with several transactions until the control over the subsidiary is lost. If the said transactions belong to “transactions in a basket”, each transaction shall be accounted for as a single transaction of disposing equity investment of subsidiary and loss of control. The difference between the disposal consideration for each transaction and the carrying amount of the corresponding long-term equity investment of disposed equity interest before loss of control shall initially recognised as other comprehensive income, and subsequently transferred to profit or loss arising from loss of control for the current period upon loss of control. 17. Investment property
Investment property refers to real estate held to earn rentals or for capital appreciation, or both, which include leased land use rights, land use rights held for sale after appreciation, leased buildings, etc. In addition, for the vacant buildings that the Company holds for operating leases, if the Board (or similar bodies) makes a written decision that it is explicitly used for operating leases and that the holdings do not change in the short term, they are also presented as investment property.
Investment property is initially measured at cost. Subsequent expenditures related to an investment property shall be included in cost of investment property only when the economic benefits associated with the asset will likely flow to the Company and its cost can be measured reliably. All other expenditures on investment property shall be included in profit or loss for the current period when incurred.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
17. Investment property(Cont’d)
The Company adopts cost method for subsequent measurement of investment property, which is depreciated or amortised using the same policy as that for buildings or land use rights.
The method for impaired test of investment property and measurement of impairment provision are detailed in Note V. 23 “Impairment of long-term assets”.
In the event that an owner-occupied property or inventories is converted to an investment property (or vice versa), upon the conversion, the property shall be stated at the carrying amount prior to the conversion.
In the event that an investment property is converted to an owner-occupied property, such property shall become fixed assets or intangible assets since the date of its conversion. In the event that an owner-occupied property is converted to real estate held to earn rentals or for capital appreciation, such fixed assets or intangible assets shall become an investment property since the date of its conversion. For investment property measured at cost during its conversion, upon the conversion, the property shall be stated at the carrying amount prior to the conversion. For investment property measured at fair value during its conversion, upon the conversion, the property shall be stated at the fair value on the date of conversion.
If an investment property is disposed of or if it withdraws permanently from use and no economic benefit will be obtained from the disposal, the recognition of it as an investment property shall be terminated. When an investment property is sold, transferred, retired or damaged, the amount of proceeds on disposal of the property net of the carrying amount and related tax and surcharges is recognised in profit or loss for the current period.
18. Fixed assets
(1) Conditions for recognition
Fixed assets are tangible assets that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and have a useful life of more than one accounting year. Fixed assets are recognised only if the Company is very likely to receive economic benefits from the asset and its cost can be measured reliably. A fixed asset shall be initially measured at cost and the effect of any expected costs of abandoning the asset at the end of its use.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
18. Fixed assets(Cont’d)
(2) Depreciation method
Useful lives of Estimated Annual depreciation residual depreciation Category Depreciation method (Year) value(%) rate(%) Housing and building
structure Straight-line method 20-40 5-10 2.25-4.75 Machinery and
equipment Straight-line method 8-20 5-10 4.50-11.88 Transportation
equipment Straight-line method 5-8 5-10 11.25-19.00 Electronic equipment
and others Straight-line method 5 5-10 18.00-19.00 (3) Recognition, accounting and depreciation method of fixed assets acquired under finance leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of asset ownership to the lessee and titles to the assets may or may not eventually be transferred. For fixed assets acquired under finance leases, the basis for provision of leased assets depreciation is the same as that of self-owned fixed assets. When it can be reasonably determined that the ownership of a leased asset will be transferred at the end of the lease term, it is depreciated over the period of expected use; otherwise, the lease asset is depreciated over the shorter period of the lease term and the period of expected use.
19. Construction in progress
Whether the Company needs to comply with the disclosure requirements for specific industries
No
Construction in progress is recognised based on the actual construction cost, including all expenditures incurred for construction projects, capitalised borrowing costs for the construction in progress before it has reached the working condition for its intended use, and other related expenses during the construction period. A construction in progress is reclassified to fixed assets when it has reached the working condition for its intended use.
The method for impaired test of construction in progress and measurement of impairment provision are detailed in Note V. 23 “Impairment of long-term asset”.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
20. Borrowing costs
Borrowing costs include interest, amortisation of discounts or premiums related to borrowings, ancillary costs incurred in connection with the arrangement of borrowings, and exchange differences arising from foreign currency borrowings. For borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, when expenditures for the asset and borrowing costs are being incurred, activities relating to the acquisition, construction or production of the asset that are necessary to prepare the asset for its intended use or sale have commenced, such borrowing costs shall be capitalised as part of the cost of that asset; and capitalisation shall discontinue when the qualifying asset is ready for its intended use or sale. Other borrowing costs shall be recognised as expense in the period in which they are incurred.
Where funds are borrowed for a specific purpose, the amount of interest to be capitalised shall be the actual interest expense incurred on that borrowing for the period less any bank interest earned from depositing the borrowed funds before being used into banks or any investment income on the temporary investment of those funds. Where funds are borrowed for general purpose, the Company shall determine the amount of interest to be capitalised on such borrowings by applying a capitalisation rate to the weighted average of the excess amounts of cumulative expenditures on the asset over and above the amounts of specific-purpose borrowings. The capitalisation rate shall be the weighted average of the interest rates applicable to the general-purpose borrowings.
During the capitalisation period, exchange differences on a specific purpose borrowing denominated in foreign currency shall be capitalised. Exchange differences related to general-purpose borrowings denominated in foreign currency shall be included in profit or loss for the current period.
Qualifying assets are assets (fixed assets, investment property, inventories, etc.) that necessarily take a substantial period of time for acquisition, construction or production to get ready for their intended use or sale.
Capitalisation of borrowing costs shall be suspended during periods in which the acquisition, construction or production of a qualifying asset is interrupted abnormally, when the interruption is for a continuous period of more than 3 months, until the acquisition, construction or production of the qualifying asset is resumed.
21. Biological assets
Consumable biological assets refer to biological assets held-not-for-sale, which include forest trees being grown. Consumable biological assets are stated at cost at initial recognition. The cost of self-planting, self-cultivating, self-breeding or self-farming consumable biological assets is the necessary expenses directly attributable to such assets prior to canopy closure, including borrowing costs eligible for capitalisation. Subsequent expenses such as maintenance incurred after canopy closure shall be included in profit or loss for the current period.
The cost of consumable biological assets shall, at the time of harvest or disposal, be carried forward at carrying amount using the batch averaging method.
On the balance sheet date, consumable biological assets are measured at the lower of cost and net realisable value, and the impairment provision for consumable biological assets is made using the same approach as that used for the recognition of impairment provision for inventories. In case the factors causing impairment no longer exists, the reduced amount shall be recovered and reversed in the provision amount originally provided for impairment. The reversed amount shall be recognised in profit or loss for the current period.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
22. Intangible assets
(1) Measurement method, useful life and impairment testing
For details of the method of impairment testing and impairment provision of intangible assets, please see Note V. 23 “Impairment of long-term assets”.
(2) Accounting policy of internal research and development expenditure
Research and development expenditure of the Company was divided into expenses incurred during the research phase and expenses incurred during the development phase.
Expenses incurred during the research phase are recognised as profit or loss in the current period.
Expenses incurred during the development phase that satisfy the following conditions are recognised as intangible assets, while those that do not satisfy the following conditions are accounted for in the profit or loss for the current period:
① it is technically feasible that the intangible asset can be used or sold upon completion;
② there is intention to complete the intangible asset for use or sale;
③ the intangible asset can produce economic benefits, including there is evidence that the products produced using the intangible asset has a market or the intangible asset itself has a market; and if the intangible asset is for internal use, there is evidence that there exists usage for the intangible asset;④ there is sufficient support in terms of technology, financial resources and other resources in order to complete the development of the intangible asset, and there is capability to use or sell the intangible asset;
⑤ the expenses attributable to the development phase of the intangible asset can be measured reliably. If the expenses incurred during the research phase and the development phase cannot be distinguished separately, all development expenses incurred are accounted for in the profit or loss for the current period.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
23. Impairment of long-term asset
The Company will judge if there is any indication of impairment as at the balance sheet date in respect of noncurrent non-financial assets such as fixed assets, construction in progress, intangible assets with a finite useful life, investment properties measured at cost, and long-term equity investments in subsidiaries, joint controlled entities and associates. If there is any evidence indicating that an asset may be impaired, recoverable amount shall be estimated for impairment test. Goodwill, intangible assets with an indefinite useful life and intangible assets beyond working conditions will be tested for impairment annually, regardless of whether there is any indication of impairment. If the impairment test result shows that the recoverable amount of an asset is less than its carrying amount, the impairment provision will be made according to the difference and recognised as an impairment loss. The recoverable amount of an asset is the higher of its fair value less costs of disposal and the present value of the future cash flows expected to be derived from the asset. Anasset’s fair value is the price in a sale agreement in anarm’s length transaction. If there is no sale agreement but the asset is traded in an active market, fair value shall be determined based on the bid price. If there is neither sale agreement nor active market for an asset, fair value shall be based on the best available information. Costs of disposal are expenses attributable to disposal of the asset, including legal fee, relevant tax and surcharges, transportation fee and direct expenses incurred to prepare the asset for its intended sale. The present value of the future cash flows expected to be derived from the asset over the course of continued use and final disposal is determined as the amount discounted using an appropriately selected discount rate. Provisions for assets impairment shall be made and recognised for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the Company shall determine the recoverable amount of the asset group to which the asset belongs. The asset group is the smallest group of assets capable of generating cash flows independently.
For the purpose of impairment testing, the carrying amount of goodwill presented separately in the financial statements shall be allocated to the asset groups or group of assets benefiting from synergy of business combination. If the recoverable amount is less than the carrying amount, the Company shall recognise an impairment loss. The amount of impairment loss shall first reduce the carrying amount of any goodwill allocated to the asset group or set of asset groups, and then reduce the carrying amount of other assets (other than goodwill) within the asset group or set of asset groups, pro rata on the basis of the carrying amount of each asset.
An impairment loss recognised on the aforesaid assets shall not be reversed in a subsequent period in respect of the restorable value.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
24. Long-term prepaid expenses
Long-term prepaid expenses are expenditures and other expenses which have incurred but that shall be amortised over the current period and subsequent periods of more than one year. Long-term prepaid expenses of the Company mainly include expenses on improvement of fixed assets and woodland rent. Long-term prepaid expenses are amortised over the estimated benefit period using the straight-line method.
25. Contract liabilities
A contract liability represents theCompany’s obligation to transfer goods to a customer for which the Company has received consideration (or an amount of consideration is due) from the customer. If the customer has already paid the contract consideration before the Company transfers goods to the customer or the Company has obtained the unconditional collection right, the Company will recognise such amount received or receivable as contract liabilities at earlier of the actual payment by the customer or the amount payable becoming due. Contract assets and contract liabilities under the same contract are presented on a net basis, and contract assets and contract liabilities under different contracts are not offset.
26. Employee benefits
(1) Accounting treatment for short-term staff remuneration
Staff remuneration of the Company mainly includes short-term staff remuneration, post-employment benefits and termination benefits, in which:
Short-term remuneration mainly includes salaries, bonuses, allowance and subsides, staff welfare, medical insurance premium, maternity insurance premium, work-related injury insurance premium, housing provident funds, union operation costs and employee education costs and non-monetary welfare etc. Short-term remuneration incurred during the accounting period in which theCompany’s staff provided services for the Company is recognised as liability and included in profit or loss for the current period or related asset costs. Of which, non-monetary welfare is measured at fair value.
(2) Accounting treatment for post-employment benefits
Post-employment benefits mainly include pension insurance premium and unemployment insurance premium. Postemployment benefits include defined contribution plan. For those adopted defined contribution plan, relevant contribution amount is included in related asset costs or profit or loss for the current period during the period in which the expenses incurred.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
26. Employee benefits(Cont’d)
(3) Accounting treatment for termination benefits
When the Company terminates the employment relationship with employees before the end of the employment contracts or provides compensation as an offer to encourage employees to accept voluntary redundancy, the Company shall recognise employee compensation liabilities arising from compensation for staff dismissal and included in profit or loss for the current period, when the Company cannot revoke unilaterally compensation for dismissal due to the cancellation of labour relationship plans and employee redundant proposals; and the Company recognise cost and expenses related to payment of compensation for dismissal and restructuring, whichever is earlier. However, if the compensation for termination of employment is not expected to be fully paid within 12 months from the reporting period, it shall be accounted for other long-term staff remuneration. The early retirement plan shall be accounted for in accordance with the accounting principles for compensation for termination of employment. The salaries or wages and the social contributions to be paid for the employees who retire before schedule from the date on which the employees stop rendering services to the scheduled retirement date, shall be recognised (as compensation for termination of employment) in the current profit or loss by the Company if the recognition principles for provisions are satisfied.
(4) Accounting treatment for other long-term employee benefit
For other long-term employee benefit provided by the Company for employees which meets the criteria of defined contribution plan, accounting treatment for defined contribution plan will be adopted; otherwise accounting treatment for defined benefit plan will be adopted.
27. Provisions
Obligations pertinent to the contingencies which satisfy the following conditions are recognised as provisions: (1) The obligation is a current obligation borne by the Company; (2) it is likely that an outflow of economic benefits will be resulted from the performance of the obligation; and (3) the amount of the obligation can be reliably measured. At the balance sheet date, provisions shall be measured at the best estimate of the necessary expenses required for the performance of existing obligations, after taking into account relevant risks, uncertainties, time value of money and other factors pertinent to the contingencies.
If all or some expenses incurred for settlement of provisions are expected to be borne by the third party, the compensation amount shall, on a recoverable basis, be recognised as asset separately, and compensation amount recognised shall not be more than the carrying amount of provisions.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
28. Preference shares, perpetual bonds and other financial instruments
(1) Classification of perpetual bonds and preference shares
Perpetual bonds, preference shares and other financial instruments issued by the Company are classified as equity instruments when all of the following conditions are satisfied:
① The financial instruments have no contractual obligation to pay in cash or other financial assets to other parties nor to exchange financial assets or financial liabilities under potential adverse condition with other parties;
② If the financial instrument will or may be settled in theentity’s own equity instruments, it is a non- derivative instrument that includes no contractual obligations to deliver a variable number of its own equity instruments; or a derivative that will be settled only by the Company exchanging a fixed amount of cash or other financial asset for a fixed number of its own equity instruments.
Other than financial instruments classified as equity instruments according to the above conditions, other financial instruments issued by the Company shall be classified as financial liabilities.
The financial instruments issued by the Company which are compound financial instruments are recognised as a liability based on the fair value of the liability component, and the amount net of the fair value of the liability component from the actual amount received is recognised as “other equity instruments”. Transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and equity components in proportion to the allocation of gross proceeds.
(2) Accounting treatment of perpetual bonds and preference shares
For financial instruments classified as financial liabilities (such as perpetual bonds and preference shares), except borrowing costs qualifying for capitalisation (please refer to this Note V. 20 “Borrowing costs”), its related interest, dividends, gains or losses, and gains or losses arising from redemption or refinancing are credited to profit or loss for the current period.
For financial instruments classified as equity instruments (such as perpetual bonds and preference shares), its issue (including refinancing), repurchase, sale or cancellation are treated by the Company as changes in equity, with related transaction costs deducted from equity. TheCompany’s distribution to holders of equity instruments are treated as a distribution of profits.
Changes in the fair value of equity instruments are not recognised by the Company.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
29. Revenue
Whether the Company needs to comply with the disclosure requirements for specific industries
No
Accounting policies adopted for revenue recognition and measurement
Revenue is recognised when the customer obtains control of the relevant goods, subject to the fulfilment of the following conditions under the contract entered into between the Company and customers: the parties has approved the contract and undertaken to fulfil their respective obligations; the contract clearly states the parties to the contract and their rights and obligations relating to the transferred goods and rendered services; the contract clearly stated the payment terms relating to the transferred goods; the contract has commercial substance that the fulfilment of the contract will result in changes in the risk, time frame or amount of the future cash flow risk of the Company; the collection of the consideration that the Company is entitled to for transferring the goods is probable.
On the effective date of the contract, the Company identifies each performance obligation under such contracts and allocate the transaction price to each performance obligation based on the percentage of respective unit price of a good guaranteed by each performance obligation. The determination of the transaction price has taken into account the impact of factors such as variable consideration, the significant financing component existed in the contract, non- cash consideration, consideration payable to the customers.
For each of the performance obligations under the contract, if one of the following conditions is fulfilled, the Company shall recognise the transaction price which was allocated to each of the performance obligations as revenue based on the progress of performance within a certain period: when the customer simultaneously receives and consumes the benefits provided by the Company when the Company performs its obligations under the contract; when the customer is able to control the good in progress in the course of performance by the Company under the contract; when the product produced by the Company under the contract is irreplaceable and the Company has the right to payment for performance completed to date during the whole contract term. The progress of performance is determined based on the nature of the transferred goods with the adoption of input method or output method. When the progress of performance cannot be reasonably determined, if the costs incurred by the Company are expected to be recoverable, the revenue will be recognised to the extent of the costs incurred until the progress of performance can be reasonably determined.
If one of the above conditions is not fulfilled, the Company shall recognise the transaction price which was allocated to each of the performance obligations as revenue when the customer is able to control the relevant goods. When determining whether the customer has obtained control of the goods, the Company will consider the following indications: the enterprise has the current right to receive payment for the goods, which is when the customers has the current payment obligations for the goods; the enterprise has transferred the legal title of the goods to the customer, which is when the client possesses the legal title of the goods; the enterprise has transferred the physical possession of goods to the customer, which is when the customer obtain physical possession of the goods; the enterprise has transferred all of the substantial risks and rewards of ownership of the goods to the customer, which is when the client obtain all of the substantial risks and rewards of ownership of the goods to the customer; when the customer has accepted the goods, which is when other information indicates that the customer has obtained control of the goods.
The point of time of recognition of revenue for sales of goods: the date when the goods are delivered to the customers with signature confirmation for the domestic sales business, and the date when the goods are loaded onto a vessel and declared at customs for the overseas sales business.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
30. Government grants
Government grants are transfer of monetary assets or non-monetary assets from the government to the Company at no consideration, excluding capital considerations from the government as an investor entitling to correspondingowners’ equity. Government grants are classified into government grants related to assets and government grants related to income. Government grants obtained for acquisition or construction of long-term assets or other forms of long-term asset formation are classified as related to assets. Other government grants are classified as related to revenue. If related government documents do not specify the objective of the grants, the grants are classified as related to assets or income as follows: (1) In case a project for which the grants are granted is specified in such documents, the grants are classified as related to assets and income based on the budgeted ratio of the expenditure on asset formation and the expenditure recorded as expenses, where such ratio should be reviewed and, if necessary, changed on each balance sheet date; and (2) in case of general description without specifying any project in such documents, the grants are classified as related to income. If a government grant is in the form of a transfer of monetary asset, the item shall be measured at the amount received or receivable. If a government grant is in the form of a transfer of non-monetary asset, the item shall be measured at fair value. If fair value is not reliably determinable, the item shall be measured at a nominal amount and recognised immediately in profit or loss for the current period. Government grants are generally recognised when received and measured at the amount actually received, but are measured at the amount likely to be received when there is conclusive evidence at the end of the accounting period that the Company will meet related requirements of such grants and will be able to receive the grants. The government grants so measured should also satisfy the following conditions: (1) the amount of the grants be confirmed with competent authorities in written form or reasonably deduced from related requirements under financial fund management measures officially released without material uncertainties; (2) the grants be given based on financial support projects and fund management policies officially published and voluntarily disclosed by local financial authorities in accordance with the requirements under disclosure of government information, where such policies should be open to any company satisfying conditions required and not specifically for certain companies; (3) the date of payment be specified in related documents and the payment thereof be covered by corresponding budget to ensure such grants will be paid on time as specified; and (4) other relevant conditions (if any) which should be satisfied according to the specific conditions of the Company and the matters relating to such grants.
A government grant related to an asset shall be recognised as deferred income, and evenly amortised to profit or loss over the useful life of the asset in a reasonable and systematic manner. For a government grant related to income, if the grant is a compensation for related costs, expenses or losses to be incurred in subsequent periods, the grant shall be recognised as deferred income, and recognised in profit or loss over the periods in which the related costs or losses are recognised, or off set against the relevant costs or expenses; if the grant is a compensation for related costs, expenses or losses already incurred, the grant shall be recognised immediately in profit or loss for the current period.
If a government grant contains both assets related and income related component at the same time, the accounting treatment will depend on the different parts of the government grant; if it is difficult to distinguish, the entire government grant is classified as a government grant related to income.
A government grant related to daily activities of the Company is recognised in other gains or off set relevant costs or expenses relying on the essence of economic business; otherwise, recognised in non-operating income or non- operating expenses.
For the repayment of a government grant already recognised, if there is any related deferred income, the repayment shall be off set against the carrying amount of the deferred income, and any excess shall be recognised in profit or loss for the current period; otherwise, the repayment shall be recognised immediately in profit or loss for the current period.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
31. Deferred income tax assets/deferred income tax liabilities
(1) Current income tax
At the balance sheet date, current income tax liabilities (or assets) for the current and prior periods shall be measured at the amount expected to be paid (or recovered) according to the requirements of tax laws. Taxable profits, which are the basis for calculating the current income tax expense, are determined after adjusting the accounting profits before tax for the year in accordance with relevant requirements of tax laws.
(2) Deferred income tax assets and deferred income tax liabilities
Temporary differences arising from the difference between the carrying amount of an asset or liability and its tax base, and the difference between the tax base and the carrying amount of those items that are not recognised as assets or liabilities but have a tax base that can be determined according to tax laws, shall be recognised as deferred income tax assets and deferred income tax liabilities using the balance sheet liability method. Deferred income tax liabilities are not recognised for taxable temporary differences related to: the initial recognition of goodwill; and the initial recognition of an asset or liability in a transaction which is neither a business combination nor affects accounting profit or taxable profit (or deductible loss) at the time of the transaction. In addition, the Company recognises the corresponding deferred income tax liability for taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, except when both of the following conditions are satisfied: the Company is able to control the timing of the reversal of the temporary difference; and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets are not recognised for deductible temporary differences related to the initial recognition of an asset or liability in a transaction which is neither a business combination nor affects accounting profit or taxable profit (or deductible loss) at the time of the transaction. In addition, the Company recognises the corresponding deferred income tax asset for deductible temporary differences associated with investments in subsidiaries, associates and joint ventures to the extent that it is probable that taxable profits will be available against which the deductible temporary differences can be utilised, except when both of the following conditions are satisfied: it is not probable that the temporary difference will reverse in the foreseeable future; and it is not probable that taxable profits will be available in the future, against which the temporary difference can be utilised.
Chenming Paper recognises a deferred income tax asset for the carry forward of deductible losses and tax credits to subsequent periods, to the extent that it is probable that future taxable profits will be available against which the deductible losses and tax credits can be utilised.
At the balance sheet date, deferred income tax assets and deferred income tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, according to the requirements of tax laws.
At the balance sheet date, Chenming Paper shall review the carrying amount of a deferred income tax asset. If it is probable that sufficient taxable profits will not be available in future periods to allow the benefit of the deferred income tax asset to be utilised, the carrying amount of the deferred income tax asset shall be reduced. Any such reduction in amount shall be reversed when it becomes probable that sufficient taxable profits will be available.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
31. Deferred income tax assets/deferred income tax liabilities(Cont’d)
(3) Income tax expense
Income tax expense comprises current income tax expense and deferred income tax expense.
Current income tax expense (current income tax income) and deferred income tax expense (deferred income tax income) are included in profit or loss for the current period, except for: recognised as other comprehensive income or current income tax and deferred income tax related to transactions or events that are directly recognised in other comprehensive income orowners’ equity, which are recognised directly inowners’ equity, and deferred income tax arising from a business combination, which is adjusted against the carrying amount of goodwill.
(4) Offset of income tax
After granted the legal rights of net settlement and with the intention to use net settlement or obtain assets, repay debt, the Company, at the same time, records the net amount after offsetting its current income tax assets and current income tax liabilities.
The Company was granted the legal rights of net settlement of current income tax assets and current income tax liabilities. Deferred income tax assets and deferred income tax liabilities are related to income tax to be paid by the same entity liable to pay tax to the same tax collection and management authority or related to different entities liable to pay tax, but the relevant entity liable to pay tax is intended to apply net settlement of current income tax assets and liabilities or, at the same time, obtain assets, repay debt whenever every deferred income tax assets and liabilities with importance would be reversed in the future, the Company records the net amount after offsetting its current income tax assets and current income tax liabilities.
32. Lease
(1) Accounting treatment for operating leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of asset ownership to the lessee and titles to the assets may or may not eventually be transferred. All other leases are classified as operating leases.
① Operating lease business with the Company recorded as lessee
Lease payment for operating lease is recognised as related asset cost or profits and losses for the current period using the straight-line method over the lease term. The initial direct cost is directly accounted in profit or loss for the current period. Contingent rent is recognised as profit or loss for the current period upon occurrence.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
32. Lease(Cont’d)
(1) Accounting treatment for operating leases(Cont’d)
② Operating lease business with the Company recorded as lessor
Rental income is recognised in profit or loss for the current period using the straight-line method over the lease term. The initial direct cost where the amount is larger is capitalised when incurred, and accounted for as profit or loss for the current period on the same basis as recognition of rental income over the entire lease period; the initial direct cost where the amount is fewer is included in the profit or loss for the period when incurred. Contingent rental is accounted for as profit or loss for the period in which it is incurred.
(2) Accounting treatment for finance leases
① Financing lease business with the Company recorded as lessee
On the beginning date of the lease, the entry value of leased asset shall be at the lower of the fair value of the leased asset and the present value of minimum lease payment at the beginning date of the lease. Minimum lease payment shall be the entry value of long-term accounts payable, with difference recognised as unrecognised financing expenses. In addition, initial direct costs attributable to leased items incurred during the process of lease negotiation and signing of lease agreement shall be included in the value of leased assets. The balance of minimum lease payment after deducting unrecognised financing expenses shall be accounted for long-term liability and long-term liability due within one year. Unrecognised financing expenses shall be recognised as financing expenses for the current period using effective interest method during the leasing period. Contingent rent shall be included in profit or loss for the current period at the time it incurred.
② Financing lease business with the Company recorded as lessor
On the beginning date of the lease, the entry value of lease receivable shall be the aggregate of minimum lease receivable and initial direct costs at the beginning date of the lease. The unsecured balance shall be recorded. The aggregate of minimum lease receivable, initial direct costs and unsecured balance and the different between their present values shall be recognised as unrealised financing income. The balance of lease receivable after deducting unrecognised financing income shall be accounted for long-term debt and long-term debt due within one year.
