THE 2018 ANNUAL REPORT
March 2019
2018 ANNUAL REPORT
I Important Notice, Table of Contents and Definitions
The board of directors (the“Board”), the supervisory committee (the“Supervisory Committee”) and the directors (the“Directors”),supervisors (the“Supervisors”) and senior management (the“Senior Management”) of the Company hereby warrant thetruthfulness, accuracy and completeness of the contents of the annual report, guarantee that there are no false representations,misleading statements or material omissions contained in this annual report, and are jointly and severally responsible for theliabilities of the Company.Chen Hongguo, head of the Company, Dong Lianming, head in charge of accounting and Zhang Bo, head of the accountingdepartment (Accounting Officer), declare that they warrant the truthfulness, accuracy and completeness of the financial report inthe annual report.All directors have attended the board meeting to review this report.The Company is exposed to various risk factors such as macro-economic fluctuation, state policies and regulations andcompetition in the industry. Investor should be aware of investment risks. For further details, please refer to the risk factors likelyto be faced and the measures to be taken to address them as set out in the outlook on the future development of the Company inDiscussion and Analysis of Operations.The proposed profit distribution plan of the Company was considered and passed by the Board:
The audited consolidated net profit attributable to shareholders of the Company for 2018 prepared in accordance with AccountingStandards for Business Enterprises by the Company amounted to RMB2,509,828,858.47. When deducting the interest onperpetual bonds of RMB347,140,000.00 for 2018 and the fixed dividend on preference shares of RMB214,425,000.00, thedistributable profit realised for 2018 amounted to RMB1,948,263,858.47.In accordance with the requirements of the Articles of Association and the Prospectus of Non-public Issuance of PreferenceShares, based on the total ordinary share capital of 2,904,608,200 shares and the 1,162,790,698 simulated ordinary sharesconverted from the preference shares using a conversion ratio of 1 share valued at RMB3.87 as at the end of 2018, a cashdividend of RMB2.4 (tax inclusive) per 10 shares will be distributed to holders of ordinary shares, a cash dividend of RMB2.4(tax inclusive) per 10 simulated ordinary shares converted from the preference shares will be distributed to holders of preferenceshares. No bonus shares will be issued and no capitalisation issue will be made out of the reserves. A cash dividend ofRMB697,105,968 will be distributed to holders of ordinary shares and a variable cash dividend of RMB279,069,767.52 will bedistributed to holders of preference shares. In other words, a cash dividend of RMB6.2 (tax inclusive) per preference share with anominal value of RMB100 each will be distributed to holders of preference shares.
I Important Notice, Table of Contents and Definitions
Table of contents
IImportant Notice, Table of Contents and Definitions ...... 1
IICompany Profile and Key Financial Indicators ...... 4IIIChairman’s Report ...... 11
IVBusiness Overview ...... 14
VDiscussion and Analysis of Operations ...... 19VIDirectors’Report ...... 44
VIIMaterial Matters ...... 54
VIIIChanges in Share Capital and Shareholders ...... 88
IXPreference Shares ...... 96
XDirectors, Supervisors and Senior Management and Staff ...... 101
XICorporate Governance ...... 113
XIICorporate Bonds ...... 138
XIIIFinancial Report ...... 142
XIVDocuments Available for Inspection ...... 307
2018 ANNUAL REPORT
I Important Notice, Table of Contents and Definitions
Definitions
ItemmeansDefinitionCompany, Group, ChenmingGroup or Chenming Paper
meansShandong Chenming Paper Holdings Limited and its subsidiariesParent Company orShouguang Headquarters
meansShandong Chenming Paper Holdings LimitedChenming HoldingsmeansChenming Holdings Company LimitedShenzhen Stock ExchangemeansShenzhen Stock ExchangeStock ExchangemeansThe Stock Exchange of Hong Kong LimitedCSRCmeansChina Securities Regulatory CommissionShandong CSRCmeansShandong branch of China Securities Regulatory CommissionZhanjiang ChenmingmeansZhanjiang Chenming Pulp & Paper Co., Ltd.Jiangxi ChenmingmeansJiangxi Chenming Paper Co., Ltd.Wuhan ChenmingmeansWuhan Chenming Hanyang Paper Holdings Co., Ltd.Shanghai ChenmingmeansShanghai Chenming Industry Co., Ltd.Huanggang ChenmingmeansHuanggang Chenming Pulp & Paper Co., Ltd.Chenming (HK)meansChenming (HK) LimitedHaiming MiningmeansHaicheng Haiming Mining Company LimitedJilin ChenmingmeansJilin Chenming Paper Co., Ltd.Shouguang MeilunmeansShouguang Meilun Paper Co., Ltd.Chenming Sales CompanymeansShandong Chenming Paper Sales Company LimitedFinance CompanymeansShandong Chenming Group Finance Co., Ltd.Chenming LeasingmeansShandong Chenming Financial Leasing Co., Ltd. and its subsidiariesHongtai Real EstatemeansShanghai Hongtai Real Estate Co., Ltd.reporting period or the yearmeansThe period from 1 January 2018 to 31 December 2018the beginning of the year orthe period
means1 January 2018the end of the year or the periodmeans31 December 2018the prior yearmeansThe period from 1 January 2017 to 31 December 2017
II Company Profile and Key Financial Indicators
I. Company profile
Stock abbreviationStock code000488
B200488011400030214000403140005Stock exchanges on which the shares are listedShenzhen Stock ExchangeStock abbreviationStock code01812Stock exchanges on which the shares are listedThe Stock Exchange of Hong Kong LimitedLegal name in Chinese of the CompanyLegal short name in Chinese of the CompanyLegal name in English of the Company (if any)SHANDONG CHENMING PAPER HOLDINGS LIMITEDLegal short name in English of the Company (if any)SCPHLegal representative of the CompanyChen HongguoRegistered addressNo. 595 Shengcheng Road, Shouguang City, Shandong ProvincePostal code of registered address262700Office addressNo. 2199 Nongsheng East Road, Shouguang City, Shandong ProvincePostal code of office address262705Website of the Companyhttp://www.chenmingpaper.comEmail addresschenmmingpaper@163.com
II. Contact persons and contact methods
Secretary to the Board Hong Kong Company Secretary
NameYuan XikunPoon Shiu CheongCorrespondence addressNo. 2199 Nongsheng East Road,
Shouguang City, Shandong Province
22nd Floor, World Wide House,Central, Hong KongTelephone(86)-0536-2158008(852)-2501 0088Facsimile(86)-0536-2158977(852)-2501 0028Email addresschenmmingpaper@163.comkentpoon_1009@yahoo.com.hk
III. Information disclosure and places for inspection
Designated media for information disclosureChina Securities Journal, Shanghai Securities News,
Securities Times, Securities Daily and Hong Kong Commercial DailyDesignated websites for the publication ofthe Annual Report as approved by CSRC
Domestic: http://www.cninfo.com.cn;
Overseas: http://www.hkex.com.hkPlaces for inspection of the Company’sAnnual Report
Securities investment department of the Company
IV. Change in registration
Organisation registration code913700006135889860Change of principal activities since its listing (if any)NoChange of the controlling shareholder (if any)No
2018 ANNUAL REPORT
II Company Profile and Key Financial Indicators
V. Other relevant information
CPAs engaged by the Company
Name of CPAsRuihua Certified Public Accountants (Special General Partnership)CPAs’Office Address4/F, Tower 2, No. 16 Xisihuanzhong Road, Haidian District, BeijingName of the Signing Certified
Public Accountants
Liu Jian and Jiang LeiSponsors engaged by the Company to continuously perform its supervisory function during the reporting periodApplicable √ Not applicableFinancial Advisors engaged by the Company to continuously perform its supervisory function during the reporting periodApplicable √ Not applicable
VI. Major accounting data and financial indicators
Retrospective adjustment to or restatement of the accounting data for prior years by the Company√ Yes NoReason for retrospective adjustment or restatementCorrection of accounting errors
20182017
Increase/decrease
for the yearas compared to
the prior year2016Beforeadjustment
Afteradjustment
Afteradjustment
Beforeadjustment
Afteradjustment
Revenue (RMB)28,875,756,163.5629,851,743,848.1329,472,453,563.98-2.02%22,907,118,241.8422,566,922,464.31Net profit attributable to shareholdersof the Company (RMB)2,509,828,858.473,769,325,450.933,769,325,450.93-33.41%2,063,986,822.251,998,578,788.75Net profit after extraordinary gains orlosses attributable to shareholders1,953,699,849.743,425,779,016.953,425,779,016.95-42.97%1,611,533,699.221,546,125,665.72Net cash flows from operating activities (RMB)14,099,701,887.0423,766,042.9323,766,042.9359,227.09%2,153,049,269.842,153,049,269.84Basic earnings per share (RMB per share)0.511.131.13-54.87%0.990.95Diluted earnings per share (RMB per share)0.511.131.13-54.87%0.990.95Rate of return on weighted average net assets8.51%15.80%15.80%
Decreased by
7.29percentage
points9.59%9.23%
II Company Profile and Key Financial Indicators
VI. Major accounting data and financial indicators(Cont’d)
As at theend of 2018As at the end of 2017
Increase/decrease
as at the endof the year compared
to the end of
the prior yearAs at the end of 2016Beforeadjustment
Afteradjustment
Afteradjustment
Beforeadjustment
Afteradjustment
Total assets (RMB)105,318,734,827.82105,625,096,076.92105,625,096,076.92-0.29%82,285,354,532.1582,285,354,532.15Net assets attributable to shareholdersof the Company (RMB)25,048,731,454.7927,778,529,074.9027,778,529,074.90-9.83%22,218,808,367.4322,218,808,367.43
1. Reason for accounting policy change and correction of accounting errors:
Some of the financial leasing operations conducted by Shandong Chenming Financial Leasing Co., Ltd., a subsidiary
of the Company, did not comply with laws. Hence, revenue arising from such operations shall recognise as interestincome and interest expense instead of revenue and operation costs. For adjustment for errors in 2017, revenuewas reduced by RMB379,290,284.15, while finance cost reduced by RMB379,290,284.15. At the same time, foradjustment for errors by the Company in 2016, revenue was reduced by RMB340,195,777.53, while finance costreduced by RMB340,195,777.53. For adjustment for errors in 2015, revenue was reduced by RMB49,262,640.70,while finance cost reduced by RMB49,262,640.70. As such errors are items under income statement, openingretained profit will not be affected.The Resolution on Corrections on Accounting Errors and Retrospective Restatement was passed at the twelfth
meeting of the eighth session of the Board and the thirteenth meeting of the eighth session of the Supervisory Boardto correct the accounting errors and make retrospective restatement.2. Data specification for basic earnings per share, diluted earnings per share, and rate of return on weighted average net
assets: The net profit attributable to shareholders of the Company does not exclude the effect of the interest paymentdeferred and accumulated to subsequent periods for perpetual bonds under other equity instruments and the effectof the dividends on preference shares under other equity instruments that have been considered and approvedfor distribution. When calculating financial indicators such as earnings per share and rate of return on weightedaverage net assets, the interest on perpetual bonds of RMB347,140,000 and the dividends on preference shares ofRMB679,141,006.88 during the reporting period are deducted.3. Pursuant to the proposed profit distribution plan for 2017 approved at the 2017 annual general meeting of the
Company, based on the total ordinary share capital of 1,936,405,467 shares as at the end of 2017, a cash dividendof RMB6 (tax inclusive) per 10 shares was distributed to ordinary shareholders; and a capitalisation issue made outof the capital reserves of 5 shares for every 10 shares held was distributed to ordinary shareholders. The Company’sshare capital increased by 968,202,733 shares. The earnings per share for the same period last year were alsoadjusted accordingly.
2018 ANNUAL REPORT
II Company Profile and Key Financial Indicators
VII. Differences in accounting data under domestic and overseas accounting standards
1. Differences between the net profit and net assets disclosed in accordance with international
accounting standards and China accounting standards in the financial report
Applicable √ Not applicableThere was no difference between the net profit and net assets disclosed in accordance with international accountingstandards and China accounting standards in the financial report during the reporting period.
2. Differences between the net profit and net assets disclosed in accordance with overseas accounting
standards and China accounting standards in the financial report
Applicable √ Not applicableThere was no difference between the net profit and net assets disclosed in accordance with overseas accountingstandards and China accounting standards in the financial report during the reporting period.
VIII. Key Financial Indicators by Quarter
Unit: RMBQ1Q2Q3Q4
Revenue7,241,811,895.128,309,522,144.777,941,434,778.165,382,987,345.51Net profit attributable to shareholdersof the Company782,500,357.981,002,130,667.33696,526,748.1328,671,085.03Net profit after extraordinary gains or lossesattributable to shareholders of the Company733,118,818.26804,777,947.18645,794,426.61–229,991,342.31Net cash flows from operating activities1,267,680,953.193,477,356,967.724,328,323,926.685,026,340,039.45
Whether the above indicators or their aggregated amounts have any material difference with the respective amounts asdisclosed in the quarterly report or interim reportYes √ No
II Company Profile and Key Financial Indicators
IX. Five-year financial summary under paragraph 19 of appendix 16 of the Hong Kong Listing
Rules
Unit: RMB’0,000For the year ended 31 December20182017201620152014
Beforeadjustment
Afteradjustment
Beforeadjustment
Afteradjustment
Beforeadjustment
Afteradjustment
Revenue2,887,5762,985,1742,947,2452,290,7112,256,6922,024,1912,019,2641,910,168Profit before tax320,632453,648453,648258,317258,317141,017141,01756,101Tax64,15877,75277,75256,05662,59743,22436,68310,770Profit for the current period attributableto shareholders of the Company250,983376,933376,933206,399199,858102,122108,66350,520Minority interests5,491-1,036-1,036-4,138-4,138-4,329-4,329-5,190Basic earnings per share (RMB/share)0.511.131.130.990.950.50.530.26Rate of return on weighted averagenet assets (%)8.51%15.80%15.80%9.59%9.23%6.73%7.17%3.62%
Unit: RMB’0,000For the year ended 31 December20182017201620152014
Beforeadjustment
Afteradjustment
Beforeadjustment
Afteradjustment
Beforeadjustment
Afteradjustment
Total assets10,531,87310,562,51010,562,5108,228,5358,228,5357,796,1707,796,1165,682,203Total liabilities7,944,7047,535,0927,535,0925,972,0505,972,0506,070,2776,063,7364,247,396Minority interests82,296249,565249,56534,60534,60538,74338,74343,073Equity attributable to shareholdersof the Company2,504,8732,777,8532,777,8532,221,8812,221,8811,687,1491,693,6901,391,734Net current assets (liabilities)–1,344,718-783,090-783,090-1,094,182-1,094,182-1,347,029-1,340,488-452,549Total assets less current liabilities4,390,4054,837,6464,837,6463,557,6713,557,6712,932,7562,939,2422,872,637
2018 ANNUAL REPORT
II Company Profile and Key Financial Indicators
X. Items and amounts of extraordinary gains or losses
√ Applicable Not applicable
Unit: RMBItemAmount for 2018Amount for 2017Amount for 2016Explanation
Profit or loss from disposal of non-currentassets (including write-off of provision forassets impairment)17,149,722.7265,853,273.77-1,536,454.18Government grants (except for thegovernment grants closely related tothe normal operation of the companyand granted constantly at a fixedamount or quantity in accordance witha certain standard based on statepolicies) accounted for in profit or loss forthe current period535,691,291.26392,774,230.02472,476,962.83Gain arising from investment costs foracquisition of subsidiaries, associatesand joint ventures by the corporationbeing less than its share of fair value ofidentifiable net assets of the investeeson acquisition143,867,008.14Profit or loss from debt restructuring24,309.62-90,997.90Gain or loss arising from contingent itemsunrelated to the ordinary course ofbusiness of the Company-325,259,082.28Except for effective hedging businessconducted in the ordinary course ofbusiness of the Company, gain orloss arising from the change in fairvalue of financial assets held for tradingand financial liabilities held for trading,as well as investment gains from disposalof financial assets held for trading andfinancial liabilities held for trading andavailable-for-sale financial assets61,750,000.0094,000,000.00Gain or loss on external entrusted loans13,312,368.9787,608,490.56Gain or loss from changes in fair valueof investment properties subsequentlymeasured at fair value-21,464,400.65-21,000,042.33-20,084,425.90Other non-operating income andexpenses other than the above items23,291,720.2233,659,216.9910,022,635.89Less: Effect of income tax52,960,460.8250,196,013.1592,004,074.27Effect of minority interests (after tax)7,328,864.013,488,835.773,939,014.00
Total556,129,008.73343,546,433.98452,453,123.03—
II Company Profile and Key Financial Indicators
Notes for the Company’s extraordinary gain or loss items as defined in the Explanatory Announcement on InformationDisclosure for Companies Offering Their Securities to the Public No.1 - Extraordinary Gains or Losses and the extraordinarygain or loss items as illustrated in the Explanatory Announcement on Information Disclosure for Companies Offering TheirSecurities to the Public No.1 - Extraordinary Gains or Losses defined as its recurring gain or loss itemsApplicable √ Not applicableNo extraordinary gain or loss items as defined or illustrated in the Explanatory Announcement on Information Disclosure forCompanies Offering Their Securities to the Public No.1 - Extraordinary Gains or Losses were defined by the Company as itsrecurring gain or loss items during the reporting period.
2018 ANNUAL REPORT
III Chairman’s Report
Dear Shareholders,I am pleased to present to all shareholders the report of the Company for the financial year ended 31 December 2018. On behalfof the Board, I express my sincere gratitude to all shareholders for their concern and support rendered to the Company.During the reporting period, facing the tightening state financial policies, the effects of the US-China trade war and the downwardpressure of paper prices, the Company, aiming at“developing into an enterprise with hundreds of billions in value and forgingChenming into a centennial brand”, committed itself to“team building, management enhancement, outstanding businessperformance and good results”. The Company overcome all difficulties and mitigated the risks by using every means with strongdetermination, and achieved satisfying results.
I. Results of Operations
In 2018, the Company completed the production of machine-made paper of 4.57 million tonnes with sales of 4.32million tonnes and achieved revenue of RMB28,876 million, a year-on-year decrease of 2.02%. Total profit and net profitattributable to equity holders of the Company were RMB3,206 million and RMB2,510 million respectively, down by 29.32%and 33.41% from the prior year. The net cash flow from operating activities amounted to RMB14,100 million, a year-on-yearincrease of 592 times. The net cash flow from operatiy activities amounted to RMB14,100 million, a year-no-year increase of592 times. The Company’s total assets amounted to RMB105,319 million.
II. Corporate Governance
During the reporting period, the Company regulated its operation under the requirements of the Companies Law, theSecurities Law, the Code of Corporate Governance for Listed Companies, the Rules Governing Listing of Stocks onShenzhen Stock Exchange, the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited andthe related regulations of the China Securities Regulatory Commission. The Company kept on improving and optimisingits legal person governance structure and regulating its operation in practice. The Board considered the status of theCompany’s corporate governance was substantially in compliance with the requirements and requirements of the regulatorydocuments such as the Code of Corporate Governance for Listed Companies.During the reporting period, the Board strived to regulate the operation of the Company by improving its corporategovernance. The Company improved its corporate governance system in a timely manner and amended and improved theamended management systems including the Rules of Procedures for General Meetings, the Rules of Procedures for BoardMeetings, the Rules of Procedures for Supervisory Committee Meetings and the Articles of Association in accordance withthe regulatory requirements.Strict enforcement of relevant internal control systems has promoted a regulated operation and healthy development of theCompany, thus protecting the legitimate rights and interests of our investors. The overall status of corporate governanceis in compliance with the requirements of the China Securities Regulatory Commission. As the Company’s developmentstrives forward, its regulated operation and internal control will continue to improve.
III Chairman’s Report
III. Dividend Distribution
Consistent with our long-term goal of pursuing the maximisation of corporate values, the Company has always placedmuch emphasis on the benefits of and returns to our shareholders. The audited consolidated net profit attributable toshareholders of the Company for 2018 prepared in accordance with Accounting Standards for Business Enterprises by theCompany amounted to RMB2,509,828,858.47. When deducting the interest on perpetual bonds of RMB347,140,000.00 andthe fixed dividend on preference shares of RMB214,425,000.00 for 2018, the distributable profit realised for 2018 amountedto RMB1,948,263,858.47. In accordance with the requirements of the Articles of Association and the Prospectus of Non-public Issuance of Preference Shares, the proposed profit distribution plan of the Company for 2018 is as follows:
Based on the total ordinary share capital of 2,904,608,200 shares and the 1,162,790,698 simulated ordinary sharesconverted from the preference shares using a conversion ratio of 1 share valued at RMB3.87 as at the end of 2018, acash dividend of RMB2.4 (tax inclusive) per 10 shares will be distributed to holders of ordinary shares; a cash dividendof RMB2.4 (tax inclusive) per 10 simulated ordinary shares converted from the preference shares will be distributed toholders of preference shares. No bonus shares will be issued and no capitalisation issue will be made out of the reserves.A cash dividend of RMB697,105,968 will be distributed to holders of ordinary shares and a variable cash dividend ofRMB279,069,767.52 will be distributed to holders of preference shares. In other words, a cash dividend of RMB6.20 (taxinclusive) per preference share with a nominal value of RMB100 each will be distributed to holders of preference shares.
IV. Future Development
The structure of paper making materials in China continues to optimise with a gradual increase in the proportion of woodpulp. In 2018, the structure of paper making materials in PRC was 63% waste paper, 33% wood pulp and 4% non-woodpulp materials, which basically met the production needs based on the current product structure. From 2008 to 2017, theproportion of waste paper increased by 2.4 percentage point, while the consumption proportion of wood pulp increasedby 9.3 percentage point. Due to factors such as quality and environmental protection, the use of non-wood pulp materialsin production gradually decreased, down by 11.7 percentage point from 2008 to 2017. In the long run, raw materials willalways be a major constraint for the paper making industry. Ever since the ban on taking in certain international waste,the import of waste paper fell to 17.06 million tonnes in 2018, down by 33.8% year on year, while domestic waste paperrecycling continued to rise. The increase in consumption proportion of wood pulp was mainly supported by imports, whichgave companies with raw material resources a competitive advantage. As the Company’s new chemical wood pulp projectsgradually commence operation, the Company’s self-sufficiency rate in wood pulp will be further enhanced, which willreduce production cost significantly, enhance the core competitiveness of the Company, and provide strong support andassurance for the Company’s future development.
2018 ANNUAL REPORT
III Chairman’s Report
In addition, environmental protection policies have been issued intensively during the recent years, which further phasedout outdated production capacity, and significantly increased sectoral concentration. The paper making industry inChina has been increasingly concentrated since 2010, in particular, the number of PRC paper making and paper productcompanies with a designated size dropped from 7,213 in 2013 to 6,681 in 2017. The elimination of outdated productioncapacity provides scope for concentration among leading enterprises. With strong financial strength, advanced productionequipment and large-scale production advantages, large paper making enterprises in the industry continues to increaseentry barriers and enjoy huge profits from the industry’s new profit cycle. The industry will continue to boom.The Company will adhere to the main theme of emphasising on environmental protection, low carbon, recycling andsustainable development. Following the“Made in China 2025 Plan”and the principles of scientific development and qualityand efficiency enhancement, the Company, aiming at“developing into an enterprise with hundreds of billions in value andforging Chenming into a centennial brand”, will further reorganise methodology and restructure, while comprehensivelyenhancing quality, efficiency, management level, technology application, sense of happiness and brand image, pushing theCompany to be stronger, better and greater, with a view to becoming a globally competitive world-class enterprise.Chen Hongguo
Chairman
29 March 2019
IV Business Overview
I. Principal activities of the Company during the Reporting Period
Whether the Company needs to comply with the disclosure requirements of specific industriesNo
(I) Principal activities of the Company during the reporting period
The Company is a large conglomerate principally engaged in pulp production and paper making with synergisticdevelopment in finance, mining, forestry, logistics and construction materials. The Company is the only listedcompany with A shares, B shares and H shares in China. It is among the top 100 listed companies in China and thetop 10 star enterprises in China, and is rated as one of the 50 most competitive blue chip companies in China. Ithas been honoured over 200 titles above the provincial level including the China May 1st Labour Prize, the Top 10Best Light Industry Enterprises in China, Outstanding Contribution Prize in Business Administration in China and theNational Spiritual Civilisation Advanced Unit. Its key indicators in respect of business and economic efficiency havebeen in a leading position in the industry in China for over 20 consecutive years. The machine-made paper businessis the principal activity and the major source of revenue and profit of the Company. During the reporting period, therewas no significant change in the principal activity of the Company.Recently, the Company has committed itself to implementing the“forestry, pulp and paper integration”strategy,introduced world-leading pulp production and paper making technology, and completed the largest integratedforestry, pulp and paper project with the most advanced technology and equipment in the world. The Company is theenterprise that offers the widest product range in the paper making industry, and its five largest product series includehigh-end offset paper, white paper board, coated paper, light weight coated paper, household paper, electrostaticcopy paper and thermal paper, glassine paper, with each major product ranking among the best in terms of marketshare.The Company has scientific research institutions including the national enterprise technology centre, the postdoctoralworking station as well as state certified CNAS pulp and paper testing centre and has obtained over 210 nationalpatents including 17 patents for invention, with 7 products selected as national new products and 35 products fillingthe gap in China. The Company has obtained 21 science and technology progress awards above the provincial leveland undertaken five national science and technology projects and 26 provincial technological innovation projects. TheCompany has pioneered to obtain the ISO9001 quality certification, ISO14001 environmental protection certificationand FSC-COC certification among its industry peers.
2018 ANNUAL REPORT
IV Business Overview
I. Principal activities of the Company during the Reporting Period(Cont’d)
(II) General information of the industries where the Company operated in during the reporting period
As an important basic raw material industry, the paper making industry plays an important role in the nationaleconomy, and is related to, among others, the economy, culture, production and national defence of a country. Itsproducts are used in various sectors including culture, education, technology and the national economy. Accordingto the data from the National Bureau of Statistics, in 2018, the machine-made paper and paper board productionvolume in China was 116,606,000 tonnes, representing year-on-year growth of -1.5%. The accumulated productionvolume shifted to negative growth since June 2018. Total revenue of the paper making industry throughout the yearamounted to RMB1.3 trillion, representing year-on-year growth of 8.3%. The sectoral concentration in the papermaking industry was significantly higher. However, due to the factors such as the rise in raw material prices and morestringent environmental protection policies, in 2018, net profit of the paper making industry decreased by RMB7.1billion to RMB76.6 billion, while 15% of companies in the industry made loss, and the majority of them were small andmedium-sized enterprises primarily suffering from, among others, ageing of production equipment and difficulties inworking capital turnover.The new production capacity in the industry was put into operation slowly, and the effects of the tightening of thesupply side gradually loomed large. Unlike the upward cycle in the paper making industry in the period from 2009-2011 when great investments were made in production capacity formation, the year-on-year growth rate of cumulativecompleted fixed asset investment in the industry was maintained within 10% in 2017 since the rise in paper prices,while the year-on-year growth of completed fixed asset investment in the industry was 5.1% in 2018. The papermaking industry was subject to higher environmental protection standards as the State stressed the importance of“clear waters and green hills”. The measures such as environmental protection inspections and the licensing systemfor pollutant discharge reflected the development trend in respect of more stringent environmental protection in theindustry. The environmental protection costs in the industry increased significantly, and the pressure on the cost sidemade some middle and small-sized enterprises with outdated production capacity exit the market, and the tighteningof the supply side continued to make the sectoral concentration higher.
II. Material Changes of Major Assets
1. Material Changes of Major Assets
Major assetsDescription
EquityDuring the reporting period, the Company invested in the equity interest of Weifang
Xingxing United Chemical Co., Ltd. It acquired 14.2742% equity interest in WuhanChenming, 55% equity interest in Shanghai Hongtai, and 49% equity interest inGuangdong Huirui. It disposed of 50% equity interest in Guangdong Dejun, 30% equityinterest in Xuchang Chenming and 40% equity interest in Wuhan Wan Xing Real Estate.Fixed assetsDuring the reporting period, the Financial Leasing Company changed its overall
operating strategy by continuously reducing the scale of the financial leasing business.Construction in progressDuring the reporting period, continued investment was made in the Huanggang
Chenming chemical pulp project, the Shouguang Headquarters newsprint paper-for-
cultural paper project, and the Shouguang Meilun 510,000 tonne high-end cultural
paper project and chemical pulp project.
2. Major Assets Overseas
Applicable √ Not applicable
IV Business Overview
III. Analysis of Core Competitiveness
Whether the Company needs to comply with the disclosure requirements of specific industriesNoThe Company is a leading player in the paper making industry of China. After innovation and development for more thanhalf a century, it has developed into a large conglomerate principally engaging in pulp production and paper making withsynergistic development in finance, mining, forestry, logistics and construction materials. It is also the first company in thepaper making industry to own a financial company, as well as the only listed company in China with three types of sharesin issue, namely A shares, B shares and H shares. Compared with other enterprises in the industry, the Company has thefollowing advantages:
1. Advantages of forestry-pulp-paper integration
Since initiating the forestry, pulp and paper integration strategic layout in 2001, the Company has enjoyed a highwood pulp self-sufficiency rate in the domestic paper making industry. As at the end of December 2018, the Companycould produce 3,280,000 tonnes of wood pulp on its own with respect to the materials. The chemical pulp project ofHuanggang Chenming with annual pulp production capacity of 300,000 tonnes commenced operation in November2018. The chemical wood pulp project of Shouguang Meilun is going to commence operation in the near future. Theoperations of these projects will further enhance the self-sufficiency rate with respect to wood pulp, relieving theimbalanced supply and demand for the raw materials of wood pulp, and reducing our production cost.Self-produced pulp enjoys significant cost advantage over purchased wood pulp, which enables the gross profit of theCompany’s paper products to consistently rank among the top of the industry; on the other hand, the price of woodchips, the raw material for pulp making, is relatively stable. Therefore, the procurement advantage of bulk suppliesand the application of ancillary logistics services have significantly reduced the logistics and transportation costs ofraw material and finished products, considerably increasing the Company’s cost advantage and quality stability.
2. Scale advantages
After years of development, the Company, being a leading player in the paper making industry in China, has achievedannual pulp and paper production capacity of over 11 million tonnes and is capable to compete with internationalpaper making enterprises in scale. The large-scale centralised production and operation model has providedthe Company with obvious economic benefits. The Company also has strong market influence over raw materialprocurement, product pricing and industry policymaking.
3. Product advantages
The Company has implemented the“forestry, pulp and paper integration”strategy, introduced world-leading pulpand paper production technology, and set up the largest integrated forestry, pulp and paper project with the mostadvanced technology in the world. The Company is the enterprise that offers the widest product range in the papermaking industry, and its five largest product series include high-end offset paper, white paper board, coated paper,light weight coated paper, household paper, electrostatic copy paper and thermal paper, glassine paper, with eachmajor product ranking among the best in terms of market share.
2018 ANNUAL REPORT
IV Business Overview
III. Analysis of Core Competitiveness(Cont’d)
4. Advantages in technical equipment
Currently, the Company has the largest integrated forestry, pulp and paper project with the most advanced technologyin the world and dozens of pulp and paper production lines of international advanced standards. The Company’soverall technical equipment has reached the advanced international level. The major production equipment has beenimported from internationally renowned manufacturers, including Valmet, Ahlstrom and Metso of Finland, Voith ofGermany and TBC of the United States.The technical equipment used by the Company generally reflects the characteristics of being technology-intensiveand the integration of mechanical and electrical in the paper making industry nowadays. The degassing technology,wet end chemical technology, intelligent sheet lateral control technology, coating preparation technology, free-jetcoating technology, multi-nip pressure balanced calender technology and the technical processes independentlydeveloped by the Company of the pulp systems have all reached the international advanced level.
5. Advantages in research and innovation and new product development
Shouguang Headquarters, Zhanjiang Chenming, Shouguang Meilun, Jiangxi Chenming, Jilin Chenming and HaimingMining are a high and new-technology enterprises and give full play to their strong research capability. Supportedby the national enterprise technology centre and the post-doctoral working station, the Company has establisheda comprehensive intellectual property system and put more and more efforts in technical innovation and scientificresearch and development to develop new products with high technology contents and high added value as wellas proprietary technologies. Meanwhile, the technology centre of the Company has actively engaged in technicalcooperation with schools, research institutions and international advanced enterprises. The Company has obtainedover 210 national patents including 18 patents for invention and 7 products selected as national new products. TheCompany participated in the formulation of 5 national standards and was awarded honours including“China PatentShandong Star Enterprise”, becoming the“green engine”of the transformation and upgrading in the paper makingindustry and leading the direction of the latest and most advanced technology in the paper making industry in China.
6. Funding advantages
The paper making industry is a capital-intensive industry, and funding is one of the most important factors in thedevelopment of the industry. The Company has high profitability and credit status, and has maintained long-termstable cooperative relations with its bankers, which provide the Company with an unobstructed indirect financingcapacity. Since its listing, the Company has maintained good operating results and a sound corporate governancestructure. It has conducted several financing activities in domestic and foreign capital markets. As the funds obtainedhave been applied effectively with good market image, the Company has stronger abilities in direct financing.
7. Team advantages
The key management members and the core personnel of the Company remain stable. In the business developmentof the Company, an internal corporate culture developed by the stable core staff team favourable to the growth ofthe Company consolidates the management experience specific to the industry, thus resulting in a team advantageblended with management and culture. Meanwhile, the Company has attracted experienced professionals withfinancial, legal, financial management backgrounds through its advanced management philosophy and ample roomfor development. The high quality and professional team secures the sustainable development of the Company with asolid supply of talents.
IV Business Overview
III. Analysis of Core Competitiveness(Cont’d)
8. Advantages in environmental governance capacity
In recent years, the Company and its subsidiaries have constructed the pollution treatment facilities including the alkalirecovery system, middle water treatment system, middle water reuse system, white water recovery system and blackliquor comprehensive utilisation system. The environmental indicators of the Company rank high in the country and inthe world. Besides, the national policy of eliminating outdated production capacity will facilitate the development ofthe paper making industry while the replenishment and replacement of additional production capacity will bring newblood and momentum into the paper making industry, favouring industry concentration to establish a sound industrycycle.
2018 ANNUAL REPORT
V Discussion and Analysis of Operations
I. Overview
During the reporting period, facing the tightening up of national financial policies, the effects of the US-China trade war andthe downward pressure of paper prices, the Company, aiming at“developing into an enterprise with hundreds of billionsin value and forging Chenming into a centennial brand”, committed itself to“team building, management enhancement,outstanding business performance and good results”. Having firmly establishing and constantly implementing its newmanagement philosophy, Chenming completed various works on maintaining stable operation, promoting growth, adjustingstructure, preventing risk exposures and formulating favourable policies for employees, and achieved satisfying results.In 2018, the Company completed the production of machine-made paper of 4.57 million tonnes with sales of 4.32million tonnes and achieved revenue of RMB28,876 million, a year-on-year decrease of 2.02%. Total profit and net profitattributable to equity holders of the Company were RMB3,206 million and RMB2,510 million respectively, down by 29.32%and 33.41% from the prior year. The Company’s total assets amounted to RMB105,319 million. The net cash flow fromoperating activities amounted to RMB14,100 million, a year-on-year increase of 592 times. The total asset of the companyamounted to 105,319 million. The operation and management results were mainly reflected in the following aspects:
(I) Sales management
Facing the complex and ever-changing market conditions, the sales system persistently executed the decision andplanning made by the management of the Company with a pioneering attitude in spite of challenges, thus opening upan new dimension for sales. Through sales restructuring with adjustment to independent operation of seven productcompanies engaged in, among others, culture paper and coated paper from integrated sales, the Company greatlyincreased its operating efficiency. With an innovative management model, the Company established daily work andcorresponding measures at each level, thus charting a clear course for employees to proceed with their tasks. Byimplementing the weekly meeting system, the weekly appraisal measure and a performance-driven approach, theCompany stimulated employees’diligence and determination, and enabled the sales teams to improve their work withfresh mentality.
(II) Product management
Benefiting from the strengthened basic management and adjustment in product structure, the production system ingeneral remained stable and under control with constant improvement. The Company gained initiatives in the marketthrough adjustment in the product structure and development of new products; reduced inventory, turnover days andoperational pressure by implementing production scheduling; and shed light on the daily work direction for all levelsof staff through innovative basic management with clearer instructions to and greater control over all levels of work.
V Discussion and Analysis of Operations
I. Overview(Cont’d)
(III) Finance and financial capital management
During the reporting period, the Company established a more rational financial business system by strengtheningcapital management, deepening cooperation between banks and the Company, and facilitating and implementingdebt-to-equity swaps. Through strengthened capital management, the Company held regular meetings to studyand formulate financing proposals, set up a steering group on financing, and stepped up its appraisal efforts, whichyielded great results. Through deepening cooperation between banks and the Company, the Company establisheda closer relationship with banks, entered into cooperation agreements, and enjoyed quicker facility approval, whicheffectively improved its corporate financing environment. Through facilitating and implementing debt-to-equity swaps,the Company further optimised its asset and liability structure.
(IV) Project construction
During the reporting period, the phase I of the magnesite mining project of Haiming Mining commenced operationin January 2018, the 510,000-tonne high-end culture paper project of Shouguang Meilun commenced operationin August 2018, the 300,000-tonne chemical pulp project of Huanggang Chenming commenced operation in mid-November 2018, and the 400,000-tonne chemical pulp project of Shouguang Meilun also staged a trial run. Theoperation of the above projects will play a very important role in enhancing the sustainable development and achievingthe strategic objectives of the Company.
(V) Corporate management
The Company fully implemented the adjustments to its organisational structure and remuneration system as plannedto further enhance its functional management and the effectiveness of remuneration as incentives. The Company alsoproactively proceeded with the process and information-based construction to promote management reform andsystem upgrade. The Company further improved its management system so that there were rules to follow for thebasic management. The Company focused on strengthening level management by specifying the tasks and measuresto be taken at each level on a daily, weekly, monthly and annual basis, making clear the responsibilities of eachposition, and setting the direction for each level of work and enhancing the execution capability of the team.
2018 ANNUAL REPORT
V Discussion and Analysis of Operations
II. Analysis of principal operations
1. Overview
Please see“I. Overview”under“Discussion and Analysis of Operations”for relevant information.
