# 6.2 Commerce and Logistics Finance

In 2018, the Bank adhered to the unique positioning as a “commerce and logistics bank” and constructed a “Five-Clouds” platform to strengthen product and service innovation. Specifically, the Bank built a professional value-added “Cloud Service” platform by establishing the “Cloud Logistics” and “Cloud Business” product systems and improving the “Cloud Financing” and “Cloud Trading” functions to provide full-process transaction services for enterprises and enhance customer experience, so as to accrue settlement deposits and broaden income sources of intermediary business.

# “Cloud Trading“

The Bank’s “Cloud Trading” platform uses advanced financial technology and scientific and agile iterative development methods to develop a complete set of solutions for treasury management of enterprises. The Bank introduced products such as corporate online banking, cash management, bank-enterprise direct link, interbank treasury management cloud platform, corporate settlement card and e-government to provide enterprises with a series of innovative payment and settlement services. By embedding financial services in transaction links to satisfy the needs of enterprises in various application scenarios, the platform can help enterprises achieve a range of treasury management goals such as pooling resources, reducing costs, accelerating fund flow, controlling risks and enhancing asset allocation. As at the end of the Reporting Period, the Bank had signed 28,025 corporate online banking customers with a transaction amount of RMB656.5 billion; the cash management platform had provided treasury management solutions for 839 large and medium-sized enterprises and public institutions; the bank-enterprise direct link had successfully connected with a number of medium and large group customers; the Bank had issued 2,316 corporate settlement cards in total; and the Bank had provided cash management solutions for many institutional customers including the public resources trading centre, courts, housing provident fund centre, land and resources trading centre, etc.

# “Cloud Financing“

The Bank established an online supply chain financing platform based on the credit of core enterprises to develop financing services for upstream and downstream customers nationwide. With system connection and information exchange among the Bank’s online supply chain financing platform, fund supervision system, core enterprises’ ERP (Enterprise Resource Planning) systems and order systems, the Bank employs electronic signature law and electronic signature technology and draws on the credit of core enterprises to provide full-process online financing services for upstream and downstream partners of the core enterprises. Currently, the online 1+N prepayment financing, online 1+N factoring pool financing, online factoring and online 1+N re-factoring, financing functions have been up and running. During the Reporting Period, the “Cloud Financing” platform achieved the direct connection among multiple B2B (Business-to-Business) e-commerce platforms, supply chain finance platforms and core enterprises, and commenced business operations in June 2018, thus expanding the Bank’s channels to secure customers in large quantities for its “Cloud Financing” business. As at the end of the Reporting Period, more than 100 customers received financing online via the “Cloud Financing“ platform, and online financing business exceeded RMB400 million.


# “Cloud Logistics“

The “Cloud Logistics” platform is an open comprehensive service platform for the logistics industry. It is a professional “Internet + Logistics + Finance” platform created by the Bank to provide consignors with online registration, online ordering, online freight payment and other related functions. The platform provides logistics companies with such functions as entry application, online receipt of orders, logistics tracking, online entrusted collection of payments and branch fund management to improve their automated financial reconciliation and sub-account management capabilities and help them achieve automated fund management. For orders on the platform paid through the Bank’s acquiring channel, the Bank will supervise the funds from entrusted collection of payments for goods and ensure that the collected payments are safely and timely distributed to the consignors. Currently, the Bank has signed business cooperation agreements with a number of logistics companies.

# “Cloud Service“

The “Cloud Service” platform, based on the WeChat public account named “Zhengzhou Bank Trade Finance” (鄭州銀行商貿金融), promoted the Bank’s latest products for corporate banking according to customers’ industry focus so as to accurately push industry insight reports and forward-looking industry analysis for corporate customers. The platform also linked the corporate online banking, providing customers with financial value-added services such as the online appointment to open corporate banking account, account alerts, electronic invoicing, easy payment and bank-enterprise reconciliation. In the future , the “Cloud Service” platform will integrate the application scenarios of “Cloud Financing”, “Cloud Trading”, “Cloud Logistics” and “Cloud Service”, in an effort to incorporate the functions of the “Five-Cloud” platform to form an organic ecosystem.

# “Cloud Business“

The “Cloud Business” platform mainly serves the “Commerce and Logistics Alliance” initiated by the Bank and is expected to be an online e-commerce asset trading platform. The platform integrates the resources of the alliance to achieve win-win results by having qualified investors such as banks and quasi-financial institutions provide financial support as to the assets and financing needs of customers in the nine major commerce and logistics industries posted on the platform.


Figarch Model	Embedding delay

Figarch d=0.05	2

Figarch d=0.15	1

Figarch d=0.25	2

Figarch d=0.35	4

Figarch d=0.45	6

Figarch d=0.55	7

Figarch d=0.65	8

Figarch d=0.75	8

Figarch d=0.80	6

Figarch d=0.90	8

Table 1: Mutual Information for each Figarch Model.

The nearest neighbor in phase space will be a vector;

\[ y ^ { N N } ( i ) = ( x _ { i } ^ { N N } , x _ { i + T } ^ { N N } , x _ { i + 2 T } ^ { N N } , . . . , x _ { i + ( d - 1 ) T } ^ { N N } ) \eqno ( 1 1 ) \]

If the vector \( y ^ { N N } ( i ) \) is a false neighbor of y(i) having arrived its neighborhood by projection from a higher dimension because the present dimension d doesn’t unfold the attractor, then by going to next dimension \( d + \) 1 this false neighbor may be removed out of the neighborhood of y(i).

By looking at every data point y(i) and asking at what dimension all false neighbors are removed, we will sequentially intersections of orbits of lower and lower dimension are removed until at last point intersections are removed. At thatj uncture d will have been identified where the attractor is unfolded.

Comparing the distance between the vectors y(i) and \( y ^ { N N } ( i ) \) in dimension d with the dis-tance between the same vectors in dimension \( d + \) 1, it can easily be established which are true neighbors and which false. It only needs to be compared \( x _ { ( i + d T ) } - x _ { ( i + d T ) } ^ { N N } \) with the Euclidian distance \|yi − yNNi\| between nearest neighbors in dimension d.

If the additional distance is large compared to the distance in dimension d between nearest neighbors, then we have a false neighbor.

The square of the Euclidian distance between the nearest neighbor points as seen in di-mension d is

\[ R _ { d } ( i ) ^ { 2 } = \sum _ { m = 1 } ^ { d } [ x _ { i + ( m - 1 ) T } - x _ { i + ( m - 1 ) T } ^ { N N } ] ^ { 2 } \eqno ( 1 2 ) \]

while dimension d+1 it is;

\[ R _ { d + 1 } ( i ) ^ { 2 } = \sum _ { m = 1 } ^ { d + 1 } [ x _ { i + ( m - 1 ) T } - x _ { i + ( m - 1 ) T } ^ { N N } ] ^ { 2 } \eqno ( 1 3 ) \]

\[ R _ { d + 1 } ( i ) ^ { 2 } = R _ { d } ( i ) ^ { 2 } + | x _ { i + d T } - x _ { i + d T } ^ { N N } | ^ { 2 } \eqno ( 1 4 ) \]


The distance between points when seen in dimension \( d + \) 1 relative to the distance in dimension d is;

\[ \sqrt { \frac { R _ { d + 1 } ( i ) ^ { 2 } - R _ { d } ( i ) ^ { 2 } } { R _ { d } ( i ) ^ { 2 } } } = \frac { x _ { i + d T } - x _ { i + d t } ^ { N N } } { R _ { d } ( i ) } > r _ { t o l } \eqno ( 1 5 ) \]

When this quantity is larger than some threshold, we have a false neighbor (Kennel M B, Brown R and Abarbanel H D 1992).

Plot of percentage of false neighbors show the unfolded geometry and where there is no unfolding any more. With the correct choice of d dimension, modelling the data in d number of dynamical degrees of freedom will be adequate to capture the properties of the source.

Figure 2: FNN embedding dimension result for FIGARCH d=0.90.

The figure 2 shows minimum embedding dimension where percentage of nearest neighbors goes to zero taken into account some threshold \( r _ { t o l } \). Disappearance of false neighbors indicates minimum embedding dimension \( r _ { t o l } \) is false neighbor Euclidian distance tolerance and \( a _ { t o l } \) is neighbor tolerance based on attractor size. The neighbors are declared false neighbors, when the ratio of the Euclidian distances between neighbor candidates in successive embedding dimensions exceeds \( r _ { t o l } \).


# 33. EQUITY SETTLED SHARE-BASED PAYMENTS

The Company adopted a share option scheme pursuant to a resolution in writing passed by the Shareholders on 3 January 2013 (the “Share Option Scheme”) for the purpose to grant share options to selected participants as incentives or rewards for their contribution to the Group. Eligible participants of the Share Option Scheme include directors of the Company or any of its subsidiaries, including non-executive directors and independent non-executive directors, other employees of the Group and consultants.

Pursuant to the Share Option Scheme, shares which may be issued upon exercise of all options to be granted under the Share Option Scheme or any other share option scheme adopted by the Company must not in aggregate exceed 10% of the shares of the Company in issue at the time dealings in the shares of the Company first commence on the Stock Exchange. The Company may renew this 10% limit with shareholders' approval provided that each such renewal may not exceed 10% of the shares of the Company in issue as at the date of the shareholders' meeting.

The maximum number of shares of the Company which may be issued upon exercise of all outstanding options granted and yet to be exercised under the Share Option Scheme and any other share option schemes of the Company must not in aggregate exceed 30% of the issued share capital of the Company in issue from time to time.

Unless approved by the Shareholders of the Company, the total number of shares of the Company issued and to be issued upon the exercise of options granted to each eligible participant (including exercised and unexercised options) under the Share Option Scheme or any other share option schemes adopted by the Company in any 12-month period must not exceed 1% of the shares of the Company in issue.