Unrecognised financing income shall be recognised as financing income for the current period using effective interest method during the leasing period. Contingent rent shall be included in profit or loss for the current period at the time it incurred.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
33. Changes in significant accounting policies and estimates(Cont’d)
(1) Changes in significant accounting policies
√ Applicable□ Not applicable
Changes in accounting policies resulting from the implementation of the new Accounting Standards for Business Enterprises
The Ministry of Finance issued the “Accounting Standard for Business Enterprises No. 22– Recognition and Measurement of Financial Instruments (revised in 2017)” (Cai Kuai (2017) No. 7), “Accounting Standard for Business Enterprises No. 23– Transfer of Financial Assets (revised in 2017)” (Cai Kuai (2017) No. 8) and “Accounting Standard for Business Enterprises No. 24– Hedging Accounting (revised in 2017)” (Cai Kuai (2017) No. 9) on 31 March 2017, issued “Accounting Standard for Business Enterprises No. 37– Presentation of Financial Instruments (revised in 2017)” (Cai Kuai (2017) No. 14) on 2 May 2017 (the “New Standards for Financial Instruments”), and issued “Accounting Standard for Business Enterprises No. 14– Revenue (revised in 2017)” (Cai Kuai (2017) No. 22) on 5 July 2017 (the “New Standard for Revenue”), which required the enterprises listed in both domestic and overseas markets and the enterprises listed in overseas markets and adopting the International Financial Reporting Standards or Accounting Standards for Business Enterprises for financial report preparation to adopt the New Standards for Financial Instruments and the New Standard for Revenue from 1 January 2018.
As approved at the eleventh meeting of the eighth session of the Board of the Company on 25 October 2018, the Company began to adopt the above five accounting standards within the timeframe as required by the Ministry of Finance.
Under the New Standards for Financial Instruments, all recognised financial assets are measured at amortised cost or fair value subsequent to initial recognition. On the adoption date of the New Standards for Financial Instruments, through assessing the business model of the management on financial assets based on theCompany’s existing facts and conditions on that date, and through assessing the characteristics of contract cash flows of the financial assets based on the facts and conditions at the initial recognition of such financial assets, the financial assets are classified into three categories: measured at amortised cost, measured at fair value through comprehensive income; and measured at fair value through profit or loss. Among other things, for the equity instrument investment measured at fair value through comprehensive income, upon derecognition of such financial assets, the accumulated gains or losses previously included in other comprehensive income will be transferred from other comprehensive income to retained earnings, and will not be included in profit or loss for the current period.
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
33. Changes in significant accounting policies and estimates(Cont’d)
(1) Changes in significant accounting policies(Cont’d)
Under the New Standards for Financial Instruments, the Company makes provision for impairment and recognise credit impairment loss for financial assets measured at amortised cost, investment in debt instruments measured at fair value through other comprehensive income, lease receivables, contract assets and financial guarantee contracts based on their expected credit losses.
The Company adopts the New Standards for Financial Instruments retrospectively, but chooses not to make restatement in case there is any inconsistency with the requirements of the New Standards for Financial Instruments for the comparative figures in the financial statements of prior periods.
In order to adopt the New Standard for Revenue, the Company reassessed the recognition and measurement, accounting and presentation and other aspects of major contract revenues. According to the New Standard for Revenue, the Company chooses to adjust only the cumulative impact of contracts that were not completed as at 1 January 2018. The retained earnings as at the beginning of the first adoption period (i.e. 1 January 2018) and the amounts of relevant items in the financial statements are adjusted with the cumulative impacted amounts of first adoption, and no adjustment has been made to the financial statements of 2017. Since the adoption of the New Standard for Revenue has no material impact on the recognition and measurement of theCompany’s revenue, only the advance receipts will need to be adjusted.
(2) Changes in significant accounting estimates
□ Applicable√ Not applicable
(3) Adjustment to the relevant items in the financial statements at the beginning of the year for the adoption of the New Standards for Financial Instruments or the New Standard for Revenue for the first time
√ Applicable□ Not applicable
A. Comparison of recognition and measurement of financial assets before and after the adoption of the New Standards for Financial Instruments
31 December 2017 (before change) 1 January 2018 (after change) Category of financial assets Category of measurement Carrying amount Category of measurement Carrying amount Bills receivable and accounts receivable Loans and receivables 7,886,097,430.59 Amortised cost 7,886,097,430.59 Available-for-sale financial assets Available-for-sale 2,453,000,000.00 Financial assets measured at fair value 2,453,000,000.00 financial assets through profit or loss
Financial assets measured at fair value — through other comprehensive income
XIII Financial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
33. Changes in significant accounting policies and estimates(Cont’d)
(3) Adjustment to the relevant items in the financial statements at the beginning of the year for the adoption of the New Standards for Financial Instruments or the New Standard for Revenue for the first time(Cont’d) B. Reconciliation of the category and carrying amount of financial instruments on the date of first adoption 31 December 2017 1 January 2018 Item (before change) Reclassification Remeasurement (after change) Assets:
Financial assets measured at
air value through profit or loss 94,000,000.00 -94,000,000.00
Held-for-trading financial assets 94,000,000.00 94,000,000.00 Available-for-sale financial assets 2,453,000,000.00 -2,453,000,000.00
Other non-current financial assets 2,453,000,000.00 2,453,000,000.00 C. Impact of the adoption of the New Standard for Revenue on the Company:
Amount as at Amount as at 31 1 January December 2017 Change Item 2018 (after change) (before change) Advances on sales Contract liabilities 243,182,891.22
Advances on sales Advance receipts 243,182,891.22 (4) Explanation on the retrospective adjustment to the comparative data in prior period for the first adoption of the New Standards for Financial Instruments
□ Applicable√ Not applicable
XIII Financial Report
VI. Taxation
1. Main tax types and tax rates
Tax type Tax base and tax rate
Value added tax (VAT) 16% for general,10% for sales of water and gas and6% for the service industry. VAT is computed on the difference after deduction of input value-added tax.
Urban maintenance and construction tax 7%,5% and1% of actual payment of turnover tax.
Enterprise income tax (EIT) 25% of taxable income; for the companies which are subject to preferential policies, please refer to the table below; the overseas companies shall pay taxes at the tax rate pursuant to the requirements of the countries or regions where the companies are located.
Disclosure of taxable entities subject to different EIT tax rates
Name of taxable entity EIT tax rate Shandong Chenming Paper Holdings Limited 15% Haicheng Haiming Mining Company Limited 15% Shouguang Meilun Paper Co., Ltd. 15% Jilin Chenming Paper Co., Ltd. 15% Jiangxi Chenming Paper Co., Ltd. 15% Zhanjiang Chenming Pulp& Paper Co., Ltd. 15% Shouguang Shun Da Customs Declaration Co, Ltd. 10% Qingdao Chenming Pulp and Paper Electronic Commodity Exchange Co., Ltd. 10% Zhanjiang Chenming Arboriculture Development Co., Ltd. Exempt from EIT Yangjiang Chenming Arboriculture Development Co., Ltd. Exempt from EIT 2. Tax incentives
(1) Enterprise income tax
On 16 August 2018, the Company received a high and new technology enterprise certificate with a certification number of GR201837000311. Pursuant to the requirements under the Law of thePeople’s Republic of China on Enterprise Income Tax and the relevant policies, the Company is subject to a corporate income tax rate of15% of taxable income, and is entitled to the preferential treatment from 2018 to 2020.
Haicheng Haiming Mining Company Limited, a subsidiary of the Company, received a high and new technology enterprise certificate with a certification number of GR201821000291 on 12 October 2018. Pursuant to the requirements under the Law of thePeople’s Republic of China on Enterprise Income Tax and the relevant policies, Haicheng Haiming is subject to an enterprise income tax rate of15% of taxable income, and is entitled to the preferential treatment from 2018 to 2020.
XIII Financial Report
VI. Taxation(Cont’d)
2. Tax incentives(Cont’d)
(1) Enterprise income tax(Cont’d)
Shouguang Meilun Paper Co., Ltd., a subsidiary of the Company, received a high and new technology enterprise certificate with a certification number of GR201837000455 on 16 August 2018. Pursuant to the requirements under the Law of thePeople’s Republic of China on Enterprise Income Tax and the relevant policies, Shouguang Meilun is subject to an enterprise income tax rate of15% of taxable income, and is entitled to the preferential treatment from 2018 to 2020.
Jilin Chenming Paper Co., Ltd., a subsidiary of the Company, received a high and new technology enterprise certificate with a certification number of GR201622000039 on 1 November 2016. Pursuant to the requirements under the Law of thePeople’s Republic of China on Enterprise Income Tax and the relevant policies, Jilin Chenming is subject to an enterprise income tax rate of15% of taxable income, and is entitled to the preferential treatment from 2016 to 2018.
Jiangxi Chenming Paper Co., Ltd., a subsidiary of the Company, received a high and new technology enterprise certificate with a certification number of GR201636000018 on 15 November 2016. Pursuant to the requirements under the Law of thePeople’s Republic of China on Enterprise Income Tax and the relevant policies, Jiangxi Chenming is subject to an enterprise income tax rate of15% of taxable income, and is entitled to the preferential treatment from 2016 to 2018.
For Zhanjiang Chenming Pulp& Paper Co., Ltd., which is a subsidiary of the Company, its high and new technology enterprise certificate with a certification number of GR20154400016 obtained on 30 September 2015 has expired, and is making a renewal application. It has passed the preliminary review and issued an announcement. As at the date of the audit report, it has not obtained the new high and new technology enterprise certificate, and is subject to an EIT tax rate of15% for the current period.
Pursuant to the requirements of Rule 27(1) of Law of thePeople’s Republic of China on Enterprise Income Tax and Rule 86(1) of regulations for the Implementation of Law of thePeople’s Republic of China on Enterprise Income Tax, Zhanjiang Chenming Arboriculture Development Co., Ltd. and Yangjiang Chenming Arboriculture Development Co., Ltd., which are the subsidiaries of the Company, have completed the filings for EIT reduction for exemption from EIT.
XIII Financial Report
VI. Taxation(Cont’d)
2. Tax incentives(Cont’d)
(2) Value-added Tax (“VAT”)
Pursuant to Rule 10 of the Interim Regulation of thePeople’s Republic of China on Value Added Tax, Zhanjiang Chenming Arboriculture Development Co., Ltd. and Yangjiang Chenming Arboriculture Development Co., Ltd., which are the subsidiaries of the Company, are exempt from VAT, and have completed the filings for VAT reduction for exemption from VAT.
Pursuant to the Value-added Tax Preferential Catalogue on Products and Services Applying Integrated Use of Resources (Cai Shui[2015] No. 78), taxpayers who sell self-produced products and services applying integrated use of resources may enjoy the immediate VAT refund policy. Zhanjiang Chenming New-style Wall Materials Co., Ltd., a subsidiary of the Company, produced products applying raw materials containing more than30% of fly ash. It belongs to a company that uses pollutants for production, and is therefore subject to the immediate VAT refund policy in 2018.
Pursuant to the Value-added Tax Preferential Catalogue on Products and Services Applying Integrated Use of Resources (Cai Shui[2015] No. 78), taxpayers who sell self-produced products and services applying integrated use of resources may enjoy the immediate VAT refund policy. Shandong Chenming Panels Co., Ltd., a subsidiary of the Company, produced products applying integrated use of resources, and is therefore subject to the immediate VAT refund policy in 2018.
Pursuant to the Value-added Tax Preferential Catalogue on Products and Services Applying Integrated Use of Resources (Cai Shui[2015] No. 78), taxpayers who sell self-produced products and services applying integrated use of resources may enjoy the immediate VAT refund policy. Shouguang Chenming Cement Co., Limited, a subsidiary of the Company, produced products applying integrated use of resources, and is therefore subject to the immediate VAT refund policy in 2018.
XIII Financial Report
VII. Notes to items of the consolidated financial statements
1. Monetary funds
Unit: RMB Item Closing balance Opening balance Treasury cash 2,078,321.66 2,344,438.45 Bank deposit 2,379,479,920.86 2,802,063,936.01 Other monetary funds 16,911,216,505.27 11,639,084,086.97 Total 19,292,774,747.79 14,443,492,461.43 Of which: Total deposits in overseas banks 614,601,451.77 508,707,081.55 Notes:① Other monetary funds of RMB9,099,325,370.71 (31 December 2017: RMB4,822,551,296.94) were the guarantee deposit for the application for bank acceptance with the banks by the Group.
② Other monetary funds of RMB3,703,195,695.22 (31 December 2017: RMB1,333,152,563.36) were the guarantee deposit for the application for letter of credit with the banks by the Group.
③ Other monetary funds of RMB2,357,084,376.63 (31 December 2017: RMB4,939,992,248.75) were the guarantee deposit for the application for guarantees with the banks by the Group.
④ Other monetary funds of RMB397,220,000.00 (31 December 2017: RMB90,037,977.92) were the guarantee deposit for the application for loans with the banks by the Group.
⑤ Other monetary funds of RMB1,353,360,000.00 (31 December 2017: RMB453,350,000.00) were theGroup’s statutory reserve deposit at the banks.
⑥ Other monetary funds of RMB1,031,062.71 were locked-up due to litigations, resulting in restriction on the use of thataccount’s balance.
2. Held-for trading financial assets
Unit: RMB Item Closing balance Opening balance Financial assets designated at fair value through profit or loss 94,000,000.00 Of which: equity instruments 94,000,000.00 Total 94,000,000.00 Other explanation: The three-year repurchase agreement entered into with Shanghai Zhongneng Enterprise Development (Group) Co., Ltd. was disposed during the period, the annual4% premium was accounted to financial assets designated at fair value through profit or loss.
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
3. Bills receivable and accounts receivable
Unit: RMB Item Closing balance Opening balance Bills receivable 1,213,116,491.46 4,220,231,853.56 A accounts receivable 3,404,487,004.59 3,665,865,577.03 Total 4,617,603,496.05 7,886,097,430.59 (1) Bills receivable
1) Classification of bills receivable
Unit: RMB Item Closing balance Opening balance Bank acceptance bills 1,213,116,491.46 4,120,231,853.56 Commercial acceptance bills — 100,000,000.00 Total 1,213,116,491.46 4,220,231,853.56 Unit: RMB Closing balance Opening balance
Book balance Bad debts provision Carrying amount Book balance Bad debts provision Carrying amount Provision Provision Category Amount Percentage Amount percentage Amount Percentage Amount percentage Bills receivable assessed
individually for impairment 15,000,000.00 1.23% 1,500,000.00 10.00% 13,500,000.00
Of which: Bank acceptance bills 15,000,000.00 1.23% 1,500,000.00 10.00% 13,500,000.00
Bills receivable assessed collectively
for impairment 1,199,616,491.46 98.77% 1,199,616,491.46 4,220,231,853.56 100.00% 4,220,231,853.56 Of which:
Bank acceptance bills 1,199,616,491.46 98.77% 1,199,616,491.46 4,120,231,853.56 97.63% 4,120,231,853.56 Commercial acceptance bills 100,000,000.00 2.37% 100,000,000.00 Total 1,214,616,491.46 100.00% 1,500,000.00 0.12% 1,213,116,491.46 4,220,231,853.56 100.00% 4,220,231,853.56
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
3. Bills receivable and accounts receivable(Cont’d)
(1) Bills receivable(Cont’d)
1) Classification of bills receivable(Cont’d)
Item assessed individually for impairment:
Unit: RMB Closing balance
Bad debt Provision
Name Book balance provision percentage Reasons for provision Bank acceptance 15,000,000.00 1,500,000.00 10.00% Bills matured but not bills receivable from collected
Changjiang (Hubei)
Publishing& Print
Materials Co., Ltd
Total 15,000,000.00 1,500,000.00 ——
2) Bills receivable of the Company pledged at the end of the period
Unit: RMB Pledged amount at the end of Item the period Bank acceptance bills 431,715,666.94 Commercial acceptance bills － Total 431,715,666.94
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
3. Bills receivable and accounts receivable(Cont’d)
(1) Bills receivable(Cont’d)
3) Outstanding bills receivable endorsed or discounted by the Company as at the end of the period Unit: RMB Derecognised Recognised amount as at the amount as at the Item end of the period end of the period Bank acceptance bills 6,447,164,627.19
Commercial acceptance bills 20,213,954.89
Total 6,467,378,582.08
4) Bills transferred to accounts receivable due to non-performance of the issuers at the end of the period Unit: RMB Amounts transferred to accounts receivable at the end of Item the period Bank acceptance bills 17,600,000.00 Total 17,600,000.00 Other explanation: As at 31 December 2018, bills with the carrying amount of RMB160,470,621.92 (31 December 2017: RMB972,379,999.17) were pledged in exchange for borrowings. As at 31 December 2018, bills with the carrying amount of RMB7,845,045.02 (31 December 2017: RMB692,007,430.76) were pledged and a letter of guarantee was issued therefor. As at 31 December 2018, bills with the carrying amount of RMB263,400,000.00 were pledged and a bank acceptance bills was issued therefor. During the year, the accumulated bills issued by the Company to banks amounted to RMB5,214,973,227.57 (Last year: RMB3,742,679,994.55), with discount expenses incurred of RMB105,363,776.82 (Last year: RMB72,693,293.53). As at 31 December 2018, outstanding discounted bills receivable amounted to RMB1,194,662,827.01 (Last year: RMB2,169,102,479.25).
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
3. Bills receivable and accounts receivable(Cont’d)
(2) Accounts receivable
1) Disclosure of accounts receivable by category
Unit: RMB Closing balance Opening balance
Book balance Bad debts provision Carrying amount Book balance Bad debts provision Carrying amount Provision Provision Category Amount Percentage Amount percentage Amount Percentage Amount percentage Accounts receivable assessed
individually for impairment 71,960,343.90 1.90% 55,240,343.90 76.76% 16,720,000.00 39,859,139.43 0.99% 39,859,139.43 100.00% 0.00 Of which:
Accounts receivable assessed
collectively for impairment 3,711,403,752.23 98.10% 323,636,747.64 8.72% 3,387,767,004.59 3,988,541,011.28 99.01% 322,675,434.25 8.09% 3,665,865,577.03 Of which:
Accounts receivable from related parties 5,838,812.92 0.15% 947,246.64 16.22% 4,891,566.28 238,924,747.45 5.93% 0.00% 238,924,747.45 Accounts receivable from
distributor clients 3,043,388,184.37 80.44% 320,207,886.86 10.52% 2,723,180,297.51 3,599,616,263.83 89.36% 322,225,434.25 8.95% 3,277,390,829.58 Factoring receivables 662,176,754.94 17.50% 2,481,614.14 0.37% 659,695,140.80 150,000,000.00 3.72% 450,000.00 0.30% 149,550,000.00 Total 3,783,364,096.13 100.00% 378,877,091.54 10.01% 3,404,487,004.59 4,028,400,150.71 100.00% 362,534,573.68 9.00% 3,665,865,577.03 Items assessed individually for impairment:
Unit: RMB Closing balance
Bad debts Provision
Name Book balance provision percentage Reasons for provision FOSHAN SHUNDE XINGCHEN 26,236,528.70 26,236,528.70 100.00% Unlikely to be recovered PAPER CO., LTD.
BEIJING HUAXIA CULTURE MEDIA CO., LTD. 8,207,950.42 8,207,950.42 100.00% Unlikely to be recovered JIANGXI LONGMING ENTERPRISE CO., LTD. 1,763,987.74 1,763,987.74 100.00% Unlikely to be recovered NANCHANG XINGBO PAPER CO., LTD. 1,656,205.97 1,656,205.97 100.00% Unlikely to be recovered JIANGSU YIHONG PAPER CO., LTD. 3,490,464.47 3,490,464.47 100.00% Unlikely to be recovered QINGDAO TENGFARUN PACKAGING 3,239,582.93 3,239,582.93 100.00% Unlikely to be recovered CO., LTD.
SIHONG GUANGFA COLOR PRINTING AND 934,371.82 934,371.82 100.00% Unlikely to be recovered PACKAGING CO., LTD.
PINGYI HUIFENG PAPER CO., LTD. 636,988.62 636,988.62 100.00% Unlikely to be recovered QINGTAO BAOYUE PAPER CO., LTD. 553,898.05 553,898.05 100.00% Unlikely to be recovered BAYAN NUR TAILI PACKAGING CO., LTD. 503,562.66 503,562.66 100.00% Unlikely to be recovered WENXIAN HUARONG PACKAGING 426,858.60 426,858.60 100.00% Unlikely to be recovered MATERIAL CO., LTD.
JILIN SAIWEI TRADING CO., LTD. 6,709,943.92 6,709,943.92 100.00% Unlikely to be recovered WUHAN TIANRUI PAPER CO., LTD. 17,600,000.00 880,000.00 5.00% Bills matured but not collected Total 71,960,343.90 55,240,343.90 ——
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
3. Bills receivable and accounts receivable(Cont’d)
(2) Accounts receivable(Cont’d)
1) Disclosure of accounts receivable by category(Cont’d)
In the groups, accounts receivable with collective provision for bad debts based on receivables from related parties:
Unit: RMB Closing balance
Bad debts Provision Item Book balance provision Percentage(%) Within 1 year 3,139,712.63 156,985.63 5.00 1-2 years 840,164.98 84,016.50 10.00 2-3 years 1,440,863.50 288,172.70 20.00 Over 3 years 418,071.81 418,071.81 100.00 Total 5,838,812.92 947,246.64 16.22 In the groups, accounts receivable with collective provision for bad debts based on receivables from distributor clients:
Unit: RMB Closing balance
Bad debts Provision Item Book balance provision Percentage(%) Within 1 year 3,410,823,735.53 142,948,405.14 4.19 1-2 years 70,258,834.41 7,025,883.44 10.00 2-3 years 64,708,946.19 12,941,789.24 20.00 Over 3 years 159,773,423.18 159,773,423.18 100.00 Total 3,705,564,939.31 322,689,501.00 8.71 Disclosed by ageing:
Unit: RMB Ageing Closing balance Within 1 year (including 1 year) 3,287,578,057.39 1-2 years 63,989,099.45 2-3 years 52,919,847.75 Total 3,404,487,004.59
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
3. Bills receivable and accounts receivable(Cont’d)
(2) Accounts receivable(Cont’d)
2) Provision, recovery or reversal of bad debt provision for the period
Provision of bad debt provision for the period:
Unit: RMB Changes in the period
Recovery
Category Opening balance Provision or reversal Written off Closing balance Accounts receivable with
provision for bad debt 362,534,573.68 25,885,927.28 9,543,409.42 378,877,091.54 Total 362,534,573.68 25,885,927.28 9,543,409.42 378,877,091.54 3) Particulars of accounts receivable actually written off during the period
Unit: RMB Item Amount written off Accounts receivable actually written-off 9,543,409.42 4) Top five accounts receivable based on closing balance of debtors
The total amount of theCompany’s top five accounts receivable based on closing balance of debtors for the year was RMB1,020,957,610.67, which accounted for26.99% of the closing balance of the total accounts receivable. The closing balance of corresponding bad debt provision amounted to RMB9,867,905.24.