2. Revenue and cost
(1) Components of revenue
Unit: RMB20182017Increase/Amount% of revenueAmount% of revenuedecrease
Total revenue28,875,756,163.56100%29,472,453,563.98100%-2.02%By industryMachine-made paper24,303,557,365.1384.17%26,280,449,337.8289.17%-7.52%Financial leasing2,202,061,690.167.63%1,967,883,247.496.68%11.90%Magnesite mining416,152,447.971.44%———Construction materials288,669,257.791.00%255,747,205.450.87%12.87%Electricity and steam154,541,407.230.54%198,073,854.150.67%-21.98%Chemicals110,998,714.220.38%109,914,856.680.37%0.99%Hotel26,182,589.820.09%24,368,815.970.08%7.44%Others1,373,592,691.244.76%636,016,246.422.16%115.97%By productWhite paper board6,440,247,745.6622.30%6,906,078,714.8023.43%-6.75%Duplex press paper6,155,644,742.2321.32%6,368,897,144.2321.61%-3.35%Coated paper4,697,177,229.0316.27%5,489,860,030.0118.63%-14.44%Electrostatic paper2,404,374,935.488.33%2,371,439,780.868.05%1.39%Anti-sticking raw paper1,208,193,494.704.18%1,207,953,706.054.10%0.02%Household paper749,151,937.192.59%689,570,026.522.34%8.64%Light weight coated paper198,364,650.450.69%515,092,105.821.75%-61.49%Writing paper118,511,116.220.41%275,304,569.700.93%-56.95%Other machine-made paper2,331,891,514.178.07%2,456,253,259.838.33%-5.06%Financial leasing2,202,061,690.167.63%1,967,883,247.496.68%11.90%Magnesite mining416,152,447.971.44%———Construction materials288,669,257.791.00%109,914,856.680.37%162.63%Electricity and steam154,541,407.230.54%198,073,854.150.67%-21.98%Chemicals110,998,714.220.38%255,747,205.450.87%-56.60%Hotel26,182,589.820.09%24,368,815.970.08%7.44%Others1,373,592,691.244.76%636,016,246.422.16%115.97%By geographical segmentMainland China24,560,408,181.9285.06%25,541,544,676.8386.55%-3.84%Other countries and regions4,315,347,981.6414.94%3,930,908,887.1513.45%9.78%
V Discussion and Analysis of Operations
II. Analysis of principal operations(Cont’d)
2. Revenue and cost(Cont’d)
(2) Industries, products or regions accounting for over 10% of revenue or operating profit of the Company
√ Applicable Not applicableWhether the Company needs to comply with the disclosure requirements of specific industriesNo
Unit: RMB
RevenueOperating costsGross profit margin
Increase/decreaseof revenue as compared
to the correspondingperiod of the prior year
Increase/decreaseof operating costsas compared to thecorresponding period
of the prior year
Increase/decreaseof gross profit margin
as compared to thecorresponding period
of the prior year
By industryMachine-made paper24,303,557,365.1317,849,873,914.5626.55%-7.52%-4.14%-2.59%Financial leasing2,202,061,690.16167,892,149.5092.38%11.90%-40.54%6.72%By productDuplex press paper6,155,644,742.234,518,550,774.1526.60%-3.35%-3.47%0.09%Coated paper4,697,177,229.033,407,051,401.8727.47%-14.44%-10.49%-3.20%White paper board6,440,247,745.665,395,302,715.5016.23%-6.75%13.12%-14.71%Electrostatic paper2,404,374,935.481,440,077,827.5140.11%1.39%-4.23%3.51%Anti-stickingraw paper1,208,193,494.70728,105,243.0139.74%0.02%-8.52%5.63%Financial leasing2,202,061,690.16167,892,149.5092.38%11.90%-40.54%6.72%By geographical segmentMainland China24,560,408,181.9215,153,938,755.3038.30%-3.84%-5.94%1.38%Other countriesand regions4,315,347,981.644,108,074,364.174.80%9.78%13.55%-3.16%
Under the circumstances that the statistics specification for the Company’s principal operations dataexperienced adjustment in the reporting period, the principal activity data upon adjustment of the statisticsspecification as at the end of the reporting period in the latest yearApplicable √ Not applicable
2018 ANNUAL REPORT
V Discussion and Analysis of Operations
II. Analysis of principal operations(Cont’d)
2. Revenue and cost(Cont’d)
(3) Whether revenue from sales in kind is higher than revenue from services
√ Yes NoBy industryItemUnit20182017
Increase/decrease
Machine-made paperSales’0,000 tonnes432496-12.90%Production output’0,000 tonnes457510-10.39%Inventories’0,000 tonnes724753.19%
Explanation on why the related data varied by more than 30%√ Applicable Not applicableThe inventories of machine-made paper increased year on year by 53.19% mainly due to the decreased sales ofmachine-made paper during the reporting period.(4) Performance of material sales contracts of the Company during the reporting period
Applicable √ Not applicable
V Discussion and Analysis of Operations
II. Analysis of principal operations(Cont’d)
2. Revenue and cost(Cont’d)
(5) Composition of operating costs
By industry
Unit: RMB20182017Increase/By industryItemAmount% of operating costsAmount% of operating costsdecrease
Machine-made paperRaw materials10,868,034,213.1860.89%11,321,010,554.2960.80%-4.00%
Chemicals2,809,021,253.7815.74%2,649,089,266.0314.20%6.04%Energy and power1,969,433,608.3311.03%2,041,148,096.9111.00%-3.51%Depreciation803,728,940.464.50%875,140,104.874.70%-8.16%Labour costs252,589,989.301.42%259,402,371.051.40%-2.63%Other production costs1,147,065,909.506.43%1,474,478,932.187.90%-22.21%Subtotal17,849,873,914.56100.00%18,620,269,325.34100.00%-4.14%
Power and steamRaw materials94,793,908.6081.90%106,044,022.6680.20%-10.61%
Depreciation8,307,708.787.18%9,800,393.227.40%-15.23%Labour costs3,443,963.292.98%3,756,021.822.80%-8.31%Energy and power2,875,214.192.48%2,850,799.432.20%0.86%Chemicals246,573.810.21%345,197.700.30%-28.57%Other production costs6,072,545.255.25%9,400,888.637.10%-35.40%Subtotal115,739,913.92100.00%132,197,323.45100.00%-12.45%
Construction materialsRaw materials171,263,506.9874.83%151,042,972.5872.70%13.39%
Energy and power21,374,540.739.34%23,009,884.0211.10%-7.11%Labour costs14,460,145.116.32%14,112,147.056.80%2.47%Depreciation6,626,767.962.90%7,247,023.473.50%-8.56%Other production costs15,148,057.146.62%12,319,837.645.90%22.96%Subtotal228,873,017.91100.00%207,731,864.76100.00%10.18%
2018 ANNUAL REPORT
V Discussion and Analysis of Operations
II. Analysis of principal operations(Cont’d)
2. Revenue and cost(Cont’d)
(6) Change of scope of consolidation during the reporting period
√ Yes NoDuring the year, the scope of consolidation included 4 newly established subsidiaries, namely ShandongChenming Coated Paper Sales Co. Ltd., Chenming Paper United States Co., Ltd., Beijing Chenming FinancialLeasing Co., Ltd. and Jiangxi Chenming Supply Chain Management Co., Ltd.During the year, a company was excluded from the scope of consolidation: The Company disposed of 30%equity interest in Xuchang Chenming Paper Co. Ltd. Subsequent to the disposal, Xuchang Chenming Paper Co.Ltd., which was held as to 30% by the Company, was excluded from the scope of consolidation.(7) Significant change in or adjustment of the businesses, products or services of the Company during the
reporting periodApplicable √ Not applicable(8) Sales to major customers and major suppliers
Sales to major customers of the CompanyTotal sales to top 5 customers (RMB)2,031,261,823.95Total sales to top 5 customers as a percentage of the total sales for the year7.03%Sales to top 5 customers who are related parties0.00%Information on top 5 customers of the CompanyNo.Name of customerSales (RMB)
As a percentageof the total sales
for the year (%)
1Customer A555,240,686.161.92%2Customer B400,285,052.751.39%3Customer C373,751,814.801.29%4Customer D354,040,200.901.23%5Customer E347,944,069.341.20%Total—2,031,261,823.957.03%
Major suppliers of the CompanyTotal purchases from top 5 suppliers (RMB)4,272,763,918.65Total purchases from top 5 suppliers as a percentage of the total purchases for the year21.53%Total purchases from top 5 suppliers who are related parties as a percentage0.00%
V Discussion and Analysis of Operations
II. Analysis of principal operations(Cont’d)
2. Revenue and cost(Cont’d)
(8) Sales to major customers and major suppliers(Cont’d)
Information on top 5 suppliers of the Company
No.Name of supplierPurchases (RMB)
As a percentage
of the totalpurchases for
the year (%)
1Supplier A1,117,882,698.145.63%2Supplier B987,054,232.324.97%3Supplier C833,962,815.654.20%4Supplier D814,300,495.134.10%5Supplier E519,563,677.402.62%Total—4,272,763,918.6521.53%
3. Expenses
Unit: RMB20182017
Increase/Decrease
(%)Reasons for material changes
Selling and distributionexpenses
1,190,499,238.491,304,465,552.27-8.74%General andadministrativeexpenses
967,840,641.90892,063,618.678.49%Finance expenses2,741,486,438.032,117,302,131.7229.48%Mainly due to an increase in interest
expenses.Research anddevelopmentexpenditure
929,873,688.401,017,306,281.19-8.59%Loss on impairmentof asset
164,654,098.54141,361,141.8016.48%
2018 ANNUAL REPORT
V Discussion and Analysis of Operations
II. Analysis of principal operations(Cont’d)
4. Research and development expenditure
√ Applicable Not applicableThe Company had been closely following the economic and market conditions in China and in the industry since2018. Driven by customers’demand with a view to enhancing economic benefits, the Company put more efforts intotechnical innovation, promoted the application of new technology and new raw materials such as high-efficiencychemical and mechanical pulp technology and wet-end chemical application for paper making, and developednew technology-based products with more economic benefits. The Company was also committed to researchingand developing for the purpose of product differentiation and refining. 12 R&D projects including the“technicaldevelopment of mildew proof white paper board”, the“technical development of high-bulk coated paper for childrensketching books”and the“technical development of denaturation amylum for highly concentrated coating”werelisted on the technological innovative project plans of Shandong Province for 2018. The Company also collaboratedwith Qilu University of Technology for Industry-University Research, producing a R&D project for“technology in thepreparation of chemical mechanical pulp by co-processing hydrothermal mixed wide leaves and biologicals”, whichdealt with core technological challenges arising in the production process, such as the high electricity consumptionof pulp grinding, the inconsistent whiteness of paper pulp and the problem of papers turning yellow easily. Ultimately,the technology was widely applied in the production of high-end white paper boards and coated papers. At the sametime, our“high-bulk white paper board”and“technological development in paper for milk tea paper cups”wereawarded the 2018 Excellent Product By Innovative Enterprise Technology in Shandong Province (2018) and First Prize for Outstanding Achievements (), respectively. We also successivelycompleted the R&D of 14 new products, including the core paper for white paper boards and paper for paper bags,which accelerated the restructuring of our product mix and facilitated the restructuring and upgrading of enterprises.Research and development expenditure of the Company
20182017
Percentage
of change
R&D headcount1,8631,43429.92%Ratio of R&D personnel12.26%10.56%1.70%R&D expenditure (RMB)929,873,688.401,017,306,281.19-8.59%R&D expenditure to revenue3.22%3.45%-0.23%
Reasons for significant change in total R&D expenditure to revenueApplicable √ Not applicableReasons for and reasonableness of the significant change of the capitalization rate of R&D expenditureApplicable √ Not applicable
V Discussion and Analysis of Operations
II. Analysis of principal operations(Cont’d)
5. Cash flows
Unit: RMBItem20182017
Increase/decrease (%)
Subtotal of cash inflows from operating activities39,069,129,483.1425,185,850,961.7755.12%Subtotal of cash outflows from operating activities24,969,427,596.1025,162,084,918.84-0.77%Net cash flows from operating activities14,099,701,887.0423,766,042.9359,227.09%Subtotal of cash inflows from investing activities2,785,950,020.881,018,367,966.90173.57%Subtotal of cash outflows from investing activities4,564,941,039.274,649,220,322.66-1.81%Net cash flows from investing activities-1,778,991,018.39-3,630,852,355.7651.00%Subtotal of cash inflows from financing activities61,785,793,427.6466,918,619,679.44-7.67%Subtotal of cash outflows from financing activities74,638,951,528.0262,441,482,879.2919.53%Net cash flows from financing activities-12,853,158,100.384,477,136,800.15-387.08%Net increase in cash and cash equivalents-422,850,131.94824,547,328.84-151.28%
Explanation on main effects of material changes√ Applicable Not applicable(1) Net cash flows from operating activities increased by 59,227.09% as compared to the corresponding period
of the prior year mainly due to the net recovery of proceeds of RMB6,191 million resulting from the continuousreduction in the scale of the financial leasing business of the Company.(2) Net cash flows from investing activities increased by 51% as compared to the corresponding period of the prior
year mainly due to the disposal of the equity interest in Guangdong Dejun Investment Co., Ltd. by the Company.(3) Net cash flows from financing activities decreased by 387.08% mainly due to an increase in the repayment of
borrowings during the reporting period.Explanation on main reasons leading to the material difference between net cash flows from operating activities duringthe reporting period and net profit for the year√ Applicable Not applicableThe main reason is the fact that the net recovery of proceeds of RMB6,191 million resulting from the continuousreduction in the scale of the financial leasing business of the Company.
III. Analysis of non-principal operations
Applicable √ Not applicable
2018 ANNUAL REPORT
V Discussion and Analysis of Operations
IV. Assets and liabilities
1. Material changes of asset items
Unit: RMBAs of the end of 2018As of the beginning of 2018
As a percentageAs a percentageAmount of total assetsAmountof total assetsPercentage changeDescription of major changes
Monetary funds19,292,774,747.7918.32%14,443,492,461.4313.67%4.65%Mainly due to the increase in deposits for the issuance of
financingConstruction in progress11,871,350,821.5511.27%7,683,945,044.327.26%4.01%Mainly due to the continued investment made in the
Huanggang Chenming 300,000 tonne chemical pulp project,
the Shouguang Headquarters newsprint paper-for-cultural
paper project, and the Shouguang Meilun 400,000 tonne
chemical pulp project and 510,000 tonne high-ended cultural
paper projectBills receivable1,213,116,491.461.15%4,220,231,853.564.00%-2.85%Mainly due to the decrease in the payment for goods made by
billsOther receivables2,225,558,697.912.11%538,734,656.550.51%1.60%Mainly due to the sales of some debts by the Financial Leasing
CompanyNon-current assets duewithin one year
4,007,503,281.863.81%6,901,695,875.946.53%-2.72%Mainly due to the recovery of proceeds by the financial leasing
business.Bills payable4,218,969,554.934.01%1,278,395,090.711.21%2.80%Mainly due to the increased external payment made by bills by
the CompanyOther current liabilities2,915,035,681.032.77%10,797,248,631.7610.22%-7.45%Mainly due to the repayment of the matured short-term
commercial paperLong-term payables3,900,255,693.443.70%5,550,881,435.645.26%-1.56%Mainly due to the repayment of the equipment financing due.
2. Assets and liabilities measured at fair value
√ Applicable Not applicable
Unit: RMB
ItemOpening balance
Profit or lossfrom change infair value during
the period
Cumulative fair
value changecharged to equity
Impairmentprovided during
the period
Purchases
duringthe period
Disposal
duringthe periodClosing balance
Consumable biological assets1,756,375,954.07-21,464,400.6578,010,397.66—41,520,519.59264,889,462.651,511,542,610.36Total1,756,375,954.07-21,464,400.6578,010,397.66—41,520,519.59264,889,462.651,511,542,610.36
Whether there were any material changes on the measurement attributes of major assets of the Company during thereporting periodYes √ No
V Discussion and Analysis of Operations
IV. Assets and liabilities(Cont’d)
3. Restriction on asset rights as at the end of the reporting period
Item
Carrying amount
as at the end
of the yearReasons for such restriction
Other monetary funds16,911,216,505.27As deposits for bank acceptance bills, letters of credit and bank
borrowings, and deposit reservesBills receivable431,715,666.94As collateral for short-term borrowings, bills payable, letters of
guarantee and letters of creditFixed assets8,079,811,565.53As collateral for bank borrowings and long-term payablesIntangible assets873,985,362.13As collateral for bank borrowings and long-term payablesInvestment properties4,691,453,227.24As collateral for bank borrowings
Total30,988,182,327.11
V. Investments
1. Overview
√ Applicable Not applicable
Investments during thereporting period (RMB)
Investments during the
corresponding period
of prior year (RMB)Change
6,770,571,000.0010,071,391,442.52-32.77%
2018 ANNUAL REPORT
V Discussion and Analysis of Operations
V. Investments(Cont’d)
2. Material equity investments during the reporting period
√ Applicable Not applicable
Unit: RMB
Name of investeePrincipal activities
Form ofinvestment
Investment
amountShareholding
Sourceof fundPartner(s)
Period ofinvestmentProduct type
Progress asat the date ofbalance sheet
Estimatedreturn
Profit or lossfrom investment
for the period
Involvementin lawsuit
Date ofdisclosure(if any)
Disclosure index(if any)
Beijing Chenming FinancialLeasing Co., Ltd.
Financial leasing and operationleasing
Newlyestablished
200,000,000.00100.00%Self-owned
funds
A wholly-owned subsidiary17 May 2018 to 16
May 2048
Financial leasingCompletedNot applicable-1,654,500.81No30 January 2018http://www.cninfo.com.cnShanghai ChenmingIndustry Co., Ltd.
Industrial investment, commercialconsultation and propertymanagement
Capitalincrease
2,000,000,000.00100.00%Self-owned
funds
A wholly-owned subsidiary15 September 2017
to 14 September2037
Industrial investmentCompletedNot applicable-1,595,138.11No17 April 2018http://www.cninfo.com.cnShandong Chenming GroupFinance Co., Ltd.
Business as permitted by theChina Banking RegulatoryCommission pursuant to relevantlaws, administrative regulationsand other regulations
Capitalincrease
2,000,000,000.00100.00%Self-owned
funds
A wholly-owned subsidiaryLong-termCorporate financial
business
CompletedNot applicable244,038,383.55No27 April 2018http://www.cninfo.com.cnWuhan Chenming HanyangPaper Holdings Co., Ltd.
Production and sales of machine-made paper, paper board andpaper making machinery
Acquisitionof minorityinterest
60,896,600.0065.21%Self-owned
funds
Aberdeen Industrial Limited,Hong Kong Dongfang HuixinHoldings Limited, HubeiXinhua Printing Industry ParkCo., Ltd., Hubei ChangjiangPublishing & Media GroupCo., Ltd. and Hubei ZhiyinPrinting Co., Ltd.
29 June 2004 to 18November 2048
Machine-made paperand paper makingmachinery
CompletedNot applicable53,188,105.84No24 May 2018http://www.cninfo.com.cn
Guangdong HuiruiInvestment Co., Ltd.
Industrial investment, marineengineering project investment,tourist project investment, greenlandscape project investment,municipal works and ancillaryproject investment; sales ofhardware and electric materialsand electrical engineeringproducts
Acquisitionof minorityinterest
120,600,000.00
49.00%Self-owned
funds
Zhanjiang Chenming andShanghai Chenli InvestmentCo., Ltd.
Long-termIndustrial investmentCompletedNot applicable-79,406,759.94NoNot applicableNot applicable
Goldtrust Futures Co., Ltd.Broker of commodities and
futures, broker of financial futures,investment consultant of futures;property management.
Acquisition180,000,000.0045.00%Self-owned
funds
Hunan Oil Pump Co.,Ltd., Shanghai PanHouInvestment ManagementCo., Ltd., Shanghai JinzhiInformation TechnologyCo., Ltd., Yingxin (Hainan)Financial Services Co., Ltd.,Beijing Wuxianxinrui NetworkTechnology Co., Ltd.
Long-termFinancial futures
business
Currently pending
for the approval
of SFO
Not applicableNot applicableNo12 October 2018http://www.cninfo.com.cn
Shanghai Hongtai RealEstate Co., Ltd.
Real estate developmentand operation and propertymanagement
Acquisitionof minorityinterest
2,099,074,400.00100.00%Self-owned
funds
Shanghai Xinhuangpu RealEstate Co., Ltd., ShanghaiXinmin Industrial Co., Ltd.
31 January 1994 to30 January 2044
Office, propertiesCompletedNot applicable-173,123,654.50No21 December
2018
http://www.cninfo.com.cnWeifang Xingxing UnitedChemical Co., Ltd.
Production and sales: hydrogenperoxide
Acquisition110,000,000.0050%Self-owned
funds
Shouguang Chenming andShandong Hexin ChemicalIndustry Group Co., Ltd.
Long-termProduction of
chemical products
CompletedNot applicable-746,762.88NoNot applicableNot applicable
Total——6,770,571,000.00———————40,699,673.15———
V Discussion and Analysis of Operations
V. Investments(Cont’d)
3. Material non-equity investments during the reporting period
√ Applicable Not applicable
Unit: RMB
Project name
Form ofinvestment
Fixedassetsinvestmentor not
Industry inwhich theinvestmentprojectoperates
Investmentamount duringthe reporting
period
Accumulatedactual amountinvested as of
the end ofreporting periodSource of fundProgressEstimated return
Accumulatedrealised return
as of theend of thereporting
period
Reasons for failurein meeting scheduledprogress andestimated return
Date ofdisclosureDisclosure index
510,000-tonne high-endcultural paper projectof Shouguang Meilun
Self-constructed
YesPaper making1,004,571,235.061,701,781,479.30Self-raised and
borrowings
100%Estimated revenue of
RMB780 million uponofficial operationof the project
—Trial production phase18 February 2017http://www.cninfo.com.cn400,000-tonnechemical pulp projectof Shouguang Meilun
Self-constructed
YesPulp
production
1,214,814,219.343,016,785,495.66Self-owned funds
and borrowings
95%Estimated total profit of
approximately RMB350million upon completionand commencingproduction of the project
—Not yet completed21 March 2014http://www.cninfo.com.cnChemical pulp project ofHuanggang Chenming
Self-constructed
YesPulp
production
1,411,690,254.493,605,150,078.66Self-owned funds
and borrowings
100%Estimated revenue of
RMB400 million uponofficial operationof the project
—Trial production phase2 August 2013http://www.cninfo.com.cnHaiming magnesitemining project
Self-constructed
YesMagnesite
mining
21,566,889.76486,501,551.60Self-owned funds
and borrowings
—Estimated total profit ofapproximately RMB150million upon completionand commencingproduction of the project
—Not yet completedN/AN/Anewsprintpaper-for-culturalpaper project
Self-constructed
YesPaper making521,228,391.311,426,602,125.57Self-owned funds
and borrowings
100%——Trial production phaseN/AN/A
Total———4,173,870,989.9610,236,820,730.79———————
4. Financial asset investment
(1) Security investments
Applicable √ Not applicableThe Company did not have any security investments during the reporting period.
(2) Derivatives investments
Applicable √ Not applicableThe Company did not have any derivative investments during the reporting period.
2018 ANNUAL REPORT
V Discussion and Analysis of Operations
V. Investments(Cont’d)
5. Use of proceeds
√ Applicable Not applicable
(1) General use of proceeds
√ Applicable Not applicable
Unit: RMB’0,000
Year
Fundraisingmethod
Totalamount ofproceeds
Totalamount of
utilisedproceedsduring the
current
period
Totalamount ofaccumulated
utilisedproceeds
Totalamount ofproceedswith changein use duringthe reporting
period
Totalamount ofaccumulated
proceedswith change
in use
Proportionof totalamount ofaccumulatedproceeds withchange in use
Totalamount ofunutilisedproceeds
Use andstatus ofunutilisedproceeds
Totalamountof idleproceedsfor over2 years
2018Public
offering ofcorporatebonds
89,865.0089,865.0089,865.00000.00%0Not
applicable
Total—89,865.0089,865.0089,865.00000.00%00
Description of the general use of proceedsOn 13 March 2017, the Company received the Approval (Zheng Jian Xu Ke [2017] No. 342) from the ChinaSecurities Regulatory Commission for the public offering of corporate bonds of not more than RMB4.0 billion.On 27 March 2018, the Company issued the first tranche of corporate bonds for 2018 to qualified investors, withtotal proceeds raised of RMB900 million. After deducting the issuance expense paid of RMB1.35 million, the netproceeds raised of RMB898.65 million were deposited to the designated account for the proceeds of corporatebonds.
V Discussion and Analysis of Operations
V. Investments(Cont’d)
5. Use of proceeds(Cont’d)
(2) Commitment of proceeds
√ Applicable Not applicable
Unit: RMB’0,000
Committedinvestment projectand excess proceeds
Changein project(includingPartialchange)
TotalCommittedinvestmentof proceeds
Totalinvestment
Afteradjustment
(1)
Investedamountduring thereporting
period
Accumulated
investedamount asat the end ofthe period
(2)
Investmentprogress asat the end of
the Period
(3)=(2)/(1)
The date whenthe projectreachesthe workingcondition forits intended use
Returnrealisedduring thereportingperiod
Expectedreturn beingachievedor not
Significantchangein project
Committed investment projectRepayment ofbank loans
No89,865.0089,865.0089,865.0089,865.00100.0%11 April 2018Not applicableNot
applicable
NoSubtotal of committedinvestment project
—89,865.0089,865.0089,865.0089,865.00100.0%————Amount, use andutilisation ofexcess proceeds
Not applicableChange in place ofimplementation ofinvestment projectof proceeds
Not applicableAdjustment onimplementationmethod of investmentproject of proceeds
NilPre-investment andswap of investmentproject of proceeds
NilTemporaryreplenishment ofliquidity byidle proceeds
NilBalance and reasonfor proceedsarising from projectimplementation
Not applicableUse and direction ofunused proceeds
Not applicableUse of proceeds andproblems disclosedor other issues
Nil
2018 ANNUAL REPORT
V Discussion and Analysis of Operations
V. Investments(Cont’d)
5. Use of proceeds(Cont’d)
(3) Change in use of proceeds
Applicable √ Not applicableThe Company did not have any change in use of proceeds during the reporting period.
VI. Disposal of material assets and equity interest
1. Disposal of material assets
Applicable √ Not applicable
2. Disposal of material equity interest
√ Applicable Not applicable
Counterparty(ies)
Equity interestdisposed ofDisposal date
Transactionconsideration(RMB’0,000)
Net profitcontributionto the Company
from thebeginning of theperiod up to the
disposal date(RMB’0,000)
Effect of disposalon the Company
Net profitcontribution tothe Company onequity disposal asa percentage oftotal net profit (%)
Pricing basisof disposal ofequity interest
Related partytransaction or not
Relationship withcounterparty (ies)
Relevant assettitle fullytransferred or not
Carried out onschedule or not,if not, the reasonsand measures takenby the CompanyDisclosure dateDisclosure index
Shanghai ZhongnengEnterprise Development(Group) Co., Ltd.
Guangdong DejunInvestment Co., Ltd.
16 April 2018263,404.145,249The disposal can effectively increase
the Company’s cash flow, whichenables the Company to concentrateon capital advantages, better supportthe development of competitivebusinesses and further enhancebusiness performance.
2.08%Fair valueNoNot related partyYesDisposal completed17 April 2018http://.wwwcninfo.com.cn
Hubei Zheshang Wan XingInvestment Co., Ltd.
Wuhan Wan Xing RealEstate Co., Ltd.
7 August 201813,1607,968The disposal is beneficial for the
integration of the Company’sresources, and optimises the assetstructure of the Company. Moreover,with a focus on the competitiveprincipal businesses, our quality andefficiency are improved.
3.16%Fair valueNoNot a related partyYesDisposal completed9 August 2018http://.wwwcninfo.com.cn
V Discussion and Analysis of Operations
VII. Analysis of major subsidiaries and investees
√ Applicable Not applicableMajor subsidiary and investees accounting for over 10% of the net profit of the Company
Unit: RMB’0,000Name of company
Type ofcompanyPrincipal activitiesRegistered capitaTotal assetsNet assetsRevenueOperating profitNet profit
Zhanjiang Chenming Pulp & PaperCo., Ltd.
SubsidiaryProduction and sale of pulp,
duplex press paper, andelectrostatic paper
5,550,000,000.0020,285,814,497.008,727,359,466.349,475,655,599.041,553,668,126.151,353,265,077.60Shandong Chenming FinancialLeasing Co., Ltd.
SubsidiaryFinancial leasing5,872,000,000.0023,062,213,738.478,772,992,919.821,534,655,651.56723,241,257.95601,754,363.06Qingdao Chenming NonghaiInvestment Co., Ltd.
SubsidiaryFinancial leasing5,000,000,000.005,617,563,685.105,573,308,855.85509,389,703.20469,221,914.25365,295,063.11
Acquisition and disposal of subsidiaries during the reporting period√ Applicable Not applicableName of companies
Methods to acquire anddispose of subsidiariesduring the reporting period
Impact on overall productionand operation and results
Beijing Chenming Financial LeasingCo., Ltd.
Newly establishedNet profit decreased by RMB1.65 million.Shandong Chenming CoatedPaper Sales Co. Ltd.
Newly establishedNo effectJiangxi Chenming SupplyChain Management Co., Ltd.
Newly establishedNo effectChenming Paper United States Co., Ltd.Newly establishedNet profit decreased by RMB43,000.Shanghai Hongtai Real Estate Co., Ltd.Acquisition of 55% equity
interest held by minority
shareholders
Net profit decreased by RMB173.12 million.Xuchang Chenming Paper Co. Ltd.Transfer of 30%
equity interes
Net profit decreased by RMB15.50 million.Wuhan Chenming Hanyang PaperHoldings Co., Ltd.
Acquisition of equityinterest held by minorityshareholders
No effectGuangdong Dejun Investment Co., Ltd.Transfer of 50% equity
interest
Net profit increased by RMB52.49 million.Wuhan Wan Xing Real Estate Co., Ltd.Transfer of 40% equity
interest
Net profit increased by RMB79.68 million.
Particulars of major subsidiaries and investees1. For the integrated forestry, pulp and paper project of Zhanjiang Chenming, the gross profit of major products
remained at a high level, showing strong profitability.2. The Financial Leasing Company strengthened its business management with stable profitability.
2018 ANNUAL REPORT
V Discussion and Analysis of Operations
VIII. Structured entities controlled by the Company
Applicable √ Not applicable
IX. Outlook on the future development of the Company
(I) Competition overview and development trend of the industry
China is the world’s largest producer of paper and board, as well as the world’s largest consumer. Despite thestrong overall demand, the concentration of the domestic paper making industry is still significantly lower than thatof developed countries in Europe and the United States. With reference to the historical development and currentsituation of the paper making industry in developed markets such as Europe and the United States, domestic papermaking enterprises distribute dividends on a larger scale, however, there is an obvious shortage in the supply of pulp,a raw material, which prevented the rise of paper making behemoth. In 2017, the country produced 79,470,000,000tonnes of pulp in total, representing a slight increase of 0.30% year on year. However, there is still a big gapcompared with the United States, and the supply of raw materials is still highly dependent on overseas suppliers. Withthe successive launch of new chemical wood pulp projects by Huanggang Chenming and Shouguang Meilun of theCompany, the Company’s self-sufficiency rate of wood pulp will be further increased, which will reduce productioncost significantly, address the constraints of raw materials, enhance the core competitiveness of the Company, andprovide strong support and safeguarding for the Company’s future development.The reform of the supply-side prompted the market to phase out outdated production capacity and accelerated theelimination of redundant production capacity. With the implementation of more stringent environmental protectionmeasures, the licensing system for pollutant discharge and the external waste control policy, the pollution controlof the paper making industry is strengthened from various aspects. It is expected that the relevant policies on thesupply side of the industry will remain tight in 2019. Due to continuous investments in environmental protectionand advantages in raw material cost and production scale, large factories will become more competitive, whichcan promote the centralised management and scale of enterprises, and accelerate the concentration of productioncapacity.
(II) Development strategy
The Company will adhere to the main theme of emphasising on environmental protection, low carbon, recycling andsustainable development. Following the“Made in China 2025 Plan”and the principles of scientific developmentand quality and efficiency enhancement, the Company will comprehensively improve its quality and efficiency,management level, technology application, sense of happiness and brand image through the incorporation of smarttechnology into its industrial activities, reorganised methodology and restructuring so as to expand and improve itselfand strive to become one of the world-class companies with the highest growth rate.Transformation and upgrade strategy: The Company will comprehensively improve the industrial structure andregional layout; emphasise on the development of the five leading businesses, namely pulp production, paper making,fibre yarn, forestry, mining and so on; and construct an efficient industrial system with synergies.Green development strategy: Remaining steadfast in the operation philosophy of“forestry-pulp-paper-fibre-yarnintegration”; with technical progress, advanced equipment and strict and prudent management, the Company willpromote clean production and recycling economy, become a low-energy consumption and environmentally-friendlyenterprise. The Company seeks for development while protecting the environment and maintains higher environmentalprotection standards while seeking for scientific development, thus achieving a“win-win”situation in economicdevelopment and environmental protection.International operation strategy: The Company, based in China with a global reach, will follow the national strategy ofthe“Belt and Road”initiative, accelerate its pace of“going global”, reinforce global exchanges and communicationand gradually expand its overseas market.
V Discussion and Analysis of Operations
IX. Outlook on the future development of the Company(Cont’d)
(II) Development strategy(Cont’d)
Operational excellence strategy: By adhering to the management policy of“efficient management, structuraladjustment, market development and risk control”, the Company will constantly heighten its whole processmanagement including production and operation, marketing, financial costs and project construction, effectivelyintegrate its systems and resources, and strive to upgrade the Company’s management capacity and profitability.Strengthening the Company through talent strategy: By improving talent development, introduction, application andincentive mechanisms, and nurturing high-end, versatile, innovative and international talents, Chenming will becomeone of the world-class companies with the highest growth rate.Harmonious development strategy: By comprehensively enhancing enterprise culture building, caring for theemployees, acting on its corporate social responsibilities, and elevating its integrated value-creating ability in terms ofeconomy, society and environment, Chenming will create a positive corporate image for itself and strive to become aharmonious enterprise.
(III) Operation plans for 2019
In 2019, the main goal of the Company is thorough adherence to the guiding principle of work of“efficientmanagement, structural adjustment, market development and risk control”, and fully carrying forward its corporatestyle of“tackling problems once discovered”. The Company will strive to improve corporate management whileemphasizing economic benefits, and facilitate quality development of the Company. The specific measures are asfollows:
1. Determined to make changes in corporate management
The corporate management centre will change its course, and strictly implement the various measuresdetermined by the Company and place focus on assessment, so that the effects of corporate management canbe seen.Diligently implement the weekly meetings. The corporate management centre shall act as the coordinator
in organizing and convening weekly meetings of each department on a timely basis, and shall preparethe meeting minutes. Major issues shall be reported on a timely basis, and the corporate managementdepartment shall address opinions and issues raised by each department in an effective manner.Give play to the functions of the department, clarify the scope of inspection of each department, conduct
weekly inspections, propose rectification plan for each department’s work, and implement responsibilityassessment.Further implement the new ways of innovative management, so as to ensure its realisation in each unit.
Thoroughly implement specific measures and work measures for each level to be strictly implemented.Change from monthly assessment to weekly assessment to ensure the effectiveness of the above.
2018 ANNUAL REPORT
V Discussion and Analysis of Operations
IX. Outlook on the future development of the Company(Cont’d)
(III) Operation plans for 2019(Cont’d)
2. Determined to achieve breakthrough in operation and management
Enhance and increase the coping strength in operation and management. Keep abreast of market
information at all times to learn, study and practice good practices by competitors, and further establishan effective mechanism to improve market response. Strengthen internal control by monitoring theimplementation of the daily major measures by each level with strict examination and assessment. Weeklymeetings shall be held by each level in an effective manner to study and resolve key and difficult issues atwork. We will also keep a firm grasp of key operation indicators and focus on such, so as to ensure thatall indicators are comprehensively improved.Increase the marketing capability of overseas business to further improve the overseas marketing
structure. Establish a number of overseas branches, and increase the number of sales staff and overseasshipments. The performance of these events shall be incorporated into the performance appraisal ofrelevant personnel.Strengthen agent management by walking in their shoes and supporting their expansion and
enhancements. We will elevate the level of cooperation and enhance agent cooperation comprehensivelyon an overall scale.3. Determined to achieve remarkable results in production management
Against the severe market conditions in 2019, the production system will be market-oriented, exertingsubstantial efforts in adjusting the product mix and creating positive conditions for operations.Determined to restructure. The production system shall render full support to the operations in adjusting
the product mix, including the increment of developed products and the continuous R&D of otherproducts with high efficiency, so as to fulfil established output targets. We will increase the output ofvarious high-margin products, such as export paper, highly mechanical pulp paper, unbleached paperand high-grade specialty paper to enhance quality and efficiency.Determined to implement basic management. We will comprehensively implement the work measures
of each level, as formulated by the Group, and conduct weekly evaluation and assessment. We will alsoimprove the training materials at each level. Training will be organised and taught by the main responsibleperson, and assessment and evaluation will be strictly implemented to truly enhance the managementstandards practical skills at all levels. We will reorganise and amend the production management systemand process so that they will be simple, effective and easy to operate. We will also comprehensivelycheck and improve the machine-controlled alarms in the production process, increase the level ofautomation in production scheduling, management and operation, in order to standardise, manage andenhance efficiency.Strict with overall staffing planning. Following the standard of leading international peers, we enhance the
level of automation and informationisation of equipment and strengthen the skills of employee, so as toreach the targets of our overall staffing planning.Focus on new projects that are commencing operations. Huanggang Chenming should quickly become
a new source of profit growth for the Company. The Shouguang Meilun chemical pulp project is undercareful planning for trial operation, in order to achieve the target output and efficiency as soon aspossible. Shouguang Meilun shall take leverage on the cost advantages of self-produced pulp to enhanceeconomic benefits. Haiming Mining shall further enhance project management to ensure that phase II ofthe project is fully completed and put into operation, which will accelerate the company’s operation andmanagement standard and improve profitability.
V Discussion and Analysis of Operations
IX. Outlook on the future development of the Company(Cont’d)
(III) Operation plans for 2019(Cont’d)
4. Determined to enhance financial management to achieve steady operation.
Strengthen financing management and reduce financial costs. We will promote financing for debt
reduction, so as to reduce the gearing ratio and enhance the Company’s risk aversion ability. We will alsodeepen cooperation between banks and enterprises, and focus on increasing cooperation with state-owned banks and policy banks, so as to increase credit limit and reduce financial expenses.Promote financial operation to achieve quality and efficiency enhancement. The Finance Company
will increase fund settlements internally and increase credit limit to peers externally, so as to improvesettlement rate of funds.
(IV) Future capital requirements, source of funds and plan for use
The Company has established itself as a large conglomerate principally engaged in pulp production and papermaking with synergistic development in finance, mining, forestry, logistics and construction materials. With the furtherdevelopment of the existing principal businesses of the Company, the future capital requirements of the Companywill be: (1) investment in the existing projects under construction; (2) consistent investment in the existing productionfacilities because of technological transformation or production expansion; and (3) business expansion and generalworking capital requirements. As the demand for capital has been growing for the Company’s production andoperation, there is a strong need to replenish the working capital to enhance the Company’s capability for sustainableoperations.In order to meet the business development requirements of the Company and further extend and expand the industrychain, the Company will establish diversified financing channels and increase the proportion of direct financingthrough diversified financing channels such as corporate bonds, perpetual bonds, short-term commercial paper,cross-border financing and introduction of third-party investors so as to enrich its financing channels and improvethe debt structure of the Company and provide stable financial support for the operation and development of theCompany.
(V) Risk factors likely to be faced and the measures to be taken
1. Policy risk
Paper making industry is a basic raw materials industry and its growth has been faster than the averagegrowth of the national economy in recent years. However, the paper making industry’s profitability is closelycorrelated to the economic cycle, and the industry is therefore a cyclical industry fluctuating with the nationalmacroeconomic performance, which will further affect the profitability of the Company.Hence, following the principles of scientific development and quality and efficiency enhancement, the Companywill comprehensively improve its industrial structure and regional layout through incorporation of smarttechnology into its industrial activities. The Company will emphasise on the development of leading businessesincluding pulp production and paper making, so as to construct an efficient industrial system with synergies.
2018 ANNUAL REPORT
V Discussion and Analysis of Operations
IX. Outlook on the future development of the Company(Cont’d)
(V) Risk factors likely to be faced and the measures to be taken(Cont’d)
2. Market fluctuation risk
With the rapid growth of the national economy, economic globalisation and China’s accession to the WTO,China’s paper making industry has been facing increasingly fierce competition. Leveraging on the strength andcapital accumulated over the years, domestic enterprises have further expanded their size and improved theirtechnological levels and product quality. Well-known paper making enterprises overseas have also directly setup production bases in China through sole proprietorship or joint ventures so as to participate in the domesticmarket competition by virtue of their advantages in size and technology. Besides, tariff reduction on China afteraccession to the WTO has also further intensified the impact on the international market.Hence, the Company will strive to enhance the quality of paper products and achieve the target of establishinga layout for high-end paper industry so as to increase the proportion of high-end paper. In recent years,the Company has been expanding its business size while optimising its product mix and has set up a fewproduction lines for high-end paper. A diversified and high-end product mix enables the Company to spreadmarket risk and strengthen the resistance towards market volatility. Besides, as high-end products have betterprofit margins, the Company can increase the proportion of high-end products through consistent improvementin product mix, thereby enhancing its profitability and comprehensive competitiveness.3. Risk of overcapacity and slowdown in demand
Overcapacity is a prominent problem in the paper making and paper product industry in China such thatthere has been fierce competition among enterprises. Since 2013, affected by slowdown in macroeconomicgrowth, the demand in paper making industry has been weak. At the same time, China has been encouragingenergy conservation and emission reduction. The outdated production capacity will be phased out, and thusthe new projects will be on a large scale. By virtue of the economies of scale in the paper making industry,the production capacity of individual paper making projects which are under construction or planning forconstruction in China is large, which affects the demand and supply relationship in the whole paper makingindustry.Hence, the Company will make advancements in equipment and technological level, expand its product mix,improve the grading of products and focus on the research and development of high-end products so as toimprove competitiveness.4. Risk of price fluctuation of raw materials
Wood pulp is a major raw material in the Company. The market price of wood pulp fluctuates significantly.The market price fluctuation of raw material has significantly affected the production costs of the Company. Inaddition to intensified market competition resulting from surging capacity in the industry in recent years, theincreases in prices of a number of paper products were not in line with the increases in prices of raw materials.The market price fluctuation of raw materials will have an impact on the performance of the Company.Hence, the Company will remain steadfast in the“forestry-pulp-paper integration”development path and focuson the construction of the Zhanjiang Chenming pulp project, the Huanggang Chenming pulp project and theShouguang Meilun chemical pulp project, thereby eliminating the limitations of raw materials on the Company’sdevelopment and enhancing the Company’s sustainable development.
V Discussion and Analysis of Operations
IX. Outlook on the future development of the Company(Cont’d)
(V) Risk factors likely to be faced and the measures to be taken(Cont’d)
5. Risk of change in environmental protection policies
China has been raising the standards for environmental protection in recent years. More stringent environmentalprotection policies have been implemented in the paper making industry with successive implementation ofenvironmental inspections and licensing system for pollutant discharge. A multi-pronged approach has beenadopted to promote industrial restructuring, and the paper making industry has entered into an importanttransitional period of development. A higher emission standard is bound to increase the environmentalprotection costs in the industry and a high entry standard may result in the slowdown of scale expansion.The Company always strives to achieve harmonious development with energy conservation and emissionreduction. The Company will endeavour to develop the recycling economy through waste exchange andrecycling and strive to maximise its resource utilisation. Meanwhile, the Company will make greater efforts toconstruct environmentally friendly projects and strive to achieve its waste emission target.6. Risk on financial leasing business
The Company may suffer from loss if the lessees of its financial leasing business cannot make full rentalpayment on time due to any reason and there are abuses on equipment or any other short-term behaviour.Although the risk of such rental being unrecoverable is minimal, the Company will also make bad debt provisionas required under its accounting policy. If such amounts cannot be recovered on time, the Company may beexposed to risk of bad debts.The stringent risk management measures of Chenming Leasing provide comprehensive risk preventionand management for the Company’s projects. Besides, the Company usually cooperates with state-ownedenterprises and local governments, so it has strong risk resistance and low risk of default. Chenming Leasingwill strengthen risk management so as to enhance risk resistance and maintain high-quality services.
2018 ANNUAL REPORT
V Discussion and Analysis of Operations
X. Reception of research investigations, communications and interviews
1. Reception of research investigations, communications and interviews during the reporting period
√ Applicable Not applicableReception time
Receptionmethod
Type ofparticipantsIndex for basic particulars
19 April 2018Field researchInstitutionSee Register of Investor Relations
Activities Dated 24 April 2018 onCNINFO13 July 2018Field researchInstitutionSee Register of Investor Relations
Activities Dated 16 July 2018 onCNINFO19 December 2018Field researchInstitutionSee Register of Investor Relations
Activities Dated 21 December 2018on CNINFONumber of receptions3Number of institutions received44Number of individuals received0Number of other participants received0Whether any unpublished materialinformation was disclosed,revealed or leaked
No
VI Directors’Report
The Directors (the“Directors”) of the Company hereby present the annual report and the audited consolidated financial statementsof the Company and the Group for the year ended 31 December 2018.
I. Principal activities
Please refer to section IV“Business Overview”, and“I. Principal operations of the Company during the Reporting Period”
and“II. Analysis of principal operations”under section V“Discussion and Analysis of Operations”for details of principalactivities of the Company.
II. Results and profit distribution
Please refer to section XIII“Financial Report”for the results of the Group for the year ended 31 December 2018.