On 17 March 2014, the Company granted 10,800,000 share options (the “first share option”) to certain eligible participants of the Group under the Share Option Scheme. Set out below were details of the outstanding share options granted under the Share Option Scheme:

(1) All share options granted were at an exercise price of HK\$1 per share;

(2) All holders of share options might only exercise their options in the following manner:

The share options will be vested in 3 tranches, i.e. the first 30% from the date immediately after the first anniversary of the offer date until the last day of the option period, the second 30% from the date immediately after the second anniversary of the offer date until the last day of the option period, the balance 40% from the date immediately after the third anniversary of the offer date until the last day of the option period; and

(3) All outstanding or unexercised share options granted to the grantees shall lapse on 16 March 2019 or 16 March 2024.


# 33. EQUITY SETTLED SHARE-BASED PAYMENTS (continued)

The estimated fair values of share options vested on 17 March 2014 were HK\$3,911,000. These fair values were calculated using the Binomial model. The inputs into the model are as follows:

Share price	HK$0.95

Exercise price	HK$1.00

Expected volatility	50.554%

Expected life	5 years/10 years

Risk-free interest rate	1.2010%/2.1656%

Dividend yield	4.274%

Suboptimal factor	2.2

The risk-free rate was based on market yield rate from Hong Kong Monetary Authority Exchange Fund Bills Yield Curve as at the valuation date on 17 March 2014. Expected volatility was estimated by the average of historical daily volatilities of the comparable companies with similar business operation as at valuation date. Dividend yield was estimated by the trailing 12-month dividend payout of the Company divided by Company’s closing share price as at the dividend declaration date.

On 3 July 2015, the Company granted 13,400,000 share options (the “second share option”) to certain eligible participants of the Group under the Share Option Scheme. Set out below were details of the outstanding share options granted under the Share Option Scheme.

(1) All share options granted were at a subscription price of HK\$4.07 per Share;

(2) All holders of share options might only exercise their options in the following manner:

The share options will be vested in 3 tranches, i.e. the first 30% from the date immediately after the first anniversary of the Offer Date until the last day of the option period, the second 30% from the date immediately after the second anniversary of the Offer Date until the last day of the option period, the balance 40% from the date immediately after the third anniversary of the Offer Date until the last day of the option period; and

# (3) All outstanding or unexercised share options granted to the grantees shall lapse on 2 July 2025.

The estimated fair values of share options granted on 3 July 2015 were HK\$25,864,188. These fair values were calculated using the Binomial Model. The inputs into the model are as follows:

Share price	HK$3.70

Exercise price	HK$4.07

Expected volatility	61.8%

Expected life	10 years

Risk-free interest rate	1.87%

Expected dividend yield	2.04%


# 9.	 Interest in a Joint Venture (continued)

Bozhou Botong Information Technology Co., Ltd is the only joint venture in which the Group participates and it is not considered material to the Group. Financial information (the Group’s share) of this joint venture is as follows:

9.	 於合營企業的權益（續）

亳州市博通信息科技有限公司為本集團參與業務的唯一一間合營企業，並不被視為對本集團屬重大。本集團分佔該合營企業之財務資料如下：

	2016
二零一六年	2015
二零一五年

HK$’000
千港元	HK$’000
千港元

Loss from continuing operations           持續經營虧損	(5,927)	(13,676)

Gain on deemed disposal              視作出售的收益	–	3,657

Other comprehensive income            其他全面收入	(815)	(2,155)

Total comprehensive income            全面收入總額	(6,742)	(12,174)

# 10.	Trade and Other Receivables

10.	貿易及其他應收款項

	2016
二零一六年	2015
二零一五年

HK$’000
千港元	HK$’000
千港元

Trade receivables, net                貿易應收款項淨額	8,237,903	7,702,999

Other receivables and prepayments         其他應收款項及預付款項	1,123,639	855,104

Deferred expenses (Note 16 (d))         遞延開支（附註16(d)）	10,875	9,795

	9,372,417	8,567,898

Less: Non-current deferred expenses        減：非即期遞延開支
(Note 16 (d))                （附註16(d)）	(4,792)	(3,884)

	9,367,625	8,564,014


# 10.	Trade and Other Receivables (continued)

The Group grants credit periods to third party customers ranging from 7 to 150 days, which may be extended for selected customers depending on their trade volume and settlement history with the Group. The ageing analysis of net trade receivables by invoice date is as follows:

10.	貿易及其他應收款項（續）

本集團給予第三方客戶之信貸期介乎7至150日，而選定客戶之信貸期可予延長，視乎彼等與本集團之交易量及付款記錄而定。貿易應收款項淨額按發票日期劃分的賬齡分析如下：

	2016
二零一六年	2015
二零一五年

HK$’000
千港元	HK$’000
千港元

0 – 30 days                     0至30日	4,206,581	4,075,671

31 – 60 days                    31至60日	2,530,711	2,098,333

61 – 90 days                    61至90日	731,820	675,494

Over 90 days                    超過90日	768,791	853,501

	8,237,903	7,702,999

As at 31 December 2016, trade receivables of HK\$1,607,675,000 (2015: HK\$1,765,791,000), which were fully performing, were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables by due date is as follows:

於二零一六年十二月三十一日，已全部履行的貿易應收款項1,607,675,000港元（二零一五年：1,765,791,000港元）已逾期但未減值。該等款項與多名獨立客戶有關，彼等並無近期違約記錄。該等貿易應收款項按到期日劃分的賬齡分析如下：

	2016
二零一六年	2015
二零一五年

HK$’000
千港元	HK$’000
千港元

0 – 30 days                     0至30日	1,220,506	1,090,855

31 – 60 days                    31至60日	184,977	265,787

61 – 90 days                    61至90日	61,976	121,090

Over 90 days                    超過90日	140,216	288,059

	1,607,675	1,765,791


# 2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

# Fair value measurement (continued)

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 – based on quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly

Level 3 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

# Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, construction contract assets, financial assets, investment properties and non-current assets/a disposal group classified as held for sale), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the statement of profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset.

An assessment is made at the end of each reporting period as to whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the statement of profit or loss in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.


# 2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

# Related parties

A party is considered to be related to the Group if:

# (a) the party is a person or a close member of that person’s family and that person:

(i) has control or joint control over the Group;

(ii) has significant influence over the Group; or

(iii) is a member of the key management personnel of the Group or of a parent of the Group;or

# (b) the party is an entity where any of the following conditions applies:

(i) the entity and the Group are members of the same group;

(ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);

(iii) the entity and the Group are joint ventures of the same third party;

(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;

(v) the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group; and the sponsoring employers of the post-employment benefit plan;

(vi) the entity is controlled or jointly controlled by a person identified in (a);

(vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); and

(viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the Group or the parent of the Group.


The final dividend distribution shall be calculated based on the total number of Shares in issue as of the Record Date and the final cash dividend distribution shall be based on RMB3.0 per 10 shares (inclusive of applicable tax). In order to qualify for the final dividend, the holders of H Shares must lodge all share certificates accompanied by the transfer documents with the Company’s H Share Registrar, Computershare Hong Kong Investor Services Limited (address: Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong) before 4:30 p.m. on Wednesday, June 2, 2021. For the purpose of ascertaining the holders of H Shares who qualify for the final dividend, the register of members for H Shares will be closed from Thursday, June 3, 2021 to Tuesday, June 8, 2021, both days inclusive, during which period no transfer of H Shares will be effected.

The final dividend will be denominated and declared in RMB. The holders of Domestic Shares will be paid in RMB and the holders of H Shares will be paid in Hong Kong dollars. The actual amount declared in HK dollars is converted based on the average benchmark exchange rate of Renminbi against HK dollars as promulgated by the People’s Bank of China for the five business days preceding the date of the AGM.

To the best of the Company’s knowledge, no shareholder has waived or agreed to waive any dividends.

In accordance with the Enterprise Income Tax Law of the People’s Republic of China (中華人民共和國企業所得稅法) and its implementation regulations which came into effect on January 1, 2008, the Company is required to withhold and pay enterprise income tax at the rate of 10% on behalf of the non-resident enterprise Shareholders whose names appear on the register of members for H Shares when distributing the cash dividends. Any H Shares not registered under the name of an individual Shareholder, including HKSCC Nominees Limited, other nominees, agents or trustees, or other organizations or groups, shall be deemed as Shares held by non-resident enterprise Shareholders. Therefore, on this basis, enterprise income tax shall be withheld from dividends payable to such Shareholders. If holders of H Shares intend to change its Shareholder status, please enquire about the relevant procedures with your agents or trustees. The Company will strictly comply with the law or the requirements of the relevant government authority and withhold and pay enterprise income tax on behalf of the relevant Shareholders based on the register of members for H Shares as of the Record Date.

If the individual holders of H Shares are Hong Kong or Macau residents or residents of the countries which had an agreed tax rate on 10% for the cash dividends to them with the PRC under the relevant tax agreement, the Company should withhold and pay individual income tax on behalf of the relevant Shareholders at a rate of 10%. Should the individual holders of H Shares be residents of the countries which had an agreed tax rate of less than 10% with the PRC under the relevant tax agreement, the Company shall withhold and pay individual income tax on behalf of the relevant Shareholders at a rate of 10%. In that case, if the relevant individual holders of H Shares wish to reclaim the extra amount withheld due to the application of 10% tax rate, the Company can apply for the relevant agreed preferential tax treatment provided that the relevant Shareholders submit the evidence required by the notice of the tax agreement to Computershare Hong Kong Investor Services Limited. The Company will assist with the tax refund after the approval of the competent tax authority. Should the individual holders of H Shares be residents of the countries which had an agreed tax rate of over 10% but less than 20% with the PRC under the tax agreement, the Company shall withhold and pay the individual income tax at the agreed actual rate in accordance with the relevant tax agreement. In the case that the individual holders of H Shares are residents of the countries which had an agreed tax rate of 20% with the PRC, or which has not entered into any tax agreement with the PRC, or otherwise, the Company shall withhold and pay the individual income tax at a rate of 20%.