4. Prepayments
(1) Presentation of prepayments stated according to ageing analysis
Unit: RMB Closing balance Opening balance
Ageing Amount Percentage Amount Percentage Within 1 year 793,395,209.02 91.86% 1,766,616,133.82 90.03% 1-2 years 70,343,811.72 8.14% 195,535,339.53 9.97% Total 863,739,020.74 — 1,962,151,473.35 —
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
4. Prepayments(Cont’d)
(2) Top five prepayments according to closing balance of prepaid parties
Percentage of Name of entity Amount Material supplied prepayments(%) JIANGXI ZHONGLIAN ENERGY
DEVELOPMENT CO., LTD. 192,642,331.67 Coal 22.30 HENAN XIN YU INTERNATIONAL PULP AND
PAPER CO., LTD 64,970,763.39 Wood pulp 7.52 JIANGXI CHENMING NATURAL GAS CO., LTD. 40,323,934.04 Natural gas 4.67 SHANGHAI XULIN INTERNATIONAL
TRADING CO., LTD. 24,034,711.80 Wood pulp 2.78 SHANGHAI HONGSHENG PAPER CO., LTD 22,225,288.05 Wood pulp 2.57 Total 344,197,028.95 39.85 5. Other receivables
Unit: RMB Item Closing balance Opening balance Interest receivables 198,577,632.43 15,295,213.24 Other receivables 1,934,512,350.96 523,439,443.31 Total 2,133,089,983.39 538,734,656.55 (1) Interest receivable
Classification of interest receivable
Unit: RMB Item Closing balance Opening balance Fixed term deposit 1,002,811.95 1,445,843.74 Bond investment 25,018,561.36
Interest on guarantee deposit 172,556,259.12 13,849,369.50 Total 198,577,632.43 15,295,213.24
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
5. Other receivables(Cont’d)
(2) Other receivables(Cont’d)
1) Other payables by nature
Unit: RMB Closing book Opening book Nature balance balance Open credit 1,960,044,821.28 379,466,915.61 Reserve and borrowings 1,957,000.00 79,132,212.68 Guarantee deposit 18,064,797.46 18,594,327.30 Insurance premium 2,034,980.18 627,067.87 Advances 4,099,146.51 1,136,328.43 Investment — 4,568,145.95 Others 162,793,258.20 156,937,002.32 Total 2,148,994,003.63 640,462,000.16 2) Particulars of bad debt provision
Unit: RMB Phase 1 Phase 2 Phase 3
Expected Expected
Expected credit loss credit loss
credit loss for over the entire over the entire
the next life (not credit- life (credit-
Bad debt provision 12 months impaired) impaired) Total Balance as at 1 January 65,335,559.83 36,391,783.78 101,727,343.61 Balance as at 1 January
2018 during the year — — — —– Transferred into Phase 2 65,335,559.83 65,335,559.83– Transferred into Phase 3 31,141,687.05 31,141,687.05– Reversal to Phase 2 5,250,096.73 5,250,096.73 Provision for the year 140,255,990.39 140,255,990.39 Reversal for the year 24,168,421.41 2,616,739.09 26,785,160.50 Transfer for the year 477,781.05 477,781.05 Writing-off for the year 238,739.78 238,739.78 Balance as at 31 December 2018 180,706,607.98 33,775,044.69 214,481,652.67 Changes in carrying book balances with significant changes in loss provision for the year
□ Applicable√ Not applicable
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
5. Other receivables(Cont’d)
(2) Other receivables(Cont’d)
2) Particulars of bad debt provision(Cont’d)
By ageing
Unit: RMB Ageing Closing balance Items within 1 year (including 1 year) 363,135,234.65 1-2 years 327,549,153.89 2-3 years 128,669,380.43 Over 3 years 1,115,158,581.99 Total 1,934,512,350.96 3) Provision, recovery or reversal of bad debt provision for the year
Bad debt provision for the year:
Unit: RMB Changes for the year
Opening Recovery Transfer Closing Category balance Provision or reversal or writing-off balance Bad debt provision for other receivables 101,727,343.61 140,255,990.39 26,785,160.50 716,520.83 214,481,652.67 Total 101,727,343.61 140,255,990.39 26,785,160.50 716,520.83 214,481,652.67
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
5. Other receivables(Cont’d)
(2) Other receivables(Cont’d)
4) Top five other receivables according to closing balance of debtors
Unit: RMB Percentage to
closing balance Closing balance of other of bad debt Name of entity Nature Closing balance Maturity receivables provision SHENZHEN QIANHAI RUILI ASSET Consideration for 1,767,832,915.12 Within 1 year 82.86% 88,391,645.76 MANAGEMENT CO., LTD. equity transfer
WEIFANG SIME DARBY WEST Shareholder’s 60,836,961.43 1-2 years 2.83% 6,083,696.14 PORT CO., LTD borrowings
CHINA BOHAI BANK Interest on 27,625,000.00 Within 1 year 1.29%
guarantee
GUANGDONG ZHONGTUO Relocation 15,200,000.00 3 to 4 years 0.71% 15,200,000.00 CONSTRUCTION CO., LTD. payment
DALIAN NUODEYING LOGISTICS CO., LTD. Deposits 7,066,054.89 Within 1 year 0.33% 893,018.39 Total — 1,878,560,931.44 -- 88.02% 110,568,360.29
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
6. Inventories
Whether the Company needs to comply with the disclosure requirements of the real estate industry
No
(1) Categories of inventories
Unit: RMB Closing balance Opening balance
Impairment
provision for Impairment
inventories or provision
Item Book balance performance costs Carrying amount Book balance for inventories Carrying amount Raw materials 3,275,454,669.27 9,525,360.59 3,265,929,308.68 2,431,905,097.56 8,138,005.87 2,423,767,091.69 Work-in-process products 102,153,808.77 102,153,808.77 115,619,584.50 1,835,271.09 113,784,313.41 Goods in stock 1,690,248,067.43 34,943,475.27 1,655,304,592.16 1,419,054,457.14 1,419,054,457.14 Consumable biological assets 1,511,542,610.36 1,511,542,610.36 1,756,375,954.07 1,756,375,954.07 Developing products 309,823,656.64 73,265,542.87 236,558,113.77 309,823,674.86 309,823,674.86 Total 6,889,222,812.47 117,734,378.73 6,771,488,433.74 6,032,778,768.13 9,973,276.96 6,022,805,491.17 (2) Impairment provision for inventories or performance costs
Unit: RMB Increase for the period Decrease for the period
Reversal
Item Closing balance Provision Others or transfer Others Closing balance Raw materials 8,138,005.87 9,525,360.59 8,138,005.87 9,525,360.59 Work-in-process products 1,835,271.09 1,835,271.09
Goods in stock 34,943,475.27 34,943,475.27 Developing products 73,265,542.87 73,265,542.87 Total 9,973,276.96 117,734,378.73 9,973,276.96 117,734,378.73
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
6. Inventories(Cont’d)
(3) Changes in consumable biological assets
Increase for the period Decrease for the period
Increase Increase Decrease
Item Opening balance in breeding in purchase in fair value Other decreases Decrease in sales Closing balance Consumable biological
assets measured at cost 543,605,518.73 41,520,519.59 585,126,038.32 Consumable biological assets
measured at fair value 1,212,770,435.34 21,464,400.65 37,972,595.88 226,916,866.77 926,416,572.04 Total 1,756,375,954.07 41,520,519.59 21,464,400.65 37,972,595.88 226,916,866.77 1,511,542,610.36 7. Non-current assets due within one year
Unit: RMB Item Closing balance Opening balance Long-term receivables due within one year 4,007,503,281.86 6,901,695,875.94 Total 4,007,503,281.86 6,901,695,875.94 8. Other current assets
Unit: RMB Item Closing balance Opening balance VAT recoverable 1,365,819,497.97 946,555,831.51 Prepaid tax 13,217,451.88 3,703,141.50 Receivables under financial lease due within one year 8,234,007,148.70 10,618,498,357.25 Prepaid expenses 662,919,414.09
Others 5,349,312.49
Total 10,281,312,825.13 11,568,757,330.26
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
9. Long-term receivables
(1) Particulars of Long-term receivables
Unit: RMB Closing balance Opening balance Discount rate range Item Book balance Bad debt provision Carrying amount Book balance Bad debt provision Carrying amount
Finance lease payments 12,992,711,023.11 145,746,721.12 12,846,964,301.99 17,367,307,787.46 109,695,662.35 17,257,612,125.11 4.00-10.00 Including: Unrealised
financing income 1,491,762,037.16 1,491,762,037.16 1,331,474,723.85 1,331,474,723.85
Less: non-current assets
due within one year 4,028,313,053.68 20,809,771.82 4,007,503,281.86 6,921,710,823.32 20,014,947.38 6,901,695,875.94
Subtotal 7,472,635,932.27 124,936,949.30 7,347,698,982.97 9,114,122,240.29 89,680,714.97 9,024,441,525.32 — Deposit for finance lease 588,925,607.06 588,925,607.06 456,925,607.06 456,925,607.06
Less: Unrealised
financing income 10,013,819.17 10,013,819.17 80,505,043.20 80,505,043.20
Less: non-current assets
due within one year
Subtotal 578,911,787.89 578,911,787.89 376,420,563.86 376,420,563.86
Total 8,051,547,720.16 124,936,949.30 7,926,610,770.86 9,490,542,804.15 89,680,714.97 9,400,862,089.18
Particulars of bad debt impairment provision
Unit: RMB Phase 1 Phase 2 Phase 3
Expected
Expected credit loss over Expected
credit loss for the entire life credit loss over
the next (not credit- the entire life
Bad debt provision 12 months impaired) (credit-impaired) Total Balance as at 1 January 89,680,714.97 89,680,714.97 Balance as at 1 January 2018
during the year — — — —– Transferred into Phase 2 89,680,714.97 89,680,714.97 Provision for the period 35,256,234.33 35,256,234.33 Balance as at 31 December 2018 124,936,949.30 124,936,949.30 Changes in carrying book balances with significant changes in loss provision for the year
□ Applicable√ Not applicable
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
9. Long-term receivables(Cont’d)
(2) Long-term receivable derecognised due to transfers of financial asset
Long-term Gains or
receivable losses related to Method of transfer of financial asset derecognised derecognition
Transfer ofcreditor’s rights 1,992,048,915.11 Transferred at par Total 1,992,048,915.11
10. Long-term equity investments
Unit: RMB Change for the period
Investment Adjustment of Closing gain or loss other Distribution of balance of Additional Withdrawn recognizer under comprehensive Other change cash dividend Impairment impairment Investee Opening balance contribution contribution equity method income in equity interest or profit declared provision Others Closing balance provision I. Joint venture
Shouguang Chenming Huisen
New-style Construction Materials Co., Ltd. 3,087,296.72 485,538.07 3,572,834.79 Weifang Sime Darby West Port Co., Ltd 104,784,922.41 -1,625,064.70 103,159,857.71 Weifang Xingxing United Chemical Co., Ltd. 110,000,000.00 -746,762.88 109,253,237.12 Sub-total 107,872,219.13 110,000,000.00 -1,886,289.51 215,985,929.62 II. Associates
Jiangxi Jiangbao Media Colour Printing Co. Ltd. 1,754,051.46 -942,052.71 811,998.75 Zhuhai Dechen New Third Board Equity
Investment Fund Company
(Limited Partnership) 51,918,433.41 335,384.31 52,253,817.72 Ningbo Kaichen Huamei Equity Investment Fund
Partnership (Limited Partnership) 198,981,173.01 604,043.93 199,585,216.94 Wuhan Chenming Wan Xing Real Estate Co., Ltd. 26,415,056.62 26,415,056.62 － － Jiangxi Chenming Port Co., Ltd. 4,927,893.82 -2,771,641.51 2,156,252.31 Xuchang Chenming Paper Co., Ltd. 21,496,272.32 -15,501,726.36 5,994,545.96 Chenming (Qingdao) Asset Management Co., Ltd. 8,200,000.00 -313,478.53 7,886,521.47 Sub-total 283,996,608.32 29,696,272.32 26,415,056.62 -18,589,470.87 268,688,353.15 Total 391,868,827.45 139,696,272.32 26,415,056.62 -20,475,760.38 484,674,282.77 Note: For the disposal of30% equity interest of Xuchang Chenming Paper Co., Ltd., method of calculation changed from cost method to equity method.
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
11. Other non-current liabilities
Unit: RMB Item Closing balance Opening balance Equity instrument investment 103,000,000.00 2,453,000,000.00 Total 103,000,000.00 2,453,000,000.00 Other explanation: as theCompany’s shareholding in the investee is low without significant effects, it is not practicable to adopt the income approach or the market approach for the shareholding in the investee. Moreover, there was no recent introduction external of investor, which, together with transfer of equity among the shareholders serves as references for the determination of fair value, which may be classified as “limited circumstances” for the best estimate of fair value of available cost.
12. Investment properties
(1) Investment properties under the cost method
√ Applicable□ Not applicable
Unit: RMB Housing and
Item building structure Total I. Original carrying amount
1. Opening balance 4,847,572,022.07 4,847,572,022.07 2. Increase for the period 173,485,489.13 173,485,489.13 (1) Purchase 79,841,366.74 79,841,366.74 (2) Transfer frominventories\fixed
assets\construction in progress 29,386,869.43 29,386,869.43 (3) Transfer from intangible assets 14,138,227.92 14,138,227.92 (4) Debt payment 50,119,025.04 50,119,025.04 3. Decrease for the period
4. Closing balance 5,021,057,511.20 5,021,057,511.20 II. Accumulated depreciation and accumulated amortisation
1. Opening balance 38,036,912.25 38,036,912.25 2. Increase for the period 138,027,559.33 138,027,559.33 (1) Provision or amortisation 138,027,559.33 138,027,559.33 3. Decrease for the period
4. Closing balance 176,064,471.58 176,064,471.58 III. Provision for impairment
IV. Carrying amount
1. Closing carrying amount 4,844,993,039.62 4,844,993,039.62 2. Opening carrying amount 4,809,535,109.82 4,809,535,109.82
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
13. Fixed assets
Unit: RMB Item Closing balance Opening balance Fixed assets 27,913, 986,152.68 28,227,509,503.05 Total 27,913,986,152.68 28,227,509,503.05 (1) Particulars of fixed assets
Unit: RMB Electronic
Housing and Machinery and equipment and
Item building structure equipment Vehicles others Total I. Original carrying amount:
1. Opening balance 8,550,130,664.61 32,357,264,151.18 355,292,830.51 439,890,095.33 41,702,577,741.63 2. Increase for the period 1,251,284,977.91 323,505,907.27 27,928,847.84 14,195,130.18 1,616,914,863.20 (1) Acquisition 261,093,361.74 107,307,669.73 27,928,847.84 14,195,130.18 410,525,009.49 (2) Transferred from construction
in progress 937,650,059.54 216,198,237.54 1,153,848,297.08 Others 52,541,556.63 52,541,556.63 3. Decrease for the period 131,810,109.98 589,188,732.73 38,155,648.85 13,885,769.24 773,040,260.80 (1) Disposal or retirement 7,621,392.92 61,110,377.26 37,801,306.63 8,652,462.98 115,185,539.79 Decrease in equity transfer 94,801,847.63 528,078,355.47 354,342.22 5,233,306.26 628,467,851.58 Transferred to
investment property 29,386,869.43 29,386,869.43 4. Closing balance 9,669,605,532.54 32,091,581,325.72 345,066,029.50 440,199,456.27 42,546,452,344.03 II. Accumulated depreciation
1. Opening balance 1,437,843,056.33 11,437,397,169.74 143,458,304.23 264,188,740.27 13,282,887,270.57 2. Increase for the period 258,321,798.73 1,287,268,441.37 33,322,547.24 13,410,425.24 1,592,323,212.58 (1) Provision 231,118,698.36 1,287,268,441.37 32,971,952.47 13,163,774.38 1,564,522,866.58 Others 27,203,100.37 350,594.77 246,650.86 27,800,346.00 3. Decrease for the period 17,258,733.41 398,647,954.95 3,427,612.69 19,826,640.92 439,160,941.97 (1) Disposal or retirement 2,770,759.99 398,647,954.95 3,422,145.00 19,784,838.00 424,625,697.94 Transferred into construction
in progress 439,039.63 5,467.69 41,802.92 486,310.24 Investment property 14,048,933.79 14,048,933.79 4. Closing balance 1,678,906,121.65 12,326,017,656.16 173,353,238.78 257,772,524.59 14,436,049,541.18 III. Provision for impairment
1. Opening balance 51,900,151.11 139,905,410.65 13,092.92 362,313.33 192,180,968.01 2. Decrease for the period 5,177,720.12 5,177,720.12 Provision 5,177,720.12 5,177,720.12 3. Decrease for the period 942,037.96 942,037.96 Disposal or retirement 942,037.96 942,037.96 4. Closing balance 50,958,113.15 145,083,130.77 13,092.92 362,313.33 196,416,650.17 IV. Carrying amount
1. Closing carrying amount 7,939,741,297.74 19,620,480,538.79 171,699,697.80 182,064,618.35 27,913,986,152.68 2. Opening carrying amount 7,060,387,457.17 20,779,961,570.79 211,821,433.36 175,339,041.73 28,227,509,503.05
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
13. Fixed assets(Cont’d)
(1) Particulars of fixed assets(Cont’d)
Note:① As at 31 December 2018, housing, building structure and equipment with the carrying amount of RMB8,079,811,565.53 (31 December 2017: carrying amount of RMB4,422,080,751.05) were pledged as collateral for intangible assets with the carrying amount of RMB873,985,362.13 (31 December 2017: carrying amount of RMB597,992,087.19), and investment properties with the carrying amount of RMB4,691,453,227.24 was pledged as collateral for long-term borrowings with the carrying amount of RMB4,733,171,900.00 (31 December 2017: carrying amount of RMB1,922,342,000.00) and short-term borrowings with the carrying amount of RMB180,000,000.00 (31 December 2017: carrying amount of RMB50,000,000).② Other decreases in the original carrying amount refers to fixed assets reversed due to incomplete liquidation of Zhanjiang Chenming.
(2) Particulars of temporarily idle fixed assets
Unit: RMB Original Accumulated Provision for
Item carrying amount depreciation impairment Carrying amount Remark Housing and building structure 52,541,556.53 7,063,028.18 45,478,528.35
Machinery and equipment 402,047,541.87 155,924,037.09 20,501,583.51 225,621,921.27
Total 454,589,098.40 162,987,065.27 20,501,583.51 271,100,449.62
(3) Particulars of fixed assets without obtaining property right certificates
Unit: RMB Reason for not yet obtaining property Item Carrying amount right certificates Housing and building structure 222,926,579.95 Scheduled operation (JIANGXI CHENMING) commencement not imminent Housing and building structure 281,622,650.70 Scheduled operation (SHOUGUANG MEILUN) commencement not imminent Housing and building structure 131,891,347.86 Scheduled operation (HAIMING MINING) commencement not imminent Housing and building structure 484,269,328.58 Scheduled operation (JILIN CHENMING) commencement not imminent Housing and building structure 74,963,006.89 Scheduled operation (CHENMING PAPER) commencement not imminent Housing and building structure 1,212,867,479.62 Scheduled operation (ZHANJIANG CHENMING) commencement not imminent Total 2,408,540,393.60
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
14. Construction in progress
Unit: RMB Item Closing balance Opening balance Construction in progress 11,861,494,351.33 7,668,669,413.87 Materials for project 9,856,470.22 15,275,630.45 Total 11,871,350,821.55 7,683,945,044.32 (1) Particulars of construction in progress
Unit: RMB Closing balance Opening balance
Provision for Provision for
Item Book balance impairment Carrying amount Book balance impairment Carrying amount 400T/d Mechanical pulp
project (Headquarters) 190,246,507.11 190,246,507.11 23,575,818.57 23,575,818.57 Newsprint machine to cultural
paper machine and related
pulp line transformation
(Headquarters) 1,426,602,125.57 1,426,602,125.57 902,644,220.48 902,644,220.48 Chemical pulp project (Meilun) 3,016,785,495.66 3,016,785,495.66 1,801,971,276.32 1,801,971,276.32 High-end cultural paper (Meilun) 1,701,781,479.30 1,701,781,479.30 697,210,244.24 697,210,244.24 Haiming mining magnesite deep
processing project (Haiming) 486,501,551.60 486,501,551.60 1,047,440,597.94 1,047,440,597.94 200,000-ton magnesia-alumina
spinel project (Haiming) 558,876,283.14 558,876,283.14 0.00 0.00 Huanggang Chenming
integrated forestry, pulp and
paper project 3,605,150,078.66 3,605,150,078.66 2,267,821,283.49 2,267,821,283.49 Integrated terminal project
(Huanggang Chenming) 0.00 0.00 191,050,346.34 191,050,346.34 100,000-ton paper machine
changing project
(Xuchang Chenming) 0.00 0.00 170,475,982.49 170,475,982.49 Membrane treatment project
(Zhanjiang Chenming) 74,505,129.72 74,505,129.72 0.00 0.00 Back pressure unit project 26,452,503.41 26,452,503.41 0.00 0.00 Others 802,022,132.98 27,428,935.82 774,593,197.16 581,243,870.23 14,764,226.23 566,479,644.00 Total 11,888,923,287.15 27,428,935.82 11,861,494,351.33 7,683,433,640.10 14,764,226.23 7,668,669,413.87
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
14. Construction in progress(Cont’d)
(2) Changes in material construction in progress projects for the period
Unit: RMB Of which: Capitalisation Transfer to Other Accumulated Accumulated capitalised rate of the Budget Increase for fixed asset for deductions for Investment Construction capitalised interest amount interest amount for Project name (RMB’00 million) Opening balance the period the period the period Closing balance to budget in progress interest for the period the period Source of fund Upgrading and renovation of 1.13 177,001,786.08 177,001,786.08 20.80% 0.17 self-raised and back pressure unit of captive borrowings power plant (headquarter)
400T/d Mechanical pulp 1.30 23,575,818.57 166,670,688.54 190,246,507.11 146.00% 0.95 3,859,068.33 3,530,174.42 2.11% self-raised and project (Headquarters) borrowings Membrane treatment for reclaimed 3.20 145,410,753.42 145,410,753.42 45.00% 0.6 self-raised and water recycling (Headquarters) borrowings New annual 200,000 ton of fly ash 0.57 30,122,443.49 30,122,443.49 53.00% 0.6 self-raised and cement ceramsite production project borrowings Newsprint machine to cultural 3.72 902,644,220.48 523,957,905.09 1,426,602,125.57 162.59% 0.96 14,556,448.15 12,333,058.59 2.35% self-raised and paper machine and related pulp line borrowings transformation (Headquarters)
Chemical pulp project (Meilun) 30.00 1,801,971,276.32 1,214,814,219.34 3,016,785,495.66 70.00% 0.95 137,290,465.35 66,513,856.86 5.48% self-raised and borrowings High-end cultural paper (Meilun) 37.61 697,210,244.24 1,004,571,235.06 1,701,781,479.30 46.00% 0.98 42,158,682.52 33,184,591.17 3.30% self-raised and borrowings Haiming mining magnesite deep 18.50 1,047,440,597.94 21,566,889.76 582,505,936.10 486,501,551.60 107.00% 1 97,619,920.72 self-raised and processing project (Haiming) borrowings 200,000-ton magnesia-alumina 8.50 0.00 558,876,283.14 558,876,283.14 65.75% 0.83 8,915,496.55 8,915,496.55 1.60% self-raised and spinel project borrowings Huanggang Chenming Forest and 34.85 2,267,821,283.49 1,411,690,254.49 70,829,154.12 3,532,305.20 3,605,150,078.66 103.00% 1 148,245,107.02 75,975,528.32 5.68% self-raised and Paper Integration Project borrowings (Pulping Project)
(Huanggang Chenming)
Integrated terminal project 3.51 191,050,346.34 59,893,062.73 250,943,409.07 71.00% 1 self-raised and (Huanggang Chenming) borrowings Biomass power generation project 5.13 57,186,086.82 104,576,396.56 4,222,117.46 157,540,365.92 32.00% 1 self-raised and (southern district) borrowings (Huanggang Chenming)
100,000-ton paper machine changing 1.80 170,475,982.49 170,475,982.49 self-raised and project (Xuchang Chenming) borrowings Membrane treatment project 1.20 74,505,129.72 74,505,129.72 62.00% 0.8 self-raised and (Zhanjiang Chenming) borrowings Back pressure unit project 0.60 26,452,503.41 26,452,503.41 0.60% self-raised and (Zhanjiang Chenming) borrowings Total 151. 62 7,159,375,856.69 5,520,109,550.83 904,278,499.29 178,230,405.15 11,596,976,503.08 — — 452,645,188.64 200,452,705.91 — Note: Xuchang Chenming ceased to be included in the scope of consolidation due to equity transfer, and the construction in progress was included in other decreases.
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
14. Construction in progress(Cont’d)
(3) Particulars of provision for construction in progress impairment
Unit: RMB Amount
Item for the year Reason for the provision Mechanical pulp project (Fuyu Chenming) 3,742,840.00 Impairment of project Cogeneration Project (southern district) 12,771,903.87 Project was under (Huanggang Pulp and Paper) replanning Differentiated viscose and spinning and chemical project 5,852,792.26 Project was under (southern district) (Huanggang Pulp and Paper) replanning Marsh gas power generation (Headquarters) 5,061,399.69 Project was under replanning Total 27,428,935.82 — (4) Materials for project
Unit: RMB Closing balance Opening balance
Impairment
Item Book balance provision Carrying amount Carrying amount Carrying amount Carrying amount Special materials 9,856,470.22 9,856,470.22 11,285,247.52 11,285,247.52 Special equipment 3,990,382.93 3,990,382.93 Total 9,856,470.22 9,856,470.22 15,275,630.45 15,275,630.45
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
15. Intangible assets
(1) Particulars of intangible assets
Unit: RMB Unpatented
Item Land use rights technology Software Total I. Original carrying amount
1. Opening balance 2,385,510,515.67 24,305,385.83 2,409,815,901.50 2. Increase for the period 65,645,347.00 15,895,213.33 4,351,628.12 85,892,188.45 (1) Acquisition 65,645,347.00 15,895,213.33 4,351,628.12 85,892,188.45 3. Decrease for the period 152,907,869.14 2,663,130.81 155,570,999.95 (1) Disposal 152,907,869.14 2,663,130.81 155,570,999.95 4. Closing balance 2,298,247,993.53 15,895,213.33 25,993,883.14 2,340,137,090.00 II. Accumulated amortisation
1. Opening balance 330,449,712.10 20,144,810.31 350,594,522.41 2. Increase for the period 55,294,736.15 1,705,104.30 1,352,967.87 58,352,808.32 (1) Provision 55,294,736.15 1,705,104.30 1,352,967.87 58,352,808.32 3. Decrease for the period 6,502,384.90 1,663,130.81 8,165,515.71 (1) Disposal 6,502,384.90 1,663,130.81 8,165,515.71 4. Closing balance 379,242,063.35 1,705,104.30 19,834,647.37 400,781,815.02 III. Impairment provision
IV. Carrying amount
1. Closing carrying
amount 1,919,005,930.18 14,190,109.03 6,159,235.77 1,939,355,274.98 2. Opening carrying
amount 2,055,060,803.57 4,160,575.52 2,059,221,379.09 Note:① As at 31 December 2018, housing, building structure and equipment with the carrying amount of RMB8,079,811,565.53 (31 December 2017: carrying amount of RMB4,422,080,751.05) were pledged as collateral for intangible assets with the carrying amount of RMB873,985,362.13 (31 December 2017: carrying amount of RMB597,992,087.19), and investment properties with the carrying amount of RMB4,691,453,227.24 was pledged as collateral for long-term borrowings with the carrying amount of RMB4,733,171,900.00 (31 December 2017: carrying amount of RMB1,922,342,000.00) and short-term borrowings with the carrying amount of RMB180,000,000.00 (31 December 2017: carrying amount of RMB50,000,000).② The emission right of Huanggang Pulp and Paper is categorised as others (Other Rights Certificate), with the number of pollutant discharge permit being 91421100679765869N001P, the issuing authority being Huanggang Ministry of Environmental Protection and the expiry date ranging between 14 September 2018 and 13 September 2021.
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
16. Goodwill
(1) Original carrying amount of goodwill
Unit: RMB Name of investee or item Increase for Decrease for
generating goodwill Opening balance the period the period Closing balance Shandong Chenming
Panels Co., Ltd. 5,969,626.57 5,969,626.57 Jilin Chenming Paper
Co., Ltd. 14,314,160.60 14,314,160.60 Total 20,283,787.17 20,283,787.17 (2) Provision for impairment of goodwill
Unit: RMB Name of investee or Increase for Decrease for
item generating goodwill Opening balance the period the period Closing balance Machine-made paper
sector - Jilin Chenming
Paper Co., Ltd. 14,314,160.60 14,314,160.60 Total 14,314,160.60 14,314,160.60 Information related to the asset group or groups to which goodwill belongs
The asset group Shandong Chenming Panels Co., Ltd.
The recoverable amount of the asset group Shandong Chenming Panels Co., Ltd. is determined based on the present value of the estimated future cash flows. Future cash flows are based on the financial budget from 2019 to 2023 approved by the management, and adopt7.28% as the discount rate which is the interest rate of the 5-year bonds issued by the Company in 2018. The cash flows of the asset group Shandong Chenming Panels Co., Ltd. for more than 5 years are calculated based on the growth rate of5%. Other key assumptions used in estimating future cash flows include the estimated sales and gross profit based on the performance of such asset group in the past and the expectation to market development by the management. The management believes that any reasonable change in the above assumptions will not result in the total book value of the asset group Shandong Chenming Panels Co., Ltd. exceeding its recoverable amount.
The asset group Jilin Chenming Paper Co., Ltd.
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
16. Goodwill(Cont’d)
(2) Provision for impairment of goodwill(Cont’d)
The recoverable amount of the asset group Jilin Chenming Paper Co., Ltd. is determined based on the present value of the estimated future cash flows. Future cash flows are based on the financial budget from 2019 to 2023 approved by the management, and adopt7.28% as the discount rate which is the interest rate of the 5-year bonds issued by the Company in 2018. The cash flows of the asset group Jilin Chenming Paper Co., Ltd. for more than 5 years are calculated based on the growth rate of5%. Other key assumptions used in estimating future cash flows include the estimated sales and gross profit based on the performance of such asset group in the past and the expectation to market development by the management. The management believes that, based on the above assumptions, the book value of the asset group Jilin Chenming Paper Co., Ltd. in aggregate exceeds its recoverable amount, and recognises the impairment of the goodwill of the machine-made paper segment - Jilin Chenming Paper Co., Ltd.