III. Dividends
After the end of the reporting period, the Board proposed to pay a final dividend for the year ended 31 December 2018 (“finaldividend”) of RMB2.4 in cash for every 10 Shares (tax inclusive) (2017: dividend of RMB6.00 in cash for every 10 Shares(tax inclusive)) to the ordinary shareholders of the Company, subject to approval of shareholders at the forthcoming AnnualGeneral Meeting (“AGM”) of the Company held on 11 June 2019. Upon approval of shareholders of the Company at theAGM, the Company is expected to pay the final dividend on or by 11 August 2019 to shareholders whose names appear onthe register of members of the Company on 20 June 2019.In accordance with the Corporate Income Tax Law of the PRC and its implementation rules effective on 1 January 2008,where a PRC domestic enterprise distributes dividends for financial periods beginning from 1 January 2008 to non-residententerprise shareholders, it is required to withhold 10% corporate income tax for such non-resident enterprise shareholders.Therefore, as a PRC domestic enterprise, the Company will, after withholding 10% of final dividends as corporate incometax, distribute the final dividends to non-resident enterprise shareholders, i.e. any shareholders who hold the Company’sShares in the name of non-individual shareholders, including but not limited to HKSCC Nominees Limited, or othernominees, trustees, or holders of H Shares registered in the name of other organisations and groups.Due to changes in the PRC tax laws and regulations, according to the Announcement on the List of Fully and PartiallyInvalid and Repealed Tax Regulatory Documents issued by the State Administration of Taxation () on 4 January 2011, individual Shareholders who hold the Company’s HShares and whose names appeared on the H Share Register of the Company can no longer be exempted from individualincome tax pursuant to the Notice of the State Administration of Taxation Concerning the Taxation of Gains on Transferand Dividends from Shares (Equities) Received by Foreign Investment Enterprises, Foreign Enterprises and ForeignIndividuals (Guo Shui Fa [1993] No. 045) ( ()([1993]045)) issued by the State Administration of Taxation, whilst pursuant to the letter titled TaxArrangements on Dividends Paid to Hong Kong Residents by Mainland Companies issued by the Stock Exchange to theissuers on 4 July 2011 and the Notice on Matters Concerning the Levy and Administration of Individual Income Tax after theRepeal of Guo Shui Fa [1993] No. 045 of State Administration of Taxation (Guo Shui Han [2011] No. 348) ([1993]045 ([2011]348)), it is confirmed that the overseasresident individual shareholders holding shares of domestic non-foreign invested enterprises issued in Hong Kong areentitled to the relevant preferential tax treatments pursuant to the provisions in the tax arrangements between the countrieswhere they reside and the PRC or the tax arrangements between the PRC and Hong Kong (Macau). Therefore, the Companywill withhold 10% of the dividend as individual income tax, unless it is otherwise specified in the relevant tax regulations andtax agreements, in which case the Company will withhold individual income tax of such dividends in accordance with thetax rates and according to the relevant procedures as specified by the relevant regulations.
2018 ANNUAL REPORT
VI Directors’Report
IV. Closure of register of members
The register of members of the Company will be closed from 10 May 2019 (Friday) to 11 June 2019 (Tuesday), (bothdays inclusive), during which no transfer of shares of the Company will be registered. In order to be eligible to attend andvote at the annual general meeting to be held on 11 June 2019 (Tuesday), all share transfer documents accompanied bythe corresponding share certificates must be lodged with the Company’s Hong Kong share registrar and transfer office,Computershare Hong Kong Investor Services Limited at shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s RoadEast, Wan Chai, Hong Kong for registration not later than 4:30 p.m. on 9 May 2019 (Thursday).
V. Five-year financial summary
Please refer to“IX. Five-year financial summary under paragraph 19 of appendix 16 of the Hong Kong Listing Rules”
under section II“Company Profile and Key Financial Indicators”for the financial summary of the Company for the past fivefinancial years.
VI. Donations
During the year, the Company donated RMB8,740,500.00 (2017: RMB1,950,000) to non-profit making organisations.
VII. Subsidiaries
Please refer to“VII. Analysis of major subsidiaries and investees”under section V“Discussion and Analysis of Operations”
and“XX. Matters of significant of subsidiaries of the Company”under section VII“Material Matters”for the details ofacquisition and disposal of subsidiaries by the Company during the year.
VIII. Property, plant and equipment
Please refer to“II. Financial Statements 1. Consolidated Balance Sheet”under section XIII“Financial Report”for the detailsof changes in property, plant and equipment of the Group for the year ended 31 December 2018.
IX. Share capital
Please refer to“I. Changes in shares”under section VIII“Changes in Share Capital and Shareholders”for details of changesin share capital of the Company for the year ended 31 December 2018.
X. Pre-emptive rights
In accordance with the Articles of Association and the PRC laws, there are no rules requiring the Company to grant existingshareholders pre-emptive rights on newly issued shares of the Company in proportion to their shareholdings.
VI Directors’Report
XI. Transfer into reserves
The Company’s contributed surplus is distributable to shareholders in accordance with the Companies Law. As at 31December 2018, the Company’s reserves available for cash distribution and/or distribution in specie, including contributedsurplus of the Company, amounted to RMB9,530,159,552.96 (2017: RMB9,514,629,584.05) as set out in“II. FinancialStatements 1. Consolidated Balance Sheet”under section XIII“Financial Report”.
XII. Directors
As at 31 December 2018, the Directors of the Company were:
1. Executive Directors
Mr. Chen HongguoMr. Hu ChangqingMr. Geng GuanglinMr. Li FengMr. Chen Gang
2. Non-executive Directors
Ms. Zhang HongMs. Yang Guihua
3. Independent Non-executive Directors
Ms. Liang FuMs. Wang FengrongMr. Huang LeiMs. Pan AilingAccording to the Articles of Association of the Company, all Directors, including non-executive Directors, have been electedat the general meetings with a term of three years from May 2016 to May 2019. They may be re-elected for another termupon expiry of tenure.
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VI Directors’Report
XIII. Directors’service contracts
All Directors have entered into service contracts with the Company for a term from 18 May 2016 to 17 May 2019.None of the Directors who have offered themselves for re-election at the forthcoming AGM have entered into any servicecontract with the Company or any of its subsidiaries which cannot be terminated by the Group within one year withoutpayment of compensation other than statutory compensation.
XIV. Directors and Senior Management’s remuneration and the five highest paid individuals
Details of Directors and the Senior Management’s remuneration and the five highest paid individuals of the Company or/andits subsidiaries are set out in“V. Personnel of the Company”in section X“Directors, Supervisors and Senior Managementand Staff”and“XII Related parties and related party transactions”in section XIII“Financial Report”.In 2018, the Company had 26 Senior Management members in total, which included directors, supervisors and the SeniorManagement. The remuneration of the Senior Management falls within the following ranges:
Range of remuneration (RMB)Number
4.8 million to 5.2 million13.6 million to 4.0 million3.2 million to 3.6 million2.8 million to 3.2 million2.4 million to 2.8 million2.0 million to 2.4 million31.6 million to 2.0 million11.2 million to 1.6 million50.8 million to 1.2 million1Below 0.8 million15
XV. Independent Non-executive Directors
The Company has received from each of the independent non-executive Directors a confirmation of independence for theyear pursuant to Rule 3.13 of the Hong Kong Listing Rules and considered all of the independent non-executive Directors tobe independent during the year.
VI Directors’Report
XVI. Securities interests held by Directors, Supervisors and Chief Executives
As at 31 December 2018, interests of the Company or its associated corporations (within the meaning of Part XV of SFO)held by each of the Directors, Supervisors and Chief Executives of the Company under section 352 of the SFO are set outas follows:
NamePosition
Number of shares(A shares) held as
at the end of thereporting period
(shares)
DirectorsChen Hongguo (Note 1)Chairman10,144,444Hu ChangqingExecutive Director and Vice Chairman1,857Li FengExecutive Director707,727Geng GuanglinExecutive Director656,150Chen GangExecutive Director—Yang GuihuaNon-executive Director—Zhang HongNon-executive Director—Huang LeiIndependent non-executive Director—Liang FuIndependent non-executive Director—Wang FengrongIndependent non-executive Director—Pan AilingIndependent non-executive Director—SupervisorsLi DongSupervisor15,000Sun YinghuaSupervisor—Zhang XiaofengSupervisor—
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VI Directors’Report
XVI. Securities interests held by Directors, Supervisors and Chief Executives(Cont’d)
Associated corporations
NamePosition
Name ofassociated corporations
Number of shares
held at thebeginning of thereporting period
(shares)
Change during
the period +/-
Number of shares
held at the endof the reporting
period (shares)
Chen HongguoChairmanShouguang Henglian
Enterprise InvestmentCo. Ltd. (Note 2)
231,000,000—231,000,000
Note 1: Save for the 10,144,444 A shares held personally, Chen Hongguo is deemed to be interested in the 644,022 A shares held by his spouse, Li
Xueqin.Note 2: Chen Hongguo and his spouse, Li Xueqin, collectively hold 76.79% equity interests in Shouguang Henglian Enterprise Investment Co.
Ltd., (hereinafter referred to as“Shouguang Henglian”), as a result, Shouguang Henglian is deemed to be controlled by Chen Hongguo.
As a result, the 231,000,000 shares in Chenming Holdings (approximately 18.65% of the total share capital of Chenming Holdings) held by
Shouguang Henglian is also deemed to be held by Chen Hongguo.
Save as disclosed above, as at 31 December 2018, none of the Directors, Supervisors or chief executives of the Companyhad any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associatedcorporations which were required to be filed in the register of the Company required to be maintained pursuant to section352 of the SFO or which were required to be notified to the Company and the Hong Kong Stock Exchange pursuant to theModel Code for Securities Transactions by Directors of Listed Issuers as contained in Appendix 10 to the Rules Governingthe Listing of Securities on the Hong Kong Stock Exchange (hereinafter referred to as the“Hong Kong Listing Rules”).As at 31 December 2018, none of the Directors, Supervisors or chief executives or their respective spouses or childrenunder the age of 18 held or exercised any rights to subscribe for the share capital or debentures of the Company or itsassociated corporations.
XVII.Interests and short position of substantial shareholders in shares and underlying shares
As at 31 December 2018, the following shareholders (other than the Directors, Supervisors or chief executives of theCompany) had interests or short positions in the Company’s shares and underlying shares as shown in the share registermaintained by the Company in accordance with Section 336 of the SFO (Chapter 571 of the Laws of Hong Kong):
Name
Number ofshares held (shares)
Approximate shareholding
as a percentage ofTotal share
capital (%)
Classof shares (%)
Shouguang Chenming Holdings Co., Ltd.444,146,128 A shares (L)15.2926.59Shouguang Chenming Holdings Co., Ltd.210,717,563 B shares (L)7.2529.83Chenming Holdings (Hong Kong) Limited210,717,563 B shares (L)7.2529.83Shouguang Chenming Holdings Co., Ltd.153,414,000 H shares (L)5.2829.04Chenming Holdings (Hong Kong) Limited153,414,000 H shares (L)5.2829.04The National Social Security Fund Council27,076,500 H shares (L)0.935.12
(L) - Long position(S) - Short position(P) - Lending poolSave as disclosed above, as at 31 December 2018, no other person had interests or short positions in the Company’sshares or underlying shares as recorded in the register maintained under section 336 of the SFO.
VI Directors’Report
XVIII.Relationship with employees, customers and suppliers
Please refer to“V. Personnel of the Company”under section X“Directors, Supervisors and Senior Management and Staff”,“2. (8) Sales to major customers and major suppliers”of“II. Analysis of principal operations”under section V“Discussionand Analysis of Operations”for details of the relationship between the Company and its employees, customers andsuppliers.
XIX.Directors’interests in material contracts and indemnity provision
None of the Company or any of its subsidiaries entered into any material contracts, in which Directors had significantinterests (either directly or indirectly), that subsisted at the end of the financial year or at any time during the reportingperiod. The Company did not have any indemnity provision in favour of any Director.
XX. Interests in competing business
None of the Directors or controlling shareholders of the Company was interested in any business which competes or islikely to compete with the businesses of the Company and any of its subsidiaries.
XXI. Directors’rights to purchase shares or debentures
At no time during the year was the Company or any of its subsidiaries a party to any arrangements to enable the Directorsto acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.
XXII.Preference shares
Please refer to section IX“Preference Shares”for details of the issue of preference shares of the Company.
XXIII.Management contracts
No contracts concerning the management and administration of the whole or any substantial part of the business of theCompany were entered into or existed in 2018.
XXIV.Major risk factors
Please refer to“(V) Risk factors likely to be faced and the measures to be taken”of“IX. Outlook on the future developmentof the Company”under section V“Discussion and Analysis of Operations”for details of major risk factors of the Company.
XXV.Material matters
Please refer to section VII“Material Matters”for details of material matters of the Company.
XXVI.Future development
Please refer to“(I) Competition overview and development trend of the industry”,“(II) Development strategy”,“(III) Operatingplan for 2019”and“(IV) Future capital requirements, source of funds and plan for use”of“IX. Outlook on the futuredevelopment of the Company”under section V“Discussion and Analysis of Operations”for details of future development ofthe Company.
2018 ANNUAL REPORT
VI Directors’Report
XXVII.Environment, social and governance report and social responsibility
Please refer to XVIII. Fulfilment of Social Responsibility under section VII“Material Matters”for details of fulfilment of socialresponsibility. Please refer to the environment, social and governance report as required by the Hong Kong Listing Rules,which will be issued separately by the Company before 29 June 2019.
XXVIII.Purchase, sale and redemption of shares
The Company and its subsidiaries did not purchase, sell or redeem any listed securities of the Company during the reportingperiod.
XXIX.Sufficiency of public float
During the reporting period, based on the information that is publicly available to the Company and within the knowledge ofthe Directors, the Company has maintained a sufficient prescribed amount of public float as required under the Hong KongListing Rules.
XXX.Review of the Audit Committee
The audited consolidated financial statements of the Company for the year ended 31 December 2018 has been reviewed bythe Audit Committee of the Company.
XXXI.Gearing ratio
As at 31 December 2018, the Company’s gearing ratio (including minority interest) was 62.61%, representing an increaseof 1.81% from 60.80% for 2017, mainly due to the increase of long-term borrowings and short-term borrowings of theCompany.The ratio was calculated as: total borrowings/total assets (whereas total borrowings represent borrowings due within oneyear, borrowings due after one year, short-term commercial paper and medium and long-term notes and others).
XXXII.Going Concern Basis
The Company is a large conglomerate principally engaged in pulp production and paper making with synergisticdevelopment in finance, mining, forestry, logistics and construction materials. It is also the first company in the papermaking industry to own a financial company, as well as the only listed company in China with three types of shares in issue,namely A shares, B shares and H shares. The Group has production bases in Shandong, Guangdong, Hubei, Jiangxi, Jilin,Wuhan, and others, which deliver annual pulp and paper production capacity of over 11,000,000 tonnes.
VI Directors’Report
XXXII.Going Concern Basis(Cont’d)
The Company has good sustainable profitability. In 2018, the Company achieved revenue of RMB28,876 million, netprofit attributable to shareholders of the Company of RMB2,510 million and net cash inflows from operating activities ofRMB40,089 million. Meanwhile, the Company always places emphasis on the interests of and return to shareholders, andhas paid generous cash dividends for several years. With the commencement of operation of several major pulp productionprojects during and subsequent to the reporting period, the future performance of the Company is worth looking forward to.In addition, as at the end of December 2018, the Company obtained, from major financial institutions, comprehensive creditfacilities of RMB81,750 million, of which the unutilised credit facilities amounted to RMB29,594 million, which providedimportant support to the Company’s business development. As an A-share, B-share and H-share listed company, theCompany has convenient financing channels. The Company has established a finance company and commercial factoringcompanies as the core of the financial segment. The rapid business development, improving management system andeffective risk control are conducive to further increasing the Group’s fund settlement, management, investment andfinancing ability, and reducing its financing cost while improving its debt structure.The auditors of the Company have prepared the 2018 annual financial report on a going concern basis, and have issued astandard unqualified audit opinion (see Financial Report section).Therefore, the Board believes the Company has the ability to continue as a going concern.
XXXIII.Connected Transactions
During the year ended 31 December 2018, the Group entered into the following conected transactions.Acquisition of 25% equity interest in and loan due from Shanghai Hongtai Real Estate Co., Ltd.* ()On 20 December 2018, Shanghai Chenming Industry Co., Ltd.* () (“Shanghai Chenming”), ShanghaiNew Huang Pu Real Estate Co., Ltd.* () and Shanghai Xinmin Industrial Co., Ltd.* () (“Shanghai Xinmin”)entered into entered into the equity transfer agreement in respect of the acquisition of25% equity interest in and loan due from Shanghai Hongtai Real Estate Co., Ltd.* () (“Hongtai RealEstate”) (“Sale Shares and Sale Loan”), pursuant to which acquisition rights of the Sale Shares and Sale Loan were obtainedby New Huang Pu Real Estate from Shanghai Xinmin by way of public tendering, and were transferred to ShanghaiChenming.New Huang Pu Real Estate agreed with such arrangement, and conditionally agreed to sell to Shanghai Chenming, andShanghai Chenming conditionally agreed to acquire from New Huang Pu Real Estate, the Sale Shares and Sale Loan for aconsideration of RMB957,500,000.Before the Acquisition, Shanghai Chenming held 75% equity interest in the Target Company and New Huang Pu Real Estateheld 25% equity interest in the Target Company. Immediately after the completion of the Acquisition, Shanghai Chenmingwill hold 100% equity interest in the Target Company.Before the acquisition, as the equity interest in Hongtai Real Estate were held by Shanghai Chenming and New Huang PuReal Estate as to 75% and 25%, respectively, New Huang Pu Real Estate was a substantial shareholder of a non-whollyowned subsidiary of the Company, and hence a connected person of the Company at the subsidiary level.For details, please see the announcement of the Company dated 20 December 2018.Save as disclosed above, there were no other connected transactions of the Company during the year.
2018 ANNUAL REPORT
VI Directors’Report
XXXIV.Major Investment, Acquisition and Disposal
During the year ended 31 December 2018, the Group entered into the following major transaction agreements.Subscription of shares in Guangdong Nanyue Bank Co., Ltd. and share transfer of Guangdong Nanyue Bank Co., Ltd.On 28 May 2018 (after trading hours), Zhanjiang Chenming Pulp & Paper Co., Ltd. () (“ZhanjiangChenming”), a direct wholly-owned subsidiary of the Company, entered into the Subscription Agreement with GuangdongNanyue Bank Co., Ltd. () (“Guangdong Nanyue Bank”), pursuant to which Zhanjiang Chenmingagreed to subscribe and Guangdong Nanyue Bank agreed to issue 425,594,366 shares through private placement at a totalconsideration of RMB791,605,520.76 based on the audited net assets per share of Guangdong Nanyue Bank of RMB1.86as at 31 December 2017 (the“Acquisition”).On the same date, Zhanjiang Chenming entered into separate Share Transfer Agreements with China Delixi Holding GroupCo., Ltd. (), Shandong Hexin Chemical Group Co., Ltd. (), ChibiChenli Paper Co., Ltd. (), and Foshan Nanhai Quanhui Metal Materials Trading Co., Ltd. (
) respectively, pursuant to which the Vendors agreed to dispose, and Zhanjiang Chenmingagreed to acquire from the Vendors, a total of 943,405,634 shares in Guangdong Nanyue Bank at a total considerationof RMB1,754,734,479.24 based on the audited net assets per share of Guangdong Nanyue Bank of RMB1.86 as at 31December 2017 (the“Equity Transfers”).Upon completion of the Subscription and the Share Transfers, Zhanjiang Chenming will hold 1,369,000,000 shares inGuangdong Nanyue Bank, representing 14.55% of its total enlarged share capital.For details, please see the announcement of the Company dated 28 May 2018.Save as disclosed above, there were no other major investment, acquisition or disposal of the Company during the year.
VII Material Matters
I. Profit distribution for ordinary shares of the Company and conversion of capital reserves into
share capital
Formulation, implementation or adjustment of profit distribution policy for ordinary shares, especially thecash dividend during the reporting period
√ Applicable Not applicableThe Company implemented its profit distribution policy in strict compliance with the Articles of Association. Its cashdividend policy was formulated and implemented in compliance with the requirements of the Articles of Association and theresolution of the general meeting with well-defined and clear dividend distribution criteria and proportion. The legal interestsof the small shareholders were fully protected as the related decision-making process and mechanism were in place,the duties of independent Directors were well-defined so that they played a role, and the small shareholders were givenopportunities to sufficiently voice their opinion and make requests.Implementation of the 2017 profit distribution plan for ordinary shareholders: Based on the number of the ordinary sharesas at the dividend distribution registration date of 1,936,405,467 shares, a cash dividend of RMB6 (tax inclusive) wasto be paid to all ordinary shareholders for every 10 shares held and a capitalisation issue to ordinary shareholders wasmade out of the capital reserves of 5 shares for every 10 shares held. The total cash dividend to be distributed amountedto RMB1,161,843,280.20. The dividend distribution was implemented and completed on 10 August 2018. For details,please refer to the announcement on payment of final dividend and withholding and payment of enterprise income taxfor non-resident enterprise shareholders published on the Hong Kong Stock Exchange, and the announcement on theimplementation of the 2017 profit distribution plan for A share and B share published on CNINFO on 6 August 2018.
Particulars of Cash Dividend PolicyWas it in compliance with the requirements of the Articles of Association andthe resolutions of the general meeting?YesWere the dividend distribution criteria and proportion well-defined and clear?YesWere the related decision-making process and mechanism in place?YesDid independent Directors fulfil their duties and play their role?YesWere the minority shareholders given opportunities to sufficiently voice their opinion andmake requests and were the legal interests of the minority shareholders fully protected?YesWere conditions and procedures legal and transparent in respect ofcash dividend policy with adjustments and changes?Yes
The dividend distribution plans for ordinary shares (proposed) and the proposals on conversion of capitalreserves into share capital (proposed) over the past three years (the reporting period inclusive)
(1) The 2018 profit distribution plan for ordinary shares
On 29 March 2019, the Company convened the twelfth meeting of the eighth session of the Board, at which the2018 profit distribution proposal was considered and approved: based on the total number of ordinary shares of theCompany as at the end of 2018 of 2,904,608,200 shares, a cash dividend of RMB2.4 (tax inclusive) was to be paid toall ordinary shareholders for every 10 shares held. The total cash dividend distributed to the holders of ordinary sharesamounted to RMB697,105,968 (tax inclusive) in 2018. The 2018 profit distribution plan is subject to considerationand approval at the 2018 annual general meeting, and will be implemented within two months from the date ofconsideration and approval at the general meeting.
2018 ANNUAL REPORT
VII Material Matters
I. Profit distribution for ordinary shares of the Company and conversion of capital reserves into
share capital(Cont’d)
Formulation, implementation or adjustment of profit distribution policy for ordinary shares, especially thecash dividend during the reporting period(Cont’d)
(2) 2017 profit distribution plan for ordinary shares
On 13 June 2018, the Company convened the 2017 annual general meeting, at which the 2017 profit distribution planwas considered and approved: based on the number of the shares as at the dividend distribution registration dateof 1,936,405,467 shares, a cash dividend of RMB6.00 (tax inclusive) was to be paid to all shareholders for every 10shares held, and a capitalisation issue made out of the capital reserves of 5 shares for every 10 shares held will bedistributed to ordinary shareholders. The total cash dividend distributed to the holders of ordinary shares amounted toRMB1,161,843,280.20 (tax inclusive) in 2017.(3) 2016 profit distribution plan for ordinary shares
On 21 April 2017, the Company convened the 2016 annual general meeting, at which the 2016 profit distribution planwas considered and approved: based on the number of the shares as at the dividend distribution registration dateof 1,936,405,467 shares, a cash dividend of RMB6.00 (tax inclusive) was to be paid to all shareholders for every 10shares held. The total cash dividend distributed to the holders of ordinary shares amounted to RMB1,161,843,280.20(tax inclusive) in 2016.Cash dividends for ordinary shares of the Company over the past three years (the reporting period inclusive)
Unit: RMB
Year of distribution
Amount ofcash dividends
(tax inclusive)
Net profitattributable to
ordinaryshareholdersof the Companyin the consolidatedfinancial statements
during the year
of distribution
Amount of cash
dividend as apercentage of netprofit attributable
to ordinaryshareholders ofthe Company inthe consolidated
financial
statements
Amount ofcash dividends
distributionthrough other
means such
as share
repurchase
Ratio of cash
Dividendsdistributionthrough othermeans in netprofit attributable
to ordinaryshareholders ofthe Company inthe consolidated
financial
statements
Total cash
dividend(including through
other means)
Total cash
dividend(including through
other means)as a percentage
of net profit
attributableto ordinaryshareholders ofthe Company inthe consolidated
financialstatements
2018697,105,968.002,509,828,858.4727.78%0.000.00%697,105,968.0027.78%20171,161,843,280.203,769,325,450.9330.82%0.000.00%1,161,843,280.2030.82%20161,161,843,280.201,998,578,788.7558.13%0.000.00%1,161,843,280.2058.13%
The Company made a profit and had positive retained profit available for ordinary shareholders of parent companyduring the reporting period without cash dividend for ordinary shares being proposedApplicable √ Not applicable
VII Material Matters
II. Proposals on profit distribution and conversion of capital reserves into share capital during
this reporting period
√ Applicable Not applicableNumbers of bonus share per 10 shares (share(s))0Dividend distribution per 10 shares (RMB) (tax inclusive)Cash dividend of RMB2.4 (tax inclusive) per 10
shares to ordinary shareholders and cash dividend
of RMB2.4 (tax inclusive) per 10 simulated sharesconverted from preference shares into ordinary shares
to holders of preference sharesConversion per 10 shares (share(s))No increase of share capital from reservesShare base of the distribution proposal (shares)2,904,608,200 ordinary shares and 1,162,790,698
simulated shares converted from preference shareson a conversion ratio of 1 preference share valued atRMB3.87; the share base of the distribution proposal
was 4,067,398,898 shares.Cash dividend (RMB) (tax inclusive)976,175,735.52Amount of cash dividend distribution through other means suchas share repurchase (RMB)
0.00Total cash dividend including other means (RMB)976,175,735.52Distributable profits (RMB)9,107,422,690.85Percentage of cash dividend to total profits distribution100%
Cash dividend policyFor profit distribution of companies which are fully developed with significant capital expenditure arrangement, thepercentage for cash dividend shall represent at least 40% of the profits distribution for the current yearParticulars of profit distribution and conversion of capital reserves into share capitalThe audited consolidated net profit attributable to shareholders of the Company for 2018 prepared in accordance withAccounting Standards for Business Enterprises by the Company amounted to RMB2,509,828,858.47. When deducting theinterest on perpetual bonds of RMB347,140,000.00 and fixed dividend on preference shares of RMB214,425,000.00 for2018, the distributable profit realised for 2017 amounted to RMB1,948,263,858.47.In accordance with the requirements of the Articles of Association and the Prospectus of Non-public Issuance of PreferenceShares, based on the total ordinary share capital of 2,904,608,200 shares and the 1,162,790,698 simulated ordinary sharesconverted from the preference shares using a conversion ratio of 1 share valued at RMB3.87 as at the end of 2018, a cashdividend of RMB2.4 (tax inclusive) per 10 shares will be distributed to ordinary shareholders; a cash dividend of RMB2.4 (taxinclusive) per 10 simulated ordinary shares converted from the preference shares will be distributed to holders of preferenceshares. No bonus shares will be issued and no capitalisation issue was made out of the reserves. A cash dividend ofRMB697,105,968 will be distributed to ordinary shareholders and a variable cash dividend of RMB279,069,767.52 will bedistributed to holders of preference shares. In other words, a cash dividend of RMB6.20 (tax inclusive) per preference sharewith a nominal value of RMB100 each will be distributed to holders of preference shares.
2018 ANNUAL REPORT
VII Material Matters
III. Performance of undertakings
1. Undertakings made by parties involved in undertakings including the Company’s beneficial controllers,shareholders, related parties, bidders and the Company during the reporting period or prior periodsbut subsisting to the end of the reporting period
√ Applicable Not applicable
Undertaking
Party involved inundertaking
Type ofundertakingDetails of undertakingUndertaking dateTerm
Particulars on theperformance
Undertaking onshareholding structurereformationUndertaking made inoffering documents orshareholdingalternation documentsUndertaking made duringasset reconstructionUndertaking made oninitial public offeringor refinancing
ChenmingHoldingsCo., Ltd.
Non-competitiveundertaking
(1) Chenming Holdings Co., Ltd. (“Chenming Holdings”)shall not engage, whether solely, jointly, or byrepresenting itself or any other persons or companies,and shall not procure its associates (as defined in TheListing Rules of Hong Kong Stock Exchange) to engage,in any business which competes with the business ofthe Company and its subsidiaries (“Chenming Group”
or“we”) directly or indirectly, in any country and regionwhich our business exists (or any part of the world if inany form of electronics business), or in any businessthat directly or indirectly competes with ChenmingGroup’s business which we operate from time to time(including but not limited to any business in the formof sole proprietorship, joint ventures or acquisitions, orholding interests directly or indirectly in such enterprises,or by any other means); (2) in the event that ChenmingHoldings is required by its business to, whether solely,jointly, or by representing itself or any other personsor companies, engage in business which directly orindirectly competes against the business of ChenmingGroup, or obtain any business opportunity whichdirectly or indirectly competes against the business ofChenming Group, it shall endeavour to procure thatChenming Group shall have priority to obtain the rightto operate such business or to obtain such businessopportunity; (3) if Chenming Holdings is in breach of theabove-mentioned undertakings, it shall indemnify theCompany for any loss caused by such breach and theCompany shall have the right to acquire all businesses ofChenming Holdings, which directly or indirectly competewith the businesses of our Group, at market price or costprice (whichever price is lower); (4) Chenming Holdingsshall not make use of its position as the controllingshareholder (as defined in The Listing Rules of HongKong Stock Exchange) of our Group to jeopardise thelegal interests of Chenming Group and its shareholderswith other persons or companies or on their behalf.
22 May 2008During the period
when ChenmingHoldings was themajor shareholderof the Company
Implementingas normal
VII Material Matters
III. Performance of undertakings(Cont’d)
1. Undertakings made by parties involved in undertakings including the Company’s beneficial controllers,shareholders, related parties, bidders and the Company during the reporting period or prior periodsbut subsisting to the end of the reporting period(Cont’d)
Undertaking
Party involved inundertaking
Type ofundertakingDetails of undertakingUndertaking dateTerm
Particulars on theperformance
Chenming HoldingsCo., Ltd.
Defective properties(1) According to the plan on defective properties of the
Company, Chenming Holdings Co., Ltd. (“ChenmingHoldings”) has guaranteed and undertaken that:
according to the application of the Company, fordefective property(ies) owned by the Company andits holding subsidiary company which situated in theadministrative area of Shouguang city, ChenmingHoldings will purchase it (them) and have it(them) beingtransferred to itself pursuant to the law in accordancewith the result of the related asset valuation if theCompany decides to transfer and dispose of it(them)and there is no other transferee; (2) before the Companytransfers and disposes of the defective propertiespursuant to the law, if the Company suffers anyeconomic losses due to the defects of the title (includingbut not limited to damages, penalties and relocationcosts), Chenming Holdings will bear such economiclosses; (3) during the regulatory process taken to thedefective properties of buildings and land of subsidiariesof the Company situated outside the local areas (outsidethe administrative area of Shouguang city), the economiclosses such as penalties or relocation costs imposedby competent administrative authorities to be borneby the subsidiaries arising from defects of insufficienttitle documents shall be paid pursuant to the law byChenming Holdings after verification.
16 January 2008During the period
when ChenmingHoldings was themajor shareholderof the Company
Implementing asnormal
ShandongChenming PaperHoldings Limited
Specific remedialmeasures fornon-publicissuance ofpreference shares
In view of the impacts on dilution of current returnsfor ordinary shareholders under the preference sharesissuance, and in order to implement the Notice ofthe General Office of the State Council on FurtherStrengthening Protection of the Lawful Rights of SmallInvestors in Capital Markets, protect the interestsof ordinary shareholders and provide remedies forthe possible dilution on current returns as a resultof preference shares issuance, the Company hasundertaken that it will implement various measuresto ensure the effective utilisation of proceeds raised,which can prevent dilution on current returns effectively,thereby enhancing future returns.
25 March 20169999-12-31Implementing as
normal
2018 ANNUAL REPORT
VII Material Matters
III. Performance of undertakings(Cont’d)
1. Undertakings made by parties involved in undertakings including the Company’s beneficial controllers,shareholders, related parties, bidders and the Company during the reporting period or prior periodsbut subsisting to the end of the reporting period(Cont’d)
Undertaking
Party involved inundertaking
Type ofundertakingDetails of undertakingUndertaking dateTerm
Particulars on theperformance
Equity incentiveundertakingsOther undertakingsmade to theCompany’sminority shareholdersWhether undertakingsperformed on time
Yes
2. Description on the Company’s assets and items in meeting original profit forecast and its explanationas there is profit forecast for assets and items of the Company and the reporting period is still withinthe profit forecast period
Applicable √ Not applicable
IV. Appropriation of funds of the Company by the controlling shareholder and its related parties
for non-operating purposes
Applicable √ Not applicableThere was no appropriation of funds of the Company by the controlling shareholder and its related parties for non-operatingpurposes during the reporting period.
V. Opinions of the Board, the Supervisory Committee and independent Directors (if any)
regarding the“modified auditor’s report”for the reporting period issued by the accountants
Applicable √ Not applicable
VII Material Matters
VI. Reason for changes in accounting policies, accounting estimates and accounting methods
as compared to the financial report for the prior year
√ Applicable Not applicable
Change in accounting policies due to implementation of new standards
The Ministry of Finance issued the“Accounting Standard for Business Enterprises No. 22 – Recognition and Measurementof Financial Instruments (revised in 2017)”(Cai Kuai (2017) No. 7),“Accounting Standard for Business Enterprises No. 23 –Transfer of Financial Assets (revised in 2017)”(Cai Kuai (2017) No. 8) and“Accounting Standard for Business EnterprisesNo. 24 – Hedging Accounting (revised in 2017)”(Cai Kuai (2017) No. 9) on 31 March 2017, issued“Accounting Standardfor Business Enterprises No. 37 – Presentation of Financial Instruments (revised in 2017)”(Cai Kuai (2017) No. 14) on 2May 2017 (the“New Standards for Financial Instruments”), and issued“Accounting Standard for Business Enterprises No.14 – Revenue (revised in 2017)”(Cai Kuai (2017) No. 22) on 5 July 2017 (the“New Standard for Revenue”), which requiredthe enterprises listed in both domestic and overseas markets and the enterprises listed in overseas markets and adoptingthe International Financial Reporting Standards or Accounting Standards for Business Enterprises for financial reportpreparation to adopt the New Standards for Financial Instruments and the New Standard for Revenue from 1 January 2018.As approved at the eleventh meeting of the eighth session of the Board of the Company on 25 October 2018, the Companybegan to adopt the above five accounting standards within the timeframe as required by the Ministry of Finance.The effects of the implementation of the New Standards for Financial Instruments on the Company are set out in thefollowing tables:
A. Comparison of recognition and measurement of financial assets before and after the adoption of the New Standards
for Financial Instruments
31 December 2017 (before change)1 January 2018 (after change)Category of financial assetsCategory of measurementCarrying amountCategory of measurementCarrying amount
Bills receivable and accounts receivableLoans and receivables7,886,097,430.59Amortised cost7,886,097,430.59Available-for-sale financial assetsAvailable-for-sale
financial assets
2,453,000,000.00Financial assets measured at fair value
through profit or loss
2,453,000,000.00Financial assets measured at fair valuethrough other comprehensive income
—
B. Reconciliation of the category and carrying amount of financial instruments on the date of first adoption
Item
31 December 2017
(before change)ReclassificationRemeasurement
1 January 2018
(after change)
Assets:
Financial assets measured atair value through profit or loss94,000,000.00-94,000,000.00Held-for-trading financial assets94,000,000.0094,000,000.00Available-for-sale financial assets2,453,000,000.00-2,453,000,000.00Other non-current financial assets2,453,000,000.002,453,000,000.00
C. Impact of the adoption of the New Standard for Revenue on the Company:
ChangeItem
Amount as at
1 January2018 (after change)
Amount as at 31December 2017(before change)
Advances on salesContract liabilities243,182,891.22Advances on salesAdvance receipts243,182,891.22
2018 ANNUAL REPORT
VII Material Matters
VII.Reason for retrospective restatement to correct major accounting errors during the reporting
period
√ Applicable Not applicable
The contents of the correction of accounting errors.Procedure
The name of thereport projectsduring the periodsof comparisonaffected
Cumulativelyaffected amount
Some of the financial leasing operations conducted by Shandong ChenmingFinancial Leasing Co., Ltd., a subsidiary of the Company, did not comply withlaws. Hence, interest income arising from such operations shall recognise asinterest income and interest expense instead of revenue and operating costs.The misstatement of items in the income statement did not affect the retainedprofit at the beginning of the period.
Consideration andapproval at the twelfthmeeting of the eighthsession of the Board andat the thirteenth meeting ofthe eighth session of theSupervisory Committee in2019
Revenue fromprincipal activitiesfor 2017financial costfor 2017Revenue fromprincipal activitiesfor 2016financial costfor 2016Revenue fromprincipal activitiesfor 2015financial costfor 2015
-379,290,284.15-379,290,284.15-340,195,777.53-340,195,777.53-49,262,640.70-49,262,640.70
VII Material Matters
VIII. Reason for changes in scope of the consolidated financial statements as compared to the
financial report for the prior year
√ Applicable Not applicableDuring the year, the scope of consolidation included 4 newly established subsidiaries, namely Shandong Chenming CoatedPaper Sales Co. Ltd., Jiangxi Chenming Supply Chain Management Co., Ltd., Chenming Paper United States Co., Ltd. andBeijing Chenming Financial Leasing Co., Ltd.During the year, one company was excluded from the scope of consolidation: The Company disposed of 30% equityinterest in Xuchang Chenming Paper Co. Ltd. Subsequent to the disposal, Xuchang Chenming Paper Co. Ltd., which washeld as to 30% by the Company, was excluded from the scope of consolidation.
IX. Engagement or dismissal of accounting firms
Current accounting firm engagedName of the domestic accounting firmRuihua Certified Public Accountants
(Special General Partnership)Remuneration of the domestic accounting firm (RMB’0,000)330Continued term of service of the domestic accounting firm6Name of certified public accountants of the domestic accounting firmLiu Jian and Jiang LeiContinued term of service of certified public accountantsof the domestic accounting firm
Whether to appoint another accounting firm during the current periodYes √ NoParticulars on recruitment of accounting firms, financial consultants or sponsors for internal control and auditing purposes√ Applicable Not applicable1. In 2018, the Company engaged Ruihua Certified Public Accountants as the internal control and auditing firm of the
Company. The Company paid RMB800,000 as internal control and auditing fees during the period.2. In 2018, the Company engaged King & Wood Mallesons (Qingdao) Law Firm as its regular legal advisor and paid
RMB100,000 as legal advisory fees during the period;
X. Suspension in trading or delisting upon publication of annual report
Applicable √ Not applicable
XI. Matters related to bankruptcy and reorganisation
Applicable √ Not applicableThere was no matter related to bankruptcy and reorganisation during the reporting period.
2018 ANNUAL REPORT
VII Material Matters
XII. Material litigation and arbitration
√ Applicable Not applicable
Basic information aboutlitigation (arbitration)
Amount(RMB’0,000)
Will liabilitybe incurredProgress of litigation (arbitration
Judgment result of the litigation(arbitration) and its effect
Judgmentexecution ofthe litigation(arbitration)Disclosure dateDisclosure index
Statutory demand andWinding-up Petition
HK$389,112,432.44YesThe Company has appealed against the
order of Justice Harris dated 14 June2017 on 12 July 2017.The hearing wasconducted at the Court of Appeal of theHigh Court of the HKSAR on 11 May2018. At the conclusion of the hearing, thecourt indicated that a date will be set tohand down the judgment. The Companywill perform its disclosure obligation on atimely basis according to the progress.
Not applicableNot applicable15 May 2018http://www.cninfo.com.cn
XIII. Punishment and rectification
√ Applicable Not applicable
NameTypeReason
Investigation andpunishment typeConclusion, if anyDisclosure dateDisclosure index
Jiangxi Chenming PaperCo., Ltd.
CorporateInspection by environmental
protection authorities due tofailure to have waste pulp andwaste wood chip disposalregistered, excessive wastewater discharge, and non-compliance sludge disposalby a third party transportationcompany.
Generaladministrativepenalties wereimposed byenvironmentalprotectionauthorities.
During the period from May toJune 2018, Jiangxi Chenmingwas imposed 5 administrativepenalties by NanchangEnvironmental ProtectionBureau due to fluctuating wastewater discharge as a resultof unstable environmentalprotection treatment facilities,non-compliance sludgedisposal by a third partytransportation company andfailure to have waste pulp andwaste wood chip disposalregistered. The penalties duewere paid. The above caseswere settled. Jiangxi Chenminghad conducted rectificationbased on the rectificationnotices and had good results.The above five administrativepenalties were generaladministrative penalties anddid not constitute material non-compliance with the laws andregulations.
Not applicableNot applicable
VII Material Matters
XIII. Punishment and rectification
Rectification√ Applicable Not applicableJiangxi Chenming actively conducted rectification upon the above environmental protection penalties. The rectificationmeasures are detailed as follows:
1. Jiangxi Chenming replaced the automatic valve, inspected the equipment and facilities more frequently and enhanced
the regular maintenance and repair of the key equipment. The blowdown pipes were repaired to ensure the alkalinecleaning water in the alkaline cleaning tanks still had access to the wastewater treatment system for effectivetreatment through the pipes when the automatic valve did not function. The wastewater was treated and dischargedup to standard through the central wastewater outfall in the plant area. The wastewater outfall was monitor online inreal time throughout 24 hours to completely remove the problem of leakage possibly caused by the alkaline cleaningsystem. The rectification was completed on 12 June 2018.2. Jiangxi Chenming commissioned for the formulation of a sludge treatment plan and sought expert verification, the
result of which is secure landfill. Disposal of sludge by way of regular clearance and landfilling was completed duringthe reporting period.3. As there is recovery value in waste pulp and waste wood chip, Jiangxi Chenming has always recycled such items
as valuable by-products, as such they were not registered with solid waste platforms. On 27 June 2018, as requiredby the Environmental Protection Bureau, Jiangxi Chenming organised the data collection and ledger compilation ofwaste pulp and waste wood chip for 2017, filled such data on the general industrial solid waste registration website ofNanchang Environmental Protection Bureau, and submitted the printed version with the municipal solid waste stationfor registration and filing.4. With the shift in production of Jiangxi Chenming, the original discharge of thermo-mechanical pulp and waste paper
deinked pulp mixture gradually turned into the discharge of thermo-mechanical pulp. The COD and SS density ofthermo-mechanical pulp discharge are high, and drastic fluctuations of SS discharge indicator were recorded duringthe adjustment of the mid-stage water system. Jiangxi Chenming made a series of adjustments for this purpose,including: complementing the strains in sludge; adjusting the primary sedimentation tank; applying therecycling system; and increase the application of chemicals in in-depth treatment. The implementation of the abovemeasures enabled discharge up to standard.
XIV. Credibility of the Company, its controlling shareholders and beneficial controllers
Applicable √ Not applicable
XV. Implementation of the equity incentive plan, employee shareholding plan or other employee
incentive measure of the Company
Applicable √ Not applicableThere was no implementation of the equity incentive plan, employee shareholding plan or other employee incentive measureof the Company during the reporting period.