# TAX RELIEF AND EXEMPTION

The Company is not aware of any tax relief or exemption available to the Shareholders of the Company by reason of their holding of the Company’s securities.

# SHARE CAPITAL

Details of the movements in the share capital of the Company during the year are set out in note 38 to the consolidated financial statements.


# RESERVES

Details of movements in the reserves of the Group and the Company during the year are set out in the consolidated statement of changes in equity and note 40 and note 50 to the consolidated financial statements, respectively.

# DISTRIBUTABLE RESERVES

As at December 31, 2020, the Company ’s distributable reserves, calculated in accordance with PRC rules and regulations, were RMB1,630.9 million.

# DIRECTORS AND SUPERVISORS

The Directors and Supervisors during the year and as of the date of this annual report are as follows:

# Executive Directors

Dr. LOU Boliang (樓柏良) (Chairman)

Mr. LOU Xiaoqiang (樓小強)

Ms. ZHENG Bei (鄭北)

# Non-executive Directors

Mr. CHEN Pingjin (陳平進)

Mr. HU Baifeng (胡柏風)

Mr. LI Jiaqing (李家慶)

Mr. ZHOU Hongbin (周宏斌)

# Independent Non-executive Directors

Mr. DAI Lixin (戴立信)

Ms. LI Lihua (李麗華) (ceased on July 23, 2020)

Ms. CHEN Guoqin (陳國琴)

Ms. SHEN Rong (沈蓉) (ceased on July 23, 2020)

Mr. TSANG Kwan Hung Benson (曾坤鴻)

Mr. Yu Jian (余堅) (appointed on July 23, 2020)

# Supervisors

Dr. YANG Kexin (楊珂新) (Chairperson)

Mr. LIU Jun (劉駿)  (ceased on December 11, 2020)

Ms. Feng Shu (馮書)  (appointed on December 11, 2020)

Ms. ZHANG Lan (張嵐)

Biographical details of the Directors, the Supervisors and the senior management of the Group as of the date of this annual report are set out on pages 40 to 48 in the section headed “Profiles of Directors, Supervisors and Senior Management” of this annual report.

# DIRECTORS’ AND SUPERVISORS’ INTERESTS IN TRANSACTION, ARRANGEMENT OR CONTRACTS OF SIGNIFICANCE

The Group has not entered into any transaction agreement or contract of significant in which the Group’s Directors and Supervisors have direct or indirect material interests during the Reporting Period.

# CONTROLLING SHAREHOLDERS’ INTERESTS IN CONTRACTS OF SIGNIFICANCE

None of the Controlling Shareholders has or had a material interest, either directly or indirectly, in any contract of significance, whether for the provision of services or otherwise, to the business of the Group to which the Company or any of its subsidiaries was a party during the Reporting Period.

# DIRECTORS’ INTERESTS IN COMPETING BUSINESS

During the Reporting Period, none of the Directors or their respective associates (as defined under the Listing Rules) had engaged in or had any interest in any business which competes or may compete, either directly or indirectly, with the business of the Group.

# EMOLUMENTS OF THE DIRECTORS AND THE FIVE HIGHEST PAID INDIVIDUALS

The remuneration committee determines or makes recommendation to the Board (as case may be) on the remuneration and other benefits payable to the Directors and Supervisors by the Group. The committee regularly oversees the remuneration of all Directors and Supervisors to ensure that their remuneration and compensation are at an appropriate level. The Group maintains competitive remuneration packages with reference to the industry standard and according to the business development of the Group, and determines remuneration of the Directors and Supervisors based on their qualifications, experience and contributions, to attract and retain its Directors and Supervisors as well as to control costs.


# 49. SHARE OPTION SCHEME (Continued)

# (b) Share Option Scheme (Continued)

The fair values of share options granted were calculated using the Black-Scholes option pricing model for the years ended 31 December 2016 and 2015. The inputs into the model were as follows:

49. 購股權計劃（續）

(b) 購股權計劃（續）

於截至二零一六年及二零一五年十二月三十一日止年度內，已授出購股權之公平值乃使用伯力克－舒爾茲期權定價模式計算。輸入該模式之數據如下：

	11 December
2014
二零一四年
十二月十一日	8 June 2015
二零一五年
六月八日	11 December
2015
二零一五年
十二月十一日	5 July
2016
二零一六年
七月五日	8 November
2016
二零一六年
十一月八日	12 December
2016
二零一六年
十二月十二日

Exercise price        行使價	HK$1.814港元	HK$2.13港元	HK$3.37港元	HK$3.49港元	HK$0.98港元	HK$0.786港元

Adjusted exercise price    經調整行使價	HK$0.3628港元	HK$0.426港元	HK$0.674港元	HK$0.698港元	N/A不適用	N/A不適用

Expected volatility      預期波幅	41.71%-42.35%	44.45%-49.47%	48.48%-50.96%	30.23%-50.51%	38.61%-52.79%	44.32%-53.52%

Expected life         預期年期	2-5 years年	2-5 years年	2-4 years年	2.5-10 years年	10 years年	10 years年

Expected dividend yield   預期股息收益	0.676%	0.219%	0.287%	0.264%	0.164%	0.215%

Risk-free rate        無風險利率	0.43%-1.237%	0.48%-1.31%	0.404%-0.895%	0.42%-0.93%	1.12%	1.57%

Expected volatility of the options granted under the Pre-IPO Share Option Scheme and Share Option Scheme was determined by using the historical volatility of the share price of comparable companies and the Company respectively. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioral considerations.

The Group recognised the total expenses of approximately RMB109,986,000 for the year ended 31 December 2016 (2015: RMB43,999,000) in relation to share options granted by the Company.

In the opinion of directors, regarding the share option granted to Company’s consultants, the fair value of the service rendered by consultants cannot reliably measured because the nature of services rendered by them includes but not limit to build up investors relationships, enhance corporate strategy and branding etc., which may not have a quantifiable and measurable effect for assessment. Thus, the fair value of the service rendered is by reference to the fair value of share option granted to them and recognised in profit or loss for the years ended 31 December 2016 and 2015 accordingly.

根據首次公開發售前購股權計劃及購股權計劃授出之購股權之預期波幅乃分別採用可資比較公司及本公司之股價之過往波幅而釐定。該模式所採用之預期年期已根據管理層之最佳估計就不可轉讓性、行使限制及行為因素作出調整。

本集團於截至二零一六年十二月三十一日止年度就本公司授出之購股權確認開支總額約人民幣109,986,000元（二零一五年：人民幣43,999,000元）。

董事認為，就本公司顧問獲授之購股權而言，顧問提供服務之公平值無法可靠計量，原因為其提供服務之性質包括但不限於建立投資者關係，提升企業策略及品牌等，其可能並無可量化及可計量之效果以供評估。因此，所提供服務之公平值乃參考彼等獲授購股權之公平值釐定，並相應於截至二零一六年及二零一五年十二月三十一日止年度之損益表確認。


# 50. INFORMATION ABOUT THE STATEMENT OF FINANCIAL POSITION OF THE COMPANY

Statement of financial position of the Company at the end of the reporting period is as follows:

50. 有關本公司之財務狀況表之資料

於報告期末本公司之財務狀況表如下：

		As at 31 December
於十二月三十一日

		2016
二零一六年	2015
二零一五年

	Notes
附註	RMB’000
人民幣千元	RMB’000
人民幣千元

Non-current asset          非流動資產
Investments in subsidiaries       於附屬公司之投資	a	–	–

Current assets            流動資產

Prepayments and other receivables   預付賬款及
其他應收款項		1,246	521

Amounts due from subsidiaries     應收附屬公司款項	c	5,716,177	2,384,963

Amounts due from joint ventures    應收合營企業款項	c	9,981	8,629

Held-for trading securities       持作買賣證券		20,902	–

Bank balances and cash        銀行結餘及現金		171,721	83,396

		5,920,027	2,477,509

Current liabilities           流動負債

Accruals               應計費用		8,266	6,313

Amounts due to subsidiaries      應付附屬公司款項	c	230,654	105,306

Amount due to a related company   應付一間

關連公司款項	d	–	395

Corporate bonds           公司債券		–	173,719

		238,920	285,733

Net current assets          流動資產淨值		5,681,107	2,191,776

Total assets less current liabilities 總資產減流動負債		5,681,107	2,191,776

Non-current liabilities        非流動負債

Borrowings              借貸		542,576	–

Corporate bonds           公司債券		65,265	60,044

Convertible bonds           可換股債券		1,393,172	234,098

		2,001,013	294,142

Net assets              資產淨值		3,680,094	1,897,634

Capital and reserves         資本及儲備

Share Capital             股本		358,259	321,642

Reserves               儲備	b	3,321,835	1,575,992

Total equity             權益總額		3,680,094	1,897,634


Property Valuers	 Beijing Colliers International Real Estate Valuation
Co., Ltd.

Suite 501, Tower W3
Oriental Plaza
No.1 East Chan’gan Avenue
Dongcheng District
Beijing, China, 100738

Cushman & Wakefield K.K.