17. Long-term prepaid expenses
Unit: RMB Increase for Amortisation
Item Opening balance the period for the period Other deductions Closing balance Railway expenses 7,674,716.58 704,814.60 6,969,901.98 Rentals 41,132,847.78 2,061,665.40 2,098,208.83 41,096,304.35 Woodland expenses 90,315,005.09 4,607,746.78 5,574,339.67 2,498,376.72 86,850,035.48 Total 139,122,569.45 6,669,412.18 8,377,363.10 2,498,376.72 134,916,241.81 18. Deferred income tax assets/deferred income tax liabilities
(1) Deferred income tax assets before offsetting
Unit: RMB Closing balance Opening balance
Deductible Deductible
temporary Deferred income temporary Deferred income Item difference tax assets difference tax assets Provision for impairment of
assets 1,009,229,761.95 201,814,843.08 691,231,679.05 173,959,565.59 Unrealised profit
arising from intra-group
transactions 53,691,645.13 13,422,911.28 273,585,917.96 68,396,479.49 Deductible loss 1,832,638,038.33 291,277,348.30 1,006,688,665.35 173,250,557.91 Outstanding payables 464,741,048.85 72,646,157.78 512,378,679.91 77,803,599.22 Deferred income 136,079,842.63 24,712,438.18 157,069,341.95 28,878,648.19 Total 3,496,380,336.89 603,873,698.62 2,640,954,284.22 522,288,850.40
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
18. Deferred income tax assets/deferred income tax liabilities(Cont’d)
(2) The breakdown of unrecognised deferred income tax assets
Unit: RMB Item Closing balance Opening balance Deductible temporary difference 293,812,600.65 136,902,031.73 Deductible loss 618,945,325.05 521,429,433.24 Total 912,757,925.70 658,331,464.97 (3) Expiry of deductible loss of unrecognised deferred income tax assets falls in the periods as follows Unit: RMB Year Closing amount Opening amount Remark 2018 89,165,185.03
2019 58,075,279.70 58,161,318.09
2020 68,154,676.89 69,723,168.31
2021 79,493,561.61 161,307,173.38
2022 91,517,702.92 143,072,588.43
2023 321,704,103.93
Total 618,945,325.05 521,429,433.24 — 19. Other non-current assets
Unit: RMB Closing balance Opening balance
Impairment Impairment
Item Book balance provision Carrying amount Book balance provision Carrying amount Prepayments for properties 458,224,099.89 458,224,099.89 451,277,549.54 451,277,549.54 Prepayments for land 45,230,000.00 45,230,000.00
Prepayments for engineering 22,445,137.18 22,445,137.18
Prepayments for equipment 223,822,509.86 223,822,509.86 48,446,648.16 48,446,648.16 Deposits 36,000,000.00 36,000,000.00
Equity transfer 694,000,000.00 694,000,000.00
Pre-paid expenses 42,771,382.73 42,771,382.73
Total 1,522,493,129.66 1,522,493,129.66 499,724,197.70 499,724,197.70 Other explanations: Deposits of RMB36,000,000.00 were used for the acquisition of equity in Goldtrust Futures, and equity transfer amount of RMB694,000,000.00 were used for the acquisition of equity in Guangdong Nanyue Bank.
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
20. Short-term borrowings
(1) Classification of short-term borrowings
Unit: RMB Item Closing balance Opening balance Pledged borrowings 971,604,153.41 2,956,876,168.82 Mortgage borrowings 180,000,000.00 50,000,000.00 Guaranteed borrowings 9,918,242,061.05 12,100,224,483.51 Credit borrowings 7,531,565,147.43 5,823,854,220.70 Discounted borrowings 21,626,534,000.00 14,165,620,000.00 Total 40,227,945,361.89 35,096,574,873.03 Particulars of the short-term borrowings: for classification and amount of pledged borrowing and mortgage borrowing, please see notes in relation to monetary funds and assets with restricted ownerships or right to use. (2) Overdue short-term borrowings
Total outstanding accounts payable as at the end of the period amounted to RMB0.00.
21. Bills payable and accounts payable
Unit: RMB Item Closing balance Opening balance Bills payable 4,218,969,554.93 1,278,395,090.71 Accounts payable 4,150,228,644.66 4,013,936,527.74 Total 8,369,198,199.59 5,292,331,618.45 (1) Classification of bills payable
Unit: RMB Classification Closing balance Opening balance Commercial acceptance bills 49,670,407.62 283,744,411.80 Bank acceptance bills 4,169,299,147.31 994,650,678.91 Total 4,218,969,554.93 1,278,395,090.71 Total outstanding bills payable as at the end of the period amounted to RMB0.00.
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
21. Bills payable and accounts payable(Cont’d)
(2) Particulars of accounts payable
Unit: RMB Classification Closing balance Opening balance Within 1 year 3,566,507,866.14 3,398,781,721.68 1-2 years 261,760,924.33 415,562,463.45 2-3 years 80,120,125.97 72,014,432.53 Over 3 years 241,839,728.22 127,577,910.08 Total 4,150,228,644.66 4,013,936,527.74 (3) Significant advance receipts for over 1 year
Unit: RMB Item Closing balance Reasons SHANGHAI CONSTRUCTION NO. 7 53,498,159.55 Quality guarantee deposit (GROUP) CO., LTD. for engineering SHANDONG SHENHUA SHANDA ENERGY& 11,736,736.36 Quality guarantee deposit ENVIRONMENT CO., LTD for engineering HAO HUNG CO., LTD. 5,646,338.36 Quality guarantee deposit for engineering FUJIAN WEIDONG INDUSTRIAL CO., LTD. 5,363,200.00 Quality guarantee deposit for engineering SHANDONG SANTE ENERGY CO., LTD. 5,261,251.30 Quality guarantee deposit for engineering RECYCLE AMERICA ALLIANCE 4,537,536.75 Quality guarantee deposit for engineering Total 86,043,222.32 —
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
22. Contract liabilities
Unit: RMB Item Closing balance Opening balance Advance loans 419,540,133.74 243,182,891.22 Total 419,540,133.74 243,182,891.22 Income included in the opening carrying amount of contract liabilities recognised during the year was RMB243,182,891.22.
23. Staff remuneration payables
(1) Particulars of staff remuneration payables
Unit: RMB Increase for Decrease for
Item Opening balance the period the period Closing balance I. Short-term remuneration 184,868,925.11 1,227,431,484.52 1,277,192,035.50 135,108,374.13 II. Retirement benefit plan
– defined contribution
scheme 261,966.99 191,456,901.19 191,453,834.61 265,033.57 Total 185,130,892.10 1,418,888,385.71 1,468,645,870.11 135,373,407.70
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
23. Staff remuneration payables(Cont’d)
(2) Particulars of short-term remuneration
Unit: RMB Increase for Decrease for
Item Opening balance the period the period Closing balance 1. Salaries, bonuses,
allowance and subsidies 133,765,532.39 950,236,783.81 1,038,225,712.70 45,776,603.50 2. Staff welfare 42,795,040.72 33,707,571.90 9,087,468.82 3. Social insurance premium 1,471,027.85 81,809,468.59 81,827,300.99 1,453,195.45 Of which: Medical
insurance premium 508,362.57 68,634,736.60 68,658,399.06 484,700.11 Work-related injury
insurance premium 146.67 6,709,700.74 6,707,287.50 2,559.91 Maternity insurance
premium 962,518.61 6,326,432.30 6,326,919.25 962,031.66 Others 138,598.95 134,695.18 3,903.77 4. Housing provident funds 7,126,858.97 98,412,066.74 96,724,518.29 8,814,407.42 5. Union funds andworkers’
education 23,566,423.65 19,242,063.03 16,267,986.01 26,540,500.67 6. Other short-term
remuneration 18,939,082.25 34,936,061.63 10,438,945.61 43,436,198.27 Total 184,868,925.11 1,227,431,484.52 1,277,192,035.50 135,108,374.13 (3) Defined contribution plan
Unit: RMB Increase for Decrease for
Item Opening balance the period the period Closing balance 1. Basic pension insurance 176,970.81 182,587,586.42 182,751,023.89 13,533.34 2. Unemployment insurance 84,996.18 8,869,314.77 8,702,810.72 251,500.23 Total 261,966.99 191,456,901.19 191,453,834.61 265,033.57 Other explanations: In accordance with regulations, the Company participated in the pension insurance and unemployment insurance schemes set up by the government, pursuant to which, the Company contributed to such schemes at18.00% and0.70% of basic salary of the staff, respectively. Other than such monthly contributions, there was no further payment obligation of the Company. Such expenses are charged to profit or loss or as costs of such assets upon occurrence.
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
24. Taxes payable
Unit: RMB Item Closing balance Opening balance Value added tax 101,147,703.11 128,785,997.13 Enterprise income tax 279,044,478.52 304,239,481.46 Individual income tax 21,204,181.79 5,296,935.04 Urban maintenance and construction tax 1,675,884.94 7,324,998.53 Land use tax 16,727,507.78 15,556,098.12 Property tax 26,049,416.88 25,352,235.76 Educational surcharges and others 2,685,191.81 5,702,856.39 Stamp duty 3,116,833.81 4,367,412.25 Total 451,651,198.64 496,626,014.68 25. Other payables
Unit: RMB Item Closing balance Opening balance Interest payable 226,788,777.59 85,480,380.32 Other payables 1,550,929,239.89 1,426,629,545.41 Total 1,777,718,017.48 1,512,109,925.73 (1) Interest payable
Unit: RMB Item Closing balance Opening balance Interest on corporate bonds 132,103,351.62 79,728,028.58 Interest payable on short-term borrowings 34,393,759.32 5,752,351.74 Interest on medium-term notes 60,291,666.65
Total 226,788,777.59 85,480,380.32
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
25. Other payables(Cont’d)
(2) Other payables
1) Other payables by nature
Unit: RMB Item Closing balance Opening balance Open credit 164,919,560.22 73,980,061.13 Deposit 969,423,011.35 1,067,548,473.43 Accrued expenses 281,151,124.64 228,591,392.54 Others 135,435,543.68 56,509,618.31 Total 1,550,929,239.89 1,426,629,545.41 2) Significant advance receipts for over 1 year
Unit: RMB Item Closing balance Reasons Nine Dragons Dawei Holdings Co., Ltd. 30,000,000.00 Deposit Shenzhen Dongchan Capital Group Co., Ltd. 9,093,918.30 Deposit Shandong Yingli Industrial Co., Ltd. 6,000,000.00 Deposit Shenzhen Feichuang Tongda Technology Ltd. 5,250,315.24 Deposit Beijing Guodian Futong Science and 5,196,000.00 Deposit Technology Development Co., Ltd.
Total 55,540,233.54 － 26. Non-current assets due within one year
Unit: RMB Item Closing balance Opening balance Long-term receivables due within one year 4,234,248,448.36 3,625,430,347.40 Long-term payables due within one year 2,732,057,322.65
Other non-current liabilities due within one year 250,000,000.00
Total 7,216,305,771.01 3,625,430,347.40 27. Other current liabilities
Unit: RMB Item Closing balance Opening balance Short-term bonds payable 2,816,956,481.68 10,797,248,631.76 Game 2,816,956,481.68 10,797,248,631.76
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
27. Other current liabilities(Cont’d)
Increase/decrease in short-term commercial papers payable:
Unit: RMB Amortisation
Issue during of premium/ Redemption Name of commercial paper Par value Date of issue Term Amount Opening balance the period Interest at par value discount during the period Closing balance 2017 Second Tranche of Short-term
Commercial Paper 1,500,000,000.00 2017/4/13 365 days 1,497,000,000.00 1,556,014,166.67 19,425,000.00 750,000.00 1,576,189,166.67 2017 Fourth Tranche of Super&
Short-term Commercial Paper 1,000,000,000.00 2017/4/24 270 days 998,500,000.00 1,037,100,000.00 1,037,100,000.00 2017 Fifth Tranche of Super&
Short-term Commercial Paper 1,000,000,000.00 2017/8/9 270 days 998,500,000.00 1,020,133,335.00 17,333,333.33 666,665.00 1,038,133,333.33 2017 Sixth Tranche of Super&
Short-term Commercial Paper 1,000,000,000.00 2017/9/7 267 days 998,500,000.00 1,016,534,445.78 17,966,666.67 833,332.00 1,035,334,444.44 2017 Seventh Tranche of Super&
Short-term Commercial Paper 1,000,000,000.00 2017/9/19 269 days 998,526,027.40 1,014,925,571.84 22,859,722.22 818,872.60 1,038,604,166.67 2017 Eighth Tranche of Super&
Short-term Commercial Paper 1,500,000,000.00 2017/10/11 270 days 1,497,750,000.00 1,521,633,333.33 42,233,333.33 1,500,000.00 1,565,366,666.66 2017 Ninth Tranche of Super&
Short-term Commercial Paper 1,000,000,000.00 2017/10/20 270 days 998,500,000.00 1,013,597,223.26 28,155,555.56 999,999.00 1,042,752,777.82 2017 Tenth Tranche of Super&
Short-term Commercial Paper 1,000,000,000.00 2017/10/25 145 days 999,194,444.44 1,010,236,666.33 9,161,388.89 322,222.56 1,019,720,277.78 2017 Eleventh Tranche of Super&
Short-term Commercial Paper 1,000,000,000.00 2017/11/16 270 days 998,500,000.00 1,006,487,222.89 35,274,444.44 1,166,666.00 1,042,928,333.33 2017 Twelfth Tranche of Super&
Short-term Commercial Paper 600,000,000.00 2017/12/19 270 days 599,100,000.00 600,586,666.66 25,920,000.00 800,000.00 627,306,666.67 2018 First Tranche of Super&
Short-term Commercial Paper 1,000,000,000.00 2018/1/5 172 days 999,044,400.00 999,044,400.00 25,520,833.33 955,600.00 1,025,520,833.33 2018 Second Tranche of Super&
Short-term Commercial Paper 1,000,000,000.00 2018/1/17 270 days 998,520,697.95 998,520,697.95 44,261,111.11 1,479,302.05 1,044,261,111.11 2018 Third Tranche of Super&
Short-term Commercial Paper 1,000,000,000.00 2018/2/5 270 days 998,500,000.00 998,500,000.00 47,075,000.00 1,500,000.00 1,047,075,000.00 2018 Fourth Tranche of Super&
Short-term Commercial Paper 1,000,000,000.00 2018/3/28 233 days 998,500,000.00 998,500,000.00 42,388,888.89 1,500,000.00 1,042,388,888.89 2018 Fifth Tranche of Super&
Short-term Commercial Paper 1,000,000,000.00 2018/4/24 270 days 998,500,000.00 258,387,520.00 53,185,374.97 371,556,240.00 683,129,134.97 2018 Sixth Tranche of Super&
Short-term Commercial Paper 600,000,000.00 2018/5/9 270 days 599,100,000.00 599,100,000.00 30,891,666.71 800,000.00 630,791,666.71 2018 Seventh Tranche of Super&
Short-term Commercial Paper 600,000,000.00 2018/5/28 180 days 599,400,000.00 599,400,000.00 18,316,666.67 600,000.00 618,316,666.67 2018 Eighth Tranche of Super&
Short-term Commercial Paper 600,000,000.00 2018/6/28 180 days 599,400,000.00 599,400,000.00 21,350,000.00 600,000.00 621,350,000.00 2018 Ninth Tranche of Super&
Short-term Commercial Paper 1,500,000,000.00 2018/7/4 171 days 1,498,575,000.00 1,498,575,000.00 43,750,000.00 1,425,000.00 1,543,750,000.00 2018 Tenth Tranche of Super&
Short-term Commercial Paper 600,000,000.00 2018/8/9 270 days 409,066,750.00 409,066,750.00 16,227,777.78 500,000.00 425,794,527.78 2018 Eleventh Tranche of Super&
Short-term Commercial Paper 600,000,000.00 2018/10/29 270 days 448,004,115.00 448,004,115.00 7,583,333.33 300,000.00 455,887,448.33 2018 Twelfth Tranche of Super&
Short-term Commercial Paper 620,000,000.00 2018/12/19 176 days 619,393,778.00 619,393,778.00 1,858,888.89 101,037.00 621,353,703.89 Total — — — 20,350,075,212.79 10,797,248,631.76 9,025,892,260.95 570,738,986.12 389,174,936.21 17,966,098,333.37 2,816,956,481.68
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
28. Long-term borrowings
(1) Types of long-term borrowings
Unit: RMB Item Closing balance Opening balance Pledge borrowings 362,064,033.51 275,000,000.00 Secured borrowings 4,733,171,900.00 3,592,342,000.00 Guarantee borrowings 6,097,254,963.85 6,530,519,307.37 Credit borrowings 840,692,035.94 873,692,035.94 Less: long-term borrowings due within 1 year 4,234,248,448.36 3,625,430,347.40 Total 7,798,934,484.94 7,646,122,995.91 Note: For classifications and amounts of secured borrowings and pledged assets, please see notes in respect of monetary funds and assets with restricted ownerships or right to use.
29. Bonds payable
(1) Bonds payable
Unit: RMB Item Closing balance Opening balance 17 Chenming bond 01- Chenming Paper 1,198,710,000.00 1,198,305,304.75 17 Chenming bond 01- Leasing Company 997,955,974.82 18 Chenming bond 01- Chenming Paper 898,852,500.00
Total 2,097,562,500.00 2,196,261,279.57 (2) Increase/decrease in bonds payable (excluding other financial instruments such as preference shares and perpetual bonds classified as financial liabilities)
Unit: RMB Amortisation Redemption
Opening Issue during Interest at of premium/ during Amortisation of Name of bond Par value Date of issue Term Amount balance the period par value discount the period issuance fees Closing balance 17 Chenming bond 01- Chenming Paper 1,200,000,000.00 2017/8/22 5 years 1,198,200,000.00 1,198,305,304.75 78,000,000.00 404,695.25 78,000,000.00 1,198,710,000.00 17 Chenming bond 01- Leasing Company 1,000,000,000.00 2017/3/21 3 years 997,000,000.00 997,955,974.82 64,800,000.00 2,044,025.18 1,064,800,000.00
18 Chenming bond 01- Chenming Paper 900,000,000.00 2018/4/2 5 years 898,650,000.00 898,650,000.00 49,140,000.00 202,500.00 49,140,000.00 898,852,500.00 Total — — — 3,093,850,000.00 2,196,261,279.57 898,650,000.00 191,940,000.00 2,651,220.43 1,191,940,000.00 2,097,562,500.00
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
30. Long-term payables
Unit: RMB Item Closing balance Opening balance Long-term payables 3,900,255,693.44 5,550,881,435.64 Total 3,900,255,693.44 5,550,881,435.64 (1) By nature
Unit: RMB Item Closing balance Opening balance Retention for the financial leasing operations 167,083,436.84 245,190,103.51 China Development Bank Spceial funds 622,500,000.00 700,000,000.00 Financial leasing 5,842,729,579.25 4,605,691,332.13 Less: due within 1 year 2,732,057,322.65
Total 3,900,255,693.44 5,550,881,435.64 31. Provision
Unit: RMB Item Closing balance Opening balance Reason Pending litigation 325,259,082.28 325,259,082.28 Losses fromArjo’s lawsuit Total 325,259,082.28 325,259,082.28 — Note: ArjowigginsHKK2Limited (“HKK2 Company”) submitted a winding-up petition to Hong Kong High Court due to joint venture dispute, paying compensation for economic loss of RMB167 million, legal costs of USD3.54 million and arbitration fee and relevant interests ofHK$3.3 million to HKK2. The Company made provision of accrued liabilities of RMB325 million for such pending litigation in 2017. On the balance sheet date, Hong Kong High Court had not given a verdict for such litigation.
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
32. Deferred income
Unit: RMB Increase for Decrease for
Item Opening balance the period the period Closing balance Reason Government grants 2,133,757,550.21 75,327,556.00 346,689,908.60 1,862,395,197.61
Total 2,133,757,550.21 75,327,556.00 346,689,908.60 1,862,395,197.61 — Items in respect of government grants:
Unit: RMB Include in non- Include in Amount
Opening New grants operating income other income charged against Asset-related/ Liabilities item balance for the period for the period for the period cost expenses Other changes Closing balance income-related Special subsidy funds for
environmental protection 816,090,223.99 17,477,975.56 49,191,971.68 749,420,276.75 Asset-related Project fund for National technological
support scheme 1,781,924.68 164,700.00 1,617,224.68 Asset-related Sewage treatment and water
conservation reconfiguration project 6,131,402.52 59,528,100.00 1,192,682.88 64,466,819.64 Asset-related Financial grants for technological
modification project 192,900,814.51 1,700,000.00 3,000.00 13,582,557.60 181,015,256.91 Asset-related Zhanjiang integrated forestry,
pulp and paper project 271,889,991.56 5,396,664.12 172,986,880.80 93,506,446.64 Asset-related Interest subsidy 95,580,066.97 524,356.00 456,950.04 78,596,758.63 17,050,714.30 Asset-related Railway line change compensation 13,705,208.33 368,750.04 13,336,458.29 Asset-related Logistics park project 53,626,701.00 4,960,000.00 6,626,701.00 51,960,000.00 Asset-related Huanggang pulp-forestry-paper project 681,039,716.66 681,039,716.66 Asset-related Others 1,011,499.99 8,615,100.00 644,316.25 8,982,283.74 Asset-related Total 2,133,757,550.21 75,327,556.00 24,107,676.56 70,998,592.61 251,583,639.43 1,862,395,197.61
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
33. Other non-current liabilities
Unit: RMB Item Closing balance Opening balance Financial management 250,000,000.00 250,000,000.00 Less: other non-current liabilities due within one year 250,000,000.00
Medium-term notes 2,047,948,069.73
Total 2,047,948,069.73 250,000,000.00 34. Share capital
Unit: RMB Increase/decrease during theyear(+/-)
Shares converted
Opening balance New issue Bonus issue from reserves Others Subtotal Closing balance RMB ordinary shares (A shares) 1,113,278,456.00 556,639,228.00 556,639,228.00 1,669,917,684.00 Domestic listed foreign shares (B
shares) 470,923,511.00 235,461,755.00 235,461,755.00 706,385,266.00 Overseas listed foreign shares (H
shares) 352,203,500.00 176,101,750.00 176,101,750.00 528,305,250.00 Total number of shares 1,936,405,467.00 968,202,733.00 968,202,733.00 2,904,608,200.00 35. Other equity instruments
(1) Preference shares, perpetual bonds and other financial instruments outstanding at the end of the period Increase Decrease
Item Opening balance during the year during the year Closing balance Perpetual bonds 5,570,800,000.00 2,582,800,000.00 2,988,000,000.00 Preference shares 4,477,500,000.00 4,477,500,000.00 Total 10,048,300,000.00 2,582,800,000.00 7,465,500,000.00
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
35. Other equity instruments(Cont’d)
(2) Changes in perpetual bonds outstanding at the end of the year
Outstanding Increase Decrease
financial instruments Opening balance during the year during the year Closing balance 15 Lu Chenming MTN001 1,291,900,000.00 1,291,900,000.00
15 Lu Chenming MTN002 1,290,900,000.00 1,290,900,000.00
17 Lu Chenming MTN001 996,000,000.00 996,000,000.00 17 Lu Chenming MTN002 1,992,000,000.00 1,992,000,000.00 Total 5,570,800,000.00 2,582,800,000.00 2,988,000,000.00 Note:① Particulars of issue: The Company issued medium-term notes amounting to RMB2.6 billion on 6 July and 8 September 2015 at a coupon rate of6.00% and5.78%. The proceeds net of issue costs amounted to RMB2,582.80 million. The Company issued medium-term notes amounting to RMB3.0 billion on 12 July and 28 September 2017 at a coupon rate of6.80% and6.30%. The proceeds net of issue costs amounted to RMB2,988.00 million.
② Particulars of the notes as perpetual bonds
The notes are debts without a defined maturity date and will continue indefinitely until the exercise of the right of redemption by the Company. The Company has the right to defer any payment of interest. The right of redemption of the notes is vested with the Company so that it is up to the Company to decide whether to redeem or not.
Based on the above, the notes do not contain any term giving rise to any contractual obligation to deliver cash or other financial assets to any other entity, or to exchange any financial asset or financial liability with any other entity under potential adverse circumstances. Consequently, they were eligible to be recognised and accounted for as equity instruments and included under other equity instruments.
(2) Changes in perpetual bonds outstanding at the end of the year
Outstanding Increase Decrease
financial instruments Opening balance during the year during the year Closing balance Chenming You 01 2,238,750,000.00 2,238,750,000.00 Chenming You 02 999,000,000.00 999,000,000.00 Chenming You 03 1,239,750,000.00 1,239,750,000.00 Total 4,477,500,000.00 4,477,500,000.00 Notes:① Particulars of issue: The Company non-publicly issued preference shares amounting to RMB4,500 million on 17 March, 17 August and 22 September 2016. The proceeds net of issue costs amounted to RMB4,477.50 million.
② Particulars of the preference shares as equity Instruments
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
35. Other equity instruments(Cont’d)
(2) Changes in perpetual bonds outstanding at the end of the year(Cont’d)
Shareholders of preference shares participate in profit distribution in two portions, namely the fixed dividend distributed based on a fixed dividend rate and the distribution of retained earnings realised for the year. A. Distribution of fixed dividend
According to the Articles of Association, the Company shall distribute fixed dividends to holders of the preference shares at fixed dividend rate if there are distributable profits after making good losses and the contribution to reserve fund according to law. The Board is authorised by the general meeting to declare and pay all dividends on the preference shares in accordance with the issuance plan under the framework and principles considered and approved in the general meeting in respect of the preference shares. The general meeting of the Company has the right to cancel part of or all of the current dividends on the preference shares. However, when the general meeting of the Company considers the cancellation of part of or all of the current dividends on the preference shares, the Company shall inform the shareholders of preference shares at least 10 working days before the date of dividend payment in accordance with the requirements of the related authorities.
B. Participation in the distribution of retained earnings realised for the year.
Holders of preference shares participate in the distribution of the retained earnings through receipt of cash which is non-cumulative and non-deferrable. In the event of making good losses and the contribution to reserve fund according to law, after receiving fixed dividends at fixed dividend rate as agreed, holders of preference shares can also participate in the distribution of the retained earnings for the year in proportion. Specific terms are as follows: the retained earnings for the year arises from net profit attributable to owners of the parent company on a consolidated basis upon distribution of relevant fixed income to holders of financial instruments such as the preference shares which may be classified under equity.50% of the retained earnings shall be distributed to holders of preference shares and ordinary shareholders. Holders of preference shares shall participate in the distribution of the retained earnings by receiving cash dividends, and the ordinary shareholders shall participate in the distribution of the retained earnings by receiving cash dividends or dividends on ordinary shares.
Based on the above, the preference shares do not contain any term giving rise to any contractual obligation to deliver cash or other financial assets to any other entity, or to exchange any financial asset or financial liability with any other entity under potential adverse circumstances. Consequently, they were accounted for as other equity instruments– preference shares.
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
36. Capital reserves
Unit: RMB Increase Decrease
Item Opening balance for the period for the period Closing balance Capital premium (share premium) 5,478,935,277.69 1,057,807,869.76 4,421,127,407.93 Other capital reserves 670,322,507.21 670,322,507.21 Total 6,149,257,784.90 1,057,807,869.76 5,091,449,915.14 Other particulars, including changes (increase or decrease) during the period and reasons for such changes:① In accordance with the profit distribution plan of the Company at the 2017 annual general meeting, based on the share capital as at the end of 2017, a capitalisation issue to ordinary shareholders was made out of the capital reserves of 5 shares for every 10 shares held, while capital premium decreased by RMB968,202,733.00 in A share, B share and H share;② the acquisition of49% equity in Guangdong Huirui Investment Co., Ltd. was acquired during the year to offset against capital premium of RMB403,226.07;③55% equity in Shanghai Hongtai Real Estate Co., Ltd. was acquired during the year to offset against capital premium of RMB39,830,949.61;④14.2742% equity in Wuhan Chenming Hanyang Paper Holdings Co., Ltd. was acquired during the year to offset capital premium of RMB32,170,961.08;⑤ perpetual bonds accounted as equity instruments were repaid to offset capital reserve of RMB17,200,000.00.