2018 ANNUAL REPORT
VII Material Matters
XVI. Significant related party transactions
1. Related party transactions associated with day-to-day operation
√ Applicable Not applicable
Related partyRelated party relationship
Types of therelated partytransactions
Subjectmatter of therelated partytransactions
Pricingbasis of therelated partytransactions
Price ofrelated partytransactions
Amount ofrelated partytransactions(RMB’0,000)
Percentageas the amount
of similar
transactions
Amount oftransactions
approved
(RMB’0,000)
Whetherexceedingapproved cap
Settlement ofrelated partytransactions
Market priceof availablesimilartransaction
DisclosuredateDisclosure index
Jiangxi Chenming NaturalGas Co., Ltd
Director of the Companyserves as the chairman
ProcurementNatural gas,
heavy oil etc.
Market priceMarket price34,763.911. 8%35,000NoBank acceptance
and telegraphictransfer
Not applicable23 June 2018http://www.cninfo.
com.cnParticulars on refund of bulk saleNot applicable
2. Related party transaction in connection with purchase or sale of assets or equity interest
√ Applicable Not applicable
Related party
Relatedparty relationship
Types of therelated partytransactions
Subject matter ofthe related partytransactions
Pricingbasis of therelated partytransactions
Carryingamount of the
transferred
asset(RMB’0,000)
Assessedvalue of thetransferred
asset(RMB’0,000)(if any)
Transfer price
(RMB’0,000)
Settlement ofrelated partytransactions
Transactionprofit and loss
(RMB’0,000
Disclosure
date
Disclosure
index
Guangdong DejunInvestment Co., Ltd.
Pursuant to therequirement underParagraph (3) ofArticle 10.1.6 ofthe Rules Governingthe Listing ofStocks on ShenzhenStock Exchange
Equityacquisition
Receipt of 30%equity interest inHongtai Real Estateheld by GuangdongDejun andGuangdongDejun’s debt toHongtai Real Estate
Valuation report21,085.86123,977.96127,500Wire transferNot applicable30 January
2018
http://www.cninfo. com.cn
Effects on the operatingresults and financialcondition of the Company
The transaction was conducted to meet the needs of the Company for accelerated internationalisation development and long-term business development. Upon completion of the transaction, the Companyis able to more rationally integrate the resources of all Shanghai departments, save the office rental expenses of Shanghai departments, and increase fixed assets for the Company, further improving theCompany’s office environment and efficiency.
3. Related party transaction connected to joint external investment
Applicable √ Not applicableThere was no related party transaction of the Company connected to joint external investment during the reportingperiod.
VII Material Matters
XVI. Significant related party transactions(Cont’d)
4. Related creditors’rights and debts transactions
√ Applicable Not applicableWere there any non-operating related creditors’rights and debts transaction?√ Yes NoDebts payable to any related party:
Related party
Relationshipwith the CompanyReason
Opening balance
(RMB’0,000)
Amountincreasedduring thecurrent period
(RMB’0,000)
Amountrecoveredduring thecurrent period
(RMB’0,000)Interest rate
Interest for thecurrent period
(RMB’0,000)
Closing balance
(RMB’0,000)
CHENMING HOLDINGSCOMPANY LIMITED
The controlling shareholderof the Company
financial support084,082.0346,482.037%482.0337,600Effect of related debts onthe operating results andfinancial positionof the Company
Financial support is provided by Chenming Holdings without requiring any pledge or guarantee, which is a testament to its support and confidence in the future development of theCompany, and helps the Company promote project construction and satisfy its needs for working capital.
5. Other significant related party transactions
Applicable √ Not applicableThere was no other significant related party transaction of the Company during the reporting period.
XVII.Material contracts and implementation
1. Custody, contracting and leasing
(1) Custody
Applicable √ Not applicableThere was no custody of the Company during the reporting period.
(2) Contracting
Applicable √ Not applicableThere was no contracting of the Company during the reporting period.
(3) Leasing
Applicable √ Not applicableThere was no leasing of the Company during the reporting period.
2018 ANNUAL REPORT
VII Material Matters
XVII.Material contracts and implementation(Cont’d)
2. Significant guarantees
√ Applicable Not applicable
(1) Guarantees
During the reporting period, the Company provided guarantee to Weifang Sime Darby West Port Co., Ltd., ajoint venture, and the guarantee amount incurred was RMB85.00 million. The Company provided guaranteeto subsidiaries and the guarantee amount incurred was RMB10,855.5683 million. The subsidiaries providedguarantee to their subsidiaries and the guarantee amount incurred was RMB1,321.3970 million.As at 31 December 2018, the balance of the external guarantee provided by the Company (including theguarantee to its subsidiaries by the Company and the guarantee provided to subsidiaries by subsidiaries)amounted to RMB16,150.4970 million, representing 64.48% of the equity attributable to shareholders of theCompany as at the end of 2018.The Company did not provide any guarantee to external parties (excluding the guarantee provided to itssubsidiaries and the guarantee provided to subsidiaries by subsidiaries) and did not provide any guaranteeagainst the rules and regulations.
Unit: RMB’0,000
External guarantees of the Company and its subsidiaries (excluding guarantees to subsidiaries)Name of obligee
Date of the relatedAnnouncementdisclosing theguarantee amount
Amount ofguaranteeGuarantee date
GuaranteeprovidedType of guaranteeTerm
Fulfilled
or not
Guaranteeto related
partiesor notWeifang Sime Darby West Port Co., Ltd.24 July 201717,50020 December 201713,500General guarantee10 yearsNotNoTotal external guarantees approved during the reporting period (A1)0Total actual external guarantees during the reporting period (A2)8,500Total external guarantees approved at the end of the reporting period (A3)17,500Balance of total actual guarantees at the end of the reporting period (A4)13,500
Guarantees between the Company and its subsidiariesName of obligee
Date of the relatedAnnouncementdisclosing theguarantee amount
Amount ofguaranteeGuarantee date
GuaranteeprovidedType of guaranteeTerm
Fulfilled
or not
Guaranteeto related
partiesor notZhanjiang Chenming Pulp & Paper Co., Ltd.30 March 2016150,000General guarantee3 yearsNoNoZhanjiang Chenming Pulp & Paper Co., Ltd.17 February 2017650,00021 December 2017325,547.08General guarantee2 yearsNoNoZhanjiang Chenming Pulp & Paper Co., Ltd.14 June 2018200,000General guarantee3 yearsNoNoShandong Chenming Financial Leasing Co., Ltd.26 March 2015500,0002 March 2013128,007.56General guarantee7 yearsNoNoShandong Chenming Financial Leasing Co., Ltd.30 March 2016300,000General guarantee7 yearsNoNoShandong Chenming Financial Leasing Co., Ltd.14 February 2018150,000General guarantee3 yearsNoNoShanghai Chenming Financial Leasing Co., Ltd.14 February 2018400,000General guarantee3 yearsNoNoQingdao Chenming Nonghai Financial Leasing Co., Ltd.14 February 2018250,000General guarantee3 yearsNoNoGuangzhou Chenming Financial Leasing Co., Ltd.14 February 2018200,000General guarantee3 yearsNoNoShandong Chenming Commercial Factoring Co., Ltd.14 February 2018200,000General guarantee3 yearsNoNoHuanggang Chenming Arboriculture Development Co., Ltd.17 February 20175,000General guarantee2 yearsNoNoHuanggang Chenming Pulp & Paper Co., Ltd.26 March 2015400,00014 December 201590,404.36General guarantee7 yearsNoNoHuanggang Chenming Pulp & Paper Co., Ltd.30 March 2016550,000General guarantee7 yearsNoNoJiangxi Chenming Paper Co., Ltd.30 March 2016150,000General guarantee7 yearsNoNoJiangxi Chenming Paper Co., Ltd.17 February 2017200,00016 March 201788,242.92General guarantee2 yearsNoNoJiangxi Chenming Paper Co., Ltd.14 June 201850,000General guarantee3 yearsNoNoShouguang Meilun Paper Co., Ltd.16 December 2010600,00019 January 201868,778.76General guarantee10 yearsNoNoShouguang Meilun Paper Co., Ltd.17 February 2017100,000General guarantee2 yearsNoNoShandong Chenming Paper Sales Co., Ltd.30 March 2016200,000General guarantee3 yearsNoNoShandong Chenming Paper Sales Co., Ltd.17 February 2017400,00024 February 2018375,013.79General guarantee2 yearsNoNoChenming (HK) Limited30 March 2016100,000General guarantee3 yearsNoNoChenming (HK) Limited17 February 2017500,00023 March 2018343,959.27General guarantee2 yearsNoNoChenming (HK) Limited14 June 2018250,000General guarantee3 yearsNoNoShouguang Chenming Import and Export Trade Co., Ltd.17 February 201750,000General guarantee2 yearsNoNoJilin Chenming Paper Co., Ltd.17 February 2017150,00025 October 20187,192.00General guarantee2 yearsNoNoShandong Chenming Group Finance Co., Ltd.17 February 2017500,000General guarantee2 yearsNoNoZhanjiang Chenming Arboriculture Development Co., Ltd.17 February 20175,000General guarantee2 yearsNoNoNanchang Chenming Arboriculture Development Co., Ltd.15 August 201710,000General guarantee3 yearsNoNoShandong Chenming Panels Co., Ltd.14 June 20183,000General guarantee3 yearsNoNoShanghai Chenming Industrial Co., Ltd.11 October 2018400,000General guarantee3 yearsNoNoTotal amount of guarantee provided for subsidiaries approved duringthe reporting period (B1)
2,103,000Total amount of guarantee provided for subsidiaries during the reporting period (B2)1,085,556.83Total amount of guarantee provided for subsidiaries approved as atthe end of the reporting period (B3)
7,623,000Total balance of guarantee provided for subsidiaries as at the end of the reporting
period (B4)
1,427,145.74
VII Material Matters
XVII.Material contracts and implementation(Cont’d)
2.Significant guarantees(Cont’d)
(1)Guarantees
(Cont’d)
Guarantees between subsidiariesName of obligee
Date of the relatedAnnouncementdisclosing theguarantee amount
Amount of
guaranteeGuarantee date
GuaranteeprovidedType of guaranteeTerm
Fulfilled
or not
Guaranteeto related
partiesor notChenming (HK) Limited30 March 2016100,00010 July 201887,870.22General guarantee3 yearsNoNoChenming (HK) Limited30 March 2016100,0008 August 201886,533.73General guarantee3 yearsNoNoChenming (HK) Limited30 March 2016100,000General guarantee3 yearsNoNoTotal amount of guarantee provided for subsidiaries approved duringthe reporting period (C1)
0Total amount of guarantee provided for subsidiaries during the reporting period (C2)132,139.70Total amount of guarantee provided for subsidiaries approved asat the end of the reporting period (C3)
300,000Total balance of guarantee provided for subsidiaries as at the end of the reporting
period (C4)
174,403.96Total amount of guarantee provided (i.e. sum of the above three guarantee amount)Total amount of guarantee approved during the reporting period (A1+B1+C1)2,103,000Total amount of guarantee during the reporting period (A2+B2+C2)1,226,196.53Total amount of guarantee approved as at the end of the reporting period (A3+B3+C3)7,940,500Total balance of guarantee as at the end of the reporting period (A4+B4+C4)1,615,049.70The percentage of total amount of guarantee provided (i.e. 4+B4+C4) to the net assetsof the Company
64.48%Of which:
Balance of guarantee provided for shareholders, beneficial controllers and its related parties (D)0Balance of guarantee directly or indirectly provided for obligors with gearing ratio over 70% (E)639,822.11Total amount of guarantee provided in excess of 50% of net assets (F)349,058.78Sum of the above three amount of guarantee (D+E+F)988,880.89
Specific explanation of compound guarantees(2)External guarantees against the rules and regulations
Applicable √ Not applicable
There was no external guarantee provided by the Company which was against the rules and regulations during
the reporting period.
3.Entrusted cash and asset management
(1)Entrusted wealth management
Applicable √ Not applicable
The Company did not have any entrusted wealth management during the reporting period.
(2)Entrusted loans
Applicable √ Not applicable
The Company did not have any entrusted loans during the reporting period.
2018 ANNUAL REPORT
VII Material Matters
XVII.Material contracts and implementation(Cont’d)
4. Other material contracts
√ Applicable Not applicable
Name of contract party
Name of contractcounterparty
Subjectmatter
Date ofsigning
Involvedassets and
carrying
amount(RMB’0,000)
Estimatedvalue ofinvolvingassets(RMB’0,000)
Name ofvaluer
Valuationreference date
Pricingbasis
Transactionconsideration(RMB’0,000)
Whether it isa relatedpartytransactionRelationship
Implementationas at the endof thereportingperiod
Disclosuredate
Disclosureindex
Zhanjiang ChenmingPulp & Paper Co., Ltd.
Guangdong NanyueBank Co., Ltd. (), ChinaDelixi Holding Group Co.,Ltd. (), ShandongHexin Chemical GroupCo., Ltd. (), ChibiChenli Paper Co., Ltd.(),Foshan Nanhai QuanhuiMetal Materials TradingCo., Ltd. ()
14.55% equityin GuangdongNanyue BankCo., Ltd.()
28 May2018
254,634Not applicableNot applicableNot applicableAudited net
assetsper share
254,634NoNot applicableIn the course of
performance
5 May2018
http://www.cninfo.com.cn
XVIII.Fulfilment of Social Responsibility
1. Fulfilment of social responsibility
The state is the strongest support for the development of Chenming, while society is the greatest origin forChenming’s development and growth. During its development for more than half a century, the Company has alwaysadhered to its philosophy of“building the country through industry development and paying back to society”. It hasvoluntarily performed its social responsibility, and cultivated the“tree of responsibility”, which has already achievedfruitful results.The Company has established its corporate governance structure in accordance with the requirements of theCompanies Law, Securities Law, Articles of Association and other relevant laws and regulations and the actualsituation of the Company. There is a clear separation of powers and responsibilities between the general meeting,the Board, the Supervisory Committee and the management which is accountable to the general manager. Themanagement system under the structure is characterised by a mechanism of checks and balances of a legal personwith separation of ownership and operation, separation of the decision-making, execution and supervisory powers,as well as the co-existence of the general meeting, the Board and the Supervisory Committee. Strict provisions onthe rights, duties and responsibilities of the general meeting, the Board, the Supervisory Committee and generalmanagers have been stipulated. The Company has placed great emphasis on fulfilment of social responsibility andgoes beyond the concept of“profit as the only goal”. While creating value for shareholders during the process ofproduction, operation and business development, the Company, in line with the development of the State and thesociety, has strived to reach a compromise between economic benefits and social benefits, short-term benefits andlong-term benefits, as well as corporate development and social development, with the aim to achieve a healthy andharmonious development between the Company and its employees, the Company and the society, and the Companyand the environment.
VII Material Matters
XVIII.Fulfilment of Social Responsibility(Cont’d)
1. Fulfilment of social responsibility(Cont’d)
Centring the corporate mission of“Creating Sharing Culture within Chenming and Achieving Win-Win Situation”, thecore value of“Good Faith, Win-Win and Sharing”, the corporate spirit of“Learning, Surpass and Leading”as wellas the human resources philosophy of“Providing Staff Trainings, Recruiting Talents, Allocating Human ResourcesProperly and Retaining Talents”, the Company has established its own corporate culture, which has become the spiritand driver for the sustainable and healthy development of the Company.The Company strives to the development path of new type industrialisation with high technology contents, lowenergy consumption and less pollution. It puts great efforts in the implementation of green low-carbon strategy. Inaddition, the Company endeavours to facilitate business development in line with ecological development, enhanceits competitiveness in economic development and environmental protection, and establish its economic andecological culture. It also seeks for development while protecting the environment and maintains higher environmentalprotection while seeking for scientific development, thus achieving“win-win”situation in economic developmentand environmental protection. The Company has strictly in compliance with relevant environmental protectionpolicies, laws and regulations in China. It has mitigated the impact on environment through industrial optimisationand upgrade, reduced resources utilisation through innovative operation, and implemented strict management withthe concept of environmental protection and safety operation being penetrated into every procedure in productionand operation, thereby promoting the harmonious development between the people and the Company, as well asthat of the Company and the environment. The Company is the first in the industry in China which passes ISO14001environmental management system certification. The Company has been named the environmental friendly enterprise,the recycling economy exemplary enterprise, the outstanding water efficiency unit and the outstanding unit incomprehensive utilisation of resources of Shandong province.Leveraging its advanced production technology and manufacture equipment, extensive experience in waste treatmentand various comprehensive treatment systems, the Company strives to implement horizontal and vertical controlthroughout its production processes, thus achieving low carbon emission through low energy consumption, as wellas reduction of use of resources through recycling. The Company has passed the clean production assessmentorganised by United Nations Development Programme in May 1999. The Company focuses on its works in variousaspects, including the establishment of eco-friendly energy consumption system, implementation of on-site 6Smanagement, launch of environmental protection and hazard inspection works, wide application of new energyconservation and emission reduction technology, promotion of key energy conservation and emission reductionprojects, enhancement of innovative technology, promotion of the industrialisation of comprehensive resourcesutilisation, implementation of scientific proposal on“multi-usage of water”based on the quality, quantity and workingprocedure, as well as strengthening of the awareness on energy saving and environmental protection of all staff andhabit building. Hence, the Company has achieved whole process control and management over clean and efficientproduction.
2018 ANNUAL REPORT
VII Material Matters
XVIII.Fulfilment of Social Responsibility(Cont’d)
1. Fulfilment of social responsibility(Cont’d)
The Company has strictly implemented in-depth corporate governance. It has put great efforts and huge investmentsin promoting the management of“the three kinds of waste”so as to facilitate energy conservation and emissionreduction, aiming to become a low energy consumption and environment-friendly enterprise. In respect of wastewatertreatment, the Company has established world-class wastewater treatment system. It has over 10 wastewatertreatment facilities for various purposes, with the most advanced treatment technology in domestic and overseasmarket being adopted. Hence, the Company has realised the comprehensive integration and upgrade of wastewatertreatment facilities in plants, with different emission indicators better than relevant regulatory benchmark. In respectof solid waste treatment, the Company has discontinued the traditional landfilling treatment. It has enhanced itstechnology innovation, strengthened comprehensive resources utilisation, as well as expanded its industrial chain,thereby achieving recycling and harmless utilisation of solid waste. In respect of waste gas treatment, the Companyhas introduced advanced international environmental protection equipment and technology for desulphurisation,denitrification and de-dusting, smelly gas treatment and closure of coal plants. It has adopted scientific waste gastreatment to ensure our waste gas emission is in compliance with all relevant environmental protection standards andrequirements in China.The Company strives to create a wealthy society. It has offered more job vacancies, thereby contributing more taxesto the government, and sharing the achievements of the Company with our staff and society. While caring for ourstaff sincerely and building up a harmonious relationship with the staff, the Company also greatly supports differentcharity programmes. Over the past few years, the Company has donated tens of millions to Shouguang EducationFund, Shouguang Charity Federation, Weifang Venture Association, Shandong Red Cross and districts suffered fromearthquake, which reflects the outstanding contribution of the Company to building a harmonious society in China.The Company has been honoured with the title of“Most Caring Donating Enterprise”by Weifang and ShouguangMunicipal Committee and Municipal Government for serval times, while our chairman Mr. Chen Hongguo has beenhonoured with the title of“Most Caring Person”.
2. Fulfilment of social responsibility regarding targeted poverty relief
The Company did not commence any work regarding targeted poverty relief.
VII Material Matters
XVIII.Fulfilment of Social Responsibility(Cont’d)
3. Environmental protection matters
Are the Company and its subsidiaries classified as key pollutant discharging unit as specified by environmentalprotection authority?Yes
Name of companyor subsidiary
Name of majorpollutants andspecific pollutantsWay of emission
Number ofemissionoutlets
Distributionof emission outlets
Emissionconcentration
Pollutantemissionstandardsimplemented
Totalemissions
Approvedtotal emissions
Excessiveemissions
Shandong ChenmingPaper Holdings Limited
CODOrganised
emission
3Within Chenming
Industrial Park
186mg/L300mg/L4126.30t7666.64tNoAmmonia nitrogenOrganised
emission
3Within Chenming
Industrial Park
3.9mg/L30mg/L96.39t766.66tNoSulphur dioxideOrganised
emission
3Within Chenming
Industrial Park
Electric power
station:
4.88mg/m?
Alkali recovery:
2.62mg/m?
Electric powerstation:
35mg/m?Alkali recovery:
200mg/m?
8.87t247.16tNoNitrogen oxideOrganised
emission
3Within Chenming
Industrial Park
Electric powerstation:
42.1mg/m?Alkali recovery:
127.3mg/m?
Electric powerstation:
100 mg/m?Alkali recovery:
300mg/m?
172.5t1059.41tNoSmokeOrganised
emission
3Within Chenming
Industrial Park
Electric powerstation:
0.80mg/m?Alkali recovery:
9.35mg/m?
Electric powerstation:
10 mg/m?Alkali recovery:
20mg/m?
1.45t70.62tNoShouguang MeilunPaper Co., Ltd.
Sulphur dioxideOrganised
emission
2Within Chenming
Industrial Park
8.2mg/m?35mg/m?79.82t383.9tNoNitrogen oxideOrganised
emission
2Within Chenming
Industrial Park
47.3mg/m?100 mg/m?455t1163.24tNoSmokeOrganised
emission
2Within Chenming
Industrial Park
0.81mg/m?5mg/m?7.33t122.94tNoWuhan Chenming HanyangPaper Holdings Co., Ltd.
CODOrganised
emission
1East of the
factory area
30.67mg/l80mg/L33.96t184.30tNoAmmonia nitrogenOrganised
emission
1East of the
factory area
1.24mg/l8 mg/L1.37t17.30tNoSulphur dioxideOrganised
emission
2Within Qianneng
Electric Powerfactory area
130t/h
24.8mg/m?
75t/h
Furnace: 29.7mg/m?
50mg/m?32.17t102.58tNoNitrogen oxideOrganised
emission
2Within Qianneng
Electric Powerfactory area
130t/hFurnace:
27.8mg/m?75t/hFurnace: 58.1mg/m?
100 mg/m?42.62t205.16tNoSmokeOrganised
emission
2Within Qianneng
Electric Powerfactory area
130t/hFurnace: 12.2mg/m?75t/hFurnace: 10.5mg/m?
20mg/m?14.73t41.03tNo
2018 ANNUAL REPORT
VII Material Matters
XVIII.Fulfilment of Social Responsibility(Cont’d)
3. Environmental protection matters(Cont’d)
Name of companyor subsidiary
Name of majorpollutants andspecific pollutantsWay of emission
Number ofemissionoutlets
Distributionof emission outlets
Emissionconcentration
Pollutantemissionstandardsimplemented
Totalemissions
Approvedtotal emissions
Excessiveemissions
Jiangxi Chenming PaperCo., Ltd.
CODOrganised
emission
1At the boundary of
factory area
42.75mg/L90mg/L279.18t1260tNoAmmonia nitrogenOrganised
emission
1At the boundary of
factory area
2.25mg/L8mg/L9.08t112tNoSulphur dioxideOrganised
emission
2Within factory area200mg/m3180.81t806tNoNitrogen oxideOrganised
emission
2Within factory area102.41mg/m3200 mg/m3303.37t806tNoSmokeOrganised
emission
2Within factory area11.05mg/m330mg/m338.09t135tNoJilin Chenming PaperCo., Ltd.
CODOrganised
emission
1At the boundary of
factory area
61.9mg/L90mg/L275.38t357tNoAmmonia nitrogenOrganised
emission
1At the boundary of
factory area
1.51mg/L8mg/L6.72t34tNoSulphur dioxideOrganised
emission
1Within factory area5mg/m3100mg/m37.39t97tNoNitrogen oxideOrganised
emission
1Within factory area36.07mg/m3100mg/m353.34t213tNoSmokeOrganised
emission
1Within factory area14.7mg/m330mg/m321.7t51.66tNoZhanjiang ChenmingPulp & Paper Co., Ltd.
CODOrganised
emission
1Within Zhanjiang
Chenming factoryarea
35.57mg/L90mg/L860.03t1943tNoAmmonia nitrogenOrganised
emission
1Within Zhanjiang
Chenming factoryarea
1.01mg/L8mg/L28.49t43.90tNoSulphur dioxideOrganised
emission
6Within Zhanjiang
Chenming factoryarea
Lime kiln: 0.26mg/m3
Alkali recovery:
26.41mg/m3
Electric power
factory 1#:
4.66mg/m3
Electric power
factory 2#:
2.93mg/m3
Electric power
factory 3#:
5.77mg/m3
Electric power
factory 4#:
16.60mg/m3
Lime kiln:400mg/m3Alkali recovery:
200mg/m3 1#, 2#, 3#circulating fluidisedbed boilers:
100mg/m3 4#circulating fluidisedbed boilers: 35mg/m3
317.26t620tNo
VII Material Matters
XVIII.Fulfilment of Social Responsibility(Cont’d)
3. Environmental protection matters(Cont’d)
Name of companyor subsidiary
Name of majorpollutants andspecific pollutantsWay of emission
Number ofemissionoutlets
Distributionof emission outlets
Emissionconcentration
Pollutantemissionstandardsimplemented
Totalemissions
Approvedtotal emissions
Excessiveemissions
Nitrogen oxideOrganised
emission
6Within Zhanjiang
Chenming factoryarea
Lime kiln:
231.5mg/m3Alkali recovery:
198.6mg/m3Electric power factory1#: 21.55mg/m3Electric power factory2#: 20.09mg/m3Electric power factory3#: 17.75mg/m3Electric power factory4#: 28.35mg/m3
Lime kiln:
300mg/m3Alkali recovery:
200mg/m3 1#, 2#, 3#circulating fluidisedbed boilers:
100mg/m? 4#circulating fluidisedbed boilers: 50mg/m3
1634.36t2169.70tNo
SmokeOrganised
emission
6Within Zhanjiang
Chenming factoryarea
Lime kiln:
Smoke 14.2mg/m3Alkali recovery:
15.30mg/m3Electric power factory1#: 14.12mg/m3Electric power factory2#: 4.41mg/m3Electric power factory3#: 7.52mg/m3Electric power factory4#: 9.75mg/m3
Lime kiln:80mg/m3Alkali recovery, 1#,2#, 3# circulatingfluidised bedboilers: 30mg/m3 4#circulating fluidisedbed boilers: 10mg/m3
190.87t196tNo
2018 ANNUAL REPORT
VII Material Matters
XVIII.Fulfilment of Social Responsibility(Cont’d)
3. Environmental protection matters(Cont’d)
Construction and operation of facilities for pollution prevention and control
(1) The Company and its subsidiaries strictly comply with laws, regulations and relevant rules regarding
environmental protection of the central and local government. The construction of projects strictly adheres tothe“three simultaneities”on environmental protection. In order to ensure pollutants are discharged strictly inaccordance with the requirements under laws and regulations and disposed properly, production and operationstrictly comply with the national Law on the Prevention and Control of Environmental Pollution, Law on thePrevention and Control of Water Pollution, Law on the Prevention and Control of Air Pollution, Action Plan forPrevention and Control of Water Pollution and Law on the Prevention and Control of Environmental Pollution bySolid Waste and other laws.(2) Both the Company and its subsidiaries are equipped with comprehensive environmental protection treatment
facilities. The pre-treatment-aerobic-anaerobic-in-depth treatment technology is the major technology for watertreatment, which can achieve standardised discharge of wastewater. Moreover, subsidiaries are equipped withrecycling system for process effluent, and reuse treated wastewater to the greatest extent in order to minimisepollution. The Company has constructed a total of 9 water treatment plants, with daily treatment capacity of350,000 m3. In addition, governmental authority will regularly visit the Company to conduct comparison ofonline monitoring data every quarter. All data meets the standards.
(3) Each subsidiary
’s organised emission outlets are equipped with an online monitoring system for real-timemonitoring. All subsidiaries have their own power plants. Each self-owned plant has its own environmentalprotection facilities for de-dusting, desulphurisation and denitrification. Denitrification is conducted throughSCR or SNCR, while desulphurisation is primarily conducted through gypsum desulphurisation (ammoniadesulphurisation is adopted in the self-owned plant of Jiangxi Chenming). Substantially all of the emissionsindicators are below the national and local execution standards. Other alkali recovery boilers and lime kilns arealso in compliance with the emission standards.Environmental impact assessment of construction projects and other environmental protection administrativelicensingThe Company has strictly complied with the environmental laws and regulations all along to carry out environmentalimpact assessment of construction projects. The construction projects are all subject to environmental impactassessment. During the construction process, a reasonable environmental protection project construction plan isformulated and strictly implemented. The environmental protection facilities and the main project are designed,constructed and put into operation at the same time. At present, all construction projects put into production haveobtained environmental impact assessment approvals and acceptance approvals.In June 2017, the Company and its subsidiaries completed the formalities for new discharge permits in accordancewith the Measures for the Administration of Pollutant Discharge Permits of the Ministry of Environmental Protection,and the discharge permits of the new projects were renewed according to the environmental protection requirementsin a timely manner.
VII Material Matters
XVIII.Fulfilment of Social Responsibility(Cont’d)
3. Environmental protection matters(Cont’d)
Emergency plan for emergency environmental incidentsThe Company has strictly implemented emergency regulations for emergency environmental incidents, and formulatedvarious emergency plans for emergency environmental incidents according to the technical requirements in the“Technical Guidelines for Emergency Environmental Pollution Accidents”. The plans are reviewed by and filed with theEnvironmental Protection Bureau, and regular emergency training and emergency drills are conducted. Emergencymeasures in relation to dangerous chemicals are formulated in accordance with the environmental protectionrequirements. At the same time, necessary emergency supplies are provided with regular inspections and updates.Environmental self-monitoring programmeThe Company has strictly complied with self-monitoring laws and regulations, and conducted self-monitoring inaccordance with the environmental protection requirements to establish and perfect the corporate environmentalmanagement ledgers and materials. At present, self-monitoring is a combination of manual monitoring and automaticmonitoring. At the same time, qualified units are engaged to conduct regular monitoring. Automatically monitoreditems include: total wastewater discharge (COD, ammonia nitrogen, flow rate, total phosphorus, total nitrogen andPH); power plant, alkali recovery boilers and lime kiln exhaust emissions (sulphur dioxide, nitrogen oxide and smoke).Manually monitored items include: daily monitoring of COD, ammonia nitrogen, SS, chroma, PH, total phosphorusand total nitrogen indicators. Sewage and other monitoring items, unorganised exhaust emission, solid waste, andnoise at the plant boundary, are monitored on a monthly or quarterly basis by qualified units engaged in accordancewith the local environmental protection requirements in relation to each subsidiary.The self-monitoring data and environmental monitoring programmes for pollutants discharge of various subsidiariesare published on the national key pollution source information disclosure website and the provincial key pollutionsource information disclosure websites.Other environmental information to be disclosedThe relevant environmental protection information of the pollutant discharge permit information and the pollutantdischarge permit requirements is announced on the national sewage discharge permit management informationplatform.Other environmental protection related informationOther environmental protection related information is announced on the Company’s website.
2018 ANNUAL REPORT
VII Material Matters
XIX. Other matters of significance
√ Applicable Not applicable
1. Issue of medium-term notes with an amount of RMB1,000 million
The public issue of the 2018 first tranche of medium-term notes in the national inter-bank bond market was launchedby the Company on 16 March 2018. The amount of the issue was RMB1,000 million with a nominal value of RMB100each at the interest rate of 7.50%.For details, please refer to relevant announcement (announcement no.: 2018-017) of the Company published onCNINFO on 22 March 2018.
2. Entering into the Developmental Financial Cooperation Agreement with China Development Bank
On 29 March 2018, the Company and China Development Bank entered into the Develop me nta l F in anc ial C oop er ati onAgreement to establish a new strategic partnership for the all-rounded and in-depth cooperation between an industrialgroup and a financial group. Adhering to the principle of“planning first”, both parties will make full use of theirrespective advantages to carry out in-depth cooperation in areas such as medium and long-term project cooperation,loans for working capital, intermediary business and cross-border financing through project cooperation at the earlystage and cooperation on financial products.For details, please refer to relevant announcement (announcement no.: 2018-028) of the Company published onCNINFO on 1 April 2018.
3. Announcement on the Debt-to-equity Cooperation Framework Agreement Entered into with ICBC
Investment
On 16 October 2018, the Company entered into the Market-based Debt-to-equity Cooperation Agreement with ICBCFinancial Asset Investment Co., Ltd., pursuant to which the companies established a strategic relationship and jointlypromoted the debt-to-equity business under the principle of development, win-win, equality and mutual benefit.For details, please refer to relevant announcement (announcement no.: 2018-143) of the Company published onCNINFO on 18 October 2018.