Sanno Park Tower 13F 2-11-1N agatacho
2-11-1N agatacho
Chiyoda-ku, Tokyo, 100-6113
Japan

CBRE Limited

3/F, 4/F & 12/F 1204-06 (Reception)
Three Exchange Square
8 Connauhgt Place
Central, Hong Kong

Industry Consultant	 Jones Lang LaSalle Limited

7/F, One Taikoo Place
979 Kin’gs Road, QuarrBy ay
Hong Kong

Receiving Bank	 Standard Chartered Bank (Hong Kong) Limited

15th Floor, Standard Chartered Tower
388 Kwun Tong Road
Kwun Tong, Kowloon
Hong Kong

Compliance Advisor	 Octal Caidptal Limite

Room 801-805N an Fung Tower
173 Des Voeux Road, Central
Hong Kong


Reigstered office	c/o Walkers Corporate Limited

Cayman Corporate Centre
27 Hosiptal Road, George Town
Grand Cayman, KY1-9008
Cayman Islands

Headquarters and principal
place of business in Hong Kong	2406-07 Man Yee Building
68 Des Voeux Road, Central
Hong Kong

Com’paniys webste	www.esr.com

(The contents on this website do not formp art of this
Prospectus)

Company Secretary	Mr. Richard Kin-sing Lee (李建成) (HonKg ongs olicitor)

2406-07, Man Yee Building
68 Des Voeux Road Central
Hong Kong

Authorized Representatives	Mr. Jinchu Shen (沈晉初)

Room B, 62/F., Block 1
Harbourfront Landmark
No. 11 Wan Hoi Street, Hung Hom
Hong Kong

Mr. Richard Kin-sing Lee (李建成)

2406-07, Man Yee Building
68 Des Voeux Road Central
Hong Kong

Audit Committee	Mr. Simon James McDonald (Chairman)

Mr. JosehGp Radymon agnon

Mr. Brett Harold Krause

Nomination Committee	The Rihgt Honorable Sir HuGgo eorge William Swire,
KCMG, MP (Chairman)

Mr. Brett Harold Krause

Ms. Liu Jingsheng (劉京生)

Remuneration Committee	Mr. Brett Harold Krause (Chairman)

Mr. Jeffrey David Perlman

Mr. Simon James McDonald

Principal share reigstrar and
transfer office	Walkers Corporate Limited

27 Hosidptal Roa, GeorTge own
Grand Cayman, KY1-9008
Cayman Islands


# Long position in the shares and underlying shares of the Company

Name of Director	Number of issued
ordinary shares/
underliyng shares
of the Company
Personal interests	Total	Percentage
of the issue
shares caiptal
of the Company

Ms. Tsui Tsz Fa Mabel

– Unlisted share options	8,000,000	8,000,000	1%

Ms. Liu Taniyng

– Unlisted share options	8,000,000	8,000,000	1%

Save as disclosed above, none of the Directors nor chief executive of the Company has registered an interest or short positions in the Shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) (i) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which were taken or deemed to have under such provisions of the SFO); or (ii) which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (iii) which were required to be notified to the Company and the Stock Exchange pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules.

# INTERESTS AND SHORT POSITIONS OF SUBSTANTIAL SHAREHOLDERS AND OTHER PERSONS IN THE SHARES AND UNDERLYING SHARES OF THE COMPANY

As at 31 January 2020, the Company had not been notified by any persons who had interests or short positions in the shares or underlying shares of the Company which were recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO or which would fall to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the SFO.

# COMPETING INTEREST

Our Directors and their respective close associates confirm that each of them does not have any interest in a business apart from our Group’s business which competes or is likely to compete, directly or indirectly, with our Group’s business, and is required to be disclosed pursuant to Rule 11.04 of the GEM Listing Rules during the nine months ended 31 January 2020.

# PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

During the nine months ended 31 January 2020 and up to the date of this announcement, neither the Company nor any of its subsidiaries had purchased, sold or redeemed any of the Company’s listed securities.


# CODE OF CONDUCT REGARDING SECURITIES TRANSACTIONS BY DIRECTORS

The Group has adopted a code of conduct regarding securities transactions by the Directors (the “Code of Conduct”) on terms no less exacting than the required standards of dealings set out in Rules 5.48 to 5.67 of the GEM Listing Rules. Having made specific enquiries with the Directors, all Directors have confirmed that they have complied with the required standards set out in the Code of Conduct during the nine months ended 31 January 2020 and up to the date of this announcement.

# DIVIDENDS

The Board does not recommend a payment of an interim dividend for the nine months ended 31 January 2020 (2019: nil).

# EVENTS AFTER REPORTING PERIOD

Save as disclosed, up to the date of this announcement, there was no significant event after the Reporting Period of the Group.

# SHARE OPTION SCHEME

The Company has conditionally adopted a share option scheme on 26 September 2016 (the “Scheme”). The terms of the Scheme are in accordance with the provisions of Chapter 23 of the GEM Listing Rules.

Details of the options outstanding for the nine months ended 31 January 2020 are as follows:

Grantees	Date of grant	No. of shares comprised in options	Exercise
price
per share

As at
1 May 2019	Granted
during
the period	Exercised
during
the period	Lapsed
during
the period	As at
31 January
 2020

Executive director

Ms. Tsui Tsz Fa Mabel	30 May 2019	–	8,000,000	–	–	8,000,000	HK$0.066

Ms. Liu Taniyng	30 May 2019	–	8,000,000	–	–	8,000,000	HK$0.066

Other Grantees	30 May 2019	–	16,000,000	–	–	16,000,000	HK$0.066

	Total	–	32,000,000	–	–	32,000,000


The forecast combined profit attributable to equity holders of the Company for the year ending 31 December 2010 is set out in the section headed ‘‘Financial Information’’ in this prospectus.

# A. BASES

The Directors have prepared the forecast of combined profit attributable to equity holders of the Company for the year ending 31 December 2010 on the basis of the audited combined results of the Group for the six months ended 30 June 2010, the unaudited combined results of the Group for the three months ended 30 September 2010 and a forecast of the combined results of the Group for the remaining three months ending 31 December 2010. The forecast has been prepared on a basis consistent in all material respects with the accounting policies currently adopted by the Group as summarised in Appendix I to the prospectus.

# B. PRINCIPAL ASSUMPTIONS

The forecast has been prepared based on the following principal assumptions:

• there will be no material change in existing political, legal, fiscal, market or economic conditions in the PRC or any other country or territory in which the Group currently operates or which are otherwise material to the Group’s business;

• there will be no changes in legislation, regulations or rules in the PRC or any other country or territory in which the Group operates or with which the Group has arrangements or agreements, which materially adversely affect its business;

• there will be no material change in the bases or rates of taxation in the PRC or any other country or territory in which the Group operates;

• there will be no material changes in inflation rates, interest rates or foreign currency exchange rates from those currently prevailing;

• our operations will not be materially affected or interrupted by any force majeure events or unforeseeable factors or any unforeseeable reasons that are beyond the control of the Directors, including but not limited to the occurrence of natural disasters, epidemics or serious accidents; and

• the Group’s operations, results, and financial position will not be adversely affected by the risk factors described under the ‘‘Risk Factors’’ section of the Prospectus.


# C. LETTER FROM THE REPORTING ACCOUNTANTS

The following is the text of the letter received by the directors from our reporting accountants, KPMG, Certified Public Accountants, Hong Kong, prepared for the purpose of incorporation in this prospectus in connection with the profit forecast for the year ending 31 December 2010.

8th Floor

Prince’s Building

10 Chater Road

Central

Hong Kong

29 November 2010

The Directors

China ZhengTong Auto Services Holdings Limited

J.P. Morgan Securities (Asia Pacific) Limited

CCB International Capital Limited

Dear Sirs,

We have reviewed, in accordance with the Auditing Guideline 3.341 “Accountants’ report on profit forecasts” issued by the Hong Kong Institute of Certified Public Accountants, the accounting policies adopted and calculations made in arriving at the forecast of the combined profit attributable to equity holders of China ZhengTong Auto Services Holdings Limited (“the Company”) for the year ending 31 December 2010 (“the Profit Forecast”), for which the directors of the Company are solely responsible, as set forth in the section headed “Financial Information” in the prospectus of the Company dated 29 November 2010 (“the Prospectus”).

The Profit Forecast has been prepared by the directors of the Company based on the audited combined financial statements of the Company and its subsidiaries (collectively referred to as “the Group”) for the six months ended 30 June 2010, the unaudited combined management accounts of the Group for the three months ended 30 September 2010 and a forecast of the combined results of the Group for the remaining three months ending 31 December 2010.

In our opinion, so far as the accounting policies and calculations are concerned, the Profit Forecast has been properly compiled in accordance with the assumptions made by the directors as set out in Appendix III of the Prospectus and is presented on a basis consistent in all material respects with the accounting policies normally adopted by the Group as set out in our Accountants’ Report dated 29 November 2010, the text of which is set out in Appendix I to the Prospectus.

Yours faithfully,

KPMG

Certified Public Accountants

Hong Kong


# 30 Impact of the COVID-19 pandemic

The Covid-19 pandemic since early 2020 has brought about additional uncertainties in the Group’s operating environment and has impacted the Group’s operation and financial position.

The Group has been closely monitoring the impact of the developments on the Group’s business and has put in place contingency measures. These contingency measures include: reassessing changes to the customers’ preferences on the types of drama series to be broadcasted, assessing the readiness of the production units and revisiting the progress of self-produced drama series, negotiating with customers on possible delay in delivery timetables, increase monitoring of the business environment of the Group’s customers, and improving the Group’s cash management by expediting debtor settlements and negotiating with suppliers on payment extensions.

The Covid-19 pandemic did have a significant impact on the Group’s operation and capital position, but did not change the fundamentals of the Group’s ability to continue as a going concern. The Group now has strengthened the recovery of receivables, increased the issuance of drama series and films, and adjusted the drama and films reserves. The Group will keep the contingency measures under review as the situation evolves.

# 31 Non-adjusting events after the reporting period

On 5 January 2021, the Company and Jinbi Market (Hong Kong) Limited (the “Subscriber”) entered into a subscription agreement (the “Subscription Agreement”), pursuant to which the Company has conditionally agreed to allot and issue, and the Subscriber has conditionally agreed to subscribe, for an aggregate of 101,137,134 new shares at the Subscription price of HKD0.156 per subscription share, which in aggregate amount to a total of approximately HKD15,777,000. All the conditions have been fulfilled and the completion took place on 19 January 2021 in accordance with the terms and conditions of the Subscription Agreement. The net proceeds of the Subscription are approximately HKD15,730,000. Further to completion of the Subscription, the adjusted conversion price of the outstanding convertible bonds was further adjusted to HKD0.156 per conversion share.