37. Other comprehensive income
Unit: RMB During the period
Less: Transferred
from Other
Comprehensive
Income in Attributable
Incurred prior periods to Attributable to to minority
before income profit or loss Less: income parent company shareholders
Item Opening balance tax for the period during the period tax expenses after tax after tax Closing balance II. Other comprehensive income to be
reclassified to profit or loss in
subsequent periods -354,165,127.80 -382,355,053.21 -382,355,053.21 -736,520,181.01 Exchange differences on translation of
foreign operations -354,165,127.80 -382,355,053.21 -382,355,053.21 -736,520,181.01 Total other comprehensive income -354,165,127.80 -382,355,053.21 -382,355,053.21 -736,520,181.01
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
38. Special reserves
Unit: RMB Increase decrease
Item Opening balance for the period for the period Closing balance Safety production — 3,257,998.47 — 3,257,998.47 Total — 3,257,998.47 — 3,257,998.47 39. General risk reserves
Unit: RMB Increase Decrease
Item Opening balance for the period for the period Closing balance General risk reserves — 64,123,919.23 — 64,123,919.23 Total — 64,123,919.23 — 64,123,919.23 Note: Pursuant to the requirements under the Notice of the Ministry of Finance on Issuing the Administrative Measures for the Provision of Reserves of Financial Enterprises (Cai Jin[2012] No. 20), the assets of a financial enterprise that are subject to risks and losses shall make provisions, including loans and advances, available-for-sale financial assets, held-to-maturity investments, long-term equity investments, deposits with banks, borrowings, debt assets, other receivables and others. The general reserve balance shall not be lower than1.5% of the closing balance of the risk assets in principle. The general provisions may be used to make up the losses, but not for dividend distribution or capital transfers.
The Company makes provision for general risk in accordance with1.5% of the closing balance of deposits with banks, loans, discounted assets, borrowings, held-for-trading financial assets, debt investments and other receivables. 40. Surplus reserves
Unit: RMB Increase Amortisation
Item Opening balance for the period for the period Closing balance Statutory surplus reserves 1,132,116,106.40 16,772,805.71 1,148,888,912.11 Total 1,132,116,106.40 16,772,805.71 1,148,888,912.11 Explanation on surplus reserve, including specifications on increase/decrease and reasons during the period: Pursuant to the Companies Law and the Articles of Association, the Company transferred10% of the net profit to the statutory surplus reserves. There was no need to transfer if the accumulated amounts of the statutory reserves exceeded50% of theCompany’s registered capital.
The Company can transfer the discretionary surplus reserve upon the transfer of statutory surplus reserve. Once approved, the discretionary surplus reserve can be used to offset loss for prior years or increase the share capital.
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
41. Retained profit
Unit: RMB Item The period The prior period Retained profit as at the end of the prior year before adjustment 8,866,614,844.40 6,745,974,781.02 Accumulated adjustments to retained profit as at the beginning
of the year (increase“+”, decrease “-”)
Retained profit as at the beginning of the year after adjustment 8,866,614,844.40 6,745,974,781.02 Plus: Net profit for year attributable to shareholders of
the parent company 2,509,828,858.47 3,769,325,450.93 Less: Transfer of general risk reserve 64,123,919.23
Transfer of statutory surplus reserves 16,772,805.71
Ordinary dividend payable 1,161,843,280.20 1,161,843,280.20 Perpetual bonds interest payable 347,140,000.00 153,140,000.00 Preferred shares interest payable 679,141,006.88 333,702,107.35 Retained profit as at the end of the period 9,107,422,690.85 8,866,614,844.40 42. Revenue and operating cost
Unit: RMB Amount for the year Amount for the prior year Item Revenue Operating costs Revenue Operating costs Principal activities 28,215,233,444.13 19,278,736,866.85 29,234,821,975.88 19,688,819,943.41 Other activities 660,522,719.43 567,019,951.66 237,631,588.10 40,370,531.68 Total 28,875,756,163.56 19,845,756,818.51 29,472,453,563.98 19,729,190,475.09
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
42. Revenue and operating cost(Cont’d)
Information related to revenue:
Unit: RMB Machine-made Financial Magnesium
Category of contract paper segment segment mining segment Other segment Total Type of goods
Machine-made paper 24,303,557,365.13 24,303,557,365.13 Financial leasing 2,202,061,690.16 2,202,061,690.16 Magnesium mining 416,152,447.97 416,152,447.97 Electricity and steam 154,541,407.23 154,541,407.23 Construction materials 288,669,257.79 288,669,257.79 Paper chemicals 110,998,714.22 110,998,714.22 Hotel services 26,182,589.82 26,182,589.82 Others 707,622,726.12 5,447,245.69 660,522,719.43 1,373,592,691.24 Total 25,011,180,091.25 2,202,061,690.16 421,599,693.66 1,240,914,688.49 28,875,756,163.56 By geographical area
Domestic 20,715,914,941.04 2,202,061,690.16 401,516,862.23 1,240,914,688.49 24,560,408,181.92 Overseas 4,295,265,150.21 20,082,831.43 4,315,347,981.64 Total 25,011,180,091.25 2,202,061,690.16 421,599,693.66 1,240,914,688.49 28,875,756,163.56 Breakdown of revenue from principal activities
① By industry
Amount for the year Amount for the prior year Industry Revenue Operating costs Revenue Operating costs Machine-made paper 24,303,557,365.13 17,849,873,914.56 26,280,449,337.82 18,620,269,325.34 Electricity and steam 154,541,407.23 115,739,913.92 198,073,854.15 132,197,323.45 Construction materials 288,669,257.79 228,873,017.91 255,747,205.45 207,731,864.76 Paper chemicals 110,998,714.22 104,827,034.51 109,914,856.68 87,993,296.40 Hotel 26,182,589.82 10,147,902.77 24,368,815.97 6,002,436.17 Financial leasing 2,202,061,690.16 167,892,149.50 1,967,883,247.48 282,366,339.02 Magnesium mining 416,152,447.97 198,076,427.48
Others 713,069,971.81 603,306,506.20 398,384,658.33 352,259,358.27 Total 28,215,233,444.13 19,278,736,866.85 29,234,821,975.88 19,688,819,943.41
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
42. Revenue and operating cost(Cont’d)
② Machine-made paper by category of major products
Amount for the year Amount for the prior year Industry Revenue Operating costs Revenue Operating costs Duplex press paper 6,155,644,742.23 4,518,550,774.15 6,368,897,144.23 4,681,114,971.82 Coated paper 4,697,177,229.03 3,407,051,401.87 5,489,860,030.01 3,806,504,813.36 White paper board 6,440,247,745.66 5,395,302,715.50 6,906,078,714.80 4,769,506,903.63 Electrostatic paper 2,404,374,935.48 1,440,077,827.51 2,371,439,780.86 1,503,657,404.54 Anti-sticking raw paper 1,208,193,494.70 728,105,243.01 1,207,953,706.05 795,913,212.90 Newsprint paper 9,238,718.81 7,455,316.43 793,309,261.25 644,140,835.06 Household paper 749,151,937.19 703,211,713.08 689,570,026.52 634,573,721.02 Light weight coated paper 198,364,650.45 167,271,261.11 515,092,105.82 424,005,449.53 Writing paper 118,511,116.22 68,838,838.47 275,304,569.70 192,214,424.47 Others 2,322,652,795.36 1,414,008,823.43 1,662,943,998.58 1,168,637,589.01 Total 24,303,557,365.13 17,849,873,914.56 26,280,449,337.82 18,620,269,325.34③ Machine-made paper by geographical areas
Amount for the year Amount for the prior year Industry Revenue Operating costs Revenue Operating costs Mainland China 20,008,292,214.92 13,741,799,550.40 22,349,540,450.67 15,002,256,973.81 Other countries and regions 4,295,265,150.21 4,108,074,364.17 3,930,908,887.15 3,618,012,351.53 Total 24,303,557,365.13 17,849,873,914.57 26,280,449,337.82 18,620,269,325.34④ Revenue from top 5 customers
Percentage of the total Total revenue from revenue in the Period top 5 customers same period(%) 2018 2,031,261,823.95 7.03 2017 1,948,080,321.71 6.61
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
43. Taxes and surcharges
Unit: RMB Amount Amount for Item for the year the prior year Urban maintenance and construction tax 54,001,398.48 50,478,779.11 Educational surcharges 26,130,730.37 30,952,621.80 Resource tax 14,792,493.31
Property tax 54,081,329.55 52,257,985.73 Land use tax 51,224,066.03 46,488,866.36 Vehicle and vessel tax 216,968.91 2,281,116.73 Stamp duty 26,256,847.64 26,392,019.08 Local education surcharges 12,085,006.25 4,696,322.19 Water engineering funds 2,718,637.28 4,611,250.65 Land appreciation tax 368,549.40
Others 8,482,450.88 915,417.98 Total 250,358,478.10 219,074,379.63 44. Selling and distribution expenses
Unit: RMB Amount Amount for Item for the year the prior year Wages 132,591,972.27 151,993,338.94 Depreciation expenses 13,122,208.66 15,151,851.01 Office expenses 4,403,154.36 13,050,224.96 Travel expenses 29,777,817.13 25,480,477.96 Selling commissions 26,874,918.19 20,470,833.82 Transportation expenses 869,865,309.41 928,273,255.31 Cargo handling charges 13,435,084.73 17,074,801.73 Rental expenses 9,362,720.62 9,476,394.77 Hospitality expenses 57,922,888.46 76,249,386.92 Warehouse expenses 3,137,071.93 2,129,846.61 Others 30,006,092.73 45,115,140.24 Total 1,190,499,238.49 1,304,465,552.27
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
45. General and administrative expenses
Unit: RMB Amount Amount for Item for the year the prior year Wages and surcharges 286,951,672.01 290,808,448.52 Welfare expenses 47,180,086.08 38,910,702.51 Depreciation expenses 156,273,458.96 87,835,791.30 Amortisation of intangible assets and long-term expenses 39,967,397.65 39,674,943.49 Production interruption loss 55,876,227.19 82,259,940.92 Repair cost and consumption of materials 35,079,467.58 35,983,121.43 Audit fees 5,755,228.95 3,012,975.33 Travel expenses 24,336,676.68 13,590,172.35 Business hospitality expenses 74,890,255.06 61,654,826.69 Waste disposal expenses 12,445,936.32 21,193,488.53 Insurance premium 25,343,799.30 23,384,036.83 Office expenses 10,861,986.20 12,398,147.24 Rental expenses 36,689,373.28 25,292,119.19 Others 156,189,076.64 156,064,904.34 Total 967,840,641.90 892,063,618.67 46.R&D expenses
Unit: RMB Amount Amount for Item for the year the prior year Installation expenses 1,489,393.97 1,764,926.50 Depreciation expenses 36,497,685.73 39,874,857.07 Consumption of raw materials 426,981,894.02 442,456,123.25 Consumption of semi-finished products 96,310,870.02 1,787,02179.78 Consumption of auxiliary materials 133,554,802.94 136,143,829.79 Consumption of goods in stock — 2,098,057.15 Travel expenses 521,322.61 1,303,187.01 Wages and surcharges 106,705,510.89 88,161,597.60 Welfare expenses 3,019,837.65 1,965,668.85 Housing provident funds 4,232,757.63 3,460,638.04 Insurance premium 19,103,988.33 8,682,381.13 Union funds 415,339.74 793,145.84 Utilities 99,972,218.72 110,718,140.68 Other expenses 1,068,066.15 1,181,548.50 Total 929,873,688.40 1,017,306,281.19
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
47. Finance expenses
Unit: RMB Amount Amount for Item for the year the prior year Finance expenses 3,667,168,014.56 2,484,773,417.87 Less: interest income 692,370,142.41 606,383,791.43 Less: capitalised interest amount 318,561,106.91 191,662,767.82 Foreign exchange gains and losses -156,373,853.85 241,855,705.05 Bank charges 241,636,705.91 188,719,568.05 Total 2,741,486,438.03 2,117,302,131.72 48. Loss on impairment of assets
Unit: RMB Amount Amount for Item for the year the prior year I. Loss on bad debts 141,361,141.80 II. Loss on inventory impairment and impairment loss
of performance costs of contracts 117,733,282.00
III. Loss on fixed assets impairment 5,177,720.12
IV. Loss on construction in progress impairment 27,428,935.82
V. Loss on goodwill impairment 14,314,160.60
Total 164,654,098.54 141,361,141.80 49. Credit impairment loss
Unit: RMB Amount Amount for Item for the year the prior year Bad debt loss of bills receivable and accounts receivable 27,385,927.28
Bad debt loss of other receivables 112,957,716.39
Bad debt loss of long-term receivables 35,999,108.96
Bad debt loss of other current assets – 48,697,835.90
Total 127,644,916.73
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
50. Other income
Unit: RMB Amount Amount for Source of other income for the year the prior year Government grants - amortised deferred income included in profit or loss 70,998,592.61 90,469,765.78 Government grants - directly included in profit or loss 26,815,747.81 45,060,491.99 Total 97,814,340.42 135,530,257.77 51. Investment income
Unit: RMB Amount Amount for Item for the year the prior year Income from long-term equity investments accounted
for using the equity method -20,475,760.38 18,506,834.57 Investment gain on disposal of long-term equity investments 113,688,671.06 480,189.88 Investment gain on holding of available-for-sale financial assets 128,691,400.00 Disposal of other non-current financial assets 155,750,000.00
Income on external entrusted loans 13,330,575.78 Total 248,962,910.68 161,009,000.23 52. Gain on change in fair value
Unit: RMB Amount Amount for Source of gain on change in fair value for the year the prior year Gain on change in fair value of consumable biological
assets measured at fair value -21,464,400.65 -21,000,042.33 Gain on change in fair value of financial assets measured at fair value 94,000,000.00 Gain on change in fair value of other non-current financial assets -94,000,000.00
Total -115,464,400.65 72,999,957.67 53. Asset disposal income
Unit: RMB Amount Amount for Source of asset disposal income for the year the prior year Net income from disposal of non-current assets 17,149,722.72 -2,757,178.42 Total 17,149,722.72 -2,757,178.42
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
54. Non-operating income
Unit: RMB Amounts included in extraordinary Amount Amount for gains and losses Item for the year the prior year for the year Gain on debt restructuring 24,309.62
Government grants 277,480,950.83 265,709,360.70 277,480,950.83 Gain on destroyed and scrapped
non-current assets 146,138.79 146,138.79 Gain on business combination involving
enterprises not under common control 143,867,008.14
Others 41,769,147.65 35,665,689.84 41,769,147.65 Total 319,396,237.27 445,266,368.30 319,396,237.27 Government grants included in profit or loss for the year:
Unit: RMB Amount Amount for Grants item for the year the prior year Amortised deferred income 17,480,975.56
Grants Income 239,989,155.01 265,709,360.70 Tax refund 20,010,820.26
Total 277,480,950.83 265,709,360.70 55. Non-operating expenses
Unit: RMB Amounts included in extraordinary Amount Amount for gains and losses Item for the year the prior year for the year Donation 8,740,500.00 1,950,000.00 8,740,500.00 Loss on destroyed and scrapped
non-current assets 3,324,345.71 3,324,345.71 Provision 3,590,000.00 325,259,082.28 3,590,000.00 Others 3,529,693.40 50,733.36 3,529,693.40 Total 19,184,539.11 327,259,815.63 19,184,539.11
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
56. Income tax expenses
(1) Particulars of income tax expenses
Unit: RMB Amount Amount for Item for the year the prior year Income tax expenses for the period 723,140,689.50 802,346,750.56 Deferred income tax expenses -81,563,194.58 -24,831,023.70 Total 641,577,494.92 777,515,726.86 (2) The reconciliation between accounting profit and income tax expenses
Unit: RMB Item Amount for the year Total profit 3,206,316,116.19 Income tax expenses calculated at statutory/applicable tax rates 480,947,417.43 Effect of different tax rates applicable to subsidiaries 202,387,066.71 Effect of adjustments for income tax for prior periods 72,043,426.04 Effect of income not subject to tax -114,214,911.60 Effect of additional deductible expenses -153,225,494.48 Effect of costs, expenses and loss not deductible for tax purposes 19,512,338.94 Effect of utilisation of previously unrecognised deductible loss
on deferred income tax assets -24,147,770.84 Effect of current unrecognised deductible temporary difference or deductible
loss arising from deferred tax income assets 158,275,422.72 Income tax expenses 641,577,494.92
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
57. Items on statements of cash flow
(1) Cash received relating to other operating activities
Unit: RMB Amount Amount for Item for the year the prior year Default penalty and fine 52,469,446.81 35,665,689.84 Finance expenses - Interest income 278,115,215.56 227,093,507.28 Income-related government grants 362,143,279.08 303,645,280.74 Open credit and other income 35,794,381.99 253,031,630.62 Net proceedings from the financial leasing business 6,191,859,054.14 — Deposit of Leasing Company — 8,830,000.00 Total 6,920,381,377.58 828,266,108.48 Explanation on cash received relating to other operating activities: Pursuant to the new standards, the government grants related to assets and income were all included in operating activities.
(2) Cash paid relating to other operating activities
Unit: RMB Amount Amount for Item for the year the prior year Financial institutions charge 241,636,705.91 188,719,568.05 Business hospitality expenses 128,872,141.01 137,904,213.61 Travel expenses 55,398,230.16 25,480,477.96 Office expenses 19,426,972.84 13,050,224.96 Transportation expenses 937,436,432.35 928,273,255.31 Leasing expenses 14,452,327.88 9,476,394.77 Waste disposal expenses 31,586,754.90 21,193,488.53 Insurance premium 19,073,069.46 23,384,036.83 Repair expenses 51,165,035.29 35,983,121.43 Cargo handling charges 19,073,069.46 17,074,801.73 Intermediary service expenses 62,252,620.51 57,637,480.41 Net proceedings from the financial leasing business — 6,209,844,676.71 Donation 8,530,000.00 1,950,000.00 Others 112,331,848.36 321,369,313.67 Total 1,701,235,208.13 7,991,341,053.97
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
57. Items on statements of cash flow(Cont’d)
(3) Cash received relating to other investing activities
Unit: RMB Amount Amount for Item for the year the prior year Asset-related government grants — 99,341,073.00 Principal withdrawal of entrusted loans — 900,000,000.00 Total — 999,341,073.00 (4) Cash paid relating to other investing activities
Unit: RMB Amount Amount for Item for the year the prior year Security deposit for Goldtrust Futures 36,000,000.00 — Security deposit for Western Trust 5,000,000.00 — Security deposit for acquisition of equity interest in Nanyue Bank 694,000,000.00 — Compensation liability 103,042,210.54 — Total 838,042,210.54 — (4) Cash received relating to other financing activities
Unit: RMB Amount Amount for Item for the year the prior year Short-term commercial paper 12,915,683,724.57 16,570,426,739.99 Perpetual bonds — 2,988,000,000.00 Loan from the Finance Company 100,000,000.00 — Equipment leaseback 3,702,500,000.00 2,857,984,827.85 Total 16,718,183,724.57 22,416,411,567.84
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
57. Items on statements of cash flow(Cont’d)
(6) Cash paid relating to other financing activities
Unit: RMB Amount Amount for Item for the year the prior year Repayment of short-term commercial paper and MTN 18,036,968,519.46 13,726,553,994.41 Repayment of perpetual bonds 2,600,000,000.00 4,001,277,281.68 Repayment of equipment leaseback 2,790,756,044.94 1,257,472,246.21 Repayment of interest on preference shares 679,141,006.88 333,706,007.35 Repayment of interest on perpetual bonds 347,140,000.00 153,140,000.00 Increase in restricted bank deposits for the year 5,272,132,418.30 3,509,014,813.10 Security deposit for financial leasing 32,200,000.00 — Acquisition of non-controlling interests in Shanghai Hongtai 2,089,074,400.00 — Acquisition of non-controlling interests in Guangdong Huirui 120,600,000.00 — Acquisition of non-controlling interests in Wuhan Chenming 60,896,600.00 — Total 32,028,908,989.58 22,981,164,342.75
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
58. Supplementary information on cash flow statement
(1) Supplementary information on cash flow statement
Unit: RMB Amount Amount for Supplementary information for the year the prior year 1. Reconciliation of net profit as cash flows from
operating activities: — — Net profit 2,564,738,621.27 3,758,962,846.67 Plus: Provision for impairment of assets 292,299,015.27 141,361,141.80 Depreciation of fixed assets, consumption of oil and
gas assets, depreciation of bearer biological assets 1,686,464,360.70 1,613,399,119.31 Amortisation of intangible assets 49,169,532.63 90,224,458.07 Amortisation of long-term prepaid expenses 8,377,363.10 16,218,441.95 Loss on disposal of fixed assets, intangible assets and
other long-term assets (“-” denotes gain) -16,986,475.18 2,757,178.42 Loss on changes in fair value (“-” denotes gain) 115,279,025.65 -72,999,957.67 Finance expenses (“-” denotes gain) 3,348,593,728.38 2,338,613,808.53 Investment loss (“-” denotes gain) – 248,962,910.68 -161,009,000.23 Decrease in deferred income tax assets (“-” denotes increase) -81,584,848.22 -24,831,023.70 Decrease in inventories (“-” denotes increase) -748,682,942.57 -1,109,545,250.30 Decrease in operating receivables (“-” denotes increase) 12,866,522,125.36 -15,769,361,315.41 Increase in operating payables (“-” denotes decrease) -5,735,524,708.67 9,199,975,595.49 Net cash flows from operating activities 14,099,701,887.04 23,766,042.93 2. Major investing and financing activities not
involving cash settlements: — — 3. Net change in cash and cash equivalents: — — Closing balance of cash 2,381,558,242.52 2,804,408,374.46 Less: Opening balance of cash 2,804,408,374.46 1,979,861,045.62 Net increase in cash and cash equivalents -422,850,131.94 824,547,328.84
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
58. Supplementary information on cash flow statement(Cont’d)
(2) Net cash received from disposing subsidiaries during the current period
Unit: RMB Amount Cash or cash equivalents received in this period from disposal
of subsidiaries in this period 30,000,000.00 Of which: — Xuchang Chenming Paper Co. Ltd. 30,000,000.00 Less: cash and cash equivalents held by subsidiaries on the date of losing control 10,389,739.30 Of which: — Net cash received from disposing subsidiaries 19,610,260.70 Of which: — Xuchang Chenming Paper Co. Ltd. 19,610,260.70 (3) Cash and cash equivalents composition
Unit: RMB Item Closing balance Opening balance I. Cash 2,381,558,242.52 2,804,408,374.46 Of which: Treasury cash 2,078,321.66 2,344,438.45 Bank deposit that can be used for payment at any time 2,379,479,920.86 2,802,063,936.01 III. Balance of cash and cash equivalent as at end of period 2,381,558,242.51 2,804,408,374.46 Other explanation: Cash and cash equivalents did not include the restricted cash and cash equivalents used by the Company or subsidiaries within the Group.
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
59. Assets with restricted ownerships or right to use
Unit: RMB Closing
Item carrying amount Reason for such restrictions
Monetary funds 16,911,216,505.27 As guarantee deposits for bank acceptance bills, letter of credit, and bank borrowings deposits, and deposit reserves Bills receivable 431,715,666.94 As collateral for short-term borrowings, letters of guarantee and letters of credit Fixed assets 8,079,811,565.53 As collateral for bank borrowings Intangible assets 873,985,362.13 As collateral for bank borrowings and long- term payables
Investment properties 4,691,453,227.24 As collateral for bank borrowings Total 30,988,182,327.11—
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
60. Foreign currency items
(1) Foreign currency items
Unit: RMB Closing foreign Closing balance Item currency balance Exchange rate in RMB Monetary funds — —
Of which: USD 65,298,230.91 6.8632 448,154,818.38 EUR 1,117,538.10 7.8473 8,769,656.73 HKD 953,429.43 0.8762 835,394.87 JPY 1,266,974.00 0.0619 78,425.69 GBP 2,949.91 8.7729 25,879.27 KRW 481,186,778.00 0.0051 2,454,052.57 Accounts receivables — —
Of which: USD 360,449,354.21 6.8632 2,473,836,007.81 EUR 12,193,661.97 7.8473 95,687,323.58 HKD
JPY 146,734,998.00 0.0619 9,082,896.38 Other receivables
Of which: USD 30,062,101.72 6.8632 206,322,216.52 EUR 658,111.28 7.8473 5,164,396.65 Long-term borrowings — —
Of which: USD 367,307,309.20 6.8632 2,520,903,524.50 EUR 21,056,153.79 7.8473 165,233,955.64 HKD
Accounts payable
Of which: USD 42,111,655.10 6.8632 289,020,711.28 EUR 28,596,874.91 7.8473 224,408,256.48 JPY 309,605.00 0.0619 19,164.55 Other payables
Of which: USD 363,791,451.01 6.8632 2,496,773,486.57 EUR 601,452.96 7.8473 4,719,781.81 JPY 492,960.00 0.0619 30,514.22 Non-current liabilities due within one year
Of which: USD 199,953,464.76 6.8632 1,372,320,619.34 EUR 32,000,000.00 7.8473 251,113,600.00 Short-term borrowings
Of which: USD 474,868,282.73 6.8632 3,259,115,998.03
XIII Financial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
60. Foreign currency items(Cont’d)
(2) Explanation on overseas operating entities (including major overseas operating entities), which shall disclose their overseas principal places of business, functional currency and basis. Reasons shall be disclosed if there is any change in the functional currency.
√ Applicable□ Not applicable
Principal place Place of Functional No. Name of subsidiary of business incorporation currency 1 Chenming GmbH Hamburg, Germany Hamburg, Germany EUR 2 Chenming Paper Korea Co., Ltd. Seoul, Korea Seoul, Korea KRW 3 Chenming (HK) Limited Hong Kong, China Hong Kong, China USD 4 Chenming International Co., Ltd. Los Angeles, USA Los Angeles, USA USD 5 Chenming Paper Japan Co., Ltd. Tokyo, Japan Tokyo, Japan JPY 6 Chenming Paper United States Co., Ltd. Los Angeles, USA Los Angeles, USA USD
XIII Financial Report
VIII. Change in scope of consolidation
1. Disposal of subsidiaries
Whether there is loss of control over subsidiaries on a single disposal
√ Yes□ No
Unit: RMB Difference
between
consideration Determination and share and key of net assets assumption Relevant other of relevant Carrying amount Fair value of fair value comprehensive subsidiary as per Remaining of remaining of remaining Gain or loss of remaining income of former Consideration of Shareholding Nature of consolidated shareholding shareholding shareholding in fair value shareholding subsidiary disposal of of disposal of disposal of Time of financial as of the date as of the date of as of the date of of remaining as of the date of transferred to Name of subsidiary equity interest equity interest equity interest loss of control Basis for time statements of loss of control loss of control loss of control shareholding loss of control profit or loss Xuchang Chenming Paper Co., Ltd. 30,000,000.00 30.00% Disposal 1 January 2018 Without control 17,007,455.36 30.00% 30,000,000.00 21,496,272.32 -8,503,727.68 — — Whether there was disposal of investment in a subsidiary through several transactions resulting in loss of control during the period
□ Yes√ No
2. Change in scope of consolidation due to other reasons
Explanation on the changes in scope of consolidation caused by other reasons (e.g. setting up new subsidiaries and liquidating subsidiaries) and their related information:
During the year, the scope of consolidation included 4 newly established subsidiaries, namely Shandong Chenming Coated Paper Sales Co. Ltd., Chenming Paper United States Co., Ltd., Beijing Chenming Financial Leasing Co., Ltd., and Jiangxi Chenming Supply Chain Managment Co., Ltd. For details, please see Note IX. 1 “Interest in subsidiaries”.