VII Material Matters
XIX. Other matters of significance(Cont’d)
4. Information disclosure index for 2018
Announcement No.Subject matterDate of publicationPublication website and index
2018-001Announcement on Result of the Issue of 2018 First9 January 2018http://www.cninfo.com.cn
Tranche of Super & Short-term Commercial Paper2018-002Announcement on Resignation of Secretary to the Board19 January 2018http://www.cninfo.com.cn2018-003Announcement on Estimated Annual Results for 201719 January 2018http://www.cninfo.com.cn2018-004Announcement on Result of the Issue of 2018 Second19 January 2018http://www.cninfo.com.cn
Tranche of Super & Short-term Commercial Paper2018-005Second Supplementary Notice of the 2018 First26 January 2018http://www.cninfo.com.cn
Extraordinary General Meeting2018-006Announcement in respect of Resolutions of the30 January 2018http://www.cninfo.com.cn
Twentieth Extraordinary Meeting of the Eighth
Session of the Board of Directors2018-007Announcement on the Receipt of 30% equity interest in Hongtai
Real Estate held by Guangdong Dejun and
30 January 2018http://www.cninfo.com.cn
Guangdong Dejun’s Debt to Hongtai Real Estate and
Related Party Transaction2018-008Announcement on External Investment30 January 2018http://www.cninfo.com.cn2018-009Announcement in respect of Guarantee in Favour of Related
Subsidiaries for their Credit Facilities Applications
30 January 2018http://www.cninfo.com.cn2018-010Announcement on Additional Resolutions Proposed at the
2018 First Extraordinary General Meeting
30 January 2018http://www.cninfo.com.cn2018-011Supplementary Notice of 2018 First Extraordinary General Meeting30 January 2018http://www.cninfo.com.cn2018-012Announcement on Result of the Issue of 2018 Third8 February 2018http://www.cninfo.com.cn
Tranche of Super & Short-term Commercial Paper2018-013Poll Results Announcement of the 2018 First14 February 2018http://www.cninfo.com.cn
Extraordinary General Meeting2018-014Indicative Announcement1 March 2018http://www.cninfo.com.cn2018-015Announcement in respect of Resolutions of the10 March 2018http://www.cninfo.com.cn
Twenty-first Extraordinary Meeting of the Eighth
Session of the Board of Directors2018-016Announcement on the Distribution of Dividend for Preference Share14 March 2018http://www.cninfo.com.cn2018-017Announcement on Result of the Issue of 2018 First22 March 2018http://www.cninfo.com.cn
Tranche of Medium-term Notes2018-018Announcement on Pledge of Shares held by Shareholders22 March 2018http://www.cninfo.com.cn2018-019Announcement on 2018 Public Issue of Corporate Bonds to
Qualified Investors (First Tranche)
27 March 2018http://www.cninfo.com.cn2018-020Announcement in respect of Resolutions of the Eighth Meeting
of the Eighth Session of the Board of Directors
28 March 2018http://www.cninfo.com.cn2018-0212017 Annual Report Summary28 March 2018http://www.cninfo.com.cn2018-022Announcement on Provision of Guarantee for General28 March 2018http://www.cninfo.com.cn
Credit Lines of Relevant Subsidiaries2018-023Announcement in respect of Resolutions of the Ninth Meeting of
the Eighth Session of the Supervisory Committee
28 March 2018http://www.cninfo.com.cn
2018 ANNUAL REPORT
VII Material Matters
XIX. Other matters of significance(Cont’d)
4. Information disclosure index for 2018
Announcement No.Subject matterDate of publicationPublication website and index
2018-024Notice of 2017 Annual General Meeting28 March 2018http://www.cninfo.com.cn2018-025Announcement on the Appointment of the auditors for 201828 March 2018http://www.cninfo.com.cn2018-026Announcement on the Coupon Rate of 2018 Public Issue
of Corporate Bonds to Qualified Investors (First Tranche)
28 March 2018http://www.cninfo.com.cn2018-027Announcement on Result of the Issue of 2018 Fourth30 March 2018http://www.cninfo.com.cn
Tranche of Super & Short-term Commercial Paper2018-028Announcement on Entering into the Developmental2 April 2018http://www.cninfo.com.cn
Financial Cooperation agreement with China Development Bank2018-029Announcement on the Receipt of an Arbitral Award by a Subsidiary2 April 2018http://www.cninfo.com.cn2018-030Announcement on the Result of 2018 Public Issue of
Corporate Bonds to Qualified Investors (First Tranche)
2 April 2018http://www.cninfo.com.cn2018-031Announcement on Pledge of Shares held by Shareholders12 April 2018http://www.cninfo.com.cn2018-032Announcement in Respect of Resolutions of the Twenty-Second
Extraordinary Meeting of the Eighth
17 April 2018http://www.cninfo.com.cnSession of the Board of Directors2018-033Announcement on the Extension of the Validity Period of the
resolutions in Respect of the Non-public Issue of Shares of theCompany at the General Meeting and the Validity Period of theAuthorisation Granted to the Board to Deal with Related Matters
17 April 2018http://www.cninfo.com.cn2018-034Notice of 2018 Second Extraordinary General Meeting17 April 2018http://www.cninfo.com.cn2018-035Notice of the 2018 First Domestic Listed Share Class Meeting
and 2018 First Overseas Listed Share Class Meeting
17 April 2018http://www.cninfo.com.cn2018-036Announcement in respect of Resolutions of the Ninth17 April 2018http://www.cninfo.com.cn
Extraordinary Meeting of the Eighth Session of theSupervisory Committee2018-037Announcement on External Investment17 April 2018http://www.cninfo.com.cn2018-038Announcement on the Sale of Available-for-sale Financial Assets17 April 2018http://www.cninfo.com.cn2018-039Announcement in respect of Resolutions of the27 April 2018http://www.cninfo.com.cn
Ninth Meeting of the Eighth Session of the Board of Directors2018-0402018 First Quarterly Report27 April 2018http://www.cninfo.com.cn2018-041Announcement on External Investment (I)27 April 2018http://www.cninfo.com.cn2018-042Announcement on External Investment (II)27 April 2018http://www.cninfo.com.cn2018-043Announcement on Result of the Issue of 2018 Fifth27 April 2018http://www.cninfo.com.cn
Tranche of Super & Short-term Commercial Paper2018-044Announcement on the Cancellation of the General Meeting 27 April 2018http://www.cninfo.com.cn
and Postponement of the 2017 Annual General Meeting2018-045Notice on the Cancellation of the General Meeting and
Postponement of the 2017 Annual General Meeting
27 April 2018http://www.cninfo.com.cn2018-046Notice of the 2018 Second Domestic Listed Share Class 27 April 2018http://www.cninfo.com.cn
Meeting and 2018 Second Overseas Listed Share Class Meeting
VII Material Matters
XIX. Other matters of significance(Cont’d)
4. Information disclosure index for 2018
Announcement No.Subject matterDate of publicationPublication website and index
2018-047Announcement in respect of Resolutions of the Tenth Meeting
of the Eighth Session of the Supervisory Committee
27 April 2018http://www.cninfo.com.cn2018-048Announcement on the Change of the Name of the
Controlling Shareholder
3 May 2018http://www.cninfo.com.cn2018-049Announcement in Respect of Resolutions of the
Twenty-Third Extraordinary Meeting of the Eighth Sessionof the Board of Directors
5 May 2018http://www.cninfo.com.cn2018-050Announcement on External Investment5 May 2018http://www.cninfo.com.cn2018-051Announcement on Resignation of the Vice Chairman9 May 2018http://www.cninfo.com.cn2018-052Announcement on Result of the Issue of 2018 Sixth Tranche of
Super & Short-term Commercial Paper
11 May 2018http://www.cninfo.com.cn2018-053Announcement on Entering into the Framework Agreement for
Strategic Cooperation between Banks and Enterpriseswith Guangdong Nanyue Bank
15 May 2018http://www.cninfo.com.cn2018-054Indicative Announcement15 May 2018http://www.cninfo.com.cn2018-055Announcement in respect of Resolutions of the Twenty-fourth
Extraordinary Meeting of the Eighth Session ofthe Board of Directors
16 May 2018http://www.cninfo.com.cn2018-056Announcement on Appointment of the Secretary of the Board
and Securities Affairs Representative
16 May 2018http://www.cninfo.com.cn2018-057Second Supplementary Notice of the 2018 Second
Extraordinary General Meeting
16 May 2018http://www.cninfo.com.cn2018-058Second Supplementary Notice of the 2018 First Domestic
Listed Share Class Meeting and 2018 First Overseas ListedShare Class Meeting
16 May 2018http://www.cninfo.com.cn2018-059Announcement on Receipt of Government Subsidy18 May 2018http://www.cninfo.com.cn2018-060Announcement on Acquisition of Minority Interest in Subsidiaries24 May 2018http://www.cninfo.com.cn2018-061Announcement on Pledge of Shares held by Shareholders
and the Release of Pledge of Part of the Shares
25 May 2018http://www.cninfo.com.cn2018-062Announcement on the Progress of External Investment29 May 2018http://www.cninfo.com.cn2018-063Announcement on Additional Resolutions Proposed at the
2017 Annual General Meeting
30 May 2018http://www.cninfo.com.cn2018-064Supplementary Notice of 2017 Annual General Meeting30 May 2018http://www.cninfo.com.cn2018-065Second Supplementary Notice of the 2018 Second Domestic
Listed Share Class Meeting and 2018 Second OverseasListed Share Class Meeting
30 May 2018http://www.cninfo.com.cn2018-066Announcement on Result of the Issue of 2018 Seventh Tranche
of Super & Short-term Commercial Paper
30 May 2018http://www.cninfo.com.cn2018-067Announcement on Pledge of Shares held by Shareholders31 May 2018http://www.cninfo.com.cn2018-068Announcement on the Listing of 2018 Public Issue of
Corporate Bonds to Qualified Investors (First Tranche)
31 May 2018http://www.cninfo.com.cn
2018 ANNUAL REPORT
VII Material Matters
XIX. Other matters of significance(Cont’d)
4. Information disclosure index for 2018
Announcement No.Subject matterDate of publicationPublication website and index
2018-070Shandong Chenming Paper Holdings Limited Announcement
in respect of Resolutions of the 25th Extraordinary Meeting of theEighth Session of the Board of Directors
5 June 2018http://www.cninfo.com.cn2018-071Announcement in respect of Resolutions of the Tenth Extraordinary
Meeting of the Eighth Session of the Supervisory Committee
5 June 2018http://www.cninfo.com.cn2018-072Announcement on Dilution of Current Returns and Remedial Measures
upon Non-public Offering (Fifth Revision)
5 June 2018http://www.cninfo.com.cn2018-073Announcement on Adjustment to the Price Determination Date
for the Non-public Issue of A Shares
5 June 2018http://www.cninfo.com.cn2018-074Announcement on Entering into Conditional Share Purchase
Agreement and Connected Transactions under the Non-publicOffering of A Share (Third Revision)
5 June 2018http://www.cninfo.com.cn2018-075Notice of 2018 Third Extraordinary General Meeting5 June 2018http://www.cninfo.com.cn2018-076Notice of the 2018 Third Domestic Listed Share Class Meeting and
2018 Third Overseas Listed Share Class Meeting
5 June 2018http://www.cninfo.com.cn2018-077Announcement on Release of Pledge of Shares Held by Shareholders5 June 2018http://www.cninfo.com.cn2018-078Announcement on Fifth Revision of Non-public Offering for 20165 June 2018http://www.cninfo.com.cn2018-079Announcement in Respect of Resolutions of 2017 Annual
General Meeting, 2018 Second Class Meeting ForDomestic Shareholders and 2018 Second Class MeetingFor Overseas Shareholders
14 June 2018http://www.cninfo.com.cn2018-080Shandong Chenming Paper Holdings Limited Announcement
in respect of Resolutions of the 26th Extraordinary Meeting ofthe Eighth Session of the Board of Directors
23 June 2018http://www.cninfo.com.cn2018-081Announcement on New Ordinary Connected Transactions in 201823 June 2018http://www.cninfo.com.cn2018-082Announcement on the Disposal of the 40% Equity Interest in
Wan Xing Real Estate by Wuhan Chenming
23 June 2018http://www.cninfo.com.cn2018-083Announcement on Supplemental Pledge of Shares held by Shareholders26 June 2018http://www.cninfo.com.cn2018-084Announcement on Receipt of Government Subsidy29 June 2018http://www.cninfo.com.cn2018-085Announcement on Additional Resolutions Proposed at the 2018
Third Extraordinary General Meeting
30 June 2018http://www.cninfo.com.cn2018-086Supplemental Notice of 2018 Third Extraordinary General Meeting30 June 2018http://www.cninfo.com.cn2018-087Announcement on Result of the Issue of 2018 Eighth Tranche of
Super & Short-term Commercial Paper
30 June 2018http://www.cninfo.com.cn2018-088Announcement on Progress of Receipt of Government Subsidy3 July 2018http://www.cninfo.com.cn2018-089Announcement on Supplemental Pledge of Shares held by Shareholders3 July 2018http://www.cninfo.com.cn2018-090Announcement on Settlement of the 2015 First Tranche of
Medium-term Notes
3 July 2018http://www.cninfo.com.cn2018-091Announcement on Result of the Issue of 2018 Ninth Tranche of
Super & Short-term Commercial Paper
6 July 2018http://www.cninfo.com.cn
VII Material Matters
XIX. Other matters of significance(Cont’d)
4. Information disclosure index for 2018
Announcement No.Subject matterDate of publicationPublication website and index
2018-092Second Notice of the 2018 Third Extraordinary General Meeting6 July 2018http://www.cninfo.com.cn2018-093Second Supplementary Notice of the 2018 Third Domestic Listed Share
Class Meeting and 2018 Third Overseas Listed Share Class Meeting
6 July 2018http://www.cninfo.com.cn2018-094Announcement on Supplemental Pledge of Shares held by Shareholders11 July 2018http://www.cninfo.com.cn2018-095Announcement in respect of Resolutions of the 27th Extraordinary
Meeting of the Eighth Session of the Board of Directors
12 July 2018http://www.cninfo.com.cn2018-096Announcement on the Debt Transfer of Portion of the Financial
Leasing Business in Financial Leasing Companies
12 July 2018http://www.cninfo.com.cn2018-097Announcement on Resolution of the 28th Extraordinary
Meeting of the Eighth Session of the Board of Directors
17 July 2018http://www.cninfo.com.cn2018-098Announcement on the Commencement of Financial Leasing Business
and Provision of Guarantee of Subsidiary
17 July 2018http://www.cninfo.com.cn2018-099Announcement on Receipt of Financial Support and
Related Party Transaction
17 July 2018http://www.cninfo.com.cn2018-100Announcement on Receipt of Government Subsidy18 July 2018http://www.cninfo.com.cn2018-101Announcement in Respect of Resolutions of 2018 Third Extraordinary
General Meeting, 2018 Third Class Meeting For Domestic Shareholdersand 2018 Third Class Meeting For Overseas Shareholders
21 July 2018http://www.cninfo.com.cn2018-102Announcement on External Investment25 July 2018http://www.cninfo.com.cn2018-103Announcement on the Implementation of Dividend Distribution to Holders
and Conversion into Share Capital of A Shares and B Shares for 2017
6 August 2018http://www.cninfo.com.cn2018-104Announcement on the Implementation of the Distribution of
Residual Profits of 2017 to Preference Shareholders
6 August 2018http://www.cninfo.com.cn2018-105Announcement on the Distribution of Dividend for Second
Tranche of Preference Share
9 August 2018http://www.cninfo.com.cn2018-106Announcement on Release of Pledge of Shares held by Shareholders9 August 2018http://www.cninfo.com.cn2018-107Announcement on Progress of Disposal of Equity in Share
Participating Company by Wuhan Chenming(107KB)
9 August 2018http://www.cninfo.com.cn2018-108Announcement on Result of the Issue of 2018 Tenth Tranche of
Super & Short-term Commercial Paper
11 August 2018http://www.cninfo.com.cn2018-109Announcement on the Stimulated Conversion Price of Preference Shares11 August 2018http://www.cninfo.com.cn2018-110Indicative Announcement14 August 2018http://www.cninfo.com.cn2018-111Announcement on the 2018 Interest Payment of Corporate Bonds (Phase I)15 August 2018http://www.cninfo.com.cn2018-112Announcement in respect of Resolutions of the 29th Extraordinary
Meeting of the Eighth Session of the Board of Directors
18 August 2018http://www.cninfo.com.cn2018-113Announcement in respect of Resolutions of the 11th Extraordinary
Meeting of the Eighth Session of the Board of Directors
18 August 2018http://www.cninfo.com.cn2018-114Announcement on the 2016 Non-Public Issue of Shares and
Withdrawal of Application Documents
18 August 2018http://www.cninfo.com.cn
2018 ANNUAL REPORT
VII Material Matters
XIX. Other matters of significance(Cont’d)
4. Information disclosure index for 2018
Announcement No.Subject matterDate of publicationPublication website and index
2018-115Announcement on the Extension of the Expiry Date of the Resolution of
the General Meeting in Respect of the Issuance of Corporate Bonds
18 August 2018http://www.cninfo.com.cn2018-116Notice of 2018 Fourth Extraordinary General Meeting18 August 2018http://www.cninfo.com.cn2018-117Announcement on the Pledge of Shares by Shareholders and
Supplemental Pledge of Shares
18 August 2018http://www.cninfo.com.cn2018-118Announcement in respect of Resolutions of the Tenth Meeting of
the Eighth Session of the Board of Directors
28 August 2018http://www.cninfo.com.cn2018-119Announcement in respect of Resolutions of the 11th Meeting of the
Eighth Session of the Board of Directors
28 August 2018http://www.cninfo.com.cn2018-1202018 Interim Report Summary28 August 2018http://www.cninfo.com.cn2018-121Announcement on the Commencement of Financial Leasing Business
and Provision of Guarantee of Subsidiary
28 August 2018http://www.cninfo.com.cn2018-122Announcement on the Receipt of Notice Regarding Suspension of the
Examination Relevant to the Application for AdministrativePermission from CSRC
1 September 2018http://www.cninfo.com.cn2018-123Announcement on Release of Pledge of Shares Held by Shareholders1 September 2018http://www.cninfo.com.cn2018-124Announcement on Increase in Shareholding by the Chairman3 September 2018http://www.cninfo.com.cn2018-125Indicative Announcement6 September 2018http://www.cninfo.com.cn2018-126Announcement on Supplemental Pledge of Shares held by Shareholders5 September 2018http://www.cninfo.com.cn2018-127Announcement on Entering into Strategic Cooperation Agreements with
Qingdao Branch of China Merchants Bank and Merchants Securities
7 September 2018http://www.cninfo.com.cn2018-128Announcement on Intended Increase in Shareholding by the
Company’s Largest Shareholder
11 September 2018http://www.cninfo.com.cn2018-129Announcement in respect of Resolutions of the 30th Meeting of the
Eighth Session of the Board of Directors
13 September 2018http://www.cninfo.com.cn2018-130Announcement on the Commencement of Financial Leasing Business
and Provision of Guarantee
13 September 2018http://www.cninfo.com.cn2018-131Announcement on the Distribution of Dividend for Third Tranche
of Preference Share
14 September 2018http://www.cninfo.com.cn2018-132Second Notice of the 2018 Fourth Extraordinary General Meeting20 September 2018http://www.cninfo.com.cn2018-133Announcement on External Investment20 September 2018http://www.cninfo.com.cn2018-134Announcement on the Receipt of an Arbitral Award by a Subsidiary22 September 2018http://www.cninfo.com.cn2018-135Announcement on the Completion of Industrial and
Commercial Registration
27 September 2018http://www.cninfo.com.cn2018-136Poll Results Announcement of the 2018 Fourth Extraordinary
General Meeting
10 October 2018http://www.cninfo.com.cn2018-137Announcement in respect of Resolutions of the 31st Extraordinary
Meeting of the Eighth Session of the Board of Directors
12 October 2018http://www.cninfo.com.cn2018-138Announcement on the Provision of Guarantee to Wholly-Owned Subsidiary12 October 2018http://www.cninfo.com.cn2018-139Announcement on Participation in the Acquisition of 45%
Equity in Goldtrust Futures
12 October 2018http://www.cninfo.com.cn
VII Material Matters
XIX. Other matters of significance(Cont’d)
4. Information disclosure index for 2018
Announcement No.Subject matterDate of publicationPublication website and index
2018-140Announcement on Change of Financial Controller and
Resignation of Representative of Securities Affairs
12 October 2018http://www.cninfo.com.cn2018-141Notice of 2018 Fifth Extraordinary General Meeting12 October 2018http://www.cninfo.com.cn2018-142Announcement on the Release of Pledge and Supplemental
Pledge of Shares held by Shareholders
13 October 2018http://www.cninfo.com.cn2018-143Announcement on the Entering into of the Debt-to-equity
Cooperation Framework Agreement with CIBC Investment
18 October 2018http://www.cninfo.com.cn2018-144Indicative Announcement18 October 2018http://www.cninfo.com.cn2018-145Announcement on Progress of Participation in the Acquisition of
45% Equity in Goldtrust Futures
23 October 2018http://www.cninfo.com.cn2018-146Announcement in respect of Resolutions of the 11th Extraordinary
Meeting of the Eighth Session of the Board of Directors
26 October 2018http://www.cninfo.com.cn2018-147Announcement in respect of Resolutions of the 12th Extraordinary
Meeting of the Eighth Session of the Board of Directors
26 October 2018http://www.cninfo.com.cn2018-1482018 Third Quarterly Report26 October 2018http://www.cninfo.com.cn2018-149Announcement on Changes in Accounting Policies26 October 2018http://www.cninfo.com.cn2018-150Announcement on Pledge of Assets to the Syndicated Loan of
Huanggang Chenming
26 October 2018http://www.cninfo.com.cn2018-151Announcement on the Commencement of Financial Leasing
Business of Subsidiary
26 October 2018http://www.cninfo.com.cn2018-152Announcement on Result of the Issue of 2018 Eleventh Tranche of
Super & Short-term Commercial Paper
31 October 2018http://www.cninfo.com.cn2018-153Announcement on Release of Pledge of Shares held by Shareholders6 November 2018http://www.cninfo.com.cn2018-154Announcement in respect of Resolutions of the 32nd Extraordinary
Meeting of the Eighth Session of the Board of Directors
10 November 2018http://www.cninfo.com.cn2018-155Announcement on the Change and Rotation of the General Manager10 November 2018http://www.cninfo.com.cn2018-156Announcement on Proposed Introduction of Third-party Investors
for Capital Contribution to Certain Subsidiaries
10 November 2018http://www.cninfo.com.cn2018-157Announcement in respect of Resolutions of the Twelfth Extraordinary
Meeting of the Eighth Session of the Supervisory Committee
10 November 2018http://www.cninfo.com.cn2018-158Notice of 2018 Sixth Extraordinary General Meeting10 November 2018http://www.cninfo.com.cn2018-159Second Notice of 2018 Fifth Extraordinary General Meeting16 November 2018http://www.cninfo.com.cn2018-160Announcement on the Commencement of Production of the
Chemical Pulp Project of Huanggang Chenming
27 November 2018http://www.cninfo.com.cn2018-161Announcement in respect of Resolutions of the 33rd Extraordinary
Meeting of the Eighth Session of the Board of Directors
1 December 2018http://www.cninfo.com.cn2018-162Announcement on the Commencement of Financial Leasing Business
and Provision of Guarantee and Pledge of Assets of the Subsidiary
1 December 2018http://www.cninfo.com.cn
2018 ANNUAL REPORT
VII Material Matters
XIX. Other matters of significance(Cont’d)
4. Information disclosure index for 2018
Announcement No.Subject matterDate of publicationPublication website and index
2018-163Announcement on Resolution of the 2018 Fifth Extraordinary
General Meeting
1 December 2018http://www.cninfo.com.cn2018-164Announcement on the Retirement and Resignation of
Employee Representative Supervisor
1 December 2018http://www.cninfo.com.cn2018-165Announcement on Pledge of Shares by Shareholders8 December 2018http://www.cninfo.com.cn2018-166Supplementary Announcement of 2018 Sixth Extraordinary
General Meeting
13 December 2018http://www.cninfo.com.cn2018-167Supplementary Notice of 2018 Sixth Extraordinary General Meeting13 December 2018http://www.cninfo.com.cn2018-168Announcement on Release of Pledge of Shares Held by Shareholders
and Business Continuation
18 December 2018http://www.cninfo.com.cn2018-169Announcement in respect of Resolutions of the 34th Extraordinary
Meeting of the Eighth Session of the Board of Directors
21 December 2018http://www.cninfo.com.cn2018-170Announcement on the Introduction of Third-party Investors by
Jiangxi Chenming
21 December 2018http://www.cninfo.com.cn2018-171Announcement on the Acquisition of Minority Interest of a
Holding Subsidiary
21 December 2018http://www.cninfo.com.cn2018-172Announcement on Result of the Issue of 2018 Twelfth Tranche of
Short-term Commercial Paper
21 December 2018http://www.cninfo.com.cn2018-173Announcement on Pledge of Shares and Partial Release of
Pledge of Shares by Shareholders
22 December 2018http://www.cninfo.com.cn2018-174Poll Results Announcement of the 2018 Sixth Extraordinary
General Meeting
29 December 2018http://www.cninfo.com.cn
VII Material Matters
XX. Matters of significant of subsidiaries of the Company
√ Applicable Not applicable
1. Disposal of 30% equity interest in Xuchang Chenming
At the eighteenth extraordinary meeting of the eighth session of the Board of the Company held on 27 November2017, the Resolution on the disposal of 30% equity interest in Xuchang Chenming was considered and approved,pursuant to which the Company proposed to dispose of 30% equity interest in its controlling subsidiaryXuchang Chenming Paper Co., Ltd. (“Xuchang Chenming”) through public tender. For details, please refer to theAnnouncement on the Disposal of Equity Interest in Xuchang Chenming published by the Company on 28 November2017 (announcement no.: 2017-147).
2. Receipt of Shanghai Chenming of 30% equity interest in Shanghai Hongtai Real Estate held by
Guangdong Dejun
Shanghai Chenming Industry Co., Ltd. and Guangdong Dejun Investment Co., Ltd. entered into the Equity AcquisitionAgreement. Based on the appraised value of the total shareholders’equity of Shanghai Hongtai Real Estate Co., Ltd.of RMB3,908.397 million, Shanghai Chenming proposed to acquire 30% equity interest in and the loan due fromHongtai Real Estate held by Guangdong Dejun at a consideration of RMB1,275,000,000, in which the equity interestamounted to RMB1,171,960,000 and loan amounted to RMB103,040,000.For details, please refer to the relevant announcement (announcement no.: 2018-007) of the Company published onCNINFO on 30 January 2018.
3. Disposal of 50% equity interest in Guangdong Dejun
Pursuant to the decision approved at the twenty-second extraordinary meeting of the eighth session of the Board ofthe Company held on 16 April 2018, the Company and Shanghai Zhongneng Enterprise Development (Group) Co.,Ltd. (“Shanghai Zhongneng”) entered into the Equity Repurchase Agreement, under which the 50% equity interestin Guangdong Dejun, being the available-for-sale financial asset, to Shanghai Zhongneng, with the aggregate ofpremium repurchase and investment income amounting to RMB2,634,041,400. The Company received the sum on 28April 2018. Subsequent to the transfer, the Company no longer held any equity interests in Guangdong Dejun.2018-038For details, please refer to the relevant announcement (announcement no.: 2018-038) of the Companypublished on CNINFO on 17 April 2018.
2018 ANNUAL REPORT
VII Material Matters
XX. Matters of significant of subsidiaries of the Company(Cont’d)
4. Acquisition of 14.2742% equity interest held by a minority shareholder of Wuhan Chenming
To better advance the strategic development positioning of the Company, optimise the management structure,streamline business layout and further elevate the Company’s profitability, the Company intends to acquire 14.2742%equity interest in Wuhan Chenming, a controlling subsidiary of the Company, held by Hubei Hanyang Paper Mill(“Hanyang Paper Mill”), a minority shareholder of Wuhan Chenming, by way of transfer through agreement. Inaccordance with the result of public tender, the Company received the abovementioned equity interest held byHanyang Paper Mill at the consideration of RMB60,896,600. Subsequent to the completion of the equity transfer,the Company will hold 65.205% of the equity interest in Wuhan Chenming. For details, please refer to the relevantannouncement (announcement no.: 2018-060) of the Company published on CNINFO on 24 May 2018.
5. Disposal of 40% equity interest in Wan Xing Real Estate by Wuhan Chenming
To further integrate the Company’s resources, focus its advantages on the principal business and enhance quality andefficiency, Wuhan Chenming Hanyang Paper Holdings Co., Ltd. intends to dispose of 40% equity interest in WuhanChenming Wan Xing Real Estate Co., Ltd., an investee, through public tender. The transferee will be determined byway of bidding, and the final price will be determined comprehensively according to the tender and auctioning withreference to the appraisal value.On 7 August 2018, Wuhan Chenming and Hubei Zheshang Wan Xing Investment Co., Ltd. entered into the EquityTransaction Agreement on Hubei Equity Investment Transfer for a consideration of RMB131.60 million.For details, please refer to the relevant announcement (announcement no.: 2018-082 and 2018-107) of the Companypublished on CNINFO on 23 June 2018 and 9 August 2018.
6. Announcement on the Commencement of Production of the Chemical Pulp Project of Huanggang
Chenming
The 300,000-tonne chemical pulp project of Huanggang Chenming Pulp & Paper Co., Ltd. was considered andapproved at the 2013 first extraordinary general meeting of the Company. The project, having gone through multiplediscussions and adjustments in order to meet the requirements for ecological environment development of theYangtze River Economic Zone, commenced production on 13 November 2018.For details, please refer to the relevant announcement (announcement no.: 2018-160) of the Company published onCNINFO on 27 November 2018.
7. Announcement on the Introduction of Third-party Investors by Jiangxi Chenming
In order to actively yet prudently lower the Company’s gearing ratio, optimise its capital structure, promote itscomprehensive capital strength, Jiangxi Chenming Paper Co., Ltd., a subsidiary of the Company, intended tocommence market-based and legal debt-to-share business with China Zheshang Bank Co., Ltd. Western Trust Co.,Ltd. (), a co-operating practicing entity of China Zheshang Bank, increased the capital of JinagxiChenming by RMB500 million. In consideration of the operating situation of Jiangxi Chenming and the overallstrategies of the Company, Chenming Paper, a shareholder of Jiangxi Chenming, and Chenming (HK) Limited, asubsidiary of Chenming Paper, will forfeit the rights of preferential subscription of capital contribution in the capitalincrease.For details, please refer to the relevant announcement (announcement no.: 2018-170) of the Company published onCNINFO on 20 December 2018.
VIII
Changes in Share Capital and Shareholders
I. Changes in shares
1. Changes in shares
Unit: share
Opening balanceChange during the reporting period (+/-)Closing balance
AmountPercentageNew issueBonus issue
SharesConvertedfrom reservesOthersSubtotalAmountPercentage
I. Restricted shares7,935,1010.41%003,967,55079,9914,047,54111,982,6420.41%
Shares held by otherdomestic investors7,935,1010.41%003,967,55079,9914,047,54111,982,6420.41%Shares held bydomestic naturalpersons7,935,1010.41%003,967,55079,9914,047,54111,982,6420.41%II. Non-restricted shares1,928,470,36699.59%00964,235,183-79,991964,155,1922,892,625,55899.59%
1. RMB ordinary shares1,105,389,55557.08%00552,694,778-79,991552,614,7871,658,004,34257.08%2. Domestic listedforeign shares470,877,31124.32%00235,438,6550235,438,655706,315,96624.32%3. Overseas listedforeign shares352,203,50018.19%00176,101,7500176,101,750528,305,25018.19%III. Total number of shares1,936,405,467100.00%00968,202,7330968,202,7332,904,608,200100.00%
The reasons for such changes
√ Applicable Not applicablePursuant to the profit distribution plan of the Company for 2017 approved at the 2017 annual general meeting, basedon the total ordinary share capital of 1,936,405,467 shares as at the end of 2017, a cash dividend of RMB6.00 (taxinclusive) per 10 shares was distributed to all shareholders and a capitalisation issue to ordinary shareholders wasmade out of the capital reserves of 5 shares for every 10 shares held. Upon completion of the plan on 10 August2018, the total share capital of the Company increased from 1,936,405,467 shares to 2,904,608,200 shares.2. According to the Practice Guidance for the Company’s Shares Held by the Directors, Supervisors and SeniorManagement of the Listed Companies of Shenzhen Stock Exchange, during the reporting period, 75,000 RMBordinary shares (A shares) without restriction additionally acquired by Directors were put under restriction; and 4,991RMB ordinary shares (A shares) without restriction additionally acquired by Directors and Senior Management wereput under restriction.Approval of changes in shareholding
√ Applicable Not applicableThe Plan of conversion of capital reserve into share capital was considered and approved on 13 June 2018 in the2017 annual general meeting, the 2018 second domestic listed share class meeting and 2018 second overseaslisted share class meeting. For details, please see the relevant announcements published by the Company on ChinaSecurities Journal, Shanghai Securities News, Securities Times, Securities Daily, Hong Kong Commercial Daily andCNINFO (www.cninfo.com.cn) on 14 June 2018 and on the website of the Stock Exchange (www.hkex.com.hk) on 14June 2018.Transfer of shares arising from changes in shareholding
Applicable √ Not applicable
2018 ANNUAL REPORT
VIIIChanges in Share Capital and Shareholders
I. Changes in shares(Cont’d)
1. Changes in shares(Cont’d)
Progress of share repurchase
Applicable √ Not applicableProgress of decrease in the holding of repurchased shares by way of bidding
Applicable √ Not applicable
The effects of changes in shareholding on financial indicators such as basic earnings per share, diluted earnings per
share and net assets per share attributable to shareholders of ordinary shares of the Company for the latest year and
the latest period
√ Applicable Not applicable
Before changesin share capital
After changesin share capital
Total share capital1,936,405,4672,904,608,200Basic earnings per share (RMB/share)0.7650.51Diluted earnings per share (RMB/share)0.7650.51Net assets per share attributable to shareholders of the Company12.948.62
Other information considered necessary by the Company or required by the securities regulatory authorities to bedisclosedApplicable √ Not applicable
VIII
Changes in Share Capital and Shareholders
I. Changes in shares(Cont’d)
2. Changes in restricted shares
√ Applicable Not applicable
Unit: shareName of shareholders
Restricted shares
at the beginning
of period
Restricted shares
released during
the period
Restricted sharesincreased during
the period
Restricted shares
at the endof periodReason for restrictionDate of release from restriction
CHEN Hongguo5,022,22202,586,1117,608,333Locked up by senior managementUnder relevant requirements for
shares held by senior managementHU Changqing001,8571,857Locked up by senior managementUnder relevant requirements for
shares held by senior managementGENG Guanglin328,0750164,038492,113Locked up by senior managementUnder relevant requirements for
shares held by senior managementLI Feng353,8630176,931530,794Locked up by senior managementUnder relevant requirements for
shares held by senior managementLI Dong7,50003,75011,250Locked up by senior managementUnder relevant requirements for
shares held by senior managementLI Weixian003,5993,599Locked up by senior managementUnder relevant requirements for
shares held by senior managementLI Xueqin322,0110161,005483,016Locked up by senior managementUnder relevant requirements for
shares held by senior managementYIN Tongyuan1,817,7300908,8652,726,595Resignation18 November 2019XIAO Peng83,700041,850125,550Resignation18 November 2019
Total7,935,10104,048,00611,983,107——
II. Issuance and listing of securities
1. Issuance of securities (excluding preference shares) during the reporting period
Applicable √ Not applicable
2. Changes in the total number of shares and structure of shareholders and the structure of the assets
and liabilities of the Company
√ Applicable Not applicableThe 2017 dividend distribution plan of the Company is: based on the total share capital as at the end of 2017of 1,936,405,467 shares, a cash dividend of RMB6.00 (tax inclusive) was to be paid to all shareholders and acapitalisation issue made out of the capital reserves of 5 shares for every 10 shares held will be distributed to ordinaryshareholders. Upon the completion of the plan on 10 August 2018, the total capital of the Company increased from1,936,405,467 to 2,904,608,200.
3. Existing staff shares
Applicable √ Not applicable
2018 ANNUAL REPORT
VIIIChanges in Share Capital and Shareholders
III. Shareholders and beneficial controllers
1. Total number of shareholders and shareholdings
Unit: share
Total number ofshareholders of ordinaryshares as at the end ofthe reporting period
120,930, of which100,438 were holdersof A shares, 20,124were holders of Bshares and 368were holders ofH shares.
Total number ofshareholders ofordinary shares asat the end of themonth prior tothe publication dateof this annual report
120,878 of which100,369 were holdersof A shares, 20,141were holders of Bshares and 368 wereholders of H shares.
Total number ofshareholders ofpreference shareswith restored votingright as at the end ofthe reporting period
0Total number of
shareholders ofpreference shareswith restored votingright as at the end ofthe month prior to thedisclosure date ofthe annual report
Shareholdings of shareholders interested in more than 5% of the shares of the Company or Top 10 shareholders
Name of shareholdersNature of shareholders
Percentage ofshareholding
Number ofshares heldat the end ofthe reporting
period
Changes(increase or
decrease)
during the
Reporting
period
Number ofrestrictedshares held
Number ofnon-restrictshares heldShare pledged or locked-up
Status of sharesNumber
CHENMING HOLDINGS COMPANY LIMITEDState-owned legal person15.29%444,146,1284,640,643—444,146,128Pledge312,844,850HKSCCNOMINEESLIMITEDOverseas legal person12.85%373,287,875-13,000—373,287,875——CHENMING HOLDINGS (HONG KONG) LIMITEDOverseas legal person12.54%364,131,563——364,131,563——CENTRAL HUIJIN ASSET MANAGEMENT LTD.State-owned legal person2.07%60,206,850——60,206,850——NATIONAL SOCIAL SECURITY FUND 418Others0.64%18,648,66218,648,662—18,648,662——Agricultural Bank of China Limited -CHINA CSI 500 ETF
Others0.49%14,166,4508,504,574—14,166,450——CHINA UNIVERSAL FUND - CHINACONSTRUCTION BANK - CHINA LIFEINSURANCE - CHINA LIFE INSURANCE’SEQUITY PORTFOLIOENTRUSTED TO CHINA UNIVERSAL FUNDOthers0.47%13,701,36011,978,760—13,701,360——VANGUARD EMERGING MARKETSSTOCK INDEX FUND
Overseas legal person0.44%12,912,357——12,912,357——JIN XingDomestic nature person0.40%11,724,7503,040,950—11,724,750——VANGUARD TOTAL INTERNATIONALSTOCK INDEX FUND
Overseas legal person0.38%10,997,4081,865,300—10,997,408——Related party relationship or acting inconcert among the above shareholders
A shareholder, Chenming Holdings (Hong Kong) Limited, which is an overseas legal person, is a wholly-owned subsidiary of a shareholder, Shouguang ChenmingHoldings Company Limited, which is a state-owned legal person. Save for the above, it is not aware that any other shareholders of tradable shares are persons actingin concert and is also not aware that any other shareholders of tradable shares are connected with each other.
VIII
Changes in Share Capital and Shareholders
III. Shareholders and beneficial controllers(Cont’d)
1. Total number of shareholders and shareholdings(Cont’d)
Shareholdings of the top ten shareholders of non-restricted shares
Name of shareholders
Number ofnon-restrictedshares held asat the end of thereporting periodClass of shares
Class of sharesNumber
CHENMING HOLDINGS COMPANY LIMITED444,146,128RMB ordinary shares444,146,128HKSCC NOMINEES LIMITED373,287,875Overseas listed
foreign shares
373,287,875CHENMING HOLDINGS (HONG KONG) LIMITED364,131,563Overseas listed
foreign shares
210,717,563Overseas listedforeign shares
153,414,000CENTRAL HUIJIN ASSET MANAGEMENT LTD.60,206,850RMB ordinary shares60,206,850NATIONAL SOCIAL SECURITY FUND 41818,648,662RMB ordinary shares18,648,662Agricultural Bank of China Limited -CSI500 Index Open-ended Fund
14,166,450RMB ordinary shares14,166,450CHINA UNIVERSAL FUND - CHINACONSTRUCTION BANK - CHINA LIFEINSURANCE - CHINA LIFE INSURANCE’SEQUITY PORTFOLIO ENTRUSTED TOCHINA UNIVERSAL FUND
13,701,360RMB ordinary shares13,701,360
VANGUARD EMERGINGMARKETS STOCK INDEX FUND
12,912,357Domestic listed
foreign shares
12,912,357JIN Xing11,724,750Domestic listed
foreign shares
11,724,750VANGUARD TOTAL INTERNATIONALSTOCK INDEX FUND
10,997,408Domestic listed
foreign shares
10,997,408Connected relationship or connected partyrelationship among the top ten shareholdersof non-restricted shares, and between thetop ten shareholders of non-restrictedshares and the top ten shareholders
A shareholder, Chenming Holdings (Hong Kong) Limited, whichis an overseas legal person, is a wholly-owned subsidiary of ashareholder, Shouguang Chenming Holdings Company Limited,which is a state-owned legal person. Save for the above, it is notaware that any other shareholders of tradable shares are personsacting in concert. It is also not aware that any other shareholdersof tradable shares are related to each other.Securities margin trading of top 10 ordinaryshareholders, if any (see Note 4)
Chenming Holdings Company Limited held 444,146,128 RMBordinary shares, of which 393,146,128 shares were held throughordinary account and 51,000,000 shares were held through creditguarantee security account.
2018 ANNUAL REPORT
VIIIChanges in Share Capital and Shareholders
III. Shareholders and beneficial controllers(Cont’d)
1. Total number of shareholders and shareholdings(Cont’d)
Whether an agreed repurchase transaction was entered into during the reporting period by the top 10 ordinaryshareholders and top 10 shareholders of non-restricted shares of the CompanyYes √ NoThe top 10 ordinary shareholders and top 10 shareholders of non-restricted ordinary shares of the Company did notenter into any agreed repurchase transaction during the reporting period.
2. Controlling shareholders of the Company
Nature of controlling shareholder: regional state-owned enterpriseType of controlling shareholder: legal personName of controllingshareholders
Legalrepresentative/Person in chargeof the unit
Date ofestablishmentEnterprise codePrincipal business
CHENMING HOLDINGSCOMPANY LIMITED
Chen Hongguo30 December
2005
78348518-9Investment in paper
making, electricity,heat and arboricultureby its own capitalShareholdings of controllingshareholders who havecontrol or hold shares inother domestic or overseaslisted companies duringthe reporting period
Save for the Company, Chenming Holdings Company Limiteddoes not have control over or hold any equity interest of otherdomestic or overseas listed companies.
Change of controlling shareholders during the reporting periodApplicable √ Not applicableThere was no change in the controlling shareholders of the Company during the reporting period.
VIII
Changes in Share Capital and Shareholders
III. Shareholders and beneficial controllers(Cont’d)
3. Beneficial controller of the Company and persons acting in concert
Nature of the beneficial controller: Regional state-owned assets administration authorityType of the beneficial controller: legal person
Name of beneficial controller
Legalrepresentative/Person incharge ofthe unit
Date ofestablishmentEnterprise codePrincipal business
State-owned AssetsSupervision andAdministration Officeof Shouguang City
Fu Xingang1 August 1991F5108355-4Responsible for the
management andcapital operation of thestate-owned assets ofenterprises and businessunits in Shouguang cityShareholdings of beneficial controller whohas control or holds shares in otherdomestic or overseas listed companiesduring the reporting period
Save for the Company, State-owned Assets Supervision andAdministration Office of Shouguang City does not have controlover or hold any equity interest of other domestic or overseaslisted companies.Change of beneficial controller during the reporting periodApplicable √ Not applicableThere was no change in the beneficial owner of the Company during the reporting period.
2018 ANNUAL REPORT
VIIIChanges in Share Capital and Shareholders
III. Shareholders and beneficial controllers(Cont’d)
3. Beneficial controller of the Company and persons acting in concert(Cont’d)
Chart illustrating the relationship between the Company and the beneficial controller
100.00%
100.00%15.29%
12.54%
45.21%
State-owned Assets Supervision andAdministration Office of Shouguang City
Shandong Shouguang Jinxin Investment Holdings Limited
Chenming Holdings Company Limited
Shandong Chenming Paper Holdings Limited
Chenming Holdings(Hong Kong) Limited
Beneficial controller controlling the Company through trust or other asset management methodApplicable √ Not applicable
4. Other legal person shareholders interested in over 10% of the shares of the Company
Applicable √ Not applicable
5. Restrictions on decrease in shareholding by controlling shareholders, beneficial controller,
reorganising party and other undertaking parties
Applicable √ Not applicable
IX Preference Shares
√ Applicable Not Applicable
I. Issue and listing of preference shares during the past three years at the end of the reporting
period
√ Applicable Not Applicable
MethodIssue date
Issue price(RMB/share)
Coupon
rate
Issue size
(share)Listing date
With listingpermission
(share)Delisting date
Information ofuse of proceeds
Information of changesto proceeds
Private16 March 20161004.36%22,500,0008 April 201622,500,000Not applicablehttp://www.cninfo.com.cnNot applicablePrivate16 August 20161005.17%10,000,00012 September 201610,000,000Not applicablehttp://www.cninfo.com.cnNot applicablePrivate21 September 20161005.17%12,500,00024 October 201612,500,000Not applicablehttp://www.cninfo.com.cnNot applicable
II. Holders of preference shares and their shareholdings
Unit: shareTotal number of shareholders ofpreference shares as at the end ofthe reporting period
7Total number of shareholders of
preference shares as at the end ofthe month prior to the publication dateof this annual report
Holders holdings more than 5% of the preference shares of the Company or top ten holders of preference shares
Name of shareholdersNature of shareholders
Percentage ofshareholding
Number ofshares heldat the end ofthe reporting
period
Changes(increase or
decrease)
during the
reporting
period
Number ofrestrictedshares held
Number ofnon-restrictshares heldShare pledged or locked-up
Status of sharesNumber
BEIJING YIBEN ZHONGXING INVESTMENTMANAGEMENT CO., LTD.
Domestic non-state-ownedlegal person
27.78%12,500,000——12,500,000Pledged12,500,000BANK OF COMMUNICATIONSINTERNATIONAL TRUST CO., LTD. – HUILINO.167 SINGLE CAPITAL TRUST
Others22.44%10,100,000——10,100,000——BANK OF COMMUNICATIONSINTERNATIONAL TRUST CO., LTD. – HUILINO.136 SINGLE CAPITAL TRUST
Others14.22%6,400,000——6,400,000——QILU BANK CO., LTD. - QILU BANK QUANXINWEALTH MANAGEMENT PRODUCT SERIES
Others13.33%60,000,000——6,000,000——HENGFENG BANK CO., LTD.Domestic non-state-owned
legal person
11.11%5,000,000——5,000,000——SHANGHAI STATE-OWNEDASSETS OPERATION CO., LTD.
State-owned legal person6.67%3,000,000——3,000,000——NCF - MINSHENG BANK - CHINA FORTUNEINTERNATIONAL TRUST - CHINAFORTUNE TRUSTMIN XIN NO. 11SINGLE CAPITAL TRUST
Others4.44%20,000,000——2,000,000——Connected relationship or connected partyrelationship among the top ten holdersof preference shares, and between thetop ten holders of preference shares andthe top ten holders of ordinary shares
The aforesaid holders of preference shares,“BANK OFCOMMUNICATIONS INTERNATIONAL TRUST CO., LTD.- HUILI NO.167 SINGLE CAPITAL TRUST”and“BANK OFCOMMUNICATIONS INTERNATIONAL TRUST CO., LTD. -HUILI NO.136 SINGLE CAPITAL TRUST”, are persons acting inconcert. Save for the above, it is not aware that the remainingholders of preference shares are persons acting in concert, andit is also not aware whether there is any connected relationshipbetween the above holders of preference shares and top tenholders of ordinary shares.
2018 ANNUAL REPORT
IX Preference Shares
III. Profit distribution for preference shares
√ Applicable Not Applicable
Profit distribution for preference shares during the reporting period
√ Applicable Not Applicable
Date of Distribution
Dividend
Ratio
Distributedamount (RMB)(tax inclusive)
Whether it is incompliance withthe conditionsand the relevantprocedures ofdistribution
Way ofdividendpayment
Whetherit was anaccumulateddividend
Whether itparticipatesin distributionof remainingprofit
19 March 20184.36%98,100,000.00YesCashNoYes10 August 201810.33%464,716,006.88YesCashNoYes16 August 20185.17%51,700,000.00YesCashNoYes21 September 20185.17%64,625,000.00YesCashNoYes
IX Preference Shares
III. Profit distribution for preference shares(Cont’d)
Distribution for preference shares of the Company for the past three years
Unit: RMB
Year of distribution
Distributed
amount(tax inclusive)
Net profitattributable toshareholders oflisted company
under theconsolidated
financialstatements
for thedistribution year
Percentageto the net profit
attributable toshareholders oflisted company
under theconsolidated
financialstatements
Explanation on
shortfallaccumulated to
the nextaccounting yeardue to insufficient
distributableprofits or portioncan be allocated
to remainingprofit distribution
2018493,494,767.522,509,928,858.4719.66%Chenming You 01,
Chenming You 02and Chenming You03 participated in theproposal of remainingprofit distribution forRMB279,069,767.52in 2018.2017679,141,006.883,769,325,450.9318.02%Chenming You 01,
Chenming You 02and Chenming You03 participated inthe remaining profitdistribution forRMB464,716,006.88in 2017.2016119,277,108.411,998,578,788.755.97%Chenming You 01
participated in theremaining profitdistribution forRMB119,277,108.41in 2016.
Any adjustment or change in profit distribution policy for preference shares
Yes √ No
Both earnings of the Company and retained profit of the parent company are positive during the reporting
period but without profit distribution for preference shares
Applicable √ Not applicable
2018 ANNUAL REPORT
IX Preference Shares
III. Profit distribution for preference shares(Cont’d)
Explanation on other matters regarding distribution for preference shares
√ Applicable Not applicableShareholders of preference shares participate in profit distribution in two portions, namely the fixed dividend distributedbased on a fixed dividend rate and the distribution of retained earnings realised for the year.1 Distribution of fixed dividend
According to the Articles of Association, the Company shall distribute fixed dividends to holders of the preferenceshares at fixed dividend rate if there are distributable profits after making good losses and the contribution toreserve fund according to law. The Board is authorised by the general meeting to declare and pay all dividends onthe preference shares in accordance with the issuance plan under the framework and principles considered andapproved in the general meeting in respect of the preference shares. The general meeting of the Company has theright to cancel part of or all of the current dividends on the preference shares. However, when the general meetingof the Company will consider the cancellation of part of or all of the current dividends on the preference shares, theCompany shall inform the shareholders of preference shares at least 10 working days before the date of dividendpayment in accordance with the requirements of the related authorities.2 Participation in the distribution of retained earnings realised for the year
Holders of preference shares participate in the distribution of the retained earnings through receipt of cash whichis non-cumulative and non-deferrable. In the event of making good losses and the contribution to reserve fundaccording to law, after receiving fixed dividends at fixed dividend rate as agreed, holders of preference shares canalso participate in the distribution of the retained earnings for the year in proportion. Specific terms are as follows: theretained earnings for the year arises from net profit attributable to owners of the parent company on a consolidatedbasis upon distribution of relevant fixed income to holders of financial instruments such as the preference shareswhich may be classified under equity. 50% of the retained earnings shall be distributed to holders of preferenceshares and ordinary shareholders. Holders of preference shares shall participate in the distribution of the retainedearnings by receiving cash dividends, and the ordinary shareholders shall participate in the distribution of the retainedearnings by receiving cash dividends or dividends on ordinary shares.
IX Preference Shares
IV. Repurchase or conversion
Applicable √ Not applicableThere was no repurchase or conversion during the reporting period.
V. Resumption of voting rights of preference shares
1. Resumption and exercise of voting rights
Applicable √ Not applicable
2. Shareholders and beneficial owner involved in resumption of voting rights of preference shares
Applicable √ Not applicable
VI. Accounting policy and reasons thereof
√ Applicable Not applicablePursuant to requirements of Accounting Standard for Business Enterprises No. 22 - Recognition and Measurement ofFinancial Instruments, Accounting Standard for Business Enterprises No. 37 - Presentation of Financial Instruments andProvisions for Differentiation between Financial Instruments and Equity Instruments and Relevant Accounting Treatment, thepreference shares were accounted for as equity instruments as their terms satisfied requirements for such treatments.