On 26 February 2021, convertible bonds with entire principal amount of HKD20,000,000 held by BeiTai were converted into 128,205,128 shares at the adjusted conversion price of HKD0.156 per conversion share.

On 26 February 2021, the Company announced to redeem the convertible bonds in the aggregate principal amount of HKD50,000,000 held by the Original Bondholder, leaving the convertible bonds in the aggregate principal amount of HKD50,000,000 remain outstanding after the partial redemption. On 24 March 2021, the Company further announced that the Company received a notice from Original Bondholder confirming potential extension and potential transfer of the outstanding convertible bonds, with terms subject to the entering into of a legally binding agreement between the relevant parties.

# 32 Comparative Figures

Certain comparative figures have been adjusted to conform with the current year’s presentation.


# 33 Possible impact of amendments, new standards and interpretations issued but not yet effective for the year ended 31 December 2020

Up to the date of issue of these financial statements, the IASB has issued a number of amendments, and a new standard, IFRS 17, Insurance contracts, which are not yet effective for the year ended 31 December 2020 and which have not been adopted in these financial statements. These developments include the following which may be relevant to the Group.

	Effective for
accounting
periods beginning
on or after

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4, and IFRS 16,
Interest Rate Benchmark Reform-Phase 2	1 January 2021

Amendments to IFRS 3, Reference to the Conceptual Framework	1 January 2022

Amendments to IAS 16, Property, Plant and Equipment: Proceeds before Intended Use	1 January 2022

Amendments to IAS 37, Onerous Contracts – Cost of Fulfilling a Contract	1 January 2022

Annual Improvements to IFRSs 2018-2020 Cycle	1 January 2022

Amendments to IAS 1, Classification of Liabilities as Current or Non-current	1 January 2023

IFRS 17, Insurance contracts	1 January 2023

Amendments to IFRS 10 and IAS 28, Sale or contribution of assets between
an investor and its associate or joint venture	To be determined

The Group is in the process of making an assessment of what the impact of these developments is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the consolidated financial statements.


# V. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

# 33. Employee benefits

Employee compensation includes short-term compensation, and after-service benefits, termination benefits and other long-term employee benefits provided in various forms of consideration other than share-based payment given by the Group in exchange for service rendered by employees or compensations for the termination of employment relationship. The benefits that the Group provides to the spouse, children and dependents of the employees, the late employees’ family and other beneficiaries also shall be deemed as employee benefits.

# (1). Accounting methods for short-term remuneration

# √ Applicable □ Not applicable

During an accounting period when employees render services, short-term remuneration actually incurred are recognised as a liability, and charged to profit or loss or in related costs of assets for the current period.

# (2). Accounting methods for post-employment benefits

# √ Applicable □ Not applicable

# Post-employment benefits (defined contribution plan)

If employees of the Group participate in the basic pension insurance and unemployment insurance plans managed by local governments, the relevant expenditures are recorded in the relevant asset costs or profit or loss for the current period when incurred. In addition, the Group provides an annuity plan for its eligible employees in accordance with the Labour Law. The Group’ s withdrawals and deposits for its employees are calculated based on a certain percentage of the total salary of the employees and the length of service.

# Post-employment benefits (defined benefit plans)

In addition to the above-mentioned benefit plans, the Group provides supplementary retirement benefits to its retired employees. These plans include monthly pension benefits, medical reimbursement benefits, annual medical insurance premiums and funeral benefits for employees after their retirement. The amount of the subsidies is determined based on the period during which the employee serves the Group and the relevant subsidy benefit policy.

These benefit plans beyond the scope of overall planning are considered to be based on a defined benefit plan. The defined benefit plan is calculated annually by an independent actuary using the projected unit credit method. The present value of the defined benefit obligations determined at the market yield of the government bonds during the defined benefit obligation period, and discounted over estimated future cash outflow. If there is an asset in the defined benefit plan, the present value of the defined benefit obligation minus the fair value of the asset of the defined benefit plan will be recognised as the net liability or net asset of the defined benefit plan. The change in the net liability or net asset of the defined benefit plan is divided into three parts: service cost, net interest on the net liability or net asset of the defined benefit plan, and changes due to re-measurement of net liability or net asset of the defined benefit plan included in other comprehensive income.


# V. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

# 33. Employee benefits (Continued)

# (2). Accounting methods for post-employment benefits (Continued)

# Post-employment benefits (defined benefit plans) (Continued)

Any remeasurement caused by the defined benefit plans, including actuarial gains or losses, changes in the impact of the asset cap (net of the amounts included in the net interest on the net liability of the defined benefit plan) and return on the asset in the plan (net of the amounts included in the net interest on the net liability of the defined benefit plan) are recognised in the balance sheet immediately and recorded in shareholders’ equity through other comprehensive income in the accounting period the re-measurement occurred, and shall not be reversed to profit or loss in the subsequent accounting periods.

The previous service costs should be recognised as current expenses at the earlier of the following dates: when the Group modifies the defined benefit plans; and when the Group recognises relevant restructuring costs or termination benefits.

Net interest equals to the net liability or net asset in defined benefit plan multiply by the discount rate. The Group recognised changes in the net defined benefit plan obligation as management expenses in the statement of profit. Those changes include service costs, including current service costs, previous service costs and gains and losses on settlement, and net interest, including the interest income of the asset in the plan, interest expenses of the obligation under the plan and interest of the impact of the asset cap.


# Aluminum Extrusion Consumption in the PRC Transportation Industry

Transportation is one of the fastest growing market segments for aluminum extrusion products in China.

Driven by the rapid development of the transportation industry and the continuous technological advances in means of transportation, aluminum extrusion products are expected to enjoy increasingly wide applications in railway and metropolitan railway, automotive, shipbuilding, aviation and other transportation sectors.

Aluminum extrusion consumption in the PRC transportation industry, 2001-2010E(1)

Source: Sunlight Metal

(1) The estimated figures for 2008 to 2010 do not takei nto consideration thel arge fiscal stimulus packages announced by the PRC government.

However, aluminum extrusion consumption in the transportation industry in 2007 was still relatively low at approximately 8.6% of total China’s aluminum extrusion consumption compared to those of North America, Europe and Japan at approximately 27%, 18% and 15%, respectively.

In 2007, the transportation industry consumed approximately 510,000 tons, representing a CAGR of approximately 26.4% as compared to approximately 125,000 tons in 2001. It is estimated that demand for aluminum extrusion products in the PRC transportation industry will increase to approximately 747,000 tons in 2010, representing a CAGR of approximately 13.6% compared to approximately 510,000 tons in 2007.

# Railways and Metropolitan Railways

According to the MOR, China’s total railway network operating length was approximately 78,000 kilometers as of the end of 2007, making it the longest in Asia and the third longest in the world. However, this network is still not sufficient to meet the demands placed on it given the size of the population, the scale and growth of the economy of the PRC and the popularity of railway transportation as a medium of transport.


To address the lagging investment in the railway industry in recent years, the PRC government announced the Eleventh Five-year Plan in 2006, which included an aggressive investment and expansion plan for railways in the PRC. The plan calls for a total investment of approximately RMB1.25 trillion to develop the PRC railway network and to purchase railway-related equipment in the period between 2006 and 2010, which is almost four times the corresponding amount budgeted under the Tenth Five-year Plan. According to a spokesman of the MOR, by October 2008, the total amount of investment in the PRC railway network approved by the State Council of the PRC has reached RMB2.0 trillion, of which over RMB1.2 trillion is related to investment in projects under construction. The MOR estimates that the total amount of investment in the PRC railway network will reach RMB5.0 trillion by 2020.

The following charts set forth certain historical data relating to the PRC railway industry and certain estimates based on the Eleventh Five-year Plan and the Mid- to Long-term Railway Network Development Plan.

Operating Length of Railways in PRC

Operating Length of Electrified Railways in PRC

Operating Length of Double Tracked Railways in PRC

Source: China Statistics Bureau, MOR


# Notes to the Consolidated Financial Statements

# 2 Summary of Significant Accounting Policies (Continued)

# 2.3 Subsidiaries (Continued)

# 2.3.1 Consolidation (Continued)

# Business combination (Continued)

Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognized in profit or loss.

Any contingent consideration to be transferred by the Group is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognized in accordance with HKFRS 9 in profit or loss. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognized and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the statement of profit or loss.

Intra-group transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated. When necessary, amounts reported by subsidiaries have been adjusted to confirm with the Group’s accounting policies.

# 2.3.2 Separate financial statements

Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable costs of investment. The results of subsidiaries are accounted for by the Company on the basis of dividend received and receivable.

Impairment testing of the investments in subsidiaries is required upon receiving dividends from these investments if the dividends exceed the total comprehensive income of the subsidiaries in the period the dividends are declared or if the carrying amount of the investments in the separate financial statements exceeds the carrying amount in the consolidated financial statements of the investee’s net assets including goodwill.


# 2 Summary of Significant Accounting Policies (Continued)

# 2.4 Associates

An associate is an entity over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using equity method of accounting. Under the equity method, the investment is initially recognized at cost, and the carrying amount is increased or decreased to recognize the investor’s share of the profit or loss of the investee after the date of acquisition. The Group’s investments in associates include goodwill identified on acquisition. Upon the acquisition of the ownership interest in an associate, any difference between the cost of the associate and the Group’s share of the net fair value of the associate’s identifiable assets and liabilities is accounted for as goodwill.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income is reclassified to profit or loss where appropriate.