XIII Financial Report
IX. Interest in other entities
1. Interest in subsidiaries
(1) Constitution of the Group
Principle place Place of Shareholding
Name of subsidiary of business incorporation Nature of business Direct Indirect Acquisition Zhanjiang Chenming Zhanjiang, China Zhanjiang, China Paper making 100.00% Establishment Pulp& Paper Co., Ltd.
Shouguang Meilun Paper Co., Ltd. Shouguang, China Shouguang, China Paper making 100.00% Establishment Jilin Chenming Paper Co., Ltd. Jilin, China Jilin, China Paper making 100.00% Merger and acquisition Huanggang Chenming Huanggang, China Huanggang, China Pulp production 100.00% Establishment Pulp& Paper Co., Ltd.
Shandong Chenming Paper Shouguang, China Shouguang, China Sales of paper 100.00% Establishment Sales Co., Ltd.
Shouguang Chenming Import Shouguang, China Shouguang, China Import and 100.00% Establishment and Export Trade Co., Ltd. export trade
Jiangxi Chenming Supply Jiangxi, China Jiangxi, China Trading 70.00% Establishment Chain Management Co., Ltd.
Chenming GmbH Hamburg, Germany Hamburg, Germany Paper product trading100.00% Establishment Shouguang Chenming Shouguang, China Shouguang, China Machinery 100.00% Establishment Papermaking Machine Co., Ltd. manufacturing
Shouguang Hongxiang Printing Shouguang, China Shouguang, China Printing and packaging100.00% Merger and and Packaging Co., Ltd. acquisition Shouguang Chenming Shouguang, China Shouguang, China Transportation 100.00% Establishment Modern Logistic Co., Ltd.
Shouguang Chenming Shouguang, China Shouguang, China Logistics 100.00% Establishment Industrial Logistics Co., Ltd.
Jinan Chenming Investment Jinan, China Jinan, China Investment 100.00% Establishment Management Co., Ltd. management
Huanggang Chenming Arboriculture Huanggang, China Huanggang, China Arboriculture 100.00% Establishment Development Co., Ltd.
Chenming Arboriculture Co., Ltd. Wuhan, China Wuhan, China Arboriculture 100.00% Establishment Chenming Paper Korea Co., Ltd. Seoul, Korea Seoul, Korea Sales of paper 100.00% Establishment Shandong Chenming Power Shouguang, China Shouguang, China Power 100.00% Establishment Supply Holdings Co., Ltd.
Shouguang Shun Da Shouguang, China Shouguang, China Customs declaration 100.00% Establishment Customs Declaration Co, Ltd.
Shanghai Chenming Industrial Shanghai, China Shanghai, China Property investment 100.00% Establishment Co., Ltd. and management
Wuxi Song Ling Paper Co., Ltd. Wuxi, China Wuxi, China Paper making 100.00% Merger and acquisition Shandong Chenming Paper Fuyu, China Fuyu, China Sales of paper 100.00% Establishment Group (Fuyu) Sales Co., Ltd.
XIII Financial Report
IX. Interest in other entities(Cont’d)
1. Interest in subsidiaries(Cont’d)
(1) Constitution of the Group(Cont’d)
Principle place Place of Shareholding
Name of subsidiary of business incorporation Nature of business Direct Indirect Acquisition Shandong Chenming Group Jinan, China Jinan, China Finance 80.00% 20.00% Establishment Finance Co., Ltd.
Jiangxi Chenming Paper Co., Ltd. Nanchang, China Nanchang, China Paper making 51.00% 49.00% Establishment Qingdao Chenming International Qingdao, China Qingdao, China Logistics 30.00% 70.00% Establishment Logistics Co., Ltd.
Shouguang Chenming Shouguang, China Shouguang, China Paper making 75.00% Establishment Art Paper Co., Ltd.
Hailaer Chenming Paper Co., Ltd. Hailaer, China Hailaer, China Paper making 75.00% Establishment Shandong Grand View Hotel Co., Ltd. Shouguang, China Shouguang, China Catering 70.00% Establishment Haicheng Haiming Mining Co., Ltd. Haicheng, China Haicheng, China Mining 60.00% Establishment Wuhan Chenming Hanyang Wuhan, China Wuhan, China Paper making 65.21% Establishment Paper Holdings Co., Ltd.
Chengdu Chenming Culture Chengdu, China Chengdu, China Marketing 100.00% Establishment Communication Co., Ltd.
Shandong Chenming Financial Jinan, China Jinan, China Financial leasing 100.00% Establishment Leasing Co., Ltd.
Qingdao Chenming Nonghai Financial Qingdao, China Qingdao, China Financial leasing 100.00% Establishment Leasing Co., Ltd.
Chenming (HK) Limited Hong Kong, China Hong Kong, China Paper product trading 100.00% Establishment Shouguang Hongyi Decorative Shouguang, China Shouguang, China Packaging 100.00% Merger and Packaging Co., Ltd. acquisition Shouguang Xinyuan Coal Co., Ltd. Shouguang, China Shouguang, China Coal 100.00% Merger and acquisition Shouguang City Run Sheng Wasted Shouguang, China Shouguang, China Purchase and 100.00% Merger and Paper Recycle Co., Ltd. sale of waste acquisition Shouguang Wei Yuan Logistics Shouguang, China Shouguang, China Logistics 100.00% Merger and Company Limited acquisition Shandong Chenming Panels Co., Ltd. Shouguang, China Shouguang, China Panels 100.00% Merger and acquisition Shandong Chenming Floor Shouguang, China Shouguang, China Floor board 100.00% Merger and Board Co., Ltd. acquisition Shouguang Chenming Cement Shouguang, China Shouguang, China Cement 100.00% Establishment Co., Limited
Wuhan Chenming Qianneng Wuhan, China Wuhan, China Electric power 51.00% Establishment Electric Power Co., Ltd.
Shandong Chenming Jinan, China Jinan, China Investment 100.00% Establishment Investment Limited
Japan Chenming Paper Co., Ltd. Tokyo, Japan Tokyo, Japan Paper product trading 100.00% Establishment Chenming International Co., Ltd. Los Angeles, Los Angeles, Paper product trading 100.00% Establishment the United States the United States
XIII Financial Report
IX. Interest in other entities(Cont’d)
1. Interest in subsidiaries(Cont’d)
(1) Constitution of the Group(Cont’d)
Principle place Place of Shareholding
Name of subsidiary of business incorporation Nature of business Direct Indirect Acquisition Zhanjiang Chenming Arboriculture Zhanjiang, China Zhanjiang, China Arboriculture 100.00% Establishment Development Co., Ltd.
Yangjiang Chenming Arboriculture Yangjiang, China Yangjiang, China Arboriculture 100.00% Establishment Development Co., Ltd.
Nanchang Chenming Arboriculture Nanchang, China Nanchang, China Arboriculture 100.00% Establishment Development Co., Ltd.
Guangdong Huirui Investment Zhanjiang, China Zhanjiang, China Investment 100.00% Merger and Co., Ltd. acquisition Zhanjiang Chenming New-style Zhanjiang, China Zhanjiang, China Wall materials 100.00% Establishment Wall Materials Co., Ltd
Jilin Chenming New-style Jilin, China Jilin, China Wall materials 100.00% Establishment Wall Materials Co., Ltd.
Jilin Chenming Logistics Co., Ltd. Jilin, China Jilin, China Logistics 100.00% Establishment Jiangxi Chenming Logistics Co., Ltd. Nanchang, China Nanchang, China Logistics 100.00% Establishment Fuyu Chenming Paper Co., Ltd. Fuyu, China Fuyu, China Paper making 100.00% Establishment Zhanjiang Meilun Pulp& Paper Zhanjiang, China Zhanjiang, China Paper making 100.00% Establishment Co., Ltd.
Shanghai Chenming Financial Shanghai, China Shanghai, China Financial leasing 100.00% Establishment Leasing Co., Ltd.
Guangzhou Chenming Guangzhou, China Guangzhou, China Financial leasing 100.00% Establishment Financial Leasing Co., Ltd.
Shanghai Hongtai Real Estate Shanghai, China Shanghai, China Real estate 100.00% Merger and Co., Ltd. acquisition Shanghai Hongtai Property Shanghai, China Shanghai, China Property Management 100.00% Merger and Management Co., Ltd. acquisition Shandong Chenming Commercial Jinan, China Jinan, China Business factoring 100.00% Establishment Factoring Co., Ltd.
Guangzhou Chenming Commercial Guangzhou, China Guangzhou, China Business factoring 51.00% Establishment Factoring Co., Ltd.
Qingdao Chenming Pulp& Paper Qingdao, China Qingdao, China Trading 30.00% 70.00% Establishment Electronic Commodity Spot
Trading Center Co., Ltd.
Beijing Chenming Meilun Beijing, China Beijing, China Marketing 100.00% Establishment Technology Co., Ltd.
Shandong Chenming Coated Shouguang, China Shouguang, China Sales 100.00% Establishment Paper Sales Co. Ltd.
Zhanjiang Chenming Port Co., Ltd. Zhanjiang, China Zhanjiang, China Cargo loading 100.00% Establishment Beijing Chenming Financial Beijing, China Beijing, China Finance 100.00% Establishment Leasing Co., Ltd.
Chenming Paper United States The United States 3200 EL CAMINO Paper trading 100.00% Establishment Co., Ltd. REAL, UITE 130,
IRVINE,CA
XIII Financial Report
IX. Interest in other entities(Cont’d)
1. Interest in subsidiaries(Cont’d)
(2) Major non-wholly owned subsidiaries
Unit: RMB Gain or loss Dividend
attributable to to minority Closing minority interests interests declared balance of Name of subsidiary Minority interests during the period during the period minority interests Wuhan Chenming Hanyang 34.79% 16,400,725.12 84,476,555.75 Paper Holdings Co., Ltd.
Shouguang Chenming Art 25.00% 29,663,023.86 81,277,315.43 Paper Co., Ltd.
Haicheng Haiming Mining Co., Ltd. 40.00% 50,552,395.60 144,317,440.76 (3) Key financial information of major non-wholly owned subsidiaries
Unit: RMB Closing balance Opening balance
Name of subsidiary Current assets Non-current assets Total assets Current liabilitiesNon-current liabilities Total liabilities Current assets Non-current assets Total assets Current liabilitiesNon-current liabilities Total liabilities Wuhan Chenming Hanyang
Paper Holdings Co., Ltd. 304,800,513.20 1,128,834,779.70 1,433,635,292.90 1,116,394,677.03 43,004,618.52 1,159,399,295.55 489,799,209.30 1,241,278,595.22 1,731,077,804.52 1,438,701,718.23 53,182,469.27 1,491,884,187.50 Shouguang Chenming Art
Paper Co., Ltd. 874,366,187.24 618,223,904.52 1,492,590,091.76 1,167,480,830.07 1,167,480,830.07 371,585,385.81 662,367,808.01 1,033,953,193.82 827,496,027.57 827,496,027.57 Haicheng Haiming Mining Co., Ltd. 175,097,261.05 1,711,242,454.23 1,886,339,715.28 1,522,288,114.91 1,522,288,114.91 75,944,768.92 1,181,346,911.13 1,257,291,680.05 1,022,879,067.16 1,022,879,067.16 Unit: RMB Amount for the year Amount for the prior year
Total Cash flows from Total Cash flows from comprehensive operating comprehensive operating Name of subsidiary Revenue Net profit income activities Revenue Net profit income activities Wuhan Chenming Hanyang Paper Holdings Co., Ltd. 1,364,181,429.19 35,042,380.33 35,042,380.33 316,577,834.65 1,326,430,263.21 38,962,265.63 38,962,265.63 624,821.83 Shouguang Chenming Art Paper Co., Ltd. 909,260,241.77 118,652,095.44 118,652,095.44 -99,931,648.76 711,899,986.30 54,257,436.10 54,257,436.10 1,912,526.67 Haicheng Haiming Mining Co., Ltd. 421,599,693.66 126,380,989.01 126,380,989.01 75,115,059.89 -5,459,132.11 -5,459,132.11 4,186,562.69
XIII Financial Report
IX. Interest in other entities(Cont’d)
2. Transaction changing shareholding in but not causing to loss of control over subsidiaries
(1) Changing in shareholding in subsidiaries
During the year, the Company acquired14.27% equity interest in Shanghai Hongtai Real Estate Co., Ltd., holding65.21% of shares upon completion of the transaction; acquired49% equity interest in Guangdong Huirui Investment Co., Ltd., holding100% of shares upon completion of the transaction; and acquired55% equity interest in Shanghai Hongtai Real Estate Co., Ltd., holding100% of shares upon completion of the transaction.
(2) Impact on minority interests and equity attributable to the owners of the parent company
Unit: RMB Wuhan Chenming Shanghai Hongtai Shanghai Hongtai Hanyang Paper Guangdong Huirui Real Estate Co., Ltd. Real Estate Co., Ltd. Holdings Co., Ltd. Investment Co., Ltd. (30% equity interest)(25% equity interest)– -Cash 61,668,493.87 120,600,000.00 1,171,957,789.46 917,116,610.54 Total acquisition cost/disposal 61,668,493.87 120,600,000.00 1,171,957,789.46 917,116,610.54 consideration
Less: share of net assets in 29,497,532.79 120,196,773.93 1,140,288,356.59 908,955,093.80 subsidiaries based on
shares acquired/disposed
Difference 32,170,961.08 403,226.07 31,669,432.87 8,161,516.74 Of which: capital -32,170,961.08 -403,226.07 -31,669,432.87 -8,161,516.74 reserve adjustment
Note: During the period, the Company acquired30% and25% of equity interest in Shanghai Hongtai Real Estate Co., Ltd., respectively, and was recognised in capital reserve separately as the transactions did not constitute a package deal.
XIII Financial Report
IX. Interest in other entities(Cont’d)
3. Interest in joint arrangements or associates
(1) Major joint ventures and associates
Name of joint ventures Principle place Principle place Nature of Accounting and associates of business of business business Shareholding method Direct Indirect
Weifang Senda Meixi Port Co., Ltd. Weifang, China Weifang, China Port construction 50.00% Equity method Ningbo Kaichen Huamei Equity Ningbo, China Ningbo, China Investment 40.00% Equity method Investment Fund Partnership management
(Limited Partnership)
Weifang Xingxing United Weifang, China Weifang, China Chemical 50.00% Equity method Chemical Co., Ltd.
Zhuhai Dechen New Third Board Zhuhai, China Zhuhai, China Investment 50.00% Equity method Equity Investment Fund Company management
(Limited Partnership)
(2) Key financial information of major joint ventures
Unit: RMB Closing balance/Amount for the year Opening balance/Amount for the prior year Weifang Weifang Weifang Senda Xingxing United Weifang Senda Xingxing United Meixi Port Co., Ltd. Chemical Co., Ltd. Meixi Port Co., Ltd. Chemical Co., Ltd. Current assets 55,386,175.28 97,755,183.56 104,769,683.99 — Of which: Cash and 53,489,910.53 35,030,150.70 20,253,054.23 — cash equivalents
Non-current assets 528,403,804.86 38,098,361.81 325,782,379.60 — Total assets 583,789,980.14 135,853,545.37 430,552,063.59 — Current liabilities 1,236,372.30 32,584,182.76 32,781,806.73 — Non-current liabilities 389,620,042.41 201,622,321.84 — Total liabilities 390,856,414.71 32,584,182.76 234,404,128.57 — Equity attributable to 192,933,565.43 103,269,362.61 196,147,935.02 — shareholders of
the parent company
Share of net assets based 96,466,782.72 51,634,681.31 98,073,967.51 — on shareholding
– -Others 6,693,074.99 57,618,555.81 6,710,954.90 — Carrying amount of 103,159,857.71 109,253,237.12 104,784,922.41 — investment in
joint ventures
Finance expenses -346,852.57 -8,403.59 -308,457.69 — Net profit -3,214,369.59 26,370,424.95 -2,578,637.02 — Total comprehensive -3,214,369.59 26,370,424.95 -2,578,637.02 — income
XIII Financial Report
IX. Interest in other entities(Cont’d)
3. Interest in joint arrangements or associates(Cont’d)
(3) Key financial information of major associates
Unit: RMB Closing balance/Amount for the year Opening balance/Amount for the prior year Ningbo Zhuhai Dechen Ningbo Zhuhai Dechen Kaichen Huamei New Third Board Kaichen Huamei New Third Board Equity Investment Equity Investment Equity Investment Equity Investment Fund Partnership Fund Company Fund Partnership Fund Company (Limited Partnership) (Limited Partnership) (Limited Partnership) (Limited Partnership) Current assets 79,292,150.81 5,492,635.42 146,452,805.16 14,081,866.81 Non-current assets 119,000,000.00 99,020,000.00 51,000,000.00 89,760,000.00 Total assets 198,292,150.81 104,512,635.42 197,452,805.16 103,841,866.81 Current liabilities 13,135.40 5,000.00 5,000.00 Total liabilities 13,135.40 5,000.00 5,000.00 Equity attributable to 198,279,015.41 104,507,635.42 197,452,805.16 103,836,866.81 shareholders of
the parent company
Share of net assets 79,311,606.16 52,253,817.72 78,977,173.01 51,918,433.41 based on shareholding
Carrying amount of 199,585,216.93 52,253,817.72 198,981,173.01 51,918,433.41 investment in associates
Net profit 1,510,109.81 670,768.61 -2,547,194.84 1,266,311.79 Total comprehensive income 1,510,109.81 670,768.61 -2,547,194.84 1,266,311.79
XIII Financial Report
IX. Interest in other entities(Cont’d)
3. Interest in joint arrangements or associates(Cont’d)
(4) Summary financial information of non-major joint ventures and associates
Unit: RMB Closing Opening balance/ balance/Amount Amount for for the year the prior year Joint ventures: — — Total carrying amount of investment 3,572,834.79 3,087,296.74 Total amount of the following items based on shareholding — —– Net profit 485,538.07 -251,183.31 Associates: — — Total carrying amount of investment 18,761,580.99 33,097,001.90 Total amount of the following items based on shareholding — —– Net profit -11,838,692.59 20,463,638.03 (5) Excess loss of joint ventures or associates
Unit: RMB Accumulated Unrecognised Unrecognised unrecognised loss (or share loss (or share loss incurred of net profit) of net profit) Name of joint ventures or associates for prior periods for the period for the period Arjo Wiggins Chenming Specialty
Paper Co., Ltd. 7,308,869.16 7,308,869.16
XIII Financial Report
X. Risk relating to financial instruments
Principal financial instruments of the Company include equity investments, debt investments, loans, accounts receivable, accounts payable, convertible bonds and others, further information of which are set out in relevant items of this note VII. Risks relating to these financial instruments and relevant risk management policies of the Company are described below. The management of the Company manages and controls the risk exposures to ensure they are under control.
The Company adopts sensitivity analysis techniques to analyse the possible effects of rational and probable changes in risk variables to profit or loss for the period or to the interests of shareholders. Since risk variables seldom change on a stand-alone basis, while the correlation between variables may have significant influence to the ultimate amount of change effected by the change in a single risk variable, the analysis below is based on the assumption that the changes in each variable occurred separately.
(I) Objective and policies of risk management
The objective of the risk management of the Company is to maintain an appropriate balance between risks and return so as to minimise the negative effects of risks on theCompany’s operating results in order to maximise the benefits of the shareholders and other stakeholders. Based on such objective, the principal strategy of theCompany’s risk management is to identify and analyse all types of risks of the Company, establish appropriate risk tolerance thresholds, carry out risk management procedures and perform risk monitoring on all kinds of risks in a timely and reliable manner, thus controlling the risk exposures within a prescribed level.
1. Market risk
(1) Foreign exchange risk
Foreign exchange risk describes the risk of loss arising from variation of the exchange rate. The Company is primarily exposed to risks relating to USD, EUR, HKD, JPY, GBP and KRW. Save for several subsidiaries of the Company whose purchases and sales are denominated in USD, EUR, HKD, JPY, GBP and KRW, other principal activities of the Company are settled in RMB. As at 31 December 2018, except for the following assets and liabilities whose balance were denominated in USD, EUR, HKD, JPY, GBP and KRW, the Company adopted RMB to present the balance of its assets and liabilities. The foreign exchange risks arising from assets and liabilities denominated in foreign currencies may affect the operating results of the Company.
Closing balance
Item USD EUR HKD JPY GBP KRW Cash and cash equivalents 65,298,230.91 1,117,538.10 953,429.43 1,266,974.00 2,949.91 481,186,778.00 Bills receivable and
accounts receivable 360,449,354.21 12,193,661.97 146,734,998.00
Other receivables 30,062,101.72 658,111.28
Accounts payable 42,111,655.10 28,596,874.91 309,605.00
Other payables 363,791,451.01 601,452.96 492,960.00
Short-term borrowings 474,868,282.73
Long-term borrowings 367,307,309.20 21,056,153.79
Non-current liabilities
due within one year 199,953,464.76 32,000,000.00
XIII Financial Report
X. Risk relating to financial instruments(Cont’d)
(I) Objective and policies of risk management(Cont’d)
1. Market risk(Cont’d)
(1) Foreign exchange risk(Cont’d)
Opening balance
Item USD EUR HKD JPY GBP KRW USD 822,476,228.06 28,772,352.01 83,601.58 249,812.67 3,256,758.82 1,432,970.52 USD 324,940,401,37 343,401,672.49 8,504,840.76 4,266.69 Short-term borrowings 4,627,480,497.94 1,162,895,564.23
Accounts payable 631,675,626.49 81,833,084.13
Non-current liabilities
due within one year 695,892,300.00 1,344,180,244.00
Long-term borrowings 2,102,216,801.84 1,210,916,961.53
The Company has been paying close attention to the effect of fluctuation in exchange rate on the foreign exchange risks of the Company and has adopted the following measures to avoid foreign exchange risk: A. to have reasonable allocation between assets and liabilities denominated in foreign currencies, gradual reduction in foreign borrowings and appropriate allocation of liabilities denominated in EUR for overseas subsidiaries to avoid foreign exchange risk; B. to closely monitor the exchange rate changes in the international market and fix the exchange rate for certain business denominated in foreign currencies when the swap price is appropriate.
Exchange rate risk sensitivity analysis:
Exchange rate risk - sensitivity analysis assumes that there is a high level of effectiveness in hedging both net investment in foreign operations and cash flow. Based on the assumptions, with other factors unchanged, the exchange rate might float within a reasonable range, and has the following before tax effect on profit or loss andshareholders’ equity for the current period:
For the year For the prior year Currency Exchange rate change Effect on profit Effect on profit USD 5% appreciation against RMB -699,372,242.37 – 345,492,429.84 USD 5% devaluation against RMB 699,372,242.37 345,492,429.84 EUR 5% appreciation against RMB -49,590,467.35 -171,382,591.47 EUR 5% devaluation against RMB 49,590,467.35 171,382,591.47 GBP 5% appreciation against RMB 3,097.41 162,837.94 GBP 5% devaluation against RMB -3,097.41 -162,837.94 HKD 5% appreciation against RMB 1,001,100.90 4,180.08 HKD 5% devaluation against RMB -1,001,100.90 -4,180.08 JPY 5% appreciation against RMB 154,559,377.35 -437,732.67 JPY 5% devaluation against RMB -154,559,377.35 437,732.67 KRW 5% appreciation against RMB 505,246,116.90 71,861.86 KRW 5% devaluation against RMB -505,246,116.90 -71,861.86
XIII Financial Report
X. Risk relating to financial instruments(Cont’d)
(I) Objective and policies of risk management(Cont’d)
1. Market risk(Cont’d)
(2) Interest rate risk– risk of cash flow movements
The risk of cash flow movement of the Company arising from interest rate movement was mainly attributable to variable-rate bank loans (for details, please see this Note VII. 28). TheCompany’s policy is to maintain the floating rate of these borrowings. An increase in interest rate will increase the cost of new interest-bearing debts and the interest expenses of outstanding interest-bearing debts at floating interest rates, and have a significant adverse impact on theCompany’s financial results. The Company will make timely adjustment based on the latest market conditions.
Interest rate risk sensitivity analysis:
The interest rate risk sensitivity analysis is based on the below assumptions:
‧ Change in market interest rate influences interest income or expense of variable-rate financial instruments;
‧ For fixed-rate financial instruments measured at fair value, market interest rate only influences its interest income or expense;
‧ For derivative financial instruments designated as hedging instruments, the change in market rates influences its fair value, and all interest rate hedging are anticipated to be highly effective;‧ Change in fair value of derivative financial instruments and other financial assets and liabilities is calculated by using discounted cash flow method in accordance with the market interest rate on the balance sheet date.
Based on the assumption above, if other variables remain the same, the pre-tax impact of potential reasonable change of interest rate on the current profit or loss andshareholders’ equity is shown as follows:
For the year For the prior year Impact on Impact on Change in shareholders’ shareholders’ Item interest rate Impact on profit equity Impact on profit equity Short-term borrowings Increases by1% -18,260,916.24 -18,260,916.24 -50,151,578.98 -50,151,578.98 Short-term borrowings Decreases by1% 18,260,916.24 18,260,916.24 50,151,578.98 50,151,578.98 Long-term borrowings Increases by1% -27,863,489.83 -27,863,489.83 -61,395,527.30 -61,395,527.30 Long-term borrowings Decreases by1% 27,863,489.83 27,863,489.83 61,395,527.30 61,395,527.30
XIII Financial Report
X. Risk relating to financial instruments(Cont’d)
(I) Objective and policies of risk management(Cont’d)
2. Credit risk
The “Accounting Standards for Business Enterprises No. 22– Recognition and Measurement of Financial Instruments” revised in 2017 performs impairment accounting treatment and recognises loss provision for financial assets within the scope of application based on expected credit losses. The standard specifies an impairment model for the “three-stage” change in credit quality upon initial recognition.
3. Liquidity risk
The Company maintains and monitors a level of cash and cash equivalents deemed adequate by the management to meet the operation needs of the Company and to reduce the effect of cash flow movements. The management of the Company monitors the usage of bank borrowings, and ensures compliance with borrowing agreements.
The Company considers bank loans as its primary source of fund. As at 31 December 2018, unutilised bank loans of the Company amounted to RMB2,959,469.33 (31 December 2017: RMB2,790,036.09).