2018 ANNUAL REPORT
X Directors, Supervisors and Senior Management and Staff
I. Changes in shareholding of Directors, Supervisors and Senior Management
NamePositionStatusGenderAge
Start dateof the term
End dateof the term
Shares held
as at thebeginning of
the period
(shares)
Increase inthe number of
shares held
during theperiod (shares)
Decrease inthe number of
shares heldduring theperiod (shares)
Other changes
(increase or
decrease)
(shares)
Shares held as
at the end of
the period
(shares)
Chen HongguoChairmanIn officeM546 September 200118 May 20196,696,296100,0003,348,14810,144,444Hu ChangqingVice ChairmanIn officeM5323 June 201818 May 20191,2386191,857Li WeixianGeneral managerIn officeM379 November 201818 May 201948004,800Geng GuanglinDirectorIn officeM4527 May 200918 May 2019437,433218,717656,150Li FengDirectorIn officeM4519 April 200618 May 2019471,818235,909707,727Chen GangDirectorIn officeM4614 June 201818 May 2019Zhang HongDirectorIn officeF5412 April 201018 May 2019Yang GuihuaDirectorIn officeF539 May 201418 May 2019Pan AilingIndependent DirectorIn officeF5415 May 201318 May 2019Wang FengrongIndependent DirectorIn officeF5018 May 201618 May 2019Huang LeiIndependent DirectorIn officeM6218 May 201618 May 2019Liang FuIndependent DirectorIn officeF5118 May 201618 May 2019Li DongChairman of Supervisory CommitteeIn officeM3613 December 201618 May 201910,0005,00015,000Sun YinghuaSupervisorIn officeF5018 May 201618 May 2019Zhang XiaofengSupervisorIn officeM4118 May 201618 May 2019Dong LianmingFinancial controllerIn officeM4412 October 201818 May 2019Li XueqinDeputy general managerIn officeF531 September 200418 May 2019429,348214,674644,022Li ZhenzhongDeputy general managerIn officeM4520 March 201118 May 2019Yang WeimingDeputy general managerIn officeM4418 May 201615 March 2019Zhang QingzhiDeputy general managerIn officeM5318 May 201618 May 2019Poon Shiu CheongCompany secretary and
qualified accountant
In officeM4928 May 200818 May 2019Yuan XikunSecretary to the BoardIn officeM3316 May 201818 May 2019Yin TongyuanVice ChairmanResignedM616 September 20018 May 20182,423,6401,211,8203,635,460Yang HongqinSupervisorResignedF5130 April 200729 December 2018Xiao PengSecretary to the BoardResignedM3616 November 201618 January 2018111,60018,75055,800148,650Hu JinbaoFinancial controllerResignedM5216 November 201611 October 2018
X Directors, Supervisors and Senior Management and Staff
II. Changes of Directors, Supervisors and Senior Management of the Company
√ Applicable Not applicableNamePositionTypeDateReason
Hu ChangqingVice ChairmanElected23 June 2018Elected as the Vice
Chairman of theeighth sessionof the Board.Chen GangDirectorElected14 June 2018Elected as a director
of the eighthsession ofthe Board.Xiao PengSecretary to the BoardDismissed19 January 2018Resigned as the
secretary to theBoard due topersonal workchange.Yuan XikunSecretary to the BoardAppointed16 May 2018Appointed by
the Board as theSecretary tothe Board.Li WeixianGeneral managerAppointed10 November 2018Appointed by the
Board as thegeneral manager(subject to retireby rotation).Dong LianmingFinancial controllerAppointed11 October 2018Appointed by the
Board as thefinancial controller.Yin TongyuanVice ChairmanResigned9 May 2018Reaching the statutory
retirement age.Hu JinbaoFinancial ControllerDismissed 11 October 2018Resigned as the
Financial Controller
due to personal
work change.Yang HongqinVice ChairmanResigned1 December 2018Reaching the statutory
retirement age.
2018 ANNUAL REPORT
X Directors, Supervisors and Senior Management and Staff
III. Employment
Professional background, major working experiences and current duties at the Company of Directors, Supervisors and TheSenior Management
1. Brief biographies of Directors
(1) Brief biographies of executive Directors
Mr. Chen Hongguo, with Chinese nationality but without the right of permanent residence abroad, joined theCompany in 1987, had held different positions including chief officer of manufacturing section, chief officer ofbranch factory, the chairman of Wuhan Chenming Hanyang Paper Holdings Co., Ltd., deputy general manager,director and general manager of the Company etc. He is currently the chairman of the Company and thechairman and general manager of Chenming Holdings Company Limited. Mr. Chen Hongguo is the spouse ofMs. Li Xueqin, a deputy general manager of the Company.Mr. Hu Changqing, with Chinese nationality but without the right of permanent residence abroad. He joinedthe Company in 1988 and had held positions as the chief of the technological reform department, chief officerof branch factory, deputy general manager and Director of the Company, etc. He is currently the director ofChenming Holdings Company Limited, a vice chairman of the Company.Mr. Geng Guanglin, with Chinese nationality but without the right of permanent residence abroad, joinedthe Company in 1992, had held different positions including the chief officer of manufacturing section of theCompany, the chairman of Wuhan Chenming Hanyang Paper Holdings Co., Ltd., the chairman of Jilin ChenmingPaper Co., Ltd., the chairman of Jiangxi Chenming Paper Co., Ltd., the director of Chenming Holdings CompanyLimited and the general manager of the Company. He is currently the Director and the deputy general managerof the CompanyMr. Li Feng, with Chinese nationality but without the right of permanent residence abroad, joined the Companyin 1992, had held different positions including the chief officer of manufacturing section and assistant to thegeneral manager of the Company, deputy general manager and chairman of Wuhan Chenming Hanyang PaperHoldings Co., Ltd.. He is currently the Director of the Company in charge of the sales of cultural paper products.Mr. Li Feng is the brother of Ms. Li Xueqin, a deputy general manager of the Company.Mr. Chen Gang, with Chinese nationality but without the right of permanent residence abroad, joined theCompany in 1992, had held different positions including the chief officer of branch factory, general manager ofZhanjiang Chenming, general manager of Jilin Chenming, department head of Jiangxi Chenming, productionassistant director of the Company and production deputy director of the Company. He is currently the Directorof the Company.
X Directors, Supervisors and Senior Management and Staff
III. Employment(Cont’d)
1. Brief biographies of Directors(Cont’d)
(2) Brief biographies of non-executive Directors
Ms. Yang Guihua, with Chinese nationality but without the right of permanent residence abroad, is a doctorof engineering, an advisor to doctoral students and a candidate for the Ten Million Talents Project (). Ms. Yang is a professor of Qilu University of Technology, a standing director of ShandongTechnical Association of Paper Industry, a committee member of Nano and Composite Materials Committee ofChina Technical Association of Paper Industry () and evaluationexperts in National Natural Science Foundation of China. She has served as a non-executive Director of theCompany since May 2014.Ms. Zhang Hong, with Chinese nationality but without the right of permanent residence abroad, holds a doctoraldegree in Economics. She is currently a professor and advisor to doctoral students at Shandong University,head of a multinational corporation research institute, a non-practising member of the Chinese Institute ofCertified Public Accountants, a director of China Association of International Trade, a director of ShandongProvince External Trade Association, an independent director of Shandong Zhangqiu Blower Co., Ltd., anindependent director of Shandong Delisi Food Co., Ltd. and an independent director of Cisen PharmaceuticalCo., Ltd.. She has served as a non-executive Director of the Company since April 2010.(3) Brief biographies of independent non-executive Directors
Ms. Pan Ailing, with Chinese nationality but without the right of permanent residence abroad, is currently aprofessor of the School of Management, and the chief of the Investment and Financing Research Centre () in Shandong University. She is also a director of the Accounting Institute, Shandong Province (), a council member of Shandong Comparative Management Association, a visiting professor atSoochow University in Taiwan, and a visiting scholar at University of Connecticut in the United States. She isalso an independent director of Sinotruck Jinan Truck Co., Ltd. () and InspirSoftware Co., Ltd. She has served as an independent non-executive director of the Company since May 2013.Ms. Wang Fengrong, with Chinese nationality but without the right of permanent residence abroad, is a Ph.D.in Economics and a visiting scholar at West Virginia University in the United States. She was previously alecturer at the Department of Finance of Shandong Economic University () and an associateprofessor at the Economic Research Center of Shandong University (). She currentlyholds positions including professor and advisor to doctoral students at the Economic Research School ofShandong University () and Shandong School of Development at Shandong University (), evaluation experts in both National Social Science Fund and National Natural ScienceFoundation of China, guest analyst regarding policy implementation of currency and credit matters for the Jinanbranch of the People’s Bank of China, as well as the executive director of Shandong Young Social ScienceWorkers Association (). She concurrently serves as an independent directorof Shandong Xinneng Taishan Power Generation Co., Ltd. () and ShandongDenghai Seeds Co., Ltd.
2018 ANNUAL REPORT
X Directors, Supervisors and Senior Management and Staff
III. Employment(Cont’d)
1. Brief biographies of Directors(Cont’d)
(3) Brief biographies of independent non-executive Directors(Cont’d)
Mr. Huang Lei, with Chinese nationality but without the right of permanent residence abroad, is a Ph.D. inEconomics. He was the chief of the Department of Finance and the dean of School of Finance in ShandongUniversity of Finance (). He currently holds the positions including the professor of School ofFinance in Shandong University of Finance and Economics, the director of the professor committee and thedeputy director of the academic committee of Shandong University of Finance and Economics, a memberof the Guiding Committee on Education of Financial Majors () of the Ministry ofEducation, a deputy director of the Collaborative Innovation Centre for Financial Optimisation and RegionalDevelopment in Shandong (), a director of the Taishan Capital MarketResearch Center () of the Shandong University of Finance and Economics, a director ofthe Shandong Capital Market Training Base () as well as an independent director ofWanjia Asset Management Co., Ltd.Ms. Liang Fu, with Chinese nationality but without the right of permanent residence abroad, is a Ph.D. inmanagement, a Young and Middle-aged Expert with Outstanding Contributions in Shandong Province () and a visiting scholar at Tsinghua University. She concurrently holds the positionsincluding a professor and an advisor to doctoral students of the business school of Shandong University ofFinance and Economics, a visiting professor at Shandong Youth University of Political Science, an evaluationexpert in National Social Science Fund, a director of Talents Research Association of Shandong HigherEducation (), a director of Shandong Economic Association (),an executive director of Shandong Management Association () and an external director ofShandong Steel Group Co., Limited.
2. Brief biographies of Supervisors
Mr. Li Dong, with Chinese nationality but without the right of permanent residence abroad. After joining the Companyin 2004, he had held different positions including the deputy chief of cost auditing section and the chief of generalsection under the financial department of the Company, the financial controller of Zhanjiang Chenming and the chiefof financial department of the Group. He is currently the director and deputy general manager of Chenming HoldingsCompany Limited and the chairman of the supervisory committee of the Company.Ms. Sun Yinghua, with Chinese nationality but without the right of permanent residence abroad, is an associateeconomist. She joined the Company in 1993, serving as price audit officer, audit director and other positions of theCompany, and is currently an assistant to the general manager of the Company responsible for the audit department.Mr. Zhang Xiaofeng, with Chinese nationality but without the right of permanent residence abroad, graduated from theSchool of Management of Shandong University with a doctorate’s degree and his research direction was corporatestrategies and corporate governance, traditional culture and modern management, etc. He currently serves as anassociate professor of the Business Management Discipline and the deputy head of the Department of BusinessManagement in the School of Management of Shandong University, offering management courses for undergraduate,MBA, EDP and EMBA students for a long time as well as providing training to large enterprises both inside andoutside the province for hundreds of times. He concurrently holds positions including the committee member ofthe Professional Committee of Corporate Governance in the PRC (), the part-time caseresearcher of China Europe International Business School and the secretary general of Shandong Young SocialScience Workers Association ().
X Directors, Supervisors and Senior Management and Staff
III. Employment(Cont’d)
3. Brief biographies of Senior Management
Mr. Li Weixian, with Chinese nationality but without the right of permanent residence abroad, joined the Companyin 2002, had held different positions including the deputy manager of a Shenzhen coated paper subsidiary of theCompany, manager of Shandong Chenming Paper Sales Company Limited, vice chairman of a household papercompany, deputy marketing director and marketing director of a sales company and vice president of a group. He iscurrently the deputy general manager of the Company.Ms. Li Xueqin, with Chinese nationality but without the right of permanent residence abroad, is a deputy generalmanager of the Company. She joined the Company in 1987 and held the positions of the chief of audit department,deputy general manager, etc. Ms. Li has been a deputy general manager of the Company and a director of ChenmingHoldings Company Limited since March 2003. Ms. Li Xueqin is the spouse of Mr. Chen Hongguo, chairman of theCompany.Mr. Li Zhenzhong, with Chinese nationality but without the right of permanent residence abroad, joined the Companyin 1995. He had served as principal representative of the Shanghai management region of a sales company, salesmanager of light weight coated cultural paper products. He is currently a deputy general manager of the Companyand deputy marketing director of the Sales Company.Mr. Zhang Qingzhi, with Chinese nationality but without the right of permanent residence abroad, joined the Companyin 1982 and had held positions as the chief officer of branch factory, head of the production department, assistant tothe general manager and vice production director. He is currently a deputy general manager of the Company.Mr. Dong Lianming, with Chinese nationality but without the right of permanent residence abroad, joined the Companyin 1997 and had held positions as the chief of accounting and auditing section under the financial department ofthe Company, the deputy chief and chief of the financial department, chief accountant of Jiangxi Chenming, chiefaccountant of Shandong Chenming Panels, financial controller and deputy general manager of Zhanjiang Chenmingand assistant to general manager of the Company. He is currently the financial controller of the Company.Mr. Yuan Xikun, with Chinese nationality but without the right of permanent residence abroad, joined the Company in2010 and had held positions as the accountant for consolidated financial statements in the financial department of theCompany, security affairs specialist, manager of disclosure department, chief of the security investment section. He iscurrently the secretary to the Board of the Company.Mr. Poon Shiu Cheong is a Fellow Certified Public Accountant of Hong Kong Institute of Certified Public Accountantsand CPA Australia. He obtained a master degree in Accounting from Central Queensland University and a masterdegree in Business Administration from Southern Cross University. He joined the Company in 2008, and is currentlythe qualified accountant and company secretary of the Company.
2018 ANNUAL REPORT
X Directors, Supervisors and Senior Management and Staff
III. Employment(Cont’d)
3. Brief biographies of Senior Management(Cont’d)
Employment at the shareholder of the Company
√ Applicable Not Applicable
Name of employee
Name of shareholderof the Company
Position at theshareholder ofthe CompanyStart date of the termEnd date of the term
Whether receivingany remunerationor allowance fromthe shareholder ofthe Company
Chen HongguoChenming Holdings
Company Limited
Chairman andgeneral manger
22 September 201629 December 2020NoHu ChangqingChenming Holdings
Company Limited
Director22 September 201629 December 2020NoLi XueqinChenming Holdings
Company Limited
Director22 September 201629 December 2020NoLi DongChenming Holdings
Company Limited
Director29 December 201729 December 2020YesExplanation of theemployment at theshareholder ofthe Company
Nil
X Directors, Supervisors and Senior Management and Staff
III. Employment(Cont’d)
3. Brief biographies of Senior Management(Cont’d)
Employment at other units
√ Applicable Not Applicable
Name of employeeName of other units
Position at theother unitsStart date of the termEnd date of the term
Whether receivingany remunerationor allowancefrom other units
Zhang HongShandong Zhangqiu Blower
Co., Ltd.
Independent director12 July 201511 July 2018YesShandong Delisi Food Co., Ltd.Independent director26 September 201725 September 2020YesCisen Pharmaceutical Co., Ltd.Independent director28 November 201727 November 2020YesPan AilingSinotruck Jinan Truck Co., Ltd.Independent director28 April 201727 April 2020Yes
Inspir Software Co., Ltd.Independent director19 April 201718 April 2020YesLu Thai Textile Co., LimitedIndependent director6 June 20165 June 2019YesWang FengrongShandong Xinneng Taishan
Power Generation Co., Ltd.
Independent director23 May 201722 May 2020YesShandong Denghai Seeds Co., Ltd.Independent director12 May 201611 May 2019YesHuang LeiWanjia Asset Management
Co., Ltd.
Independent director16 October 201515 October 2018YesShandong Road and BridgeGroup Co., Ltd.
Independent director29 December 201628 December 2019YesLiang FuShandong Steel Group
Co., Limited
External director13 September 201713 September 2020YesExplanation of theemployment at theother unit
The twenty-ninth meeting of third session of the board of Shandong Zhangqiu Blower Co., Ltd. held on 1 March 2019 had considered andpassed the resolution in relation to the re-election of the board. Zhang Hong, the independent director of the Company was nominated asthe independent director of the fourth session of the board of Shandong Zhangqiu Blower. Such nomination is subject to the approval inthe first extraordinary general meeting of Shandong Zhangqiu Blower in 2019 which will be convened on 27 March 2019.Sanctions against current Directors, Supervisors and Senior Management of the Company and those who resignedduring the reporting period by securities regulatory authorities in the past three yearsApplicable √ Not Applicable
2018 ANNUAL REPORT
X Directors, Supervisors and Senior Management and Staff
IV. Remuneration of Directors, Supervisors and Senior Management
Decision process, basis for determining the remuneration and actual payment for the remuneration of
Directors, Supervisors and the Senior Management
(1) Determination basis for remuneration of Directors, Supervisors and the Senior Management: The annual remuneration
of each of the executive Directors and the Senior Management of the Company was in the band of RMB0.20 million to5.00 million and the specific amount for each of them was determined by the remuneration committee based on themain financial indicators and operation target completed by the Company, the scope of work and main responsibilitiesof the Directors and Senior Management of the Company, the target completion of the Directors and SeniorManagement as assessed by the duty and performance appraisal system, as well as business innovation capabilityand profit generation ability of the Directors and the Senior Management. During the reporting period, the Companypaid each of the independent non-executive Directors and non-executive Directors of the Company allowance ofRMB120,000 (before tax). The travel expenses for attending board meetings and general meetings of the Companyand fees reasonably incurred in the performance of their duties under the Articles of Association by independentnonexecutive Directors and non-executive Directors are reimbursed as expensed. The annual remuneration ofSupervisors assuming specific managerial duties in the Company were determined by the general manager office ofthe Company based on specific managerial duties assumed by them. Fixed annual remuneration policy was adoptedon external Supervisors who did not hold actual management positions in the Company. During the reporting period,the remuneration of external Supervisors was RMB25,000 (before tax).(2) Decision process for remuneration of Directors, Supervisors and Senior Management: In accordance with the relevant
policies and regulations such as the Implementation Rules Of The Remuneration And Assessment CommitteeUnder The Board, any remuneration plan for the Company’s executive Directors proposed by the remuneration andassessment committee shall be agreed on by the Board and then submitted to the general meeting for considerationand approval prior to implementation. Any proposal of remuneration distribution plan for the Senior Managementofficers of the Company shall be submitted to the Board for approval. The remuneration of independent non-executivedirectors, non-executive directors and external supervisors of the Company shall be agreed on by the Board and thensubmitted to the general meeting for consideration and approval prior to implementation.(3) The remuneration and assessment committee, which was set up by the Board according to the resolution of the
general meeting, is mainly responsible to formulate the standards of, carry out appraisal in respect of the non-independent Directors and Senior Management of the Company; formulate and examine the remuneration policy andscheme of the non-independent Directors and Senior Management of the Company, and accountable to the Board.
X Directors, Supervisors and Senior Management and Staff
IV. Remuneration of Directors, Supervisors and Senior Management(Cont’d)
Remuneration of Directors, Supervisors and Senior Management during the reporting period
Unit: RMB’0,000
NamePositionGenderAgeStatus
Totalremuneration
before tax
receivedfrom theCompany
Receivedremuneration
from relatedparties of the
Company
Chen HongguoChairmanM54In office499.00NoHu ChangqingVice-chairmanM53In office200.00NoGeng GuanglinDirector, Deputy general managerM45In office154.21NoChen GangDirectorM46In office186.09NoLi FengDirectorM46In office140.41NoZhang HongDirectorF54In office12.00NoYang GuihuaDirectorF53In office12.00NoPan AilingIndependent DirectorF54In office12.00NoWang FengrongIndependent DirectorF50In office12.00NoHuang LeiIndependent DirectorM62In office12.00NoLiang FuIndependent DirectorF51In office12.00NoLi DongChairman of Supervisory CommitteeM36In office-YesZhang XiaofengSupervisorM41In office2.50NoSun YinghuaSupervisorF50In office68.02NoLi WeixianGeneral ManagerM37In office200.00NoLi XueqinDeputy general managerF53In office218.88NoDong LianmingFinancial controllerM44In office97.20NoLi ZhenzhongDeputy general managerM45In office148.48NoYang WeimingDeputy general managerM44In office75.60NoZhang QingzhiDeputy general managerM53In office71.66NoYuan XikunSecretary to the BoardM33In office40.82NoPoon Shiu CheongCompany secretary and
qualified accountant
M49In office12.85NoYin TongyuanVice-chairmanM61Resigned124.20NoXiao PengSecretary to the BoardM36Resigned5.70NoYang HongqinSupervisorF51Resigned15.90NoHu JinbaoFinancial controllerM52Resigned126.60No
Note: The total remuneration of the resigned senior management was the remuneration received during their respective tenure of office.
Directors and Senior Management of the Company granted share options as incentives during the reporting
period
Applicable √ Not applicable
2018 ANNUAL REPORT
X Directors, Supervisors and Senior Management and Staff
V. Personnel of the Company
1 Number of staff, specialty composition and education level
Number of staff at the Company (person)3,869Number of staff at major subsidiaries (person)11,322Total number of staff (person)15,191Total number of staff receiving remuneration during the period (person)15,191Number of retired/resigned staff the Company and its majorsubsidiaries are required to compensate (person)0
Specialty compositionCategory of specialty compositionNumber of people (person)
Production staff10,508Sales staff607Technical staff596Financial staff222Administrative staff1,960Other staff1,298
Total15,191
Education levelCategory of education levelNumber of people (person)
Postgraduate and above58Undergraduate1,497Post-secondary3,649Technical secondary and below9,987
Total15,191
X Directors, Supervisors and Senior Management and Staff
V. Personnel of the Company(Cont’d)
2. Remuneration policies
The remuneration of the employees of the Company includes their salaries, bonuses and other fringe benefits. Subjectto the relevant laws and regulations, the Company adopts different standards of remuneration for different employees,which are determined based on their position, skill variety, performance etc. with reference to the remuneration levelin the labour market, the average level of salary in the society and the corporate reference line set by the government.The Company provides various benefits to the employees, including social insurance, housing allowance and paidleaves etc.
3. Training programmes
The Company attaches importance to personnel training, implements the corporate spirit of“learning, surpassingand leading”and establishes a learning organisation. In 2019, the Company will further enhance cooperation withprofessional training institutions to enhance training quality. Meanwhile, we innovated our way of learning and built apractical online learning platform. We also developed quality training materials and improved existing ones by levels,initiating targeted training programs. For the junior level staff, the training focuses on professional skills and businessknowledge. For the middle-level staff, the training focuses on team management and execution. For the seniormanagement, training focuses on leadership. A team of excellent quality is built through training.
4. Labour outsourcing
Applicable √ Not applicable
2018 ANNUAL REPORT
XI Corporate Governance
I. Corporate governance in practice
The Company operated in compliance with the requirement of Companies Law (), Securities Law (),Code of Corporate Governance for Listed Companies (), Rules Governing Listing of Stocks onShenzhen Stock Exchange (), the Listing Rules of Hong Kong Stock Exchange and therelated requirements as required by CSRC, and continued to improve and optimise its legal person governance structureduring the reporting period. The Company also continuously improved its internal control system and proactively carriedout management works in relation to investor relations during the reporting period, so as to further improve corporategovernance standards and promote the Company’s standardised operations. As of the end of the reporting period, theactual practice of corporate governance complied with the requirements of the regulatory documents issued by the CSRCregarding the governance of listed companies.
(I) Shareholders and general meeting
The Company had established a corporate governance structure that ensured shareholders’ability to fully exercisetheir rights and enjoy equal status. Shareholders enjoyed their rights and undertook corresponding obligations inaccordance with the shares held by them. The convening and holding of general meeting of the Company were legaland compliant, and on the premise of guaranteeing the legality and effectiveness of the general meeting, both on-sitevoting and online voting were provided as channels to participate in such meetings. Where significant matters whichhad an impact on the interests of minority investors were being considered, the votes by minority investors werecounted separately for the convenience of shareholders and for the sake of making public and timely disclosures. Atthe same time, investors present at the general meeting could communicate with the management of the Company inperson, which effectively safeguard the rights and demands of i nv es to rs t o pa rt ic ip a te i n th e Co mp an y’s management.We ensured that all investors could participate in corporate governance on an equal basis, which effectivelysafeguarded the legitimate interests of shareholders, especially those of minority shareholders.
(II) Controlling shareholder and the listed company
During the reporting period, the Company remained independent of its controlling shareholder, beneficial controllersand related parties in terms of its business, assets, finance, personnel and organisations, and complied with therelevant provisions of the China Securities Regulatory Commission on the independence of listed companies. Thecontrolling shareholders and beneficial controllers strictly regulated their behaviour, and exercised their rights andperformed their obligations in accordance with the laws. The Company had business independence and self-operationcapability. The Board, the Supervisory Committee and internal structure can operate independently.
(III) Directors and the Board
The composition of the Board of the Company complied with the laws and regulations and the requirements ofthe Articles of Association. Directors of the Company possessed the knowledge, skills, and qualities necessary tothe performance of their duties. All of them were able to earnestly, faithfully, and diligently perform their duties andpowers as stipulated in the Articles of Association. The convening and holding of Board meetings were in strictcompliance with the Articles of Association and Rules of Procedure of Board Meetings and other relevant provisions.The four special committees under the Board of the Company, namely the Strategic Committee, the Audit Committee,the Nomination Committee and the Remuneration and Assessment Committee, performed their duties normally andprovided scientific and professional opinions for the decision-making of the Board.
XI Corporate Governance
I. Corporate governance in practice(Cont’d)
(IV) Supervisors and the Supervisory Committee
The Supervisory Committee strictly followed the requirement of relevant laws and regulations including the Com pani esLaw, the Articles of Associations and the Rules of Procedure of the Supervisory Committee in fulfilling its duties. Inthe spirit of being accountable to the shareholders and the Company, the Supervisory Committee independently andeffectively exercised its supervision and inspection functions. By attending Board meetings and conducting regularinspections on the legal compliance of the Company’s operations and finance, the Supervisory Committee supervisedthe decision-making procedures of the Board, resolutions and the legal compliance of the Company’s operations, soas to safeguard the legitimate interests of the Company and the shareholders.
(V) Information disclosure and management of investor relations
In accordance with the requirements of the relevant rules, the Company strictly enforced the relevant informationdisclosure regulations and fully fulfilled its information disclosure obligations. The Company disclosed information ina timely and fair manner and ensured that the information disclosed was true, accurate and complete, and did notcontain false information, misleading statements or major omissions. During the reporting period, the Company issueda total of more than 240 periodic reports, interim announcements, and related documents through the designatedinformation disclosure media, and a total of 364 periodic reports, interim announcements, and related documentsthrough the website of Hong Kong Stock Exchange. The Company performed its information disclosure obligations ina timely manner with respect to the Company’s operations, related party transactions, external investment, externalguarantees, and the implementation of annual profit distribution, so as to further safeguard the legitimate rights ofinvestors.Under the premise of strictly fulfilling disclosure obligations, the Company attached importance to the managementof investor relations. The Company made public our address, contact number, facsimile, e-mail and other informationon its official website and CNINFO, in an attempt to facilitate investors’communication with the Company throughthe above channels. The Company also made full use of the investor hotline, Shenzhen Stock Exchange’s“EasyIR”
platform, field investigation and research and other channels and methods to actively interact with investors andlisten to what they had to say. We patiently answered questions from investors, and worked at enhancing investors’
understanding and recognition of the Company. We passed investors’reasonable opinions and suggestions to themanagement of the Company in a timely manner, building a bridge between investors and the Company.
(VI) Management on registration of personnel with insider information
The Company strictly complied with the provisions of the“Registration Management System of Personnel with InsiderInformation”and other relevant systems to strengthen the confidentiality of insider information and improved theregistration and management of personnel with insider information. The Directors, Supervisors, Senior Managementand other related personnel of the Company were able to strictly observe their confidentiality obligations throughoutthe preparation of periodic reports, temporary announcements and the planning of major events. With thedevelopment of the Company, the Company will continue to strictly abide by the requirements of relevant laws andregulations and continuously promote corporate governance to ensure that the Company operates in a standardisedmanner.Any material non-compliance of the regulatory documents on the governance of listed companies issued by theCSRCin respect of actual governance of the CompanyYes √ NoThere was no material non-compliance of the regulatory documents on the governance of listed companies issued bythe CSRC in respect of the actual governance of the Company.
2018 ANNUAL REPORT
XI Corporate Governance
II. Particulars about the independence in terms of businesses, personnel, assets, organisations,
and finance from the controlling shareholder
The Company was completely separated from the controlling shareholder in terms of business, personnel, assets,organisations and finance. The Company had a comprehensive internal structure, independent and complete businesses aswell as the capability of self-operation.1. In terms of business: the Company had its own R&D, production, procurement and sales system, and was completely
independent of controlling shareholder in terms of business. The controlling shareholder and its other subsidiarieswere not competitors of the Company in the same industry.2. In terms of personnel: the Company had an independent workforce, and had established independent departments
including the research and development department, production department, administration department, financedepartment, procurement department and sales department. The Company had also established a comprehensivemanagement system with respect to labour, personnel and salary. Personnel of the Company were independent ofthe controlling shareholder. The Company’s Chairman was elected at the general meeting, while the general manager,deputy general manager, secretary to the Board, chief financial officer and other senior management members allworked at and received remuneration from the Company. They did not receive remuneration from related companiesof the controlling shareholder, nor did they serve at any position therein other than a director or supervisor. Theappointment of the Company’s Directors, supervisors and senior management was conducted through legalprocedures and in strict compliance with the relevant requirements of Companies Law and the Articles of Association.None of the controlling shareholders interfered with the Company’s Board, or the appointment and dismissaldecisions at general meetings.3. In terms of assets: the title relationship between the Company and the controlling shareholder was clear, and the
Company’s funds, assets and other resources were not illegally occupied or dominated by the controlling shareholder.The Company’s assets were complete, and possessed production equipment, auxiliary production equipment,patents and other assets that were in line with its production and operation scope. The Company had completecontrol and dominance over all assets.4. In terms of organisations: the Board, Supervisory Committee, management and other internal organisations of the
Company operated independently. Each functional department was completely separated from the controllingshareholder in terms of authority, personnel, etc. There was no subordinate relationship between the controllingshareholder and its functional departments, and the Company and its functional departments. The Company’sindependence in terms of its production, operation and management was not affected by the controlling shareholder.5. In terms of finance: the Company had its own finance department, accounting and auditing system and financial
management system, and was able to make independent financial decisions, with a standardised financial accountingsystem and financial management system for subsidiaries. None of the controlling shareholders interfered with theCompany’s finance and accounting activities. The Company had a separate account in a commercial bank and therewas no sharing of bank accounts with the controlling shareholder. The Company reported on tax return and fulfilled itstax obligations independently in accordance with the law.
XI Corporate Governance
III. Competition in the industry
Applicable √ Not applicable
IV. Annual general meeting and extraordinary general meeting convened during the reporting
period
1. General meetings during the reporting period
MeetingType of meeting
Attendance
rate ofinvestorsConvening dateDisclosure dateDisclosure index
2018 first extraordinarygeneral meeting
Extraordinarygeneral meeting
33.09%13 February 201814 February 2018http:/www.cninfo.com.cn2018 second extraordinarygeneral meeting
Extraordinarygeneral meeting
33.18%1 June 20182 June 2018http:/www.cninfo.com.cn2018 first domestic listedshare class meeting
Extraordinarygeneral meeting
34.14%1 June 20182 June 2018http:/www.cninfo.com.cn2018 first overseas listedshare class meeting
Extraordinarygeneral meeting
40.83%1 June 20182 June 2018http:/www.cninfo.com.cn2017 annual general meetingAnnual
general meeting
33.10%13 June 201814 June 2018http:/www.cninfo.com.cn2018 second domesticlisted share class meeting
Extraordinarygeneral meeting
31.36%13 June 201814 June 2018http:/www.cninfo.com.cn2018 second overseaslisted share class meeting
Extraordinarygeneral meeting
41.00%13 June 201814 June 2018http:/www.cninfo.com.cn2018 third extraordinarygeneral meeting
Extraordinarygeneral meeting
26.70%20 July 201821 July 2018http:/www.cninfo.com.cn2018 third domestic listedshare class meeting
Extraordinarygeneral meeting
30.93%20 July 201821 July 2018http:/www.cninfo.com.cn2018 third overseas listedshare class meeting
Extraordinarygeneral meeting
7.68%20 July 201821 July 2018http:/www.cninfo.com.cn2018 fourth extraordinarygeneral meeting
Extraordinarygeneral meeting
30.07%9 October 201810 October 2018http:/www.cninfo.com.cn2018 fifth extraordinarygeneral meeting
Extraordinarygeneral meeting
30.68%30 November 20181 December 2018http:/www.cninfo.com.cn2018 sixth extraordinarygeneral meeting
Extraordinarygeneral meeting
31.23%28 December 201829 December 2018http:/www.cninfo.com.cn
2. Extraordinary general meeting requested by holders of the preference shares with voting rights
restored
Applicable √ Not applicable
2018 ANNUAL REPORT
XI Corporate Governance
V. Performance of Independent Directors during the reporting period
1. Attendance of Independent Directors at Board meetings and general meetings
Attendance of Independent Directors at Board meetings and general meetings
Name ofIndependent Directors
Number ofattendancerequired for Boardmeetings duringthe reportingperiod
Attendance atBoard meetings
in person
Attendance
at Boardmeetings bycommunication
Attendance
at Boardmeetingsby proxy
Absencefrom Board
meetings
Absent fromBoard meetings
twice in a row
(in person)
Attendance
at generalmeetings
Pan Ailing1901810No0Wang Fengrong1911800No0Huang Lei1911800No0Liang Fu1911800No0None of the independent Directors was absent from the Board meeting twice in a row.
2. Objections from Independent Directors on related issues of the Company
Were there any objections on related issues of the Company from the Independent Directors?Yes √ NoThere was no objection on related issues of the Company from the Independent Directors during the reporting period.
3. Other details about the performance of duties by the independent Directors
Were there any suggestions from the independent Directors adopted by the Company?√ Yes No
XI Corporate Governance
V. Performance of Independent Directors during the reporting period(Cont’d)
3. Other details about the performance of duties by the independent Directors(Cont’d)
Explanation on the adoption or non-adoption with related suggestions from the independent DirectorsDuring the reporting period, the independent Directors of the Company focused on the operation of the Companyand performed their duties strictly in accordance with relevant laws and regulations and the Articles of Association.They provided a lot of valuable professional recommendations on optimising the Company’s system and decision ondaily operation. They also issued independent and fair opinion on matters arising during the reporting period whichrequested opinions from Independent Directors. This helped optimise the supervisory system of the Company, as wellas protecting the legal rights of the Company and all shareholders.Publication timeSubject matterOpinion
30 January 2018Independent opinions on the receipt of 30% equity interest in Hongtai
Real Estate held by Guangdong Dejun and Guangdong Dejun’s Debtto Hongtai Real Estate and related party transaction, and independentopinions of Independent Directors on guarantee in favour of relatedsubsidiaries for their credit facilities applications
Agreed
28 March 2018Independent opinions on the Company’s internal control self-assessmentreport, particulars and independent opinions on external guarantees, thedetermination of remuneration of directors and senior management for2017, use of proceeds by related parties and related party transactions,provision of guarantee for comprehensive credit line of relevantsubsidiaries and appointment of accounting firm.
Agreed
17 April 2018Independent opinions on the extension of the validity of the resolutions in
respect of the non-public issue of shares at the general meeting
Agreed27 April 2018Independent opinions on the appointment of additional directorsAgreed16 May 2018Independent opinions on the appointment of additional directors and
independent opinions on the appointment of secretary to the board
Agreed5 June 2018Independent opinions on matters relating to the non-public issue of
shares and the related party transactions and entering into of conditionalshare subscription agreement with specific parties
Agreed23 June 2018Independent opinions on new ordinary connected transactions in 2018
and the disposal of the 40% equity interest in Wan Xing Real Estate byWuhan Chenming
Agreed17 July 2018Independent opinions on accepting financial assistance and the related
party transaction
Agreed18 August 2018Independent opinions on the termination of non-public issue of the
Company’s shares and the withdrawal of application documents in 2016
Agreed28 August 2018Independent opinions on the use of proceeds by controlling shareholders
and other related parties and on external guarantees
Agreed12 October 2018Independent opinions on the appointment of financial controller and the
provision of guarantee for wholly-owned subsidiaries
Agreed26 October 2018Independent opinions on the change of accounting policyAgreed10 November 2018Independent opinions on the formulation of rotation system for general
manager (President)
Agreed1 December 2018Independent opinions on pledge of assets by a subsidiary for the
commencement of financial leasing business by Shouguang Meilun
Agreed21 December 2018Independent opinions of the Independent Directors on the introduction of
third-party investor for Jiangxi Chenming
Agreed
2018 ANNUAL REPORT
XI Corporate Governance
VI. Performance of duties by special committees under the Board during the reporting period
(I) Audit Committee
1. The following major tasks were completed in 2018:
(1) it conducted pre-audit communication with external auditing institution engaged by the Company in
respect of the 2017 financial report auditing, reviewed the 2017 auditors’report and financial report, whichwere submitted to the Board of the Company for consideration and approval;(2) it reviewed the 2018 first quarter report of the Company as of 31 March 2018, which was submitted to the
Board for consideration and approval;(3) it reviewed the 2018 interim financial statements as of 30 June 2018, which were submitted to the Board
for consideration and approval;(4) it reviewed the 2018 third quarter report of the Company as of 30 September 2018, which was submitted
to the Board for consideration and approval.2. Auditing work conducted on the 2018 financial report of the Company is as follows:
(1) it convened a meeting to review with due consideration the 2018 auditing plan and the related information
of the Company with the auditing certified public accountants and the finance department of the
Company prior to the on-site audit, and negotiated and determined the schedule of an audit of the 2018
financial statements of the Company with Ruihua Certified Public Accountants, which was responsible for
the Company’s auditing work during the year;(2) with due consideration, it reviewed the draft of financial statements of the Company prior to an annual
onsite audit performed by the auditing certified public accountants and issued its approval to audit;(3) it kept in close contact with the auditors upon the annual on-site audit performed by the auditing certified
public accountants and issued a letter to the auditors to urge that they submit the auditors’report on
schedule;(4) it reviewed the financial statements of the Company again upon the issue of preliminary opinion on the
annual audit by the auditing certified public accountants appointed for the annual audit, and considered
the financial statements of the Company to be true, accurate and complete to reflect the overall position
of the Company;(5) at the first meeting of the Audit Committee in 2019, the audit summary on the annual audit issued by the
accounting firm was approved and submitted to the Board;(6) it reviewed the 2018 report on internal audit and self-assessment report on internal controls of the
Company as of 31 December 2018.
XI Corporate Governance
VI. Performance of duties by special committees under the Board during the reporting
period(Cont’d)
(II) Remuneration and Assessment Committee
The Remuneration and Assessment Committee under the Board of the Company were primarily responsible forformulating the remuneration and assessment for the Directors and the Senior Management of the Company andformulating and examining the remuneration package of the Directors and the Senior Management of the Company,and accountable to the Board. During the reporting period, the Remuneration and Assessment Committee formulatedthe 2017 remuneration package of the Directors and the Senior Management of the Company, which was arrivedat based on the operation conditions of 2017 and assessment of the Directors and the Senior Management of theCompany. The remuneration package was then submitted to the Board for consideration.
(III) Strategy Committee
The Strategy Committee conducted research on major investment decisions of the Company and maderecommendations, and inspected and evaluated the implementation of related matters. At the same time, the StrategyCommittee actively discussed the Company’s future long-term strategic development plan based on the Company’sindustry characteristics and development stage in combination with the Company’s production and operationconditions, providing valuable and constructive opinions for the company’s steady development.During the reporting period, the Strategy Committee held four meetings. The first meeting in 2018 consideredresolutions in relation to“the receipt of 30% equity interest in Hongtai Real Estate held by Guangdong Dejunand related party transactions”,“the establishment of Beijing Chenming Financial Leasing Company”and“theestablishment of Wuhan Chenming Financial Leasing Company”, which were submitted to the 20th extraordinarymeeting of the eighth session of the Board of the Company for consideration and approval. The second meeting in2018 considered the resolution in relation to“the subscription for the new shares of Guangdong Nanyue Bank throughprivate placing by Zhanjiang Chenming and the transfer of the shares of Guangdong Nanyue Bank held by othershareholders to Zhanjiang Chenming”, which was submitted to the 23rd extraordinary meeting of the eighth sessionof the Board of the Company for consideration and approval. The third meeting in 2018 considered the resolutionin relation to“the acquisition of 45% of equity interest in Goldtrust Futures”, which was submitted to the 31stextraordinary meeting of the eighth session of the Board of the Company for consideration and approval. The thirdmeeting in 2018 considered the resolution in relation to“the acquisition of minority interest in controlling subsidiaries”,which was submitted to the 34th extraordinary meeting of the eighth session of the Board of the Company forconsideration and approval.
(IV) Nomination Committee
During the reporting period, the Nomination Committee held four meetings. The first meeting in 2018 considered theresolution in relation to“the election of additional directors”, which was submitted to the 9th meeting of the eighthsession of the Board of the Company for consideration and approval. The second meeting in 2018 considered theresolution in relation to“the election of additional directors”, which was submitted to the 24th extraordinary meeting ofthe eighth session of the Board of the Company for consideration and approval. The third meeting in 2018 consideredthe resolution in relation to“the appointment of financial controller”, which was submitted to the 31st extraordinarymeeting of the eighth session of the Board of the Company for consideration and approval. The fourth meeting in2018 considered the resolutions in relation to“the appointment of rotating general managers”and“the appointmentof the senior management”, which were submitted to the 32nd extraordinary meeting of the eighth session of theBoard of the Company.
2018 ANNUAL REPORT
XI Corporate Governance
VII. Performance of duties by the Supervisory Committee
Were there any risks of the Company identified by the Supervisory Committee when performing its duties during thereporting period?Yes √ NoNone of those issues under the supervision was objected by the Supervisory Committee during the reporting period.
VIII. Assessment and incentive mechanism for the Senior Management
The senior management of the Company is assessed on monthly and annually basis. Monthly assessments were conductedin line with the direction of the annual major tasks, and were focused on appraisals of two fixed indicators, namely thecompletion status of each month and the evaluation on important performance indicators. It was carried out monthly byway of cross assessment and supervision among the related departments. The annual assessments were carried out by theRemuneration and Assessment Committee with reference to the results of monthly assessments and overall performancesduring the year, including the integrated quality of Senior Management and internal training of talents.