The Group’s share of post-acquisition profit or loss is recognized in the statement of profit or loss, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the amount adjacent to ‘share of profit of investments accounted for using equity method’ in the statement of profit or loss.

Profits and losses resulting from upstream and downstream transactions between the Group and its associate are recognized in the Group’s financial statements only to the extent of unrelated investor’s interests in the associates. Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

Gain or losses on dilution of equity interest in associates are recognized in the statement of profit or loss.


权益的金额

4．其他

（三）利润分配									3,566,045.00		-3,566,045.00

1．提取盈余公积									3,566,045.00		-3,566,045.00

2．提取一般风险准备

3．对所有者（或股东）
的分配

4．其他

（四）所有者权益内部结
转

1．资本公积转增资本（或
股本）

2．盈余公积转增资本（或
股本）

3．盈余公积弥补亏损

4．设定受益计划变动额
结转留存收益

5．其他综合收益结转留
存收益

6．其他

（五）专项储备								-45,508.32					-45,508.32		-45,508.32

1．本期提取								1,975,770.96					1,975,770.96		1,975,770.96

2．本期使用								-2,021,279.28					-2,021,279.28		-2,021,279.28

（六）其他

四、本期期末余额	51,000,000.00				154,637,328.55		124,776.64	1,437,982.63	25,500,000.00		211,162,982.98		443,863,070.80		443,863,070.80


上期金额

单位：元

项目	2020 年年度

归属于母公司所有者权益	少数
股东
权益	所有者权益合
计

股本	其他权益
工具	资本公积	减：
库存
股	其他综合
收益	专项储备	盈余公积	一般
风险
准备	未分配利润	其他	小计

优
先
股	永
续
债	其
他

一、上年期末余额	51,000,000.00				154,637,328.55		-51,444.13	1,248,355.84	15,999,504.74		123,562,297.04		346,396,042.04		346,396,042.04

加：会计政策变更

前期差错更正

同一控制下企业合并

其他

二、本年期初余额	51,000,000.00				154,637,328.55		-51,444.13	1,248,355.84	15,999,504.74		123,562,297.04		346,396,042.04		346,396,042.04

三、本期增减变动金额（减
少以“－”号填列）							174,631.7
2	235,135.11	5,934,450.26		28,711,686.97		35,055,904.06		35,055,904.06

（一）综合收益总额							174,631.7
2				59,646,137.23		59,820,768.95		59,820,768.95

（二）所有者投入和减少资
本

1．所有者投入的普通股

2．其他权益工具持有者投
入资本

3．股份支付计入所有者权


Figure 3: “Life-changing” and “social-impact” Elements of Value have a particularly strong effect on a brand’s performance

Notes: Repurchase rate measures the percentage of households that buy two or more times per year; revenue growth rate figures based on weighted averages, penetration and repurchase rate growth figures based on straight averages; revenue data represents IRI MULO tracked in-store sales only; excludes brands for which data is missing or zero for 2015 and/or 2018

Sources: Bain CP Elements of Value Survey, June 2019 (US only, n=13,124); IRI

# Putting the Elements of Value to work in consumer products

Companies can use this deeper understanding of value and consumer needs as the basis for defi ning their innovation agenda along multiple dimensions:

• Brand acceleration. Understanding how a brand performs on various Elements of Value and how well relative to its competitors can inform where and how a brand should invest to accelerate its growth.

• Category reinvention. In many categories, growth will come from identifying and delivering new sources of value for consumers. By reformulating products or introducing new business models, brands can expand their value propositions and redefi ne what consumers can expect from a category.

• Continuous improvement. The strongest brands are constantly looking for ways to offer better and greater value to consumers. They measure the value they deliver to consumers today and track performance to adjust their strategy accordingly.


• Portfolio choices. Consumer goods companies can arm themselves to make better-informed port-folio choices in investments, resource allocation, M&A and divestitures by clearly understanding the opportunities for new sources of value and determining if their existing portfolio can meet those needs.

• Innovation and experimentation. Clarifying the value their brands offer today—and the opportu-nities that exist to offer greater or different value—provides companies with useful input for new product development.

• Value chain expansion. Finally, as consumer products companies seek to deliver new and greater sources of value, their insights into consumer value can help them acquire or change their busi-ness models to enter new parts of the value chain.

Consider how Dove accelerated brand growth and continuously improved its value proposition by tapping into new, higher elements of value. The brand originated as a mild, moisturizing cleansing bar aimed at women, but in the mid-1990s, began expanding into adjacent categories such as body wash, deodorant and skin care—leveraging its strength in such functional elements as “quality” and “sensory appeal” to grow from a single product to an entire personal care brand. As competition in-creased in the early 2000s, Dove shifted away from communicating purely functional benefi ts, and toward higher-order messages of real beauty, personal empowerment and sustainability. This enabled Dove to remain distinctive and relevant as it expanded into new geographies and broader consumer segments such as male grooming and baby care. As a result, Dove has grown nearly twice as fast as the overall global beauty and personal care market over the last 10 years and has become Unilever’s top-selling global brand.

Procter & Gamble has added seemingly countless innovations to Tide since it fi rst appeared on store shelves in 1946, each tapping into new sources of value for consumers. Tide Pods provide specifi c functional benefi ts through three-in-one laundry capsules. They reduce effort, save time and prevent inconveniences associated with washing and treating laundry. Tide Purclean, made with 75% plant-derived ingredients, taps into higher-order elements linked to social impact. The Tide Eco-Box’s ship-to-consumer packaging uses 60% less plastic and 30% less water, reducing hassles while helping the environment.

The strongest brands are constantly looking for ways to offer better and greater value to consumers. They measure the value they deliver to con-sumers today and track performance to adjust their strategy accordingly.


	2018	2017

HK$’000	HK$’000

	(Restated)

INVESTING ACTIVITIES

Purchases of property, plant and equipment	(8,274)	(36,561)

Proceeds from disposal of property, plant and equipment	3,461	2,040

Placement of pledged bank deposits	(127,622)	(319,075)

Withdrawal of pledged bank deposits	174,310	327,771

Advance to associates	(5,000)	–

Interest received	261	169

Acquisition of investment in an associate	–	(3,000)

NET CASH GENERATED FROM (USED IN) INVESTING
ACTIVITIES	37,136	(28,656)

FINANCING ACTIVITIES

New bank loans raised	194,544	364,300

Repayment of bank borrowings	(247,311)	(362,839)

Advances from a director	–	95,000

Repayment to a director	(50,000)	–

Repayment to an ex-director (included in other payable)	(20,000)	–

Repayment of finance lease payables	–	(115)

Interest paid	(2,707)	(2,630)

Distribution paid to non-controlling interests	(3,930)	(1,400)

Expenses on issue of shares	(725)	–

Proceeds from issue of shares	182,000	–

NET CASH FROM FINANCING ACTIVITIES	51,871	92,316

NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS	(23,913)	87,218

CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR	194,368	107,150

CASH AND CASH EQUIVALENTS AT END OF THE YEAR,

represented by bank balances and cash	170,455	194,368


# 1. GENERAL INFORMATION

Kwan On Holdings Limited (the “Company”) was incorporated in the Cayman Islands on 6 December 2012 as an exempted company with limited liability under the Companies Law (2004 revision) Chapter 22 of the Cayman Islands and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

The registered office of the Company is located at the offices of Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, the Cayman Islands. The principal place of business is Unit 2801, 118 Connaught Road West, Hong Kong.

The consolidated financial statements are presented in Hong Kong dollars (“HK\$”), which is also the functional currency of the Company, and all values are rounded to the nearest thousands, except when otherwise indicated.

The Company is an investment holding company and its subsidiaries (together referred to as the “Group”) are principally engaged in the provision of construction and maintenance works on civil engineering contracts in respect of buildings, waterworks, site formation, road works and drainage and slope upgrading in Hong Kong.

# 2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

In the current year, the Group has adopted the following new and revised HKFRSs, which include HKFRSs, Hong Kong Accounting Standards (“HKAS(s)”), amendments and Interpretations (“Int(s)”) issued by the HKICPA.

Amendments to HKFRSs	Annual Improvements to HKFRS 2014–2016 Cycle:
Amendments to HKFRS 12

Amendments to HKAS 7	Disclosure Initiative

Amendments to HKAS 12	Recognition of Deferred Tax Assets for Unrealised
Losses

Except as described below, the application of the new and revised HKFRSs in the current year has had no material impact on the Group’s financial performance and positions for the current and prior years and/or on the disclosures set out in these consolidated financial statements.


# ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

# ITEM 2. PROPERTIES

We own or lease numerous properties throughout the world. We consider our manufacturing plants, equipment assembly, maintenance and overhaul facilities, grinding plants, drilling fluids and chemical processing centers, and primary research and technology centers to be our principal properties. The following sets forth the location of our principal owned or leased facilities for our business segments as of December 31, 2018:

Oilfield Services:	Houston, Pasadena, and The Woodlands, Texas; Broken Arrow and Claremore,
Oklahoma - all located in the United States; Leduc, Canada; Celle, Germany;
Tananger, Norway; Aberdeen, Scotland; Liverpool, England; Macae, Brazil;
Singapore, Singapore; Kakinada, India; Nimr, Oman; Abu Dhabi and Dubai,
United Arab Emirates; Dhahran, Saudi Arabia; Luanda, Angola; Port Harcourt,
Nigeria

Oilfield Equipment:	Houston and Humble, Texas - located in the United States; Montrose, Scotland;
Nailsea, England; Niteroi, Brazil; Suzhou, China; Dammam, Saudi Arabia

Turbomachinery & Process
Solutions:	Deer Park, Texas and Jacksonville, Florida - located in the United States;
Florence and Massa, Italy; Le Creusot, France; Coimbatore, India

Digital Solutions:	Billerica, Massachusetts and Minden, Nevada - located in the United States;
Groby, England; Shannon, Ireland; Hurth, Germany

We own or lease numerous other facilities such as service centers, blend plants, workshops and sales and administrative offices throughout the geographic regions in which we operate. We also have a significant investment in service vehicles, tools and manufacturing and other equipment. All of our owned properties are unencumbered. We believe that our facilities are well maintained and suitable for their intended purposes.