The maturity analysis of financial assets and financial liabilities held by the Company according to the undiscounted outstanding contractual obligations is as follows:
Item Within 1 year 1-2 years 2-3 years 3-4 years Over 4 years Financial assets
Monetary funds 19,292,774,747.79
Bills receivable 1,199,616,491.46
Accounts receivable 3,451,563,448.16 71,098,999.39 71,505,067.24 42,904,871.67 166,291,709.67 Other receivables
Long-term receivables 4,657,708,557.15 2,889,005,394.66 481,421,051.93 35,296,958.58 Non-current assets due within one year 4,016,428,811.52
Other current assets 10,281,312,825.13
Subtotal
Financial liabilities
Short-term borrowings 40,227,945,361.89
Bills payable 4,218,969,554.93
Accounts payable 3,566,507,866.14 261,760,924.33 80,120,125.97 241,839,728.22
Other payables 283,814,281.72 897,818,538.38 104,694,209.08 166,523,011.36
Non-current liabilities due within one year 7,216,305,771.01
Long-term borrowings 2,032,389,007.22 1,011,033,152.67 746,925,900.00 1,625,309,510.84 Long-term payables 1,254,714,430.97 1,137,685,779.68 978,390,070.78 1,029,465,412.01 Bonds payable 2,097,562,500.00
XIII Financial Report
X. Risk relating to financial instruments(Cont’d)
(II) Transfer of financial assets
Financial assets transferred and ceased to be recognised but with involvement of the transferor
During the year, the Company discounted bank acceptance of RMB5,214,973,227.57 (last year: RMB3,742,679,994.55) in total. As key risks such as interest rate risk and rewards of the acceptance had been transferred to relevant banks, the Company ceased to recognise the discounted acceptance not yet due. Pursuant to discount agreements, the banks were entitled to require the Company to settle any balance of such acceptance if not accepted when due, and the Company therefore had on-going involvement with them. As at 31 December 2018, discounted bank acceptance not yet due amounted to RMB1,194,662,827.01 (31 December 2017: RMB2,169,102,479.25).
XI. Fair value
1. Fair value of assets and liabilities measured at fair value as at the end of the period
Unit: RMB Fair value as at the end of the period
Item Level 1 Level 2 Level 3 Total I. Continuous measurement
of fair value — — — — 1. Equity instrument
investment 103,000,000.00 103,000,000.00 2. Consumable biological
assets 926,416,572.04 926,416,572.04 Total assets continuously
measured at fair value 1,029,416,572.04 1,029,416,572.04 II. Discontinuous
measurement of fair value — — — — 2. Level 3 continuous and non-continuous measurement, valuation techniques and qualification and quantification of key inputs
The Company uses the harvest present value method to assess the fair value of consumable biological assets. The harvest present value method is to estimate the discounted value of the net income of the assessed forest assets during final felling by using the harvest table, deducting the difference of the discounted value of the forest production cost spent during the period from the assessment bench mark date to final felling, which is a method to assess the value of the assessed forest assets.
XIII Financial Report
XI. Fair value(Cont’d)
3. Level 3 continuous measurement, adjustment between opening and closing value and sensitivity of unobservable inputs
The Company adopts sensitivity analysis techniques to analyse the possible effects of rational and probable changes in risk variables to profit or loss for the period or to the interests of shareholders. Since risk variables seldom change on a stand-alone basis, while the correlation between variables may have significant influence to the ultimate amount of change effected by the change in a single risk variable, the analysis below is based on the assumption that the changes in each variable occurred separately.
For the year For the prior year Impact on Impact on Change in investment shareholders’ shareholders’ Item yield or discount rate Impact on profit equity Impact on profit equity Consumable biological assets Increases by1% -39,808,078.34 -39,808,078.34 -49,440,118.54 -49,440,118.54 Consumable biological assets Decreases by1% 43,368,412.26 43,368,412.26 53,618,250.63 53,618,250.63 Note: In the prior period, the income method was used to evaluate the impact of the change in the discount rate on the fair value. In the current period, the harvest present value method is used to assess the impact of the change in investment yield on fair value. 4. Fair value of financial assets and financial liabilities not measured at fair value
TheCompany’s financial assets and financial liabilities not measured at fair value mainly consist of: accounts receivable, short-term borrowings, accounts payable, long-term borrowings, bonds payable and long-term payables. The carrying amount of the above financial assets and financial liabilities deviates from the fair value by a small amount.
XIII Financial Report
XII. Related parties and related party transactions
1. Parent company of the Company
Shareholding Voting right of the parent of the parent Place of company in company in Name of parent company incorporation Business nature Registered capital the Company the Company Chenming Holdings Co., Ltd. Shouguang Investment in 1,238,787,700.00 27.83% 27.83% manufacture of paper,
electricity,
steam, arboriculture
Explanation on the parent company of the Company: The ultimate controller of the Company is Shonguang State- owned Assets Supervision and Administration Office.
2. Subsidiaries of the Company
Please refer to Note IX. 1. Interest in subsidiaries for details.
3. Joint ventures and associates of the Company
Please refer to Note IX. 3. Interest in joint ventures or associates for details.
Balance of related party transaction between the Company and its joint ventures or associates during the period or prior periods are as follows:
Name of joint ventures or associates Relation
Shouguang Chenming Huisen New-style Construction Materials Co., Ltd. A joint venture of the Company Xuchang Chenming Paper Co., Ltd. An associate of the Company Weifang Sime Darby West Port Co., Ltd. A joint venture of the Company Jiangxi Jiangbao Media Colour Printing Co., Ltd. An associate of the Company Zhuhai Dechen New Third Board Equity Investment An associate of the Company Fund Company (Limited Partnership)
Ningbo Kaichen Huamei Equity Investment An associate of the Company Fund Partnership (Limited Partnership)
Chenming (Qingdao) Asset Management Co., Ltd. An associate of the Company Jiangxi Chenming Port Co., Ltd. An associate of the Company Weifang Xingxing Joint Chemical Co., Ltd. A joint venture of the Company
XIII Financial Report
XII. Related parties and related party transactions(Cont’d)
4. Other related parties
Name of other related parties Relation
Shandong Shouguang Jinxin Investment Development Shareholder of theCompany’s largest shareholder Holdings Group Co., Ltd.
Shouguang Henglian Enterprise Investment Limited Shareholder of theCompany’s largest shareholder Shouguang Ruifeng Enterprise Investment Limited Shareholder of theCompany’s largest shareholder Chenming Holdings (Hong Kong) Limited Subsidiary of theCompany’s largest shareholder Zhanjiang Chenming Real Estate Co., Ltd. Subsidiary of theCompany’s largest shareholder Qingdao Hongji Weiye Investment Co., Ltd. Subsidiary of theCompany’s largest shareholder Shouguang Hengying Real Estate Co., Ltd. Subsidiary of theCompany’s largest shareholder Shouguang Hengtai Enterprise Investment Co., Ltd. A company invested by the Directors and senior management of the Company
Shouguang Huixin Construction Materials Co., Ltd. A company invested by the Directors and senior management of the Company
Shouguang Chenming Guangyuan Real Property Co., Ltd. A company invested by the Directors and and its subsidiaries senior management of the Company
Qingdao Chenming Nonghai Investment Co., Ltd. A company invested by the Directors and and its subsidiaries senior management of the Company
Nanchang Chenjian New-style Wall Materials Co., Ltd. A company invested by the Directors and senior management of the Company
Shouguang Hengde Enterprises Investment Co., Ltd. A company invested by the Directors and senior management of the Company
Zhejiang Huaming Investment Management Co., Ltd. Directors and senior management served and its subsidiaries by theCompany’s Directors
Hebei Chenming Zhongjin Real Estate Development Co., Ltd. Directors and senior management served and its subsidiaries by theCompany’s Supervisors
Wuhan Chenming Zhongjin Real Estate Co., Ltd. Directors and senior management served and its subsidiaries by theCompany’s Supervisors
Wuhan Rongsheng Zhongjin Development and Directors and senior management served Investment Co., Ltd. and its subsidiaries by theCompany’s Supervisors
Qingzhou Chenming Denaturation Amylum Co., Ltd. Share participating company of the Company Zhejiang Guangyu Idall Print Co., Ltd. Share participating company of the Company Anhui Time Source Corporation Share participating company of the Company Shandong Hongqiao Venture Capital Co., Ltd. Share participating company of the Company Shanghai Hengzheng Venture Investment Center Share participating company of the Company (Limited Partnership)
Lide Technology Co., Ltd. Share participating company of the Company Jiangxi Chenming Natural Gas Co., Ltd. and its subsidiaries Directors and senior management served by theCompany’s Directors
XIII Financial Report
XII. Related parties and related party transactions(Cont’d)
5. Related party transactions
(1) Purchase and sales of goods and rendering and receiving services
Table on purchase of goods/receiving of services
Unit: RMB Whether the
Details transaction
of related Amount for the Transaction facility Amount for Related party party transaction reporting period facility approved is exceeded the prior period Jiangxi Chenming Natural Procurement of natural 347,639,077.35 350,000,000.00 No 147,672,678.06 Gas Co., Ltd. gas and medium oil, etc.
Weifang Xingxing Joint Procurement of
Chemical Co., Ltd. hydrogen peroxide etc. 85,728,655.93 Not applicable Not applicable — Table on sales of goods/providing of services
Unit: RMB Details of related Amount for the Amount for the Related party party transaction reporting period prior period Shouguang Chenming Huisen Sales of electricity 6,528,609.08 — New-style Construction Materials Co., Ltd. and gas
Shouguang Huixin Construction Sales of cement, 19,056,566.01 — Materials Co., Ltd. coal, oil etc.
Anhui Time Source Corporation Sales of paper — 164,772,473.79 Jiangxi Jiangbao Media Colour Printing Sales of paper — 381,903.20 Co., Ltd.
XIII Financial Report
XII. Related parties and related party transactions(Cont’d)
5. Related party transactions(Cont’d)
(2) Guarantee
The Company as guarantor
Unit: RMB Whether performance Amount under Starting date Expiry date of guarantee Party being guaranteed guarantee of guarantee of guarantee is completed Weifang Sendamei West Port Co., Ltd. 135,000,000.00 20 December 2017 20 December 2027 No Shandong Chenming Paper Sales Co., Ltd. 350,000,000.00 24 February 2018 21 February 2019 No Shandong Chenming Paper Sales Co., Ltd. 250,000,000.00 10 April 2018 10 April 2019 No Shandong Chenming Paper Sales Co., Ltd. 130,000,000.00 4 July 2018 5 July 2019 No Shandong Chenming Paper Sales Co., Ltd. 200,000,000.00 13 July 2018 14 January 2019 No Shandong Chenming Paper Sales Co., Ltd. 420,000,000.00 23 July 2018 24 July 2019 No Shandong Chenming Paper Sales Co., Ltd. 300,000,000.00 21 August 2018 22 February 2019 No Shandong Chenming Paper Sales Co., Ltd. 254,260,749.60 12 September 2018 12 March 2019 No Shandong Chenming Paper Sales Co., Ltd. 300,000,000.00 26 October 2018 26 October 2019 No Shandong Chenming Paper Sales Co., Ltd. 575,786,616.47 5 November 2018 5 May 2019 No Shandong Chenming Paper Sales Co., Ltd. 420,090,519.43 9 November 2018 10 May 2019 No Shandong Chenming Paper Sales Co., Ltd. 450,000,000.00 14 November 2018 14 November 2019 No Shandong Chenming Paper Sales Co., Ltd. 100,000,000.00 16 November 2018 16 May 2019 No Shouguang Meilun Paper Co., Ltd. 57,450,000.00 19 January 2018 18 January 2019 No Shouguang Meilun Paper Co., Ltd. 102,627,454.23 18 October 2018 16 April 2019 No Shouguang Meilun Paper Co., Ltd. 108,446,151.63 13 December 2018 11 June 2019 No Shouguang Meilun Paper Co., Ltd. 170,000,000.00 11 December 2018 6 December 2019 No Shouguang Meilun Paper Co., Ltd. 249,263,998.39 30 August 2018 26 February 2019 No Chenming (HK) Limited 94,986,688.00 1 March 2017 18 March 2019 No Chenming (HK) Limited 247,075,200.00 23 March 2018 20 March 2019 No Chenming (HK) Limited 322,570,400.00 28 May 2018 15 May 2019 No Chenming (HK) Limited 206,170,528.00 22 June 2018 22 June 2019 No Chenming (HK) Limited 65,886,720.00 3 July 2018 3 January 2019 No Chenming (HK) Limited 302,598,488.00 3 July 2018 19 June 2019 No Chenming (HK) Limited 302,323,960.00 10 July 2018 22 June 2019 No Chenming (HK) Limited 56,964,560.00 8 August 2018 15 July 2019 No Chenming (HK) Limited 96,771,120.00 10 August 2018 15 July 2019 No Chenming (HK) Limited 226,005,176.00 19 November 2018 8 November 2019 No Chenming (HK) Limited 200,000,000.00 5 December 2018 5 December 2019 No Chenming (HK) Limited 65,200,400.00 7 December 2018 6 December 2019 No Chenming (HK) Limited 171,580,000.00 11 December 2018 22 March 2019 No Chenming (HK) Limited 34,316,000.00 11 December 2018 22 March 2019 No Chenming (HK) Limited 159,088,976.00 23 April 2018 7 April 2021 No
XIII Financial Report
XII. Related parties and related party transactions(Cont’d)
5. Related party transactions(Cont’d)
(2) Guarantee(Cont’d)
Whether performance Amount under Starting date Expiry date of guarantee Party being guaranteed guarantee of guarantee of guarantee is completed Chenming (HK) Limited 91,280,560.00 4 May 2018 6 April 2021 No Chenming (HK) Limited 96,084,800.00 11 May 2018 11 April 2020 No Chenming (HK) Limited 57,376,352.00 17 May 2018 5 May 2021 No Chenming (HK) Limited 254,512,536.77 8 August 2018 25 May 2021 No Chenming (HK) Limited 254,512,536.77 8 August 2018 25 May 2021 No Chenming (HK) Limited 305,412,400.00 4 September 2018 21 June 2021 No Chenming (HK) Limited 305,412,400.00 6 September 2018 21 June 2021 No Chenming (HK) Limited 192,855,920.00 30 November 2018 30 October 2020 No Chenming (HK) Limited 288,254,400.00 2 November 2016 10 September 2019 No Chenming (HK) Limited 363,749,600.00 18 January 2017 8 April 2019 No Chenming (HK) Limited 281,391,200.00 7 November 2017 30 September 2019 No Chenming (HK) Limited 141,251,400.00 24 May 2017 27 April 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 100,000,000.00 18 January 2018 17 January 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 125,000,000.00 9 February 2018 8 February 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 32,000,000.00 25 June 2018 18 June 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 99,730,254.39 27 July 2018 21 July 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 50,000,000.00 31 August 2018 16 August 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 100,000,000.00 13 September 2018 12 September 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 110,000,000.00 17 October 2018 17 October 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 200,000,000.00 12 October 2018 11 October 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 100,000,000.00 17 October 2018 27 September 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 99,903,967.00 17 October 2018 17 October 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 80,000,000.00 19 October 2018 19 October 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 115,000,000.00 6 November 2018 4 November 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 90,000,000.00 12 November 2018 12 November 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 166,670,000.00 9 November 2018 8 November 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 97,116,354.19 3 December 2018 25 November 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 100,000,000.00 20 December 2018 19 December 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 100,000,000.00 26 December 2018 25 December 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 339,220,180.04 7 January 2018 8 January 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 48,999,600.00 27 April 2018 26 April 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 50,711,407.52 23 November 2018 22 November 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 48,166,397.65 23 November 2018 22 November 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 31,000,000.00 3 June 2015 21 May 2020 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 200,000,000.00 20 June 2017 20 June 2019 No
XIII Financial Report
XII. Related parties and related party transactions(Cont’d)
5. Related party transactions(Cont’d)
(2) Guarantee(Cont’d)
Whether performance Amount under Starting date Expiry date of guarantee Party being guaranteed guarantee of guarantee of guarantee is completed Zhanjiang Chenming Pulp& Paper Co., Ltd. 35,688,640.00 5 June 2015 21 May 2020 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 137,264,000.00 21 December 2017 20 December 2019 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 49,000,000.00 13 February 2018 11 February 2020 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 10,000,000.00 23 February 2018 11 February 2020 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 10,000,000.00 26 February 2018 11 February 2020 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 30,000,000.00 28 February 2018 11 February 2020 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 330,000,000.00 31 October 2018 30 October 2020 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 70,000,000.00 31 October 2018 30 October 2020 No Zhanjiang Chenming Pulp& Paper Co., Ltd. 100,000,000.00 18 December 2018 31 October 2020 No Jilin Chenming Paper Co., Ltd. 49,300,000.00 25 October 2018 30 April 2019 No Jilin Chenming Paper Co., Ltd. 22,620,000.00 26 October 2018 2 May 2019 No Jiangxi Chenming Paper Co., Ltd. 76,500,000.00 29 May 2018 24 May 2019 No Jiangxi Chenming Paper Co., Ltd. 22,500,000.00 20 June 2018 20 June 2019 No Jiangxi Chenming Paper Co., Ltd. 99,000,000.00 10 July 2018 8 July 2019 No Jiangxi Chenming Paper Co., Ltd. 4,429,170.51 6 July 2018 2 January 2019 No Jiangxi Chenming Paper Co., Ltd. 51,000,000.00 16 August 2018 14 August 2019 No Jiangxi Chenming Paper Co., Ltd. 28,000,000.00 24 August 2018 24 August 2019 No Jiangxi Chenming Paper Co., Ltd. 68,000,000.00 29 January 2014 1 January 2019 No Jiangxi Chenming Paper Co., Ltd. 60,000,000.00 24 July 2014 1 January 2019 No Jiangxi Chenming Paper Co., Ltd. 60,000,000.00 29 July 2014 1 January 2019 No Jiangxi Chenming Paper Co., Ltd. 40,000,000.00 25 September 2014 1 January 2019 No Jiangxi Chenming Paper Co., Ltd. 50,000,000.00 16 March 2017 16 March 2019 No Jiangxi Chenming Paper Co., Ltd. 100,000,000.00 1 April 2017 16 March 2019 No Jiangxi Chenming Paper Co., Ltd. 73,000,000.00 12 June 2017 12 June 2019 No Jiangxi Chenming Paper Co., Ltd. 150,000,000.00 29 November 2017 29 November 2019 No Shandong Chenming Financial Leasing Co., Ltd. 130,000,000.00 11 June 2018 11 June 2019 No Shandong Chenming Financial Leasing Co., Ltd. 72,000,000.00 7 November 2018 7 November 2019 No Shandong Chenming Financial Leasing Co., Ltd. 80,000,000.00 17 October 2018 17 October 2019 No Shandong Chenming Financial Leasing Co., Ltd. 200,000,000.00 19 October 2018 15 April 2019 No Shandong Chenming Financial Leasing Co., Ltd. 311,537,810.00 2 March 2016 17 February 2019 No Shandong Chenming Financial Leasing Co., Ltd. 311,537,810.00 18 March 2016 2 February 2019 No Shandong Chenming Financial Leasing Co., Ltd. 175,000,000.00 21 September 2017 21 September 2020 No
XIII Financial Report
XII. Related parties and related party transactions(Cont’d)
5. Related party transactions(Cont’d)
(2) Guarantee(Cont’d)
Whether performance Amount under Starting date Expiry date of guarantee Party being guaranteed guarantee of guarantee of guarantee is completed Huanggang Chenming Pulp& Paper Co., Ltd. 21,840,000.00 14 December 2015 26 March 2019 No Huanggang Chenming Pulp& Paper Co., Ltd. 21,840,000.00 14 December 2015 26 June 2019 No Huanggang Chenming Pulp& Paper Co., Ltd. 32,770,000.00 14 December 2015 26 September 2019 No Huanggang Chenming Pulp& Paper Co., Ltd. 27,070,000.00 14 December 2015 26 December 2019 No Huanggang Chenming Pulp& Paper Co., Ltd. 5,700,000.00 24 June 2016 26 December 2019 No Huanggang Chenming Pulp& Paper Co., Ltd. 32,770,000.00 24 June 2016 26 March 2020 No Huanggang Chenming Pulp& Paper Co., Ltd. 530,000.00 24 June 2016 26 June 2020 No Huanggang Chenming Pulp& Paper Co., Ltd. 32,240,000.00 5 January 2017 26 June 2020 No Huanggang Chenming Pulp& Paper Co., Ltd. 38,240,000.00 5 January 2017 26 September 2020 No Huanggang Chenming Pulp& Paper Co., Ltd. 38,240,000.00 5 January 2017 26 December 2020 No Huanggang Chenming Pulp& Paper Co., Ltd. 43,690,000.00 5 January 2017 26 March 2021 No Huanggang Chenming Pulp& Paper Co., Ltd. 43,690,000.00 5 January 2017 26 June 2021 No Huanggang Chenming Pulp& Paper Co., Ltd. 3,900,000.00 5 January 2017 26 September 2021 No Huanggang Chenming Pulp& Paper Co., Ltd. 36,260,000.00 3 February 2017 26 September 2021 No Huanggang Chenming Pulp& Paper Co., Ltd. 40,160,000.00 3 February 2017 26 December 2021 No Huanggang Chenming Pulp& Paper Co., Ltd. 40,160,000.00 3 February 2017 26 March 2022 No Huanggang Chenming Pulp& Paper Co., Ltd. 33,420,000.00 3 February 2017 26 June 2022 No Huanggang Chenming Pulp& Paper Co., Ltd. 54,905,600.00 26 September 2016 26 March 2019 No Huanggang Chenming Pulp& Paper Co., Ltd. 17,330,952.64 26 September 2016 26 June 2019 No Huanggang Chenming Pulp& Paper Co., Ltd. 44,531,362.58 19 September 2018 26 June 2020 No Huanggang Chenming Pulp& Paper Co., Ltd. 43,642,107.09 14 November 2018 14 November 2020 No Huanggang Chenming Pulp& Paper Co., Ltd. 40,649,014.00 5 December 2016 26 June 2019 No Huanggang Chenming Pulp& Paper Co., Ltd. 66,702,050.00 5 December 2016 26 September 2019 No Huanggang Chenming Pulp& Paper Co., Ltd. 41,747,636.00 5 December 2016 26 December 2019 No Huanggang Chenming Pulp& Paper Co., Ltd. 24,954,414.00 12 April 2017 26 December 2019 No Huanggang Chenming Pulp& Paper Co., Ltd. 66,702,050.00 12 April 2017 26 March 2020 No Huanggang Chenming Pulp& Paper Co., Ltd. 10,358,436.00 12 April 2017 26 June 2020 No Total 16,150,497,024.90
XIII Financial Report
XII. Related parties and related party transactions(Cont’d)
5. Related party transactions(Cont’d)
(3) Related party lending and borrowing
Unit: RMB Related party Borrowing amount Starting date Expiry date Description Borrowing
Chenming Holdings Co., Ltd. 376,000,000.00 28 August 2018 17 July 2019
Lending
Weifang Sime Darby West Port Co., Ltd. 59,500,000.00 9 July 2018 8 July 2022
(4) Distribution band of remuneration of key management staff
Unit: RMB Amount Amount during Item during the year the prior year Remuneration of key management staff 24,601,900.00 24,539,700.00① Distribution band of remuneration of key management staff
Amount Amount during Band of annual remuneration during the year the prior year Total 24.6019 million 24.5397 million Of which: (number of staff in each band of amount)
RMB4.80-5.20 million 1 1 RMB3.60-4.00 million
RMB3.20-3.60 million
RMB2.80-3.20 million 1 RMB2.40-2.80 million 1 RMB2.00-2.40 million 3 2 RMB1.60-2.00 million 1 3 RMB1.20-1.60 million 5 1 RMB0.80-1.20 million 1
Below RMB0.80 million 15 14
XIII Financial Report
XII. Related parties and related party transactions(Cont’d)
5. Related party transactions(Cont’d)
(4) Distribution band of remuneration of key management staff(Cont’d)
② Breakdown of remuneration of key management staff
Amount during the year(RMB’0,000)
Basic annual Social welfare Payments of Total Key management staff remuneration contribution housing funds (RMB’0,000) Pan Ailing 12.00 12.00 Huang Lei 12.00 12.00 Liang Fu 12.00 12.00 Wang Fengrong 12.00 12.00 Sub-total of independent 48.00 48.00 non-executive Directors
Yang Guihua 12.00 12.00 Zhang Hong 12.00 12.00 Sub-total of 24.00 24.00 non-executive Directors
Chen Hongguo 491.03 5.63 2.34 499.00 Hu Changqing 190.46 7.82 1.72 200.00 Yin Tongyuan 120.9 1.82 1.48 124.20 Geng Guanglin 146.24 5.63 2.34 154.21 Li Feng 132.51 5.63 2.34 140.48 Chen Gang 178.12 5.63 2.34 186.09 Sub-total of executive Directors 1,259.26 32.16 12.56 1,303.98 Li Dong 0 Sun Yinghua 60.05 5.63 2.34 68.02 Yang Hongqin 12.90 2.17 0.83 15.90 Zhang Xiaofeng 2.50 2.50 Total of Supervisors 75.45 7.80 3.17 86.42 Sub-total of other 946.77 34.54 16.48 997.79 senior management members
Total 2,353.44 74.5 32.21 2,460.19
XIII Financial Report
XII. Related parties and related party transactions(Cont’d)
5. Related party transactions(Cont’d)
(4) Distribution band of remuneration of key management staff(Cont’d)
② Breakdown of remuneration of key management staff
Cont’d
Amount during the prior year(RMB’0,000)
Basic annual Social welfare Payments of Total Key management staff remuneration contribution housing funds (RMB’0,000) Pan Ailing 12.00 12.00 Huang Lei 12.00 12.00 Liang Fu 12.00 12.00 Wang Fengrong 12.00 12.00 Sub-total of independent 48.00 48.00 non-executive Directors
Yang Guihua 12.00 12.00 Zhang Hong 12.00 12.00 Sub-total of 24.00 24.00 non-executive Directors
Chen Hongguo 491.59 5.23 2.18 499.00 Yin Tongyuan 290.59 5.23 2.18 298.00 Geng Guanglin 185.70 5.23 2.18 193.11 Li Feng 234.81 5.23 2.18 242.22 Sub-total of executive Directors 1,167.92 32.90 13.77 1,214.59 Li Dong 54.85 3.29 1.40 59.54 Sun Yinghua 44.51 4.89 2.00 51.40 Yang Hongqin 16.14 2.25 0.97 19.36 Liu Jilu 2.08 2.08 Zhang Xiaofeng 2.50 2.50 Total of Supervisors 134.88 10.43 4.37 134.88 Sub-total of other senior 973.98 28.76 12.02 1,014.76 management members
Total 2.368.75 60.11 25.11 2,453.97
XIII Financial Report
XII. Related parties and related party transactions(Cont’d)
5. Related party transactions(Cont’d)
(4) Distribution band of remuneration of key management staff(Cont’d)
③ The 5 highest paid individuals of the Company during the year comprised of 3 directors and 2 other senior management members of the Company. The remuneration bands of the 2 senior management members were RMB2.00-2.40 million.