IX. Internal control
1. Particulars of material deficiencies in internal control detected during the reporting period
Yes √ No
2. Self-assessment Report on Internal Controls
Date of Disclosure of Assessment Report on Internal Controls30 March 2019Index of Assessment Report on Internal Controls Disclosurehttp://www.cninfo.com.cnPercentage of Total Assets Included in Assessment to TotalAssets in Consolidated Financial Statements of the Company99.20%Percentage of Revenue Included in Assessment to Revenue inConsolidated Financial Statements of the Company99.60%
XI Corporate Governance
IX. Internal control(Cont’d)
2. Self-assessment Report on Internal Controls(Cont’d)
Basis for identifying deficienciesTypeFinancial reportingNon-financial reporting
Qualitative criteria(1) Indicators of material deficiencies in the
internal control of financial reporting include:
ineffective control environment, material lossto and adverse impact on the Company as aresult of misconduct by Directors, Supervisorsand senior management; material misstatementof non-exceptional incidents; ineffectiveness insupervision of internal control of the Companyby the Board, or its delegated authorities, andthe internal audit department. (2) Indicators ofmajor deficiencies in internal control of financialreporting include: failure in selecting andapplying accounting policies in accordancewith generally accepted accounting principles;failure to establish procedures and controlmeasures to prevent corrupt practices;failure to establish corresponding controlmechanism for the accounting of unusual orspecial transactions or failure to implementor set up the corresponding compensationcontrol; failure to reasonably ensure thetruthfulness and accuracy in the preparation offinancial statement, as a result of one or moredeficiencies in the control of financial reportingas of the end of the period. (3) Generaldeficiencies: other deficiencies in internalcontrol that do not constitute material or majordeficiencies.
Indicators of material deficiencies in theinternal control of non-financial reportinginclude: major failure as a result of the decisionmaking process; lack of control system oroccurrence of systematic failure in principalactivities and lack of effective compensationcontrol, high turnover rate of mid to senior levelmanagement and senior technical staff; failureto address the findings of internal controlassessment, in particular material deficiencies;and other factors which impose materialadverse impact on the Company. Indicatorsof major deficiencies in internal control ofnonfinancial reporting include: general failureas a result of the decision-making process;deficiencies in major business procedure orsystem; high turnover rate of key staff; failureto address the findings of internal controlassessment, in particular major deficiencies;and other factors which impose great adverseimpact to the Company. Indicators of generaldeficiencies in internal control of non-financialreporting include: low efficiency of decision-making process; deficiencies in generalbusiness procedure or system; high turnoverrate of employees; and failure to rectify generaldeficiencies.Quantitative criteriaGeneral deficiencies: deviation of less than or
equal to 0.1% from the target of accountingerror/the total revenue; Major deficiencies:
deviation of 0.1% - 0.5% from the target ofaccounting error/the total revenue; materialdeficiencies: deviation greater than 0.5%from the target of accounting error/the totalrevenue.
General deficiencies: quantitative criterion(financial loss) less than RMB5,000,000;major deficiencies: quantitative criterion(financial loss) between RMB5,000,000and RMB20,000,000; material deficiencies:
quantitative criterion (financial loss) overRMB20,000,000.Number of material deficiencies in financial reporting: (number)0Number of material deficiencies in non-financial reporting: (number)0Number of major deficiencies in financial reporting: (number0Number of major deficiencies in non-financial reporting: (number)0
2018 ANNUAL REPORT
XI Corporate Governance
X. Auditors’report on internal control
√ Applicable Not applicable
Auditors’opinion contained in the Auditors’report on internal controlWe are of the opinion that Shandong Chenming Paper Holdings Limited had in all material aspects maintained effectiveinternal control over the financial statements in accordance with the Basic Internal Control Norms for Enterprises as of 31December 2018.Disclosure of Auditors’Report on Internal ControlDisclosedDate of Disclosure of Auditors’report on internal control30 March 2019Index of Auditors’Report on Internal Control Disclosurehttp://www.cninfo.com.cnType of Opinion in Auditors’Report on Internal ControlStandard and unqualified opinionMaterial deficiencies in non-financial reportingNoAny opinions of non-standardisation set out in the Auditors’Report on Internal Control issued by accountantsYes √ NoAuditors’Report on Internal Control issued by accountants was in line with Directors’opinions contained in Self-assessmentReport√ Yes No
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of
Hong Kong Limited
(I) Compliance with the Code on Corporate Governance
The Company maintained high standards of corporate governance through various internal controls. The Boardreviewed the corporate governance practices of the Company from time to time to enhance the corporate governancestandards of the Company.Save for the details set out in III Board, IV Chairman and General Manager and XVII Communications withshareholders in this section, the Company had fully complied with all the principles and code provisions of the Codeon Corporate Governance as set out in Appendix 14 to the Hong Kong Listing Rules during the reporting period.
(II) Securities transactions by Directors
The Directors of the Company confirmed that the Company had adopted the Model Code for Securities Transactionsby Directors of Listed Companies as set out in Appendix 10 to the Hong Kong Listing Rules. Having made adequateenquiries with all Directors and Supervisors of the Company, the Company was not aware of any information thatreasonably suggested that the Directors and Supervisors had not complied with the requirements as stipulated in thiscode during the reporting period.
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of
Hong Kong Limited(Cont’d)
(III) Board
The members of the Board of the Company are elected at the general meeting and held accountable to the generalmeeting, and shall exercise the following functions and powers: (1) to be responsible for convening the generalmeeting and to report on its work to the general meeting; (2) to carry out the resolutions of general meetings; (3)to decide on the business plans and investment proposals of the Company; (4) to formulate the proposed annualfinancial budget and final accounts of the Company; (5) to formulate the plan for profit distribution and the planmaking up losses of the Company; (6) to formulate plans for the increase or reduction in the registered capital of theCompany and for the issue and listing of Company’s debentures or other securities; (7) to draft plans for materialacquisition and repurchase of the Company’s own shares; (8) to draft plans for the merger, division or dissolution orthe change of formation of the Company; (9) to decide on external investment, acquisition and disposal of assets,pledge of assets, matter in relation to external guarantee, entrusted wealth management, connected transactions,etc. within the scope of mandate of the general meeting; (10) to decide on the establishment of the Company’sinternal management organisation; (11) to employ or dismiss the manager or secretary to the Board of the Company;to employ or dismiss the Senior Management, such as the deputy general manager(s) and personnel in chargeof financial affairs, as proposed by the general manager; and to decide on their remuneration and rewards andpunishments; (12) to formulate the basic management system of the Company; (13) to formulate proposals foramending the Articles of Association; (14) to administrate matter related to information disclosure of the Company;(15) to propose to the general meeting for the engagement or replacement of accounting firm performing audit for theCompany; (16) to review work reports from managers of the Company and to inspect on their work; (17) to exercisethe functions and powers as conferred upon by the Articles of Association or the general meeting.The Board comprised five executive Directors: Chen Hongguo (Chairman), Hu Changqing, Geng Guanglin, Li Fengand Chen Gang; two non-executive Directors: Yang Guihua and Zhang Hong; and four independent non-executiveDirectors: Pan Ailing, Wang Fengrong, Huang Lei and Liang Fu. Please refer to section VIII of this Annual Report fortheir brief biographies.The Board is responsible for leading and monitoring the Company, and is wholly responsible for the administration andsupervision of the Company’s businesses to facilitate its success. The Executive Director or the senior management isauthorised to be responsible for the various divisions and functions and management of the processing. Directors ofthe Company shall act objectively and make decisions in the interests of the Company. The management and seniormanagement of the Company held regular meetings with the Board to discuss the ordinary business operationsand performance of the Company, and carried out the relevant decisions of the Board. The Company will arrangeindependent legal advice upon the request from the Directors or any committees of the Board, if the Board or anycommittees of the Board consider it necessary to seek for independent professional advice.Pursuant to Code A.1.8 of the code provisions, the Company should arrange appropriate insurance cover in respectof legal action against its Directors. As at the date of this report, the Company has not reached an agreement withthe original insurance company, and therefore has not arranged relevant insurance cover for directors. However, theCompany is currently under negotiation with another insurance Company with respect to director liability insurance in2019.
2018 ANNUAL REPORT
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of
Hong Kong Limited(Cont’d)
(III) Board(Cont’d)
During the reporting period, the Board held 19 meetings, 4 of which were regular meetings and 15 were extraordinarymeetings. Due to health reasons, Pan Ailing, an independent director, appointed Wang Fengrong, anotherindependent director, to attend the 8th meeting of the eighth session of the Board on 27 March 2018. None of thedirectors were absent from the remaining 18 Board meetings.NamePositionAttendance at the relevant meetings (attention required/attended)
Board meetings
Auditcommittee
meetings
Nominationcommittee
meetings
Remunerationand assessment
committee
meetings
Strategiccommittee
meetings
Generalmeetings
I. Executive DirectorsChen HongguoChairman19/19N/A1/1N/A2/210/2Hu ChangqingVice Chairman19/19N/AN/AN/A2/210/5Geng GuanglinDirector19/19N/AN/AN/AN/A10/5Li FengDirector19/19N/AN/AN/AN/A10/0Chen GangDirector19/19N/AN/AN/AN/A10/0II. Non-executive DirectorsYang GuihuaDirector19/197/7N/AN/AN/A10/2Zhang HongDirector19/19N/AN/A1/1N/A10/2III. Independent non-executive DirectorsPan AilingIndependent Director19/187/7N/AN/AN/A10/0Wang FengrongIndependent Director19/197/71/1N/AN/A10/2Huang LeiIndependent Director19/19N/AN/A1/12/210/0Liang FuIndependent Director19/19N/A1/11/1N/A10/2Save for those disclosed in the brief profile of Directors of the Company in this Report, none of the members of theBoard had any financial, business, family relations or material connections with each other.The Board held 4 regular meetings during the year, each by giving a 10-day notice in advance to ensure that allDirectors could participate in discussions of matters in the agenda. Reasonable prior notification was given for theother meetings of the Board to ensure all Directors could take time to attend.All Directors had access to opinions and services of the secretary to the Board to ensure the procedures governingthe Board and all applicable regulations and rules were complied with.
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of
Hong Kong Limited(Cont’d)
(III) Board(Cont’d)
Directors’training and professional developmentAll newly appointed Directors are provided with necessary orientation information, with an aim to ensure that they willhave a better understanding of operations and business of the Company as well as relevant laws and regulations andobligations under the Listing Rules.Directors and Supervisors of the Company were arranged by the Company to attend the 1st and the 2nd sessionof training courses 2018 for directors and supervisors held by China Securities Regulatory Commission, Shandong;and, briefing paper in respect of amendments to Hong Kong Listing Rules prepared by Advisor to Hong Kong Law ofthe Company was distributed to all Directors and Supervisors, the above of which were to ensure all Directors andSupervisors to comply with relevant laws and sound corporate governance practice, and enhance their awareness ofsound corporate governance practice.
(IV) Chairman and General Manager
The chairman of the Company is Mr. Chen Hongguo, and the general manager of the Company is Mr. Li Weixian.Please refer to section X of this annual report for his brief biographies.According to the Articles of Association of the Company, the chairman shall exercise the following powers: (1)presiding over general meetings, and convening and presiding over Board meetings; (2) supervising and inspectingthe implementation of the resolutions of the Board; (3) signing the shares, the securities and bonds issued by theCompany; (4) signing important documents of the Board and other documents which are required to be signed bylegal representative of the Company; (5) performing the powers of a legal representative; (6) nominating candidatesfor general manager for the Board; (7) exercising the special right to operate the Company in accordance with thelaws and acting for the benefits of the Company in the event of emergency situation as a result of act of God ornatural disaster, and reporting to the Board meetings and general meeting afterwards; and (8) exercising other powersauthorised by the Board.The general manager shall exercise the following powers: (1) in charge of the operation and management of theCompany, and organising the implementation of the resolutions of the Board; (2) organising the implementation ofthe Company’s annual business plans and investment plans; (3) drafting plans for the establishment of the internalorganisational structure of the Company; (4) drafting the basic management system of the Company; (5) formulatingspecific rules and regulations for the Company; (6) proposing the appointment or dismissal of the deputy generalmanager and chief financial officer; (7) appointing or dismissing management personnel other than those requiredto be appointed or dismissed by the Board; (8) proposing the wages, welfare, rewards, and penalties of staff and todecide the appointment or dismissal of staff of the Company; (9) proposing the convening of extraordinary meeting ofthe Board; and (10) exercising other powers conferred by the Articles of Association of the Company and the Board.
2018 ANNUAL REPORT
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of
Hong Kong Limited(Cont’d)
(V) Independent Non-executive Directors
There are four independent non-executive Directors in the Board, which is in compliance with the minimumrequirement of the number of independent non-executive directors set out in the Hong Kong Listing Rules. WangFengrong and Pan Ailing, the independent non-executive Directors of the Company, have appropriate accountingor related financial management expertise, which is compliance with the requirement of Rule 3.10 of the Hong KongListing Rules. Please refer to section X of this annual report for their brief biographies. The Company has receivedfrom each of the independent non-executive Directors a confirmation of independence for the year pursuant to Rule3.13 of the Hong Kong Listing Rules and considered all of the independent non-executive Directors to be independentduring the year.
(VI) Terms of Directors
According to the Articles of Association of the Company, all Directors, including non-executive Directors, are electedat general meetings with a term of three years from May 2016 to May 2019. They may be re-elected for another termupon expiry of tenure.
(VII) Directors’Responsibility for the Financial Statements
The Directors acknowledged their responsibility to prepare financial statements for each financial year which givea true and fair view of the state of affairs of the Company. The Directors believed that the Company had adoptedand applied consistently appropriate accounting policies in preparing the financial statements in compliance with allrelated accounting standards.
(VIII) Board Committees
Pursuant to Code on Corporate Governance, the Board has established three committees, namely, Audit Committee,Remuneration and Assessment Committee and Nomination Committee, for overseeing particular aspects of theCompany’s affairs. Each Board Committee has its own defined written terms of reference. The written terms ofreference of each Board Committee are published on websites of stock exchange and the Company.Save for requirements of Code on Corporate Governance, the Company also set up Strategic Committee, foroverseeing and studying long-term strategic development plan of the Company and making recommendations.
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of
Hong Kong Limited(Cont’d)
(IX) Audit Committee
The Audit Committee of the Company comprises three members, including Pan Ailing (as the chairman), YangGuihua and Wang Fengrong. Two of them, including the chairman, are independent non-executive Directors. Theprimary duties of the Audit Committee are serving as a communication media between internal and external audit andthe related review and supervision. Pan Ailing and Wang Fengrong have appropriate professional qualifications orappropriate accounting or related financial management expertise, which is in compliance with the requirement of theHong Kong Listing Rules.The primary duties of the Audit Committee of the Company are: (1) proposing the appointment or dismissal of theexternal auditors; (2) supervising the internal control system of the Company and its implementation; (3) serving asa communication media between internal and external audit; (4) auditing the financial information of the Companyand its disclosures; (5) reviewing the financial control, risk control and internal control system of the Company andaudit the significant connected transactions; (6) discussing the risk management and internal control system withthe management to ensure the management has performed its duties to establish effective systems. The discussionshould include the adequacy of resources, staff qualifications and experience, training programs and budget of theaccounting and financial reporting functions of the Company; (7) studying the major investigation findings on riskmanagement and internal control matters on its own initiative or as delegated by the Board and the management’sresponse to these findings; (8) where the annual report includes statements in relation to the risk management andinternal control system of the Company, reviewing such statements prior to submission to the Board for approval; and(9) dealing with other matters as delegated by the Board.The Audit Committee discussed with the management of the Company the accounting standards and practicesadopted by the Group and discussed and reviewed this report, including the review of the financial statements of theGroup for the year ended 31 December 2018 prepared in accordance with China Accounting Standards for BusinessEnterprises.Particulars of the meetings held by the Audit Committee during the reporting period were detailed in part VI of thissection.Risk Management and Internal ControlThe Board is responsible for the risk management and internal control systems and reviewing their effectiveness.Such systems are designed to manage rather than eliminate the risk of failure to achieve business objectives, and canonly provide reasonable but not absolute assurance against material misstatement or loss.The Audit Committee (on behalf of the Board) oversees management in the design, implementation and monitoringof the risk management and internal control systems, and the management has provided confirmation to the AuditCommittee (and the Board) on the effectiveness of these systems for the year ended 31 December 2018.In respect of internal control system, procedures have been designed for safeguarding assets against unauthoriseduse or disposition, ensuring the maintenance of proper accounting records for the provision of reliable financialinformation for internal use or for publication, and ensuring compliance of applicable laws, rules and regulations.
2018 ANNUAL REPORT
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of
Hong Kong Limited(Cont’d)
(X) Remuneration and Assessment Committee
The Remuneration and Assessment Committee of the Company comprises three members, including Liang Fu,the Chairman, and other members, namely Zhang Hong and Huang Lei. Two members, including the Chairman,are independent non-executive Directors, which is in compliance with Code on Corporate Governance Practices.The Remuneration and Assessment Committee is primarily responsible for formulating the criteria of appraisal ofthe Directors and managers and conducting the appraisal, and studying and formulating the remuneration policyand package of the Directors and the Senior Management of the Company. The Remuneration and AssessmentCommittee is accountable to the Board.The primary duties of the Remuneration and Assessment Committee of the Company are: (1) formulating theremuneration plan or package based on the major scope of work, duties and importance of the Directors and themanagement and the remuneration level of other counterparts; (2) formulating the remuneration plan or packagewhich mainly includes but not limited to standards, procedures and a system for performance appraisals as wellas major plans and a system for rewards and sanctions; (3) examining the performance of the Directors, excludingthe independent non-executive Directors, and the Senior Management and conduct annual performance appraisalsfor them; (4) supervising the implementation of the remuneration policy of the Company; and (5) dealing with othermatters as delegated by the Board.Particulars of the meetings held by the Remuneration and Assessment Committee during the reporting period aredetailed in part VI of this section.
(XI) Nomination Committee
The Nomination Committee of the Company comprises three members, including Wang Fengrong (as the chairman),Chen Hongguo and Liang Fu. Two of them, including the chairman, are independent non-executive Directors, whichis in compliance with Code on Corporate Governance Practices. The Nomination Committee is primarily responsiblefor selecting candidates for directors and the management of the Company, determining the selection criteria andprocedure and making recommendations.The primary duties of the Nomination Committee are (1) advising the Board on the size and composition of the Boardin light of the Company’s operating activities, asset scale and shareholding structure; (2) studying the selection criteriaand procedure for Directors and the management and advising the Board on the same; (3) extensively identifyingqualified candidates for Directors and the management; (4) examining candidates for Director and the managementand advising on the same; (5) examining other Senior Management staff pending referral to the Board for decision ontheir employment and advising on the same; (6) advising to the Board on appointment and re-appointment of directorsand on skills, knowledge, experience, background, gender and other characteristics required in serving as a directortaking into consideration diversity, balance and efficiency of the Board and benefits thereto; (7) reviewing the Boarddiversity policy, revising thereon in a timely manner and making relevant disclosure in the corporate governance reportin the corresponding annual report; and (8) dealing with other matters as delegated by the Board.
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of
Hong Kong Limited(Cont’d)
(XI) Nomination Committee(Cont’d)
During the reporting period, the Nomination Committee, after studying the needs of the Company for new Directorsand managerial personnel and taking into consideration the Board diversity policy, identified suitable candidates forDirector and managerial positions through various channels (including from the Group internally and from the humanresources market). Upon acceptance of nomination by the nominated person, the Nomination Committee performedqualification review on preliminary candidates by holding meetings, review criteria include the academic qualifications,relevant experience and specialised skills of the preliminary candidates. One to two months prior to election of newDirectors, the Nomination Committee submitted recommendations and relevant materials of the directorial candidatesto the Board; prior to engaging new Senior Management, the Nomination Committee submitted recommendationsand relevant materials of the new Senior Management personnel to the Board.Particulars of the meetings held by the Nomination Committee during the reporting period are detailed in part VI ofthis section.
(XII) Strategic Committee
The Company set up a Strategic Committee which comprised three members, including Chen Hongguo, theChairman, and other members, namely, Hu Changqing and Huang Lei. The Strategic Committee is primarilyresponsible for studying the long term strategic development and major investments of the Company and makingrecommendations.The primary duties of the Strategic Committee are (1) conducting research and submitting proposals regarding thelong term development strategic plan; (2) conducting research and submitting proposals regarding the financingplans for major investments which require approval from the Board as stipulated in the Articles of Association of theCompany; (3) conducting research and submitting proposals regarding major capital operations and assets operationprojects which require approval from the Board as stipulated in the Articles of Association of the Company; (4)conducting research and submitting proposals regarding other material matters that may affect the development ofthe Company; (5) carrying out examination on the implementation of the above matters; (6) dealing with other mattersas delegated by the Board.
2018 ANNUAL REPORT
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of
Hong Kong Limited(Cont’d)
(XIII) Auditors
On 13 December 2016, the 2016 fourth extraordinary general meeting of the Company agreed to continue to engageRuihua Certified Public Accountants (Special General Partnership) as the domestic auditors of the Company for 2016and be responsible for domestic auditing of the Company for 2016.On 24 July 2017, the 2017 second extraordinary general meeting of the Company agreed to continue to engageRuihua Certified Public Accountants (Special General Partnership) as the domestic auditors of the Company for 2017and be responsible for domestic auditing of the Company for 2017.On 13 June 2018, the 2017 annual general meeting of the Company agreed to continue to engage Ruihua CertifiedPublic Accountants (Special General Partnership) as the domestic auditors of the Company for 2018 and beresponsible for domestic auditing of the Company for 2018.
(XIV) Remuneration for the Auditors
The financial statements for 2018 prepared in accordance with Accounting Standards for Business Enterprises bythe Group were audited by Ruihua Certified Public Accountants (Special General Partnership). In 2018, the Companypaid the auditors in aggregate RMB2,500,000 and RMB800,000 in respect of audit financial statements and non-auditservices in relation to internal control respectively. Save the above, no other non-audit fee was incurred during theyear.Ruihua Certified Public Accountants (Special General Partnership) have stated their reporting responsibilities on thefinancial statements of the Group in XII. Financial Report.
(XV) Supervisors and Supervisory Committee
The Supervisory Committee is accountable to the shareholders. It monitors the financial position of the Companyand the performance of the Directors, managers and Senior Management of the Company as to whether they are inaccordance with relevant requirements of the laws and regulations to protect the lawful rights of the Company and theshareholders. The Supervisory Committee comprises two shareholder representatives and one staff representatives.The shareholder representatives shall be elected and removed at a general meeting and the staff representatives shallbe elected and removed democratically by the staff of the Company.Details of the work of the Supervisory Committee during the reporting period are set forth in part VII of this section.
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of
Hong Kong Limited(Cont’d)
(XVI) Company Secretary
During the year, the company secretary confirmed that he has received relevant professional training for not less than15 hours in accordance with Rule 3.29 of the Listing Rules.
(XVII)Communications with Shareholders
The Company considers effective communication with Shareholders is essential to enable them to have a clearassessment of the Group’s performance as well as accountability of the Board. Principal means of communicationwith Shareholders of the Company are as follows:
Information disclosure on the Company’s websiteThe Company endeavours to disclose all material information about the Group to all interested parties as widely andtimely as possible. The Company maintains its website at www.chenmingpaper.com where important informationabout the Group’s activities and corporate matters such as annual reports and interim reports to Shareholders,announcements, business development and operations, corporate governance practices and other information areavailable for review by Shareholders and other stakeholders.When announcements are made through the Stock Exchange, the same information will be made available on theCompany’s website.General meetingsThe Company’s annual general meeting provides a useful platform for direct communication between the Board andShareholders. Various resolutions are proposed on each substantially separate issue at the general meetings. Save forthe annual general meeting held on 13 June 2018 by the Company, six extraordinary general meetings and three classmeetings were convened in 2018. The attendance record of Directors at each general meeting is set out below:
NameDirectors attending general meetings in person
2017 Annual General MeetingGeng Guanglin, Zhang Hong, Wang Fengrong,
Liang Fu and Yang Guihua2018 First extraordinary general meetingYin Tongyuan and Geng Guanglin2018 Second extraordinary general meetingChen Hongguo and Geng Guanglin2018 Third extraordinary general meetingHu Changqing2018 Fourth extraordinary general meetingHu Changqing2018 Fifth extraordinary general meetingHu Changqing2018 Sixth extraordinary general meetingHu Changqing2018 First domestic and overseas listedshare class meeting
Chen Hongguo and Geng Guanglin2018 Second domestic and overseas listedshare class meeting
Geng Guanglin, Zhang Hong, Wang Fengrong,
Liang Fu and Yang Guihua2018 Third domestic and overseas listedshare class meeting
Hu Changqing
2018 ANNUAL REPORT
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of
Hong Kong Limited(Cont’d)
(XVII)Communications with Shareholders(Cont’d)
General meetings(Cont’d)
The Company’s external auditor also attended the Annual General Meeting.Code E.1.2 of the code provisions – This code provision requires the chairman to invite the chairmen of the audit,remuneration and nomination committees to attend the Annual General Meeting.Mr. Chen Hongguo, the chairman of the Company and its strategy committee, and Ms. Pan Ailing, the chairman of theaudit committee, were absent from the annual general meeting due to business commitments.Code A.6.7 of the code provisions – This code provision requires independent non-executive Directors and othernon-executive Directors, as equal board members, should give the Board and any committees on which they servethe benefit of their skills, expertise and varied backgrounds and qualifications through regular attendance and activeparticipation. They should also attend general meetings and develop a balanced understanding of the views ofshareholders.Ms. Pan Ailing and Mr. Huang Lei were absent from the 2017 annual general meeting due to business commitments.Ms. Zhang Hong, Ms. Yang Guihua, Ms. Pan Ailing, Ms. Wang Fengrong, Ms. Liang Fu and Mr. Huang Lei wereabsent from the 2018 first extraordinary general meeting due to business commitments.Ms. Zhang Hong, Ms. Yang Guihua, Ms. Pan Ailing, Ms. Wang Fengrong, Ms. Liang Fu and Mr. Huang Lei wereabsent from the 2018 second extraordinary general meeting due to business commitments.Ms. Zhang Hong, Ms. Yang Guihua, Ms. Pan Ailing, Ms. Wang Fengrong, Ms. Liang Fu and Mr. Huang Lei wereabsent from the 2018 third extraordinary general meeting due to business commitments.Ms. Zhang Hong, Ms. Yang Guihua, Ms. Pan Ailing, Ms. Wang Fengrong, Ms. Liang Fu and Mr. Huang Lei wereabsent from the 2018 fourth extraordinary general meeting due to business commitments.Ms. Zhang Hong, Ms. Yang Guihua, Ms. Pan Ailing, Ms. Wang Fengrong, Ms. Liang Fu and Mr. Huang Lei wereabsent from the 2018 fifth extraordinary general meeting due to business commitments.Ms. Zhang Hong, Ms. Yang Guihua, Ms. Pan Ailing, Ms. Wang Fengrong, Ms. Liang Fu and Mr. Huang Lei wereabsent from the 2018 sixth extraordinary general meeting due to business commitments.Ms. Zhang Hong, Ms. Yang Guihua, Ms. Pan Ailing, Ms. Wang Fengrong, Ms Liang Fu and Mr. Huang Lei were absentfrom the 2018 first domestic and overseas listed share class meeting due to business commitments.Ms. Pan Ailing and Mr. Huang Lei were absent from the 2018 second domestic and overseas listed share classmeeting due to business commitments.Ms. Zhang Hong, Ms. Yang Guihua, Ms. Pan Ailing, Ms. Wang Fengrong, Ms Liang Fu and Mr. Huang Lei were absentfrom the 2018 third domestic and overseas listed share class meeting due to business commitments.
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of
Hong Kong Limited(Cont’d)
(XVII)Communications with Shareholders(Cont’d)
Voting by pollResolutions put to vote at the general meetings of the Company are taken by poll. Procedures regarding the conductof the poll are explained to the shareholders at the commencement of each general meeting, and questions fromshareholders regarding the voting procedures are answered. The poll results are posted on the websites of the StockExchange and the Company respectively on the same day.Shareholders’right
1. Procedures for convening an extraordinary general meeting by Shareholder
Pursuant to Article 90 of the Articles of Association of the Company, Shareholder(s) alone or in aggregateholding 10% or more of the Company’s shares shall be entitled to request the Board to convene extraordinarygeneral meetings, provided that such request shall be made in writing. The Board shall, in accordance withprovisions of the laws, administrative regulations and the Articles of Association, furnish a written reply statingits agreement or disagreement to the convening of an extraordinary general meeting within ten days afterreceiving such proposal of the same.In the event that the Board agrees to convene an extraordinary general meeting, the notice of general meetingshall be issued within five days after the passing of the relevant resolution of the Board. Any changes in theoriginal request made in the notice shall require prior approval of Shareholders concerned.In the event that the Board does not agree to convene an extraordinary general meeting or does not furnish anyreply within ten days after receiving such proposal, Shareholder(s) alone or in aggregate holding 10% or more ofthe Company’s Shares shall be entitled to propose to the Supervisory Committee the convening of extraordinarygeneral meeting, provided that such proposal shall be made in writing.In the event that the Supervisory Committee agrees to convene an extraordinary general meeting, the notice ofgeneral meeting shall be issued within five days after receiving such request. Any changes in the original requestmade in the notice shall require prior approval of Shareholders concerned.Failure of the Supervisory Committee to issue a notice of general meeting within the stipulated period shallbe deemed as failure of the Supervisory Committee to convene and preside over a general meeting, andShareholder(s) alone or in aggregate holding 10% or more of the Company’s shares for ninety consecutive daysor more shall be entitled to convene and preside over the meeting on a unilateral basis.
2018 ANNUAL REPORT
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of
Hong Kong Limited(Cont’d)
(XVII)Communications with Shareholders(Cont’d)
Shareholders’right(Cont’d)1. Procedures for convening an extraordinary general meeting by Shareholder (Cont’d)
Pursuant to Article 91 of the Articles of Association of the Company, if Shareholders determine to convene ageneral meeting on their own, they shall give a written notice to the Board and file the same with the local officeof CSRC at the place where the Company is located and the stock exchange for records. The shareholdingpercentage of shareholders who convened shall not be lower than 10% prior to the announcement ofresolutions of the general meeting.Shareholders who convened shall submit relevant certifications to the local office of CSRC at the place wherethe Company is located and the stock exchange upon the issuance of the notice of general meeting and theannouncement of resolutions of the general meeting.The Board and its secretary shall cooperate with respect to matters relating to general meetings convenedby Shareholders on their own. The Board shall provide Shareholder registers as of the date of shareholdingregister. If a general meeting is convened by shareholders on their own, all necessary expenses incurred shallbe borne by the Company.
2. Procedures for sending shareholders’enquiries to the Board
Shareholders may at any time send their enquiries and concerns to the Board of the Company in writing throughthe Company Secretary/Secretary to the Board whose contact details are as follows:
Company SecretarySecretary to the Board
Poon Siu CheongYuan XikunAddress: 22nd Floor, World Wide House, Central,Hong Kong
Address: No. 2199 East Nongsheng Road,Shouguang City, Shandong ProvinceEmail Address: kentpoon_1009@yahoo.com.hkEmail Address: chenmmingpaper@163.comTelephone: (852)-2501 0088Telephone: (86)-0536- 2158008Facsimile: (852)-2501 0028Facsimile: (86)-0536-2158977The Company Secretary and the secretary to the Board shall forward shareholders’enquiries and concernsto the Board and/or relevant Board Committees of the Company, where appropriate, to answer shareholders’
questions.
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of
Hong Kong Limited(Cont’d)
(XVII)Communications with Shareholders(Cont’d)
Shareholders’right(Cont’d)3. Procedures for putting forward proposals of Shareholders at general meetings
Pursuant to Article 102 of the Articles of Association of the Company, shareholders individually or jointly holdingover 3% of the total shares of the Company are entitled to propose motions to the Company.Shareholders individually or jointly holding over 3% of the total shares of the Company may submit extraordinarymotions to the Board or the secretary to the Board ten working days before the convening of the GeneralMeeting. The Board or the secretary to the Board shall issue supplementary notice of the General Meeting toannounce the extraordinary motions within two working days after receiving the proposed motions.Save for provided above, the Board or Secretary to the Board shall not amend proposals stated in the notice ofgeneral meeting or add new proposals therein following the notice of general meeting has been issued.No voting or resolution shall be effected or adopted at the general meeting for proposals that have not beenstated in the notice of general meeting or that do not comply with provisions of the Articles of Association.Extraordinary general meeting shall not resolve issues that are not contained in the notice.Relationships with investorsThe Company recognises its responsibility to explain its activities to those with a legitimate interest and to respond totheir questions. Investors are received and visited at appropriate times to explain the Group’s business. In addition,questions received from the general public and individual shareholders are answered promptly. In all cases, great careis taken to ensure that no price-sensitive information is disclosed selectively.
(XVIII)Internal Control
For details of internal control of the Company, please refer to IX. Internal Control hereunder.
(XIX) Articles of Association
On 29 December 2018, the Company amended the Articles of Association. The amendments were primarily relating tothe number of Supervisor. Memorandum of Association and the amended version of the new Articles of Association ofthe Company are available on websites of the Company and Stock Exchange.
2018 ANNUAL REPORT
XI Corporate Governance
XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of
Hong Kong Limited(Cont’d)
(XX) Board Diversity
On 21 August 2013, the Company formulated policies to diversify Board members and amended the implementingrules of the nomination committee. Pursuant to the new policies, the nomination committee shall regularly review theBoard diversity policy to improve efficiency and ensure interest thereof.Such policies are summarised as follows:
The Company recognises and embraces the benefits of having a diverse Board, and sees diversity at Board level asan essential element in maintaining a competitive advantage. A truly diverse Board will include and make good useof differences in the talents, skills, regional and industry experience, backgrounds, genders and other qualities of themembers of the Board. These differences will be considered in determining the optimum composition of the Boardand when possible should be balanced appropriately. All appointments of the members of the Board are made onmerit, and in the context of the talents, skills and experience of the Board as a whole.The Nomination Committee of the Company reviews and assesses the composition of the Board and makesrecommendations to the Board on appointment of new directors of the Company. The Nomination Committeealso oversees the conduct of the annual review of the effectiveness of the Board. In reviewing and assessing thecomposition of the Board, the Nomination Committee will consider the benefits of all aspects of diversity, includingwithout limitation those described above, in order to maintain an appropriate range and balance of talents, skills,experience and backgrounds on the Board. In recommending candidates for appointment to the Board, theNomination Committee will consider candidates on merit against objective criteria and with due regard for the benefitsof diversity on the Board.The composition of the Board of the Company is basically diversified. For details, please refer to (III) Composition ofthe Board under section XI.
(XXI) Dividend policy
Based on the total ordinary share capital of 2,904,608,200 shares and the 1,162,790,698 simulated ordinary sharesconverted from the preference shares using a conversion ratio of 1 share valued at RMB3.87 as at the end of 2018, acash dividend of RMB2.4 (tax inclusive) per 10 shares will be distributed to holders of ordinary shares; a cash dividendof RMB2.4 (tax inclusive) per 10 simulated ordinary shares converted from the preference shares will be distributedto holders of preference shares. No bonus shares will be issued and no capitalisation issue will be made out of thereserves. A cash dividend of RMB697,105,968 will be distributed to holders of ordinary shares and a variable cashdividend of RMB279,069,767.52 will be distributed to holders of preference shares. In other words, a cash dividendof RMB6.20 (tax inclusive) per preference share with a nominal value of RMB100 each will be distributed to holders ofpreference shares.
XII Corporate bonds
Are there any corporate bonds offered to the public and listed on stock exchanges which do not become due as at the date ofapproval of annual report or overdue but not fully settled?Yes
I. Basic information on corporate bonds
Name of bondBond abbreviationBond codeIssue dateMaturity date
Outstanding
amount ofthe bonds(RMB’0,000)Interest ratePayment method
The public issuance of thecorporate bonds of ShandongChenming Paper HoldingsLimited to qualified investorsin 2017 (phase I)
17 ChenmingBond 01
11257017 August
2017
21 August2022
120,0006.50%Interest is paid annually. The principal
amount and the last interest paymentwill be paid on the maturity date.The public issuance of thecorporate bonds ofShandong ChenmingPaper Holdings Limited to qualifiedinvestors in 2018 (phase I)
18 ChenmingBond 01
11264129 March
2018
2 April2023
90,0007.28%Interest is paid annually. The principal
amount and the last interest paymentwill be paid on the maturity date.Stock exchange on which corporatebonds are listed or transferred
Shenzhen Stock ExchangeInvestor eligibility arrangementOnline subscription: Public investors with A share security account opened under
China Securities Depository and Clearing Co., Ltd. Offline subscription: Institutional
investors with A share security account opened under China Securities Depository
and Clearing Co., Ltd.Interest payment of corporatebonds during the reporting period
The payment of interest on 17 Chenming Bond 01 was completed on 21 August
2018. For details, please refer to the Announcement on payment of 2018 interest
with respect to the first tranche of corporate bonds publicly issued to qualified
investors in 2017 (2017 () 2018
), which was published by the Company on 15 August 2018.Performance of relevant termsduring the reporting period,for special terms such as issueror investor option andinterchangeable for corporate bonds(if any).
Both 17 Chenming Bond 01 and 18 Chenming Bond 01 attach with options for the
issuer to adjust the coupon rate and for investors to resell. The issuer has the right
to determine the adjustment to the coupon rate for the following 3 years at the end
of the second year and the adjustment to the coupon rate for the following year as
the end of the fourth year. After issuing the announcement on whether the coupon
rate of the relevant tranche of bonds will be adjusted and the range of adjustment,
the investors have the right to register for reselling during the period as announced
to resell all or part of the relevant tranche of bonds held to the issuer at par value.
2018 ANNUAL REPORT
XII Corporate bonds
II. Information on bond custodian and credit rating agency
Bond custodian:
NameGF Securities Co., Ltd.Office address38th Floor, Metro Plaza,
No.183 Tianhe North Road,Guangzhou
Contact personXu DuweiTelephone of
contact person
020-87555888Credit rating agency(ies) which conducted rating on corporate bonds during the reporting period:
NameChina Chengxin
Securities Rating Co., Ltd.
Office address21/F, Anji Building,
760 Xizang South Road,Huangpu District,ShanghaiReason of change, procedures to be performedand impacts on interests of investors, etc. in casethe bond trustee and credit rating agency engagedby the Company during the reporting periodhave changed (if applicable)
No change during thereporting period.
III. Use of proceeds from corporate bonds
Use of proceeds from corporate bonds andits implementation
The use of proceeds from issuance of corporate bonds has strictlycompleted relevant application and approval procedures. As at theend of the reporting period, the proceeds from 17 Chenming Bond01 and 18 Chenming Bond 01 were fully used.Balance as at the end of the year (RMB’0,000)0Operation of special account for proceedsSpecial account for proceeds is used for the deposit of special
capital from bonds.Is the use of proceeds consistent with theuse of proceeds guaranteed under the prospectus,proposed use of proceeds and other agreement?
Yes
IV. Credit rating of corporate bonds
The credit rating of 18 Chenming Bond 01 as granted by China Chengxin Securities Rating Co., Ltd. was AA+, and thecredit rating for the Company remained at AA+ (stable outlook). The 2018 public issuance of the corporate bonds (tranche I)updated rating report (2018) was published on CNINFO on 14 June 2018.The credit rating of 17 Chenming Bond 01 as granted by China Chengxin Securities Rating Co., Ltd. remained at AA+, andthe credit rating for the Company was AA+ (stable outlook). The 2017 public issuance of the corporate bonds (tranche I)updated rating report (2018) was published on CNINFO on 14 June 2018.
V. Credit enhancement mechanism, repayment plan and other repayment guarantee measures
for corporate bonds
There was no change in credit enhancement mechanism, repayment plan and other repayment guarantee measures, whichwere consistent with relevant commitments as set out in the prospectuses, during the reporting period.
XII Corporate bonds
VI. Convening of meeting for bondholders during the reporting period
Not applicable.
VII. Performance of bond custodian during the reporting period
The bond custodian performed its duties in accordance with the agreement during the reporting period.
VIII. Major accounting data and financial indicators of the Company over the past two years as at
the end of the reporting period
Unit: RMB’0,000Item20182017
Year-on-yearincrease/decrease
in percentage
EBITDA655,492.30682,958.92-4.02%Current ratio78.10%86.32%-8.22%Gearing ratio75.43%71.34%4.09%Quick ratio67.27%75.80%-8.53%Proportion of EBITDA to total debts8.25%9.06%-0.81%Interest coverage ratio1.872.83-33.92%Cash interest coverage ratio3.840.0138,300%EBITDA interest coverage ratio2.472.83-12.72%Loans payment ratio100.00%100.00%—Interest payment ratio100.00%100.00%—Major reason for more than 30% in year-on-year change for the above accounting data and financial indicators√ Applicable Not applicableThe interest coverage ratio was 1.87 for the period, a decrease of 33.92% over 2.83 of the same period of last year,
which was mainly due to the decline in the market price of machine-made paper and the national macro-controlpolicy on financial deleveraging, resulting in year-on-year decrease in profitability and year-on-year increase in financeexpenses of the Company.The cash interest coverage ratio was 3.84 for the period, an increase of 38,300% over 0.01 of the same period of last
year, which was mainly due to the year-on-year increase of 592 times of the net cash flow from operating activities ofthe Company during the reporting period.
2018 ANNUAL REPORT
XII Corporate bonds
IX. Interest payment on other bonds, debt and financing instruments during the reporting period
Unit: RMB
Item
Amount ofinterest payment
Corporate bonds78,000,000.00Privately placed bonds1,064,800,000.00Medium-term notes2,947,140,000.00Super & short-term commercial papers17,990,667,945.05
Total22,080,607,945.05
X. Bank credit obtained, its use and repayment of bank loans during the reporting period
During the reporting period, the Company obtained bank credit of RMB81,750 million, of which RMB52,156 million wasutilised with RMB29,594 million outstanding. The Company repaid bank loans of RMB39,526 million.
XI. Performance of relevant agreements or commitments under the prospectus of corporate
bonds during the reporting period
Nil
XII. Matters of significance during the reporting period
Nil
XIII. Is there any guarantor for corporate bonds?
Yes √ No
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I. Auditors’Report
Type of auditors’opinionStandard and unqualified opinionsThe date of the audit report signed29 March 2019Name of the auditorRuihua Certified Public Accountants (Special General Partnership)Reference number of the auditors’reportRui Hua Shen Zi [2019] No. 37120004Name of certified public accountantsLiu Jian and Jiang LeiText of the auditor’s reportTo shareholders of Shandong Chenming Paper Holdings Limited:
I. Auditor’s opinionWe have audited the financial statements of Shandong Chenming Paper Holdings Limited (hereinafter“ChenmingPaper Company”), which comprise the consolidated and company balance sheets as at 31 December 2018, theconsolidated and company income statements, the consolidated and company cash flow statements and theconsolidated and company statements of changes in shareholders’equity for 2018 and notes to the relevant financialstatements.In our opinion, the accompanying financial statements were prepared in accordance with the Accounting Standardsfor Business Enterprises in all material aspects and give a true and fair view of the consolidated and company financialposition of Chenming Paper Company as at 31 December 2018 and of its consolidated and company operatingresults and cash flows for 2018.
II. Basis of opinions
We have conducted our audit in accordance with the Chinese Auditing Standards issued by the Chinese Institute ofCertified Public Accountants. Our responsibilities under those standards are further described in the responsibilitiesof certified public accountants for the audit of the financial statements section of the auditors’report. We areindependent of Chenming Paper Company in accordance with the ethical codes of Chinese certified publicaccountants, and we have fulfilled our other ethical responsibilities in accordance with the codes. We believe that theaudit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
III. Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of thefinancial statements for the current period. These matters were addressed in the context of our audit of the financialstatements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.The key audit matter we identified is as follows:
(I) Consumable biological assets measured at fair value
1. Details
For detailed disclosures of relevant information, please see notes V.13, V.21 and VII.6 to the financialstatements.As at 31 December 2018, the balance of consumable biological assets reflected in the notes to thefinancial statements of Chenming Paper Company amounted to RMB1,511,542,600 thousand, of whichthe balance of consumable biological assets measured at fair value amounted to RMB926,416,600.
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Consumable biological assets of Chenming Paper Company without a stock are measured at actual cost,and at fair value when there is a stock. Changes in fair value shall be recognised as profit or loss for thecurrent period. As there is no active market price for the consumable biological assets of Chenming PaperCompany, the management shall determine the fair value of consumable biological assets which haveformed a stock based on the valuation techniques adopted by external valuation institutions engaged bythe Company.As changes in the fair value of the consumable biological assets of Chenming Paper Company (the“biological assets”) will significantly impact the financial statements, and involve significant judgmentsfrom the management, we have regarded the measurement of consumable biological assets as a keyaudit matter.2. Application for auditing
When addressing the fair value measurement of the Biological Assets, the key auditing procedures weimplemented mainly include:
(1) we assessed the design and implementation of internal control of Chenming Paper Company
relating to the Biological Assets;(2) we comprehended and evaluated the definition and judgment of the management relating to stock;(3) we evaluated the independence, objectivity, experience and quality of the external valuer engaged
by the management;(4) We obtained the valuation report, and our valuation experts assessed the valuation method,
valuation parameters and the discount rate used in the valuation report.(II) Measurement of lease receivables
1. Details
For detailed disclosures of relevant information, please see notes IV.8, VI.7, VI.8 and VI.9 to the financialstatements.As at 31 December 2018, the carrying amount of lease receivables in the notes to the financial statementsof Chenming Paper Company amounted to RMB18,279,286,700 in aggregate, accounting for 17.36% oftotal consolidated assets, and including lease receivables due within one year, long-term receivables duewithin one year and long-term receivables. Lease receivables were mainly created in the financial leasing-related business carried out in the financial business segment of Chenming Paper Company, and werecategorised as financial assets with higher risks.The management of Chenming Paper Company judges whether or not to make bad debt provision offinancial lease receivables based on the assessment of the recoverability of financial lease receivables.The recognition of the lease receivables, changes in unsecured balance and provision for bad debt involvemanagement’s significant judgment.We are concerned about the foregoing matters because the carrying value of lease receivables issignificant for the consolidated financial statements of Chenming Paper Company, and the measurementof lease receivables involve significant judgment. Therefore, we have regarded the measurement of leasereceivables as a key audit matter.
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2. Application for auditing
When addressing the fair value measurement of lease receivables, the key auditing procedures weimplemented mainly include:
(1) we have identified, evaluated and tested the internal control related to the financial leasing business
including ageing analysis and overdue analysis of lease receivables and periodic assessment of therecoverability of the balance of lease receivables;(2) we reviewed financial leasing contracts and related information on early investigation of customers,
conducted interviews with management to understand the operations of financial leasing businessand the policy on revenue recognition;(3) we examined the ownership of the leased properties in the financial leasing contracts, for example,
examined other rights of the leased properties;(4) we examined and estimated the entry value and the term of amortisation of unrecognised financing
income; and examined whether the payment status of the lessees is consistent with the contractual
payment terms;(5) we have obtained the documents on the management’s assessment of the recoverability of
the lease receivables, in particular the amounts of provision for impairment categorised by the
management as individually made or made by credit risk characteristics; verified the reasonableness
of management judgement through evidence obtained from procedures such as investigations
on the background, business status and cash flow of customers, interviews with customers and
reviews on historical transactions and repayments;(6) we determined the likelihood of impairment and the accuracy of bad debt provision in accordance
with the Company’s accounting policy by checking the follow-up guarantee procedures of the
customers, the financial strength of the guarantor, and the inventory and value determination of the
collaterals;(7) we sought external confirmations for lease receivables with balances of significant amount and, in
certain cases, with balances of smaller amount at the end of the year.(III) Recognition of revenue from machine-made paper
1. Details
For detailed disclosures of relevant information, please see notes IV.23 and VI.42 to the financialstatements.In 2017, Chenming Paper Company recorded revenue of RMB28,875,756,200, of whichRMB24,303,557,400 was attributed to revenue of machine-made paper, accounting for 84.17% of therevenue.Revenue of machine-made paper is recognised when Chenming Paper Company transferred to thecustomers the control of the machine-made papers. Differentiated accounting methods were appliedwhen addressing the differences in business models of domestic and overseas operations: in termsof domestic sales of machine-made paper, revenue is recognised when goods are delivered to thecustomers and such deliveries are confirmed; while in terms of overseas sales of machine-made paper,revenue is recognised on the day when goods are loaded on board and declared.
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Revenue is one of the key performance indicators of Chenming Paper Company, and the revenue frommachine-made paper accounted for a relatively large proportion of the total revenue due to enormoussales, there may be potential misstatement in relation to whether revenue recognition is accounted forin the appropriate period of the financial statements, therefore, we identified recognition of revenue frommachine-made paper as a key audit matter.2. Application for auditing
When addressing the fair value measurement of machine-made paper, the key auditing procedures weimplemented mainly include:
(1) we identified and evaluated the effectiveness of the design and operation of key internal controls
conducted by the management related to revenue recognition;(2) we conducted sampling inspections on sales contracts, identified contract terms and conditions
related to the transfer of control of the goods, assessed whether the timing of recognition of sales
revenue from Chenming Paper Company meets the requirements of the Accounting Standards for
Business Enterprises;(3) we conducted sampling inspections on transactions recorded during the year and verified with
sales invoices, sales contracts, letters of credit, letters of guarantee, declaration forms, customers’
confirmation of receipt and delivery orders, etc.; evaluated whether the relevant revenue recognition
meets the accounting policy on revenue recognition of Chenming Paper Company;(4) we analysed revenue and gross profit by taking into account product types and identified abnormal
fluctuations in the amount of revenue in the current period;(5) we collected samples from sales revenue recorded around the balance sheet date for cut-off
tests; verified delivery orders and other supporting documents to assess whether sales revenue is
recorded in the appropriate accounting period; inspected the occurrence of on-the-spot recognition
of sales at the end of the inspection period and inspected goods returns after the inspection period
to determine the accuracy of revenue recognition during the period;(6) we sought external confirmations for clients with larger sales during the period.
IV. Other information
Chenming Paper Company’s management is responsible for other information. Other information includes theinformation covered in the 2018 annual report, but does not include the financial statements and our audit report.Our audit opinions published in the financial statements do not cover other information and we do not publish anyform of assurance conclusion on other information.In conjunction with our audit of the financial statements, our responsibility is to read other information, during whichwe consider whether there is significant inconsistency or other material misstatement of other information with thefinancial statements or what we have learned during the audit.Based on the work we have performed, if we determine that there is a material misstatement of other information, weshould report that fact. In this regard, we have nothing to report.
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V. Management and management responsibility for financial statements
The management of Chenming Paper Company (hereinafter referred to as“the management”) is responsible for thepreparation of financial statements in accordance with the requirements of the Accounting Standards for BusinessEnterprises to enable them to achieve fair reflection, and to achieve the design, implementation and maintenance ofnecessary internal controls so that the financial statements are free of material misstatements due to fraud or errors.In the preparation of the financial statements, the management is responsible for assessing the continuing operationscapabilities of Chenming Paper Company, disclosing issues related to going concern (if applicable), and applying thegoing concern assumption unless management plans to liquidate Chenming Paper Company, terminate operations orhave no other realistic options.The management is responsible for supervising the financial reporting process of Chenming Paper Company.
VI. Auditor’s responsibility for auditing financial statements
Our objective is to obtain reasonable assurance as to whether the entire financial statements are free from materialmisstatement due to fraud or errors and to issue an audit report containing audit opinions. Reasonable assurance isa high level of assurance, but it does not guarantee that an audit performed in accordance with auditing standardscan always discover a major misstatement when it exists. Misstatements are generally considered to be material if itis reasonably expected that misstatements, individually or in aggregate, may affect the economic decision made byusers of financial statements based on the financial statements.In the process of conducting audit work in accordance with auditing standards, we use professional judgment andmaintain professional suspicion. At the same time, we also perform the following tasks:
I. To identify and assess risks of material misstatement of financial statements due to fraud or errors, design
and implement audit procedures to address these risks, and obtain adequate and appropriate audit evidence,together perform as a basis for issuing audit opinions. Since fraud may involve collusion, falsification, intentionalomission, misrepresentation or override of internal controls, the risk of failing to detect a material misstatementdue to fraud is higher than the risk of failing to detect a material misstatement due to an error.II. To understand audit-related internal controls to design appropriate audit procedures.III. To evaluate the appropriateness of accounting policies adopted by the management and the reasonableness of
accounting estimates and related disclosures.
2018 ANNUAL REPORT
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IV. To conclude on the appropriateness of management’s use of the continuing operation assumption. At thesame time, according to the audit evidence obtained, it may lead to conclusions as to whether there aresignificant uncertainties in matters or circumstances that have significant doubts about the ability of ChenmingPaper Company to continue its operations. If we conclude that there are significant uncertainties, the auditingstandards require us to request the users of the report to pay attention to the re lev ant d isc lo sur es in th e f ina nci alstatements in the audit report; if the disclosure is not sufficient, we should publish modified audit report. Ourconclusions are based on the information available as of the date of the audit report. However, future events orcircumstances may cause Chenming Paper Company to not continue its operations.V. Evaluate the overall presentation, structure, and content (including disclosures) of the financial statements and
evaluate whether the financial statements fairly reflect the relevant transactions and matters.VI. To obtain sufficient and appropriate audit evidence on the financial information of entities or business activities
in Chenming Paper Company to express opinions on the financial statements. We are responsible for guiding,
supervising and executing group audits. We take full responsibility for the audit opinion.We communicate with the management on planned audit scope, time arrangements and major audit findings,including communication of the internal control deficiencies that we identified during the audit.We also provide statements to the management on compliance with ethical requirements related to independence,and communicate with the management on all relationships and other matters that may reasonably be considered toaffect our independence, as well as related preventive measures (if applicable).From the matters we communicated with the management, we determine which matters are most important for theaudit of the financial statements for the current period and thus constitute the key audit matters. We describe thesematters in our audit report, unless laws and regulations prohibit the public disclosure of these matters, or in rarecases, if it is reasonably expected that the negative consequences of disclosing something in the audit report willoutweigh the benefits to the public interest, we determine that the matter should not be reported in the audit reportRuihua Certified Public Accountants(Special General Partnership)Chinese Certified Public Accountant (Project Partner): Liu JianBeijing, ChinaChinese Certified Public Accountant: Jiang Lei
29 March 2019
XIIIFinancial Report
II. Financial Statements
The unit in the notes to the financial statements is: RMB
1. Consolidated Balance Sheet
Prepared by: Shandong Chenming Paper Holdings Limited31 December 2018
Unit: RMBItem31 December 20181 January 201831 December 2017
CURRENT ASSETS:
Monetary funds19,292,774,747.7914,443,492,461.4314,443,492,461.43Held-for-trading financial assets94,000,000.00Financial assets measured at fairvalue through profit or loss94,000,000.00Bills receivable and accounts receivable4,617,603,496.057,886,097,430.597,886,097,430.59Including: Bills receivable1,213,116,491.464,220,231,853.564,220,231,853.56Accounts receivable3,404,487,004.593,665,865,577.033,665,865,577.03Prepayments863,739,020.741,962,151,473.351,962,151,473.35Other receivables2,133,089,983.39538,734,656.55538,734,656.55Including: interest receivable198,577,632.4315,295,213.2415,295,213.24Inventories6,771,488,433.746,022,805,491.176,022,805,491.17Non-current assets due within one year4,007,503,281.866,901,695,875.946,901,695,875.94Other current assets10,281,312,825.1311,568,757,330.2611,568,757,330.26
Total current assets47,967,511,788.7049,417,734,719.2949,417,734,719.29
NON-CURRENT ASSETS:
Available-for-sale financial assets2,453,000,000.00Long-term receivables7,926,610,770.869,400,862,089.189,400,862,089.18Long-term equity investments484,674,282.77391,868,827.45391,868,827.45Other non-current financial assets103,000,000.002,453,000,000.00Investment properties4,844,993,039.624,809,535,109.824,809,535,109.82Fixed assets27,913, 986,152.6828,227,509,503.0528,227,509,503.05Construction in progress11,871,350,821.557,683,945,044.327,683,945,044.32Intangible assets1,939,355,274.982,059,221,379.092,059,221,379.09Goodwill5,969,626.5720,283,787.1720,283,787.17Long-term prepaid expenses134,916,241.81139,122,569.45139,122,569.45Deferred income tax assets603,873,698.62522,288,850.40522,288,850.40Other non-current assets1,522,493,129.66499,724,197.70499,724,197.70Total non-current assets57,351,223,039.1256,207,361,357.6356,207,361,357.63
Total assets105,318,734,827.82105,625,096,076.92105,625,096,076.92
2018 ANNUAL REPORT
XIIIFinancial Report
Item31 December 20181 January 201831 December 2017
CURRENT LIABILITIES:
Short-term borrowings40,227,945,361.8935,096,574,873.0335,096,574,873.03Bills payable and accounts payable8,369,198,199.595,292,331,618.455,292,331,618.45Advance receipts243,182,891.22Contract liabilities419,540,133.74243,182,891.22Staff remuneration payables135,373,407.70185,130,892.10185,130,892.10Taxes payable451,651,198.64496,626,014.68496,626,014.68Other payables1,777,718,017.481,512,109,925.731,512,109,925.73Including: Interest payable226,788,777.5985,480,380.3285,480,380.32Non-current liabilities due within one year7,216,305,771.013,625,430,347.403,625,430,347.40Other current liabilities2,816,956,481.6810,797,248,631.7610,797,248,631.76
Total current liabilities61,414,688,571.7357,248,635,194.3757,248,635,194.37
NON-CURRENT LIABILITIES:
Long-term borrowings7,798,934,484.947,646,122,995.917,646,122,995.91Bonds payable2,097,562,500.002,196,261,279.572,196,261,279.57Long-term payables3,900,255,693.445,550,881,435.645,550,881,435.64Long-term employee benefits payableProvisions325,259,082.28325,259,082.28325,259,082.28Deferred income1,862,395,197.612,133,757,550.212,133,757,550.21Other non-current liabilities2,047,948,069.73250,000,000.00250,000,000.00Total non-current liabilities18,032,355,028.0018,102,282,343.6118,102,282,343.61
Total liabilities79,447,043,599.7375,350,917,537.9875,350,917,537.98
XIIIFinancial Report
Item31 December 20181 January 201831 December 2017
Owners’equity:
Share capital2,904,608,200.001,936,405,467.001,936,405,467.00Other equity instruments7,465,500,000.0010,048,300,000.0010,048,300,000.00Including: Preference shares4,477,500,000.004,477,500,000.004,477,500,000.00Perpetual bonds2,988,000,000.005,570,800,000.005,570,800,000.00Capital reserves5,091,449,915.146,149,257,784.906,149,257,784.90Less: treasury sharesOther comprehensive income-736,520,181.01-354,165,127.80-354,165,127.80Special reserves3,257,998.47Surplus reserves1,148,888,912.111,132,116,106.401,132,116,106.40General risk provisions64,123,919.23Retained profit9,107,422,690.858,866,614,844.408,866,614,844.40Total equity attributable to owners of the Company25,048,731,454.7927,778,529,074.9027,778,529,074.90Minority interest822,959,773.302,495,649,464.042,495,649,464.04Total owners’equity25,871,691,228.0930,274,178,538.9430,274,178,538.94
TOTAL LIABILITIES AND OWNERS’EQUITY105,318,734,827.82105,625,096,076.92105,625,096,076.92
Legal Representative:
Financial controller:Head of the financial department:
Chen HongguoDong LianmingZhang Bo
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XIIIFinancial Report
2. Balance sheet of the Company
Unit: RMBItem31 December 20181 January 201831 December 2017
CURRENT ASSETS:
Monetary funds8,160,234,434.159,580,548,200.889,580,548,200.88Held-for-trading financial assets94,000,000.00Financial assets measured at fairvalue through profit or loss94,000,000.00Bills receivable and accounts receivable1,785,939,152.84795,283,825.96795,283,825.96Including: Bills receivable436,662,187.80787,095,075.51787,095,075.51Accounts receivable1,349,276,965.048,188,750.458,188,750.45Prepayments1,584,388,551.00742,107,273.09742,107,273.09Other receivables19,405,314,961.2422,351,203,484.8322,351,203,484.83Including: Interest receivable77,257,506.2555,570,669.8355,570,669.83Inventories1,133,888,230.37751,426,520.51751,426,520.51Contract assetsAssets held for saleNon-current assets due within one yearOther current assets140,126,157.182,488,977.722,488,977.72
Total current assets32,209,891,486.7834,317,058,282.9934,317,058,282.99
XIIIFinancial Report
Item31 December 20181 January 201831 December 2017
NON-CURRENT ASSETS:
Available-for-sale financial assets2,453,000,000.00Long-term receivables516,925,607.06456,925,607.06456,925,607.06Long-term equity investments22,487,417,443.2418,671,034,243.4918,674,034,243.49Investment in other equity instruments3,000,000.003,000,000.00Other non-current financial assets103,000,000.002,453,000,000.00Fixed assets2,103,164,588.932,364,990,246.942,364,990,246.94Construction in progress2,014,493,138.68973,375,557.42973,375,557.42Intangible assets458,365,862.52470,379,203.58470,379,203.58Deferred income tax assets303,861,021.95186,935,887.68186,935,887.68Other non-current assets9,800,000.0054,800,000.0054,800,000.00Total non-current assets28,000,027,662.3825,634,440,746.1725,634,440,746.17
Total assets60,209,919,149.1659,951,499,029.1659,951,499,029.16
CURRENT LIABILITIES:
Short-term borrowings7,668,689,104.317,522,637,247.147,522,637,247.14Bills payable and accounts payable11,318,835,274.796,945,776,495.216,945,776,495.21Advance receipts956,040,917.07Contract liabilities3,299,778,982.47956,040,917.07Staff remuneration payables53,899,651.1547,546,116.6647,546,116.66Taxes payable59,595,083.56116,173,781.96116,173,781.96Other payables5,465,488,890.522,190,981,135.042,190,981,135.04Including: Interest payable139,444,333.3428,428,028.5828,428,028.58Dividend payableNon-current liabilities due within one year3,256,715,148.391,318,429,260.121,318,429,260.12Other current liabilities3,527,956,481.6810,797,248,631.7610,797,248,631.76
Total current liabilities34,650,958,616.8729,894,833,584.9629,894,833,584.96
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XIIIFinancial Report
Item31 December 20181 January 201831 December 2017
NON-CURRENT LIABILITIES:
Long-term borrowings1,335,482,969.43908,182,122.65908,182,122.65Bonds payable2,097,562,500.001,198,305,304.751,198,305,304.75Long-term payables2,072,502,840.484,605,691,332.134,605,691,332.13Provisions325,259,082.28325,259,082.28325,259,082.28Deferred income46,412,014.9950,753,189.6050,753,189.60Other non-current liabilities1,592,166,670.00250,000,000.00250,000,000.00Total non-current liabilities7,469,386,077.187,338,191,031.417,338,191,031.41
TOTAL LIABILITIES42,120,344,694.0537,233,024,616.3737,233,024,616.37
OWNERS’EQUITY:
Share capital2,904,608,200.001,936,405,467.001,936,405,467.00Other equity instruments7,465,500,000.0010,048,300,000.0010,048,300,000.00Including: Preference shares4,477,500,000.004,477,500,000.004,477,500,000.00Perpetual bonds2,988,000,000.005,570,800,000.005,570,800,000.00Capital reserves4,953,557,435.195,938,960,168.195,938,960,168.19Surplus reserves1,136,699,330.201,119,926,524.491,119,926,524.49Retained profit1,629,209,489.723,674,882,253.113,674,882,253.11Total owners’equity18,089,574,455.1122,718,474,412.7922,718,474,412.79
TOTAL LIABILITIES AND OWNERS’EQUITY60,209,919,149.1659,951,499,029.1659,951,499,029.16
XIIIFinancial Report
3. Consolidated Income Statement
Unit: RMBItem20182017
I. Total revenue28,875,756,163.5629,472,453,563.98Including: Revenue28,875,756,163.5629,472,453,563.98II. Total operating costs26,218,114,318.7025,420,763,580.37Including: Operating costs19,845,756,818.5119,729,190,475.09
Taxes and surcharges250,358,478.10219,074,379.63
Sales and distribution expenses1,190,499,238.491,304,465,552.27
General and administrative expenses967,840,641.90892,063,618.67
Research and development expense929,873,688.401,017,306,281.19
Finance expenses2,741,486,438.032,117,302,131.72
Including: Interest expenses3,348, 606,907.652,293,110,650.05
Interest income692,370,142.41606,383,791.43
Loss on impairment of assets164,654,098.54141,361,141.80
Credit impairment loss127,644,916.73
Plus:
Other income97,814,340.42135,530,257.77
Investment income (“-”denotes loss)248,962,910.68161,009,000.23
Including: Investment income from associates and joint ventures-20,475,760.3818,506,834.57
Gain on change in fair value (“-”denotes loss)-115,464,400.6572,999,957.67
Gain on disposal of assets (“-”denotes loss)17,149,722.72-2,757,178.42
III.
Operating profit (“-”denotes loss)2,906,104,418.034,418,472,020.86
Plus: Non-operating income319,396,237.27445,266,368.30
Less: Non-operating expenses19,184,539.11327,259,815.63
IV.
Total profit (“-”denotes total loss)3,206,316,116.194,536,478,573.53
Less: Income tax expenses641,577,494.92777,515,726.86
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Item20182017
V.
Net profit (“-”denotes net loss)2,564,738,621.273,758,962,846.67
(I)
Net profit from continuing operations (“-”denotes net loss)2,564,738,621.273,758,962,846.67
Net profit attributable to shareholders of the Company2,509,828,858.473,769,325,450.93
Profit or loss of minority interest54,909,762.80-10,362,604.26VI.
Net other comprehensive income after tax-382,355,053.21451,080,644.09
Net other comprehensive income after tax attributable to shareholders of the
Company-382,355,053.21451,080,644.09
(I)
Other comprehensive income that cannot be reclassified to profit
and loss in subsequent periods
(II)
Other comprehensive income that will be reclassified to profit
and loss in subsequent periods-382,355,053.21451,080,644.09
Exchange differences on translation of foreign operations-382,355,053.21451,080,644.09
Other comprehensive income attributable to minority interest, net of taxVII.
Total comprehensive income2,182,383,568.064,210,043,490.76
Total comprehensive income attributable to shareholders of the Company2,127,473,805.264,220,406,095.02
Total comprehensive income attributable to minority interest54,909,762.80-10,362,604.26VIII.
Earnings per share:
(I)
Basic earnings per share0.511.13
(II)
Diluted earnings per share0.511.13Legal representative:
Financial controller:Head of the financial department:
Chen HongguoDong LianmingZhang Bo
XIIIFinancial Report
4. Income statement of the Company
Unit: RMBItem20182017
I. Revenue5,674,841,840.677,200,923,503.96Less: Operating costs4,280,788,382.364,991,353,566.95Taxes and surcharges70,504,281.1570,868,721.40Sales and distribution expenses170,956,908.96246,355,160.28General and administrative expenses313,006,816.72324,196,060.08Research and development expense217,377,973.03291,249,441.11Finance expenses1,370,330,815.22833,482,860.73Including:Interest expense2,392,019,845.762,123,134,292.34Interest income1,196,235,406.951,434,029,033.02Impairment loss of assets5,617,450.0019,570,118.05Credit impairment loss2,970,370.50Plus: Other income4,341,174.6115,298,245.10
Investment income (“-”denotes loss)728,792,644.01138,737,944.94Including: Investment income from associatesand joint ventures-16,957,355.99-3,265,824.03Gain on change in fair value (“-”denotes loss)-94,000,000.0094,000,000.00Gain on disposal of assets (“-”denotes loss)17,006,032.16-2,279,308.98II. Operating profit (“-”denotes loss)-100,571,306.49669,604,456.42Plus: Non-operating income158,610,672.64165,438,580.73Less: Non-operating expenses7,236,443.34325,759,082.28III. Total profit (“-”denotes total loss)50,802,922.81509,283,954.87Less: Income tax expenses-116,925,134.27-22,796,697.41IV. Net profit (“-”denotes net loss)167,728,057.08532,080,652.28(I) Net profit from continuing operations (“-”denotes net loss)167,728,057.08532,080,652.28V. Net other comprehensive income after tax
VI. Total comprehensive income167,728,057.08532,080,652.28VII. Earnings per share:
(I) Basic earnings per share(II) Diluted earnings per share
2018 ANNUAL REPORT
XIIIFinancial Report
5. Consolidated cash flow statement
Unit: RMBItem20182017
I. Cash flows from operating activities:
Cash received from sales of goods and rendering of services32,087,951,780.9224,349,119,464.84Tax rebates received60,796,324.648,465,388.45Cash received relating to other operating activities6,920,381,377.58828,266,108.48Subtotal of cash inflows from operating activities39,069,129,483.1425,185,850,961.77
Cash paid for goods and services19,899,777,030.8814,516,886,986.15Cash paid to and for employees1,263,770,142.641,022,490,275.52Payments of taxes and surcharges2,104,645,214.451,631,366,603.20Cash paid relating to other operating activities1,701,235,208.137,991,341,053.97Subtotal of cash outflows from operating activities24,969,427,596.1025,162,084,918.84Net cash flows from operating activities14,099,701,887.0423,766,042.93
II. Cash flows from investing activities:
Cash received from investments2,390,000,000.00Cash received from investment income375,641,400.0016,861,111.11Net cash received from disposal of fixed assets, intangible assets
and other long-term assets698,360.182,165,782.79Net cash received from disposal of subsidiaries and other business
units19,610,260.70Cash received relating to other investing activities999,341,073.00Subtotal of cash inflows from investing activities2,785,950,020.881,018,367,966.90Cash paid for purchase of fixed assets, intangible assets and other
long-term assets3,608,698,828.732,252,963,203.35Cash paid on investments118,200,000.00813,511,220.00Net cash paid for acquiring subsidiaries and other business units1,582,745,899.31Cash paid relating to other investing activities838,042,210.54Subtotal of cash outflows from investing activities4,564,941,039.274,649,220,322.66Net cash flows from investing activities-1,778,991,018.39-3,630,852,355.76
XIIIFinancial Report
Item20182017
III. Cash flows from financing activities:
Cash received from investments500,000,000.0040,000,000.00Including: Cash received from by subsidiariesfrom minority investment500,000,000.0040,000,000.00Cash received from borrowings43,668,959,703.0744,462,208,111.60Cash received from issuance of bonds898,650,000.00Cash received relating to other financing activities16,718,183,724.5722,416,411,567.84
Subtotal of cash inflows from financing activities61,785,793,427.6466,918,619,679.44
Cash repayments of amounts borrowed38,860,270,293.6736,461,483,259.93Cash paid for dividend and profit distribution or interest payment3,749,772,244.772,998,835,276.61Including: Dividend and profit paid by subsidiariesto minority shareholdersCash paid relating to other financing activities32,028,908,989.5822,981,164,342.75Subtotal of cash outflows from financing activities74,638,951,528.0262,441,482,879.29Net cash flows from financing activities-12,853,158,100.384,477,136,800.15
IV. Effect of foreign exchange rate changes on cash and cash
equivalents109,597,099.79-45,503,158.48V. Net increase in cash and cash equivalents-422,850,131.94824,547,328.84Plus: Balance of cash and cash equivalents as atthe beginning of the period2,804,408,374.461,979,861,045.62
VI. Balance of cash and cash equivalents as at the end of the period2,381,558,242.522,804,408,374.46
2018 ANNUAL REPORT
XIIIFinancial Report
6. Cash flow statement of the Company
Unit: RMBItem20182017
I. Cash flows from operating activities:
Cash received from sales of goods and rendering of services6,040,539,799.023,463,130,926.30Cash received relating to other operating activities1,899,284,149.441,689,891,672.88
Subtotal of cash inflows from operating activities7,939,823,948.465,153,022,599.18
Cash paid for goods and services3,280,788,382.362,236,436,321.89Cash paid to and for employees388,826,518.74391,883,575.09Payments of taxes and surcharges296,043,362.00357,296,733.15Cash paid relating to other operating activities1,861,866,604.791,054,760,413.57
Subtotal of cash outflows from operating activities5,827,524,867.894,040,377,043.70
Net cash flows from operating activities2,112,299,080.571,112,645,555.48
II. Cash flows from investing activities:
Cash received from investments2,288,400,000.00Cash received from investment income965,641,400.0016,861,111.11Net cash received from disposal of fixed assets, intangible assets
and other long-term assets290,680.961,686,062.41Cash received relating to other investing activities900,000,000.00
Subtotal of cash inflows from investing activities3,254,332,080.96918,547,173.52
Cash paid for purchase of fixed assets, intangible assets and other
long-term assets338,672,140.8595,795,315.34Cash paid on investments3,794,390,597.054,823,511,220.00Subtotal of cash outflows from investing activities4,133,062,737.904,919,306,535.34
Net cash flows from investing activities-878,730,656.94-4,000,759,361.82
XIIIFinancial Report
Item20182017
III. Cash flows from financing activities:
Cash received from borrowings10,473,500,000.0026,018,893,778.41Cash received from issuance of bonds898,650,000.00Cash received relating to other financing activities25,438,933,017.2022,716,411,567.84
Subtotal of cash inflows from financing activities36,811,083,017.2048,735,305,346.25
Cash repayments of amounts borrowed12,527,601,933.3322,130,699,777.14Cash paid for dividend and profit distribution or interest payment1,602,928,591.753,596,708,489.03Cash paid relating to other financing activities24,309,884,284.5319,674,703,816.85Subtotal of cash outflows from financing activities38,440,414,809.6145,402,112,083.02
Net cash flows from financing activities-1,629,331,792.413,333,193,263.23
IV. Effect of foreign exchange rate changes on cash and cash
equivalents-16,693,638.05-7,395,813.66
V. Net increase in cash and cash equivalents-412,457,006.83437,683,643.23
Plus:Balance of cash and cash equivalents as at the beginning of the
period1,020,262,069.85582,578,426.62
VI. Balance of cash and cash equivalents as at the end of the period607,805,063.021,020,262,069.85
2018 ANNUAL REPORT
XIIIFinancial Report
7. Consolidated statement of changes in owners
’equity
Amount for the reporting period
Unit: RMB
2018
Equity attributable to owners of the Company
Other equity instruments
ItemShare capitalPreference sharesPerpetual bondsOthersCapital reserves
Less:
treasury sharesOther
comprehensive
incomeSpecial reservesSurplus reservesGeneral risk provisionsRetained profitOthersSubtotalMinority interestTotal owner
’s equity
I. Balance as at the end of the prior
year1,936,405,467.004,477,500,000.005,570,800,000.006,149,257,784.90-354,165,127.801,132,116,106.408,866,614,844.4027,778,529,074.902,495,649,464.0430,274,178,538.94
II. Balance as at the beginning of the
year1,936,405,467.004,477,500,000.005,570,800,000.006,149,257,784.90-354,165,127.801,132,116,106.408,866,614,844.4027,778,529,074.902,495,649,464.0430,274,178,538.94
III. Changes in the period (“-”
denotes decrease)968,202,733.00-2,582,800,000.00-1,057,807,869.76-382,355,053.213,257,998.47
16,772,805.71
64,123,919.23240,807,846.45-2,729,797,620.11-1,672,689,690.74-4,402,487,310.85
(I) Total comprehensive income-382,355,053.212,509,828,858.472,127,473,805.2654,909,762.802,182,383,568.06(II) Capital paid in and reduced
by owners-2,582,800,000.00-17,200,000.00-2,600,000,000.00500,000,000.00-2,100,000,000.001. Ordinary shares paid by
owners500,000,000.00500,000,000.00
2. Capital paid by holders of
other equity instruments
-2, 582,800,000.00-17,200,000.00
-2,600,000,000.00-2,600,000,000.00
3. Others
(III) Profit distribution
16,772,805.71
64,123,919.23-2,269,021,012.02-2,188,124,287.08-2,188,124,287.08
1. Transfer to surplus
reserves16,772,805.71-16,772,805.71
2. Transfer to general risk
provisions
64,123,919.23-64,123,919.23
3. Distribution to owners (or
shareholders)-2,188,124,287.08
-2,188,124,287.08-2,188,124,287.08
(IV) Transfer within owners’equity968,202,733.00-1,040,607,869.76-72,405,136.76-2,227,599,453.54-2,300,004,590.30
1. Capital (or share capital)
created on capital reserve968,202,733.00-968,202,733.00
2. Others
-72,405,136.76-72,405,136.76-2,227,599,453.54-2,300,004,590.30
(V) Special reserves3,257,998.473,257,998.473,257,998.47
1. Withdrawal3,257,998.473,257,998.473,257,998.47
IV. Balance as at the end of the
period2,904,608,200.004,477,500,000.002,988,000,000.005,091,449,915.14-736,520,181.013,257,998.471,148,888,912.1164,123,919.239,107,422,690.8525,048,731,454.79822,959,773.3025,871,691,228.09
XIIIFinancial Report
Amount for the prior period
Unit: RMB
2017
Equity attributable to owners of the Company
Other equity instruments
ItemShare capitalPreference sharesPerpetual bondsOthersCapital reserves
Less:
treasury sharesOther
comprehensive
incomeSpecial reservesSurplus reservesGeneral risk provisionsRetained profitOthersSubtotal
Minority interestTotal owner
’s equity
I. Balance as at the end of the prior
year1,936,405,467.004,477,500,000.002,582,800,000.006,149,257,784.90-805,245,771.891,132,116,106.406,745,974,781.0222,218,808,367.43346,050,847.7622,564,859,215.19
II. Balance as at the beginning of
the year1,936,405,467.004,477,500,000.002,582,800,000.006,149,257,784.90-805,245,771.891,132,116,106.406,745,974,781.0222,218,808,367.43346,050,847.7622,564,859,215.19
III. Changes in the period (“-”
denotes decrease)2,988,000,000.00451,080,644.092,120,640,063.385,559,720,707.472,149,598,616.287,709,319,323.75(I) Total comprehensive income451,080,644.093,769,325,450.934,220,406,095.02-10,362,604.264,210,043,490.76(II) Capital paid in and reduced
by owners2,988,000,000.002,988,000,000.002,159,961,220.545,147,961,220.541. Ordinary shares paid by
owners2,159,961,220.542,159,961,220.54
2. Capital paid by holders of
other equity instruments2,988,000,000.002,988,000,000.002,988,000,000.00
(III) Profit distribution-1,648,685,387.55-1,648,685,387.55-1,648,685,387.55
1. Distribution to owners (or
shareholders
-1,648,685,387.55-1,648,685,387.55-1,648,685,387.55
IV. Balance as at the end of the
period1,936,405,467.004,477,500,000.005,570,800,000.006,149,257,784.90-354,165,127.801,132,116,106.408,866,614,844.4027,778,529,074.902,495,649,464.0430,274,178,538.94
2018 ANNUAL REPORT
XIIIFinancial Report
8. Statement of changes in equity of owners of the Company
Amount for the reporting period
Unit: RMB
2018
Other equity instruments
ItemShare capitalPreference sharesPerpetual bondsOthersCapital reserves
Less:
treasury shares
Other
comprehensive
incomeSpecial reservesSurplus reservesRetained profitOthersTotal owner
’s equity
I. Balance as at the end of the prior year1,936,405,467.004,477,500,000.005,570,800,000.005,938,960,168.191,119,926,524.493,674,882,253.1122,718,474,412.79Plus: Others-8,503,727.68-8,503,727.68
II. Balance as at the beginning of the year1,936,405,467.004,477,500,000.005,570,800,000.005,938,960,168.191,119,926,524.493,666,378,525.4322,709,970,685.11
III. Changes in the period (“-”denotes decrease)968,202,733.00-2,582,800,000.00-985,402,733.0016,772,805.71-2,037,169,035.71-4,620,396,230.00
(I) Total comprehensive income167,728,057.08167,728,057.08(II) Capital paid in and reduced by owners-2,582,800,000.00-17,200,000.00-2,600,000,000.00
1. Capital paid by holders of other equity
instruments-2, 582,800,000.00-17,200,000.00-2,600,000,000.00
2. Others
(III) Profit distribution16,772,805.71-2,204,897,092.79-2,188,124,287.08
1. Transfer to surplus reserves16,772,805.71-16,772,805.712. Distribution to owners (or
shareholders-2,188,124,287.08-2,188,124,287.08
(IV) Transfer within owners’equity968,202,733.00-968,202,733.00
1. Capital (or share capital) created on
capital reserve968,202,733.00-968,202,733.00
IV. Balance as at the end of the period2,904,608,200.004,477,500,000.002,988,000,000.004,953,557,435.191,136,699,330.201,629,209,489.7218,089,574,455.11
XIIIFinancial Report
Amount for the prior period
Unit: RMB
2017
Other equity instruments
ItemShare capitalPreference sharesPerpetual bondsOthersCapital reserves
Less:
treasury shares
Other
comprehensive
incomeSpecial reservesSurplus reservesRetained profitOthersTotal owner
’s equity
I. Balance as at the end of the prior year1,936,405,467.004,477,500,000.002,582,800,000.005,938,960,168.191,119,926,524.494,791,486,988.3820,847,079,148.06
II. Balance as at the beginning of the year1,936,405,467.004,477,500,000.002,582,800,000.005,938,960,168.191,119,926,524.494,791,486,988.3820,847,079,148.06
III. Changes in the period (“-”denotes decrease)2,988,000,000.00-1,116,604,735.271,871,395,264.73
(I) Total comprehensive income532,080,652.28532,080,652.28(II) Capital paid in and reduced by owners2,988,000,000.002,988,000,000.00
1. Capital paid by holders of other equity
instruments2,988,000,000.002,988,000,000.00
(III) Profit distribution-1,648,685,387.55-1,648,685,387.55
1. Distribution to owners (or
shareholders-1,648,685,387.55-1,648,685,387.55
IV. Balance as at the end of the period1,936,405,467.004,477,500,000.005,570,800,000.005,938,960,168.191,119,926,524.493,674,882,253.1122,718,474,412.79
2018 ANNUAL REPORT
XIIIFinancial Report
III. General Information of the Company
Shandong Chenming Paper Holdings Limited (hereinafter referred to as the“Company”) was incorporated in May 1993 inShouguang City, Shandong Province, with its headquarters at No. 2199 Nongsheng Road East, Shouguang City, ShandongProvince.The Company and its subsidiaries are principally engaged in, among other things, processing and sale of paper products(including machine-made paper and paper board), paper making raw materials and machinery; generation and sale ofelectric power and thermal power; forestry, saplings growing, processing and sale of timber; manufacturing, processing andsale of wood products; and manufacturing and sale of laminated boards and fortified wooden floorboards, hotel service,equipment financial and operating leasing, magnesite mining, processing and sales of talc.The financial statements were considered and approved by the board of directors of the Company (the“Board”) on 29March 2019. According to the Articles of Association, these financial statements will be submitted to the general meeting forits approval.Subsidiaries of the Company included in the scope of consolidation in 2018 totalled 66. For details, please refer to NoteVIII“Equity in other entities”. The scope of consolidation of the Company during the year had 4 more companies includedand one companies excluded compared to the prior year. For details, please refer to Note VII“Changes in the scope ofconsolidation”.
IV. Basis of Preparation of the Financial Statements
1. Basis of preparation
The Company’s financial statements are prepared on a going concern and based on actual transactions and events,in accordance with the Accounting Standards for Business Enterprises-Basic Standards promulgated by the Ministryof Finance (Order of Ministry of Finance No. 33, as amended by Order of Ministry of Finance No. 76) and 42 specificaccounting standards as promulgated and amended on and after 15 February 2006, the application guidelines of theAccounting Standards for Business Enterprises, interpretations and other related rules of the Accounting Standardsfor Business Enterprises (hereinafter referred to as“ASBEs”), and the disclosure requirements of the“Regulation onthe Preparation of Information Disclosures of Companies Issuing Public Shares, No. 15: General Requirements forFinancial Reports”(revised in 2014) of China Securities Regulatory Commission.The Company’s financial statements have been prepared on an accrual basis in accordance with the ASBEs. Exceptfor certain financial instruments, the financial statements are prepared under the historical cost convention. Held-for-sale non-current assets are measured at the lower of the difference of fair value less expected expenses or the originalcarrying amount when meeting the conditions of holding for sale. In the event that depreciation of assets occurs, aprovision for impairment is made accordingly in accordance with the relevant regulations.
2. Going concern
No facts or circumstances comprise a material uncertainty about the Company’s going concern basis within 12months since the end of the reporting period.
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates
Whether the Company needs to comply with the disclosure requirements for specific industriesNoSpecific accounting policies and accounting estimates are indicated as follows:
The Company and its subsidiaries are principally engaged in machine-made paper, electricity and heat, constructionmaterials, paper making chemical products, financial leasing, hotel management and other operations. The Company and itssubsidiaries formulated certain specific accounting policies and accounting estimates for the transactions and matters suchas revenue recognition, determination of performance progress and R&D expenses based on their actual production andoperation characteristics pursuant to the requirements under the relevant accounting standards for business enterprises.For details, please refer to this Note V. 29“Revenue”. For the critical accounting judgments and estimates made by themanagement, please refer to Note V. 33“Change of Significant accounting policies and accounting estimates”.
1. Statement of compliance with