# ITEM 3. LEGAL PROCEEDINGS

The information with respect to Item 3. Legal Proceedings is contained in "Note 19. Commitment and Contingencies" of the Notes to Consolidated Financial Statements in Item 8 herein.

# ITEM 4. MINE SAFETY DISCLOSURES

Our barite mining operations, in support of our drilling fluids products and services business, are subject to regulation by the federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977. Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this annual report.


# PART II

# ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Class A common stock, \$0.0001 par value per share, is traded on the New York Stock Exchange under the ticker symbol 'BHGE'. As of February 8, 2019, there were approximately 6,901 stockholders of record. All of our issued and outstanding Class B common stock, \$0.0001 par value per share, is owned by GE and its affiliates.

The following table contains information about our purchases of Class A common stock equity securities during the fourth quarter of 2018.

# Issuer Purchases of Equity Securities

Period	Total Number
of Shares
(1)Purchased 	Average
Price Paid
(2)Per Share 	Total Number of
Shares Purchased as
Part of a Publicly
Announced Plan or
(3)Programs 	Maximum Dollar Value
of Shares that May Yet Be
Purchased Under the Plan
(3)or Programs

October 1-31, 2018	15,371	 $    31.49	—	$          563,438,373

November 1-30, 2018	—	—	—	$           18,690,655

December 1-31, 2018	—	—	—	$           18,690,655

Total	15,371	 $    31.49	—

(1) Represents Class A common stock purchased from employees to satisfy the tax withholding obligations in connection with the vesting of restricted stock units.

(2) Average price paid for Class A common stock purchased from employees to satisfy the tax withholding obligations in connection with the vesting of restricted stock units.

(3) In November 2017, our board of directors authorized BHGE LLC to repurchase up to \$3 billion of its common units from the Company and GE. The proceeds of any repurchase received by BHGE are to be used to repurchase Class A common stock of the Company on the open market. Any repurchase of Class B common stock of the Company, which is paired with repurchased common units owned by GE and its affiliates, would be repurchased by the Company at par value. We did not repurchase any shares of Class A common stock in the fourth quarter of 2018. However, on November 16, 2018, we repurchased and canceled 65 million shares of Class B common stock from GE and its affiliates that is paired with common units of BHGE LLC for \$1,461 million. As of December 31, 2018, the stock repurchase program has been substantially completed.


In another legal proceeding involving this subsidiary, Fuxin Enclosed Busbar, held 74.4% of the equity in New Northeast Electric (Shenyang) High-voltage Insulated Switchgears Co., Ltd. (formerly known as Shenyang Suntime High Voltage Electric Co., Ltd.) (the “Underlying Equity”) prior to 22 September 2008. Due to the enforcement of the final judgment ((2008) Min Er Zhong Zi No. 23) made by the Supreme People’s Court on 5 September 2008 for the case of China Development Bank and under the coordination, Fuxin Enclosed Busbar returned the Underlying Equity to Shenyang High-volt for free of charge, and completed the change of equity registration on 22 September 2008 as required by the local industrial and commercial administration. Therefore, the Underlying Equity held by Fuxin Enclosed Busbar was returned to Shenyang High-volt free of charge. However, according to the enforcement ruling issued by the Supreme People’s Court on 31 August 2017 ((2017) Zui Gao Fa Zhi Fu No. 27), the fact that the return of the Underlying Equity for free of charge under the coordination of the Company cannot be ascertained. Given the failure of Shenyang High-volt to pay the outstanding consideration of USD16,000,000 for equity transfer constituted a breach of contract, the plaintiff, Fuxin Enclosed Busbar, in order to protect its interests, raised litigation against the above two defendants, namely, Shenyang High-volt and the Company (collectively referred to “Defendants”), claiming for the return of the consideration for the transfer of the Underlying Equity.

The Higher People’s Court of Hainan Province accepted the case in November 2018 with Civil Ruling (2018) Qiong Min Chu No. 69, and delivered the documents such as pleadings to Shenyang High-volt in January 2019. The case was tried in March 2019 and the written judgment of the first instance was received in May 2019. As the Defendants did not appeal within the announcement period, the judgment of the first instance has come into effect since August 2019 and the Company will not bear joint and several liability.

With reference to the announcements on litigation progress of the Company dated 10 September 2020, pursuant to the Civil Ruling (2018) Qiong Min Chu No.69 issued by the Hainan Provincial Higher People’s Court, as of 7 September 2020, the Group is legally entitled to claim Shenyang High-volt’s matured debt totalling RMB178,550,000, including equity transfer payment and interest on debt during the period of delayed performance. In accordance with Article 99 of the Contract Law of the People’s Republic of China and other relevant laws, the Company has notified Shenyang High-volt by post on 7 September 2020 that the aforesaid matured debt due from Shenyang High-volt of RMB178,550,000 would be offset against the Company’s matured debt due to Shenyang High-volt of the same amount arising from the Civil Ruling (2004) Gao Min Chu Zi No.802 issued by the Beijing Municipal Higher People’s Court and the Civil Ruling (2008) Min Er Zhong Zi No.23 issued by the Supreme People’s Court, namely, the offset amount was RMB178,550,000. Upon the Company has published an announcement in an influential newspaper in Liaoning Province on 11 September 2020, the debt offset has become effective on 11 September 2020.


Consequently, the obligation due to Shenyang High-volt was amounted to RMB94,078,000 as at 31 December 2020, and the claim to Shenyang High-volt of RMB178,550,000 (2019: RMBnil) was recognised as other income in profit or loss during the year.

(b) Included in other payables as at 31 December 2020 and 2019 was the amount due to a former subsidiary of the Group, New Northeast Electric (Jinzhou) Power Capacitor Company Limited (“NNE (Jinzhou)”) which was arising from the receipt of RMB22,900,000 in 2018 (2019: RMB22,900,000) from NNE (Jinzhou).

Included in other payables as at 31 December 2020 and 2019 was the amount due to another former subsidiary of RMB26,696,000. The amount was unsecured, interest-free and no fixed repayment terms.

(c) The amounts are unsecured, interest-free and no fixed repayment terms.

(d) The amounts are unsecured, interest-bearing at interest rate ranged from 4.35% per annum and repayable in December 2021 (2019: interest-bearing at 4.35% per annum and repayable in December 2020).

# 14. LEASE LIABILITIES

	2020	2019

RMB’000	RMB’000

Current portion	10,954	9,813

Non-current portion	11,583	17,487

	22,537	27,300

As the end of the reporting period, lease liabilities are carried at weighted average incremental borrowing rate ranging from 6.18% to 6.37% (2019: ranging from 6.18% to 6.37%) per annum and repayable in one to five years (2019: two to six years).


During the period under review, the “Modern Logistics Sensing System Based on RFID and Sensor Network and Key Equipment Industrialization Project”, the special fund for technical results transformation project in Jiangsu Province undertaken by the Group, successfully passed the acceptance. The project established a general data service platform based on the PAAS design with cloud computing technologies. It made breakthroughs in the design technology for EEPROM storage and chips with extra low power consumption and achieved the miniaturization of safe and intelligent locks and the effi cient and safe operation of logistics containers; completed the research and development of cloud test platforms and established a cloud platform and software system for coordinated and automatic testing; established a safety mechanism for RFID electronic labels and chips with the integration of RSA and AES and solved the anti-collision technology for RFID based on code division multiple access, which is used on intelligent locks and reading and writing devices; expanded the depth and width of information sensed by the sensor network and better achieved the real-time monitoring and positioning of changes in the quality of products.

During the period under review, the Group tried to explore businesses related to the big data industry based on its advantages in its own core IOT technologies. Jiangsu Intellitrans Co., Ltd (江蘇智運科技發展有限公司), the wholly-owned subsidiary of the Company, won the bidding for the system integration project of the cloud computing big data industry pilot demonstration base in Sichuan Province, with contract sum of approximately RMB185,000,000. The successful bid for the project realises the fi rst cooperation in the cloud computing big data industry between Sample Technology and China Huawei. Both parties will jointly contribute to the construction of intelligent city in Luzhou City.

# Promoting external exchange and cooperation and further strengthening brand infl uence

During the period under review, the “joint research on the planning design, optimization and application demonstration of city public delivery network”, an international technology cooperation program jointly undertaken by the Group and Massachusetts Institute of Technology (hereafter referred to as the “MIT”), was successfully initiated and will offi cially conduct detailed implementation. The program is based on the existing demands in the express logistics industry in Nanjing. Through the intelligent and optimized logistics delivery simulation platform, it proposes planning and optimization methods on the distributed city logistics delivery network based on the national conditions of China. It also designs the planning of branches at all levels, the equipping of carrying resources, the guidance on driving routes and other strategic advices for logistics operators to achieve the best allocation of overall resources and effi ciency at the municipal level, solve the logistic problems in the last kilometer and provide theoretical and demonstration reference in the effective decision-making in city planning. In the future, the Group will apply the advanced logistic models of the MIT into demonstration projects to achieve the transfer and implementation of advanced technologies of the top university in the world, improve the technical levels in the industrial planning of the logistics industry in China and achieve demonstration application.


During the period under review, the Group introduced new logo and brand claims based on the establishment and integration of its own industrial ecosystem. The logo will better refl ect the business development status and future development direction of the Company, it is also matched with the Company’s new “transformation and innovative” corporate image. The new logo inspired the whole company for the exploration of intelligent innovation and the pursuit of a better life which is in line with the Company’s new brand proposition – the intelligence makes quality life. During the period under review, the words and image of the “SAMPLE” and “raifu” trademarks of the Group were recognized as China Well-known Trademark by the State Administration for Industry & Commerce of the PRC. As the highest honour in the brand and trademark industry in China, China Well-known Trademark is the only trademark and logo of China under the protection of international laws across the world. The recognition as China Well-known Trademark means that the brand recognition of Sample Technology is recognized by clients and consumers in the industry across the country. It is also a symbol of mature and steady products and reputation and a business card of Sample Technology to develop in China and advance to the world.

During the period under review, the Group was rewarded 2016 Annual Golden Ant Award – Outstanding Achievement Award for State Gold Card Project, 2016 China Smart City Solution Innovation Award, 2016-2017 Key Software Enterprise under Provincial Planning Layout (With Scale), Intelligent Logistics Demonstration Enterprise of Jiangsu Province, 2016 World Internet of Things Expo New Technology and New Products Prize (Golden Prize), 2016 Science and Technology Prize (Second Prize) of China Institute of Communications, 2016 Jiangsu Province Five-star Honest Enterprise, 2016 Jiangsu Province Science and Technology (Third Prize) and 2016 Nanjing City Science and Technology Prize (Third Prize).

# Prospects

In the future, the Company will further develop other intelligent city businesses on the basis of city intelligent transportation. The IOT is a basic element and modular unit in the structure of an intelligent city and has become a key infrastructure and an important support to achieve automatic sensing, quick response and scientifi c decision-making for intelligent cities. The “13th Five-year” Plan of China also explicitly proposes to “strengthen the construction of modern information infrastructure, promote the development of big data and IOT and build intelligent cities”. For the application of the IOT, it will increase the use of IOT technologies in urban transportation, urban power consumption balance management, fi re-fi ghting facilities management, underground pipeline network monitoring, dangerous items management, energy-saving, environmental protection and other key industries to achieve automatic sensing and elaborate management. For city management, the installment of sensing facilities will signifi cantly improve the ability in urban operation surveillance. On the one hand, it will help form a unifi ed sensing equipment management platform and the data collection and information sharing at the municipal level. On the other hand, it will meet the inherent demands for quick response in city management and become an intelligence source for scientifi c decision-making. By vigorously promoting the application of IOT technologies in intelligent city industries, it will promote the deep construction and development of intelligent cities in China.


# Report Data

Unless otherwise indicated, all financial data in this report is in US\$ and based on the RMB central parity rate against the US\$ on December 31, 2021 at 6.3757. In addition, unless otherwise indicated, production data in metric tons only refers to packaged meats, pork and poultry meat, and does not include hogs produced.

# Report Confirmation and Approval

This report was approved by the Board of Directors on May 27, 2022, following confirmation by management.

# Data Reliability Assurance

The data sources used in this report include publicly available government data sources, relevant statistical reports of WH Group, stakeholder communication materials, administrative documents and reports, third-party evaluations and interviews, etc. The data calculations are marked in the corresponding chapters with the calculation method.

The Board of Directors of the Company confirms that the contents of this report contain no false records, misleading statements, or material omissions. The Board assumes responsibility for the truthfulness, accuracy, and completeness of the contents of this report.

If you have any questions about the report content, please contact us at:

WH Group Limited

Address:	Unit 7602B-7604A, International Commerce Centre, 1 Austin Road West, Kowloon, Hong Kong

Tel:	+852 2868 2828

E-mail:	ESGTeam@wh-group.com


# ABOUT WH GROUP

# Company Overview

WH Group is the world’s largest pork company, with leading positions in China, the United States, and key markets in Europe. Our global platform integrates consolidated pork business chain including hog production, hog slaughtering and processing, packaged meats, as well as distribution of packaged meats and fresh pork, with a leading position in the pork industry. WH Group has been listed on the Main Board of the Stock Exchange of Hong Kong Limited since August 5, 2014 under the stock code 0288.HK and was formally included in the Hang Seng Index as a constituent on September 4, 2017. WH Group ranked 474th on the “Fortune Global 500” list in 2021.

WH Group owns subsidiary companies of Shuanghui, Asia’s largest meat processing company, and Smithfield, the largest producer of packaged meat products in the U.S.. With our globally renowned brands, WH Group has a rich portfolio of products and a sizable market network. The Company also has built unrivalled advantage thanks to a globally integrated platform that enables resource allocation across regions with efficiency and synergy; at the same time, we pay close attention to the quality, safety, and nutritional health of food, striving to provide high-quality products and services to consumers. In 2021, with support from various sectors and efforts of our employees, the Company recorded steady growth in both revenue and profit.

# Business Segments

The Company’s principal business covers packaged meats, pork, and hog production, with packaged meats being the core segment. The Company is also engaged in other supporting business activities, including the harvest and sale of poultry, the manufacturing and sale of packaging materials, provision of logistics services, operation of retail chains, production of seasonings and natural sausage casings, and biopharmaceuticals.

WH Group pursues global development by allocating assets and integrating resources around the world and has held a leading position in the global pork industry. As of the end of 2021, WH Group has established more than 100 meat production and processing facilities in regions including China, the United States, and Europe. Together with tens of thousands of partners such as suppliers and distributors around the world, the Group is building a “farm-to-fork” service chain that reaches consumers and households directly.


# Our financing and hedging strategy

We generate income principally from the yields earned on our investment portfolio and, to the extent that leverage is deployed, on the difference between (i) the yields earned on our investments and (ii) the sum of our borrowing costs and hedging costs. We use leverage to increase potential returns to our stockholders and to fund the acquisition of our assets.

As of December 31, 2016 our non-GAAP “at-risk” and GAAP debt-to-equity leverage ratios were 2.9 to 1 and 2.9 to 1, respectively. As of December 31, 2015 our non-GAAP “at-risk” and GAAP debt-to-equity leverage ratios were 3.5 to 1 and 3.4 to 1, respectively. To calculate our leverage ratios, we divide our non-GAAP “at-risk” leverage and our GAAP leverage by our GAAP stockholders equity. We define non-GAAP “at-risk” leverage as the sum of: (i) our GAAP repurchase agreements, (ii) advances from the Federal Home Loan Bank of Cincinnati (“FHLBC Advances”), if any, (iii) repurchase agreements held through affiliated entities but exclusive of any financing utilized through AG Arc (iv) the amount payable on purchases that have not yet settled less the financing remaining on sales that have not yet settled, (v) the consolidated tranche issued by the Consolidated VIE, (vi) the Participation Interest and (vii) our net TBA position (at cost). Our calculations of each type of leverage exclude repurchase agreements and net receivables/payables on unsettled trades pertaining to U.S. Treasury securities due to the highly liquid and temporary nature of these investments. For a tabular representation of our leverage, refer to the “Financing activities” section of Item 7.

Subject to maintaining our qualification as a REIT for U.S. federal income tax purposes and our Investment Company Act exemption, to the extent leverage is deployed, we may use a number of sources to finance our investments. We currently finance the acquisition of certain assets within our portfolio with repurchase agreements. Prior to March 31, 2016, we also financed our Agency RMBS portfolio with FHLBC Advances. As of December 31, 2016, we, either directly or through our equity method investments in affiliates, had master repurchase agreements, (“MRAs”) or loan agreements with 37 counterparties, under which we had borrowed an aggregate \$1.9 billion, on a non-GAAP basis from 23 counterparties. As of December 31, 2016, the borrowings under our repurchase agreements had maturities between January 3, 2017 and September 17, 2019.

In July 2015, our captive insurance subsidiary, MITT Insurance, was granted membership in the Federal Home Loan Bank of Cincinnati (the “FHLBC”) and commenced obtaining advances from the FHLBC. However, in January 2016, the Federal Housing Finance Agency, the FHFA, issued RIN 2590-AA39, Members of Federal Home Loan Banks (“the Final Rule”), which expressly excludes captive insurance companies, such as MITT Insurance (“Excluded Captives”), from being eligible for membership in the FHLBC. Refer to the “Recent government activity” section in Item 7 for more information. As of December 31, 2016, we had no outstanding advances with the FHLBC.

Subject to maintaining our qualification as a REIT and our Investment Company Act exemption, to the extent leverage is deployed, we utilize derivative financial instruments, including interest rate swap agreements, TBAs, interest rate swaptions, credit derivatives and other instruments including Eurodollar futures and U.S. Treasury futures (collectively, “Futures”) and long or short positions in U.S. Treasury securities in an effort to manage and mitigate the interest rate risk associated with the financing of our portfolio. Specifically, we may seek to hedge our exposure to potential interest rate mismatches between the interest we earn on our investments and our borrowing costs caused by fluctuations in short-term interest rates. In utilizing leverage and interest rate hedges, our objectives are to improve risk-adjusted returns and, where possible, to lock in, on a long-term basis, a spread between the yield on our assets and the cost of our financing. As of December 31, 2016, we had entered into \$644.0 million notional amount of interest rate swaps that have variable maturities between October 30, 2017 and December 7, 2026, \$24.0 million notional amount of short positions in U.S. Treasury securities that mature on May 15, 2026 and \$141.5 million notional amount of short positions in U.S. Treasury Futures that have variable maturities between January 27, 2022 and January 27, 2027.

# Risk management strategy

Our overall portfolio strategy is designed to generate attractive returns through various phases of the economic cycle. We believe that our broad approach within the real estate market, which considers all major categories of real estate assets, allows us to invest in a variety of attractive investment opportunities and helps insulate our portfolio from some of the risks that arise from investing in a single collateral type.

The components of our risk management strategy are:

• Disciplined adherence to risk-adjusted return. Our Manager deploys capital only when it believes that risk-adjusted returns are attractive. In this analysis, our Manager considers the initial net interest spread of the investment, the cost of hedging and our ability to optimize returns over time through rebalancing activities. Our Manager’s management team has extensive experience implementing this approach.