A. Remuneration of the five highest paid individuals
Amounts Amounts during during the year the prior year Item (RMB’0,000) (RMB’0,000) Basic annual remuneration 1,262.58 1,421.26 Provident fund 11.08 8.72 Social welfare contribution 30.34 20.92 Total 1,304.00 1,450.90 B. Distribution band of remuneration of the five highest paid individuals
Number of Number of individuals individuals during Band of annual remuneration during the year the prior year RMB4.80-5.20 million 1 1 RMB3.20-3.60 million
RMB2.80-3.20 million 1 RMB2.40-2.80 million 1 RMB2.00-2.40 million 3 2 RMB1.60-2.00 million 1
RMB1.20-1.60 million
④ During the year, no other emoluments were paid by the Company to the directors of the Company and the 5 highest paid individuals as an inducement to join or upon joining the Company or as compensation for loss of office. None of the directors waived any emoluments during the year.
XIII Financial Report
XII. Related parties and related party transactions(Cont’d)
6. Related party accounts receivable and accounts payable
(1) Accounts receivables
Unit: RMB Closing balance Opening balance Item Related party Book balance Bad debt Book balance Bad debt Accounts receivable Shouguang Chenming Huisen 774,832.20 38,741.61 2,995,456.40 149,772.82 New-style Construction
Materials Co., Ltd.
Prepayments Jiangxi Chenming Natural 33,567,041.92 18,519,096.64
Gas Co., Ltd.
Prepayments Shouguang Chenming 25,586,691.33 37,493,155.33
Natural Gas Co., Ltd.
Other receivables Arjo Wiggins Chenming 1,191,705.08 1,191,705.08 1,191,705.08 1,191,705.08 Specialty Paper Co., Ltd.
Other receivables Weifang Sime Darby 60,836,961.43 304,184.80 75,500,000.00 3,775,000.00 West Port Co., Ltd.
(2) Accounts payable
Unit: RMB Closing Opening Item Related party book balance book balance Accounts payable Weifang Xingxing Joint Chemical Co., Ltd. 18,544,025.96
Other payables Chenming Holdings Co., Ltd. 376,000,000.00
Other payables Shouguang Hengtai Enterprise 44,392,007.69 42,189,702.27 Investment Company Limited
XIII Financial Report
XIII. Undertaking and contingency
1. Significant commitments
Significant commitments as at the balance sheet date
(1) Capital commitment
Item Closing balance Opening balance Contracted but not yet recognised in the financial statements
Commitments in relation to acquisition and
construction of long-term assets 1,463,816,242.90 3,826,992,695.73 Huirui BT Project 2,500,000,000.00 Total 1,463,816,242.90 6,326,992,695.73 (2) Operating lease commitments
As at the balance sheet date, the Company entered into irrevocable operating lease contracts with external companies as follows:
Item Closing balance Opening balance Minimum lease payments under irrevocable operating leases:
The first year after balance sheet date 5,315,217.18 4,382,201.43 The second year after balance sheet date 4,929,546.64 4,777,714.37 The third year after balance sheet date 4,406,104.83 5,133,887.63 In the years thereafter 86,672,608.29 179,556,362.24 Total 101,323,476.94 193,850,165.67
XIII Financial Report
XIII. Undertaking and contingency(Cont’d)
2. Contingency
(1) Significant contingency as at the balance sheet date
Contingent liabilities arising from pending litigation and its financial impacts
In October 2005, the Company and Hong Kong ArjowigginsHKK2Limited (“HKK2”) jointly established Arjo Wiggins Chenming Specialty Paper Co., Ltd. in Shouguang, Shandong Province, which is engaged in the production of special paper, decoration paper and draft paper. However, such company experienced poor management due to financial crisis. Hence, such company was forced to dissolve in October 2008.
In October 2012, HKK2 submitted for arbitration application to Hong Kong International Arbitration Centre, Hong Kong Special Administration of PRC, on the ground of default of the joint venture agreement by the Company. In November 2015, Hong Kong International Arbitration Centre announced arbitration result, stating that the Company should compensate HKK2 with economic loss of RMB167 million, arbitration fee ofHK$3.30 million and legal fee of USD3.54 million, together with interest thereon calculated at8% per annum. In October 2016, the Company received a statutory demand, stating that if the Company fails to perform the arbitration results within 21 days, the liquidation application on H shares of the Company will be submitted. Subsequently, HKK2 submitted H shares liquidation application to the arbitration centre.
In November 2016, the Company submitted application to the Court of First Instance of the High Court of the HKSAR and received an injunction, stating that “the applicant is prohibited from applying for liquidation on the Company”.
In February 2017, HKK2 submitted an appeal to the court. In June 2017, the court dismissed the injunction received by the Company. In the same month, the Company received the liquidation application submitted by the defendant to the High Court of Hong Kong, which alleged that the Company should compensate the defendant with economic loss of RMB167 million, legal fee of USD3.54 million and arbitration fee ofHK$3.30 million, together with interest thereon due to failure in compliance of the arbitration results.
In September 2017, the Company procured a deposit ofHK$389 million to the High Court of Hong Kong, and appealed against the injunction to the court. In May 2018, the court session of the case commenced. At present, the injunction case is still in progress.
In 2017, the Company made provision of RMB325,259,082.28 for the expected liability arising from this litigation. However, as at 31 December 2018, judgment of the court of Hong Kong is yet to be made, and the expected loss is uncertain. Hence, such expected liability is still stated under the balance sheet.
XIII Financial Report
XIV. Post-balance sheet event
1. Profit distribution
(1) Fixed dividend of Chenming You 01
On 6 March 2019, the resolution on payment of 2019 fixed dividend on preference shares was passed at the thirty-sixth extraordinary meeting of the eighth session of the Board. Among which, the first-tranche of preference shares will be issued in 22.50 million shares (with a par value of RMB100 per share). Based on the coupon rate of4.36%, dividend of RMB4.36 (tax inclusive) per preference share will be distributed, amounting to RMB98.10 million (tax inclusive) in aggregate.
(2) 2018 profit distribution proposal
On 29 March 2019, the twelfth meeting of the eighth session of the Board of the Company was held to consider the 2018 profit distribution proposal. Based on the total ordinary share capital of 2,904,608,200 shares as at the end of 2018 and the 1,162,790,698 simulated ordinary shares converted from the preference shares using a conversion ratio of 1 share valued at RMB3.87 as at the end of 2018, a cash dividend of RMB2.4 (tax inclusive) per 10 shares will be distributed to ordinary shareholders, a cash dividend of RMB2.40 (tax inclusive) per 10 simulated ordinary shares converted from the preference shares will be distributed to holders of preference shares, and no capitalisation issue will be made out of the capital reserves. A cash dividend of RMB697,105,968 will be distributed to ordinary shareholders and a variable cash dividend of RMB279,069,767.52 will be distributed to holders of preference shares.
2. Other post-balance sheet date event
The resolution on the establishment of Shanghai Sales Co., Ltd. was passed at the thirty-fifth extraordinary meeting of the eighth session of the Board. The Company decided to establish Shanghai Sales Co., Ltd, with registered capital of RMB100 million, thereby fully utilising the advantages of Shanghai Financial Center, expanding and enhancing the Shanghai platform, putting greater efforts in market development, as well as enhancing the overall strength and comprehensive competitiveness of the Company
The resolution on the cooperation to initiate the establishment of Weifang Chenming Growth Driver Replacement Equity Investment Fund was passed at the thirty-sixth extraordinary meeting of the eighth session of the Board. The Company decided to establish Weifang Chenming Growth Driver Replacement Equity Investment Fund Partnership (Limited Partnership), with registered capital of RMB1,000 million. It is primarily engaged in investment activities as permitted by laws, and focused on the implementation of major works on supporting the growth driver replacement in Weifang, protected legal rights of all partners and obtained investment gains through equity or other investments.
XIII Financial Report
XV. Other material matters
1. Corrections on previous accounting errors
(1) Retrospective restatement method
Unit: RMB Names of
affected items in
the statements
Corrections on for respective Cumulative accounting errors Resolutions comparable period amount affected Some of the financial leasing The resolution on correction of previous Operating income -379,290,284.15 operations conducted accounting errors and retrospective from principal
by Shandong Chenming restatement was passed at the twelfth activities
Financial Leasing Co., Ltd., a meeting of the eighth session of the Board
subsidiary of the Company, and the thirteenth meeting of the eighth
did not comply with laws. session of the Supervisory Board.
Hence, interest income arising The resolution on correction of previous Interest expense -379,290,284.15 from such operations shall accounting errors and retrospective
recognise as interest income restatement was passed at the twelfth
and interest expense instead meeting of the eighth session of the Board
of revenue and operating and the thirteenth meeting of the eighth
costs. session of the Supervisory Board
Note: Some of the financial leasing operations conducted by Shandong Chenming Financial Leasing Co., Ltd., a subsidiary of the Company, did not comply with laws. Hence, interest income arising from such operations shall recognise as interest income and interest expense instead of revenue and operating costs. For adjustment for errors in 2017, revenue was reduced by RMB379,290,284.15, while finance cost reduced by RMB379,290,284.15. At the same time, for adjustment for errors in 2016, revenue was reduced by RMB340,195,777.53, while finance cost reduced by RMB340,195,777.53. For adjustment for errors in 2015, revenue was reduced by RMB49,262,640.70, while finance cost reduced by RMB49,262,640.70. As such errors are items under income statement, opening retained profit will not be affected.
XIII Financial Report
XV. Other material matters(Cont’d)
2. Segment information
(1) Basis for determination and accounting policies
According to the internal organisation structure, the requirement of management and the internal reporting system of the Company, the operating businesses of the Company are categorised into 4 operating segments. The management of the Company evaluates the operating results of such segments on a regular basis, in order to allocate the resources and evaluate their results. On the basis of operating segments, the Company determines 4 reporting segments, namely machine-made paper segment, financial service segment, magnesium ore segment and other segment. The primary products or services provided by each reporting segment of the Company include machine-made paper and relevant products, financial leasing services and financial services, magnesium ore and other products.
The information from the reporting segments is disclosed in accordance with the accounting policies and measurement standards adopted by each of the reporting segment when reporting to the management, which are consistent with the accounting policies and measurement standards adopted in the preparation of the financial statements.
(2) Financial information of reporting segment
Unit:RMB’0,000 Inter-segment
Item Machine-made paper Financial services Magnesium ore Others elimination Total Income from principal activities 2,467,420.00 287,193.00 41,615.24 115,466.38 90,171.28 2,821,523.34 Cost for principal activities 1,806,528.16 126,269.94 19,954.37 113,969.11 138,847.89 1,927,873.69 Total assets 12,608,630.43 3,520,186.80 188,774.24 898,873.43 6,684,591.42 10,531,873.48 Total liabilities 8,596,980.92 1,893,336.74 153,313.95 448,735.81 3,147,663.06 7,994,704.36
XIII Financial Report
XVI. Notes to major financial statement items of the parent company
1. Bills receivable and accounts receivable
Unit: RMB Item Closing balance Opening balance Bills receivable 436,662,187.80 787,095,075.51 Accounts receivable 1,349,276,965.04 8,188,750.45 Total 1,785,939,152.84 795,283,825.96 (1) Bills receivable
1) Bills receivable by category
Unit: RMB Item Closing balance Opening balance Bank acceptance bills 436,662,187.80 787,095,075.51 Commercial acceptance bills
Total 436,662,187.80 787,095,075.51 2) Bills receivable pledged at the end of the period
Unit: RMB Closing Item pledged amount Bank acceptance bills 431,715,666.94 Commercial acceptance bills
Total 431,715,666.94
XIII Financial Report
XVI. Notes to major financial statement items of the parent company(Cont’d)
1. Bills receivable and accounts receivable(Cont’d)
(1) Bills receivable(Cont’d)
3) Outstanding bills receivable endorsed or discounted by the Company as at the end of the period Unit: RMB Derecognised Recognised amount amount as at the end as at the end Item of the period of the period Bank acceptance bills 11,748,686,945.38
Commercial acceptance bills 1,782,100,000.00
Total 13,530,786,945.38
4) Bills transferred to accounts receivable due the default of the issuer as at the end of the period Unit: RMB Amount transferred to accounts receivable as at the end Item of the period Commercial acceptance bills 5,000,000.00 Total 5,000,000.00 Other explanation: During the year, the accumulated bank acceptance bills issued by the Company to banks amounted to RMB160,905,138.71 (2017: RMB373,074,516.02), with discount expenses incurred of RMB3,553,992.73 (2017: RMB7,043,917.95). As at 31 December 2018, outstanding discounted bills receivable amounted to RMB32,370,000.00 (2017: RMB22,172,826.30).
XIII Financial Report
XVI. Notes to major financial statement items of the parent company(Cont’d)
1. Bills receivable and accounts receivable(Cont’d)
(2) Accounts receivable
1) Accounts receivable by category
Unit: RMB Closing balance Opening balance
Book balance Bad debt provision Book balance Bad debt provision
Category Amount Percentage Amount Percentage Carrying amount Amount Percentage Amount Percentage Carrying amount Including:
Accounts receivable that are collectively
assessed for bad debt provision 1,349,962,797.42 100.00% 685,832.38 0.05% 1,349,276,965.04 8,860,393.90 100.00% 671,643.45 7.58% 8,188,750.45 Including:
Receivables from related parties 1,342,192,951.98 99.42% 1,342,192,951.98 4,208,410.45 47.50% 4,208,410.45 Receivables from customers of distributors 7,769,845.44 0.58% 685,832.38 8.83% 7,084,013.06
Accounts receivable that are collectively
assessed for bad debt provision based
on credit risk characteristics 4,651,983.45 52.50% 671,643.45 14.44% 3,980,340.00 Total 1,349,962,797.42 100.00% 685,832.38 0.05% 1,349,276,965.04 8,860,393.90 100.00% 671,643.45 7.58% 8,188,750.45 By age
Unit; RMB Age Closing balance Within 1 year (inclusive) 1,343,661,038.96 1 to 2 years
2 to 3 years 5,615,926.08 Over 3 years
Total 1,349,276,965.04 2) Top five accounts receivable based on closing balance of debtors
The total amount of theCompany’s top five accounts receivable based on closing balance of debtors for the year was RMB1,340,842,975.00, which accounted for99.32% of the closing balance of the total accounts receivable. The closing balance of corresponding bad debt provision amounted to RMB1,047,391.21.
XIII Financial Report
XVI. Notes to major financial statement items of the parent company(Cont’d)
2. Other receivables
Unit: RMB Item Closing balance Opening balance Interest receivable 77,257,506.25 55,570,669.83 Other receivables 19,328,057,454.99 22,295,632,815.00 Total 19,405,314,961.24 22,351,203,484.83 (1) Interest receivable
Classification of interest receivable
Unit: RMB Item Closing balance Opening balance Time deposit 77,257,506.25 55,570,669.83 Total 77,257,506.25 55,570,669.83 (2) Other receivables
1) Other receivables by nature
Unit: RMB Closing Opening Nature book balance book balance Open credit 19,297,217,793.30 22,208,959,701.11 Payment for equipment 45,241,076.47 20,754,940.07 Standby credit and borrowings 7,681,197.42 389,539.61 Deposit 9,958,377.28
Insurance premium 466,935.72 17,518.66 Investment 4,568,145.95 Others 39,175,451.96 129,819,327.47 Total 19,399,740,832.15 22,364,509,172.87
XIII Financial Report
XVI. Notes to major financial statement items of the parent company(Cont’d)
2. Other receivables
(2) Other receivables
2) By age
Unit: RMB Age Closing balance Within 1 year (inclusive) 19,272,345,409.01 1 to 2 years 67,661,717.48 2 to 3 years 8,441,937.61 Over 3 years 51,291,768.05 Total 19,399,740,832.15 3) Provision, recovery or reversal of bad debt provision for the period
Bad debt provision for the current year amounted to RMB2,807,019.29. The amount for bad debt provision recovered or reversed for during the current period was RMB0.00.
4) Top five other receivables according to closing balance of debtors
Unit: RMB Percentage
to closing
balance Closing balance of other of bad Name of entity Nature Closing balance Maturity receivables debt provision Shandong Chenming
Financial Leasing Co., Ltd. Open credit 8,150,499,316.05 Within 1 year 42.01%
Shanghai Chenming
Financial Leasing Co., Ltd. Open credit 2,192,000,000.00 Within 1 year 11.30%
Huanggang Chenming
Pulp& Paper Co., Ltd. Open credit 2,022,781,568.75 Within 1 year 10.43%
Shanghai Chenming Industry
Co., Ltd. Open credit 1,297,668,824.89 Within 1 year 6.69%
Haicheng Haiming Mining Co., Ltd. Open credit 1,233,662,555.30 Within 1 year 6.36%
Total — 14,896,612,264.99 — 76.79%
XIII Financial Report
XVI. Notes to major financial statement items of the parent company(Cont’d)
3. Long-term equity investments
Unit: RMB Closing balance Opening balance
Item Book balance Impairment provision Carrying amount Book balance Impairment provision Carrying amount Investment in subsidiaries 22,114,152,649.90 22,114,152,649.90 18,310,508,366.48 18,310,508,366.48 Investment in associates and joint ventures 373,264,793.34 373,264,793.34 360,525,877.01 360,525,877.01 Total 22,487,417,443.24 22,487,417,443.24 18,671,034,243.49 18,671,034,243.49 (1) Investment in subsidiaries
Unit: RMB Impairment Closing Increase Decrease provision balance provision Investee Opening balance for the period for the period Closing balance for the period of impairment Chenming Paper Korea Co., Ltd. 6,143,400.00 6,143,400.00
Chenming GmbH 4,083,235.00 4,083,235.00
Shandong Chenming Paper Group
(Fuyu) Sales Co., Ltd. 1,000,000.00 1,000,000.00
Haicheng Haiming Mining Co., Ltd. 144,000,000.00 144,000,000.00
Hailaer Chenming Paper Co., Ltd. 12,000,000.00 12,000,000.00
Huanggang Chenming
Pulp& Paper Co., Ltd. 1,200,000,000.00 50,000,000.00 1,250,000,000.00
Huanggang Chenming Arboriculture
Development Co., Ltd. 70,000,000.00 70,000,000.00
Jilin Chenming Paper Co., Ltd. 1,501,350,000.00 1,501,350,000.00
Jinan Chenming Investment
Management Co., Ltd. 100,000,000.00 100,000,000.00
Jiangxi Chenming Paper Co., Ltd. 822,867,646.40 822,867,646.40
Shandong Chenming Power
Supply Holdings Co., Ltd. 157,810,117.43 157,810,117.43
Wuhan Chenming Hanyang Paper
Holdings Co., Ltd. 202,824,716.34 61,668,493.87 264,493,210.21
Shandong Grand View Hotel Co., Ltd. 80,500,000.00 80,500,000.00
Zhanjiang Chenming Pulp& Paper Co., Ltd. 5,000,000,000.00 27,500,000.00 5,027,500,000.00
Shouguang Chenming Modern
Logistic Co., Ltd. 10,000,000.00 10,000,000.00
Shouguang Chenming Art Paper Co., Ltd. 113,616,063.80 113,616,063.80
Shouguang Meilun Paper Co., Ltd. 4,449,441,979.31 4,449,441,979.31
Shouguang Shun Da Customs
Declaration Co, Ltd. 1,500,000.00 1,500,000.00
Shandong Chenming Paper Sales Co., Ltd. 662,641,208.20 662,641,208.20
XIII Financial Report
XVI. Notes to major financial statement items of the parent company(Cont’d)
3. Long-term equity investments(Cont’d)
(1) Investment in subsidiaries(Cont’d)
Impairment Closing Increase Decrease provision balance provision Investee Opening balance for the period for the period Closing balance for the period of impairment Shouguang Chenming Import
and Export Trade Co., Ltd. 250,000,000.00 250,000,000.00
Shouguang Chenming
Papermaking Machine Co., Ltd. 2,000,000.00 2,000,000.00
Shouguang Chenming Industrial
Logistics Co., Ltd. 10,000,000.00 10,000,000.00
Shouguang Chenming Hongxin
Packaging Co., Ltd. 3,730,000.00 3,730,000.00
Shandong Chenming Group
Finance Co., Ltd. 2,400,000,000.00 1,600,000,000.00 4,000,000,000.00
Chenming Arboriculture Co., Ltd. 45,000,000.00 45,000,000.00
Shanghai Chenming Industry Co., Ltd. 1,000,000,000.00 2,000,000,000.00 3,000,000,000.00
Chenming (HK) Limited 118,067,989.55 118,067,989.55
Chenming Paper USA Co., Ltd. 6,407,800.00 6,407,800.00
Xuchang Chenming Paper Co., Ltd. 60,000,000.00 60,000,000.00
Total 18,310,508,366.48 3,863,644,283.42 60,000,000.00 22,114,152,649.90
XIII Financial Report
XVI. Notes to major financial statement items of the parent company(Cont’d)
3. Long-term equity investments(Cont’d)
(2) Investment in associates and joint ventures
Unit: RMB Change for the period
Investment Adjustment Closing gain or loss of other Distribution of balance of Additional Withdrawn recognizer under comprehensive Other change in cash dividend or Impairment impairment Investee Opening balance contribution contribution equity method income equity interest profit declared provision Others Closing balance provision I. Joint ventures
Shouguang Chenming Huisen
New-style Construction
Materials Co., Ltd. 3,087,296.72 485,538.07 3,572,834.79 Weifang Sime Darby West
Port Co., Ltd. 104,784,922.41 -1,625,064.70 103,159,857.71 Subtotal 107,872,219.13 -1,139,526.63 106,732,692.50 II. Associates
Jiangxi Jiangbao Media
Colour Printing Co., Ltd. 1,754,051.46 -942,052.71 811,998.75 Zhuhai Dechen New Third
Board Equity Investment
Fund Company
(Limited Partnership) 51,918,433.41 335,384.31 52,253,817.72 Ningbo Kaichen Huamei
Equity Investment
Fund Partnership
(Limited Partnership) 198,981,173.01 604,043.93 199,585,216.93 Chenming (Qingdao) Asset
Management Co., Ltd. 8,200,000.00 -313,478.53 7,886,521.47 Xuchang Chenming Paper Co., Ltd. 21,496,272.32 -15,501,726.35 5,994,545.97 Subtotal 252,653,657.88 29,696,272.32 -15,817,829.35 266,532,100.84 Total 360,525,877.01 29,696,272.32 -16,957,355.99 373,264,793.34
XIII Financial Report
XVI. Notes to major financial statement items of the parent company(Cont’d)
4. Revenue and operating costs
Unit: RMB Item Amount for the reporting period Amount for the prior period Revenue Costs Revenue Costs Principal activities 4,196,033,317.73 2,902,204,877.94 6,033,262,719.79 3,970,890,010.22 Other activities 1,478,808,522.94 1,378,583,504.42 1,167,660,784.17 1,020,463,556.73 Total 5,674,841,840.67 4,280,788,382.36 7,200,923,503.96 4,991,353,566.95 5 Investment income
Unit: RMB Amount for the Amount for Item reporting period the prior period Income from long-term equity investments accounted
for using the equity method -16,957,355.99 -3,265,824.03 Investment gain on held-for-trading financial assets 128,691,400.00 Investment gain from disposal of held-for-trading financial assets 155,750,000.00
Investment gain from long-term equity investments accounted
for using the equity method 590,000,000.00
Interest income from entrusted loans 13,312,368.97 Total 728,792,644.01 138,737,944.94
XIII Financial Report
XVII. Supplementary information
1. Breakdown of extraordinary gains and losses for the current period
√ Applicable□ Not applicable
Unit: RMB Item Amount Remark Profit or loss from disposal of non-current assets 17,149,722.72
Unauthorised or unofficially approved tax rebate or reduction
Government grants (except for the government grants closely related
to the normal operation of the Company and granted constantly
at a fixed amount or quantity in accordance with a certain
standard based on state policies) accounted for in profit or loss
for the current period 535,691,291.26
Except for effective hedging business conducted over the course
of ordinary operation of the Company, gain or loss arising from
fair value change in held-for-trading financial assets,
derivative financial assets, held-for-trading financial liabilities
and derivative financial liabilities, as well as investment gain
on disposal of held-for-trading financial assets,
derivative financial assets, held-for-trading financial liabilities,
derivative financial liabilities and other equity investments 61,750,000.00
Gain or loss from change in fair value of consumable biological
assets adopting fair value method for follow-up measurements -21,464,400.65
Non-operating gains and losses other than the above items 23,291,720.22
Less: Effect of income tax 52,960,460.82
Effect of minority interest 7,328,864.01
Total 556,129,008.72 —
Notes for theCompany’s extraordinary gain or loss items as defined in the Explanatory Announcement on Information Disclosure for Companies Offering Their Securities to the Public No.1 - Extraordinary Gains or Losses and the extraordinary gain or loss items as illustrated in the Explanatory Announcement on Information Disclosure for Companies Offering Their Securities to the Public No.1 - Extraordinary Gains or Losses defined as its recurring gain or loss items.
□Applicable√ Not applicable
XIII Financial Report
XVII. Supplementary information(Cont’d)
2. Returns on net assets and earnings per share
Earnings per share
Rate on net assets
on weighted Basic Diluted Profit for the reporting period average basis (RMB per share) (RMB per share) Net profit attributable to ordinary shareholders
of the Company 8.51% 0.51 0.51 Net profit after extraordinary gains and
losses attributable to ordinary shareholders
of the Company 5.32% 0.32 0.32 Note: The net profit attributable to ordinary shareholders of the company has deducted other equity instruments - perpetual debt can be deferred and accrued to the interest paid in subsequent periods. The impact of dividends on the preference shares of other equity instruments declared to be released after consideration and approval. When calculating the financial indicators of earnings per share and weighted average return on equity, the interest on perpetual bonds of RMB347,140,000 and the dividends on issuance of preference shares of RMB679,141,006.88 are deducted during the reporting period.
Profit for the Item reporting period Net profit attributable to the Company 2,509,828,858.47 Less: Effect of cumulative interest on perpetual bonds 347,140,000.00 Dividends on perference shares 679,141,006.88 Net profit attributable to ordinary shareholders 1,483,547,851.59 3. Differences in accounting data under domestic and overseas accounting standards
(1) Differences between the net profit and net assets disclosed in accordance with international accounting standards and China accounting standards in the financial report
□Applicable√ Not applicable
(2) Differences between the net profit and net assets disclosed in accordance with overseas accounting standards and China accounting standards in the financial report
□Applicable√ Not applicable
XIV Documents Available for Inspection
I. The financial statements signed and sealed by the legal representative, financial representative and head of the financial department of the Company;
II. The original copy of theauditors’ report which is sealed by the accounting firm and signed and sealed by the certified public accountant;
III. The original copies of the documents and announcements of the Company disclosed in the designated newspaper and on the website as approved by China Securities Regulatory Commission during the reporting period;
IV. The annual report disclosed on the website of the Stock Exchange of Hong Kong Limited;
V. Other related information.
The Board of Shandong Chenming Paper Holdings Limited 29 March 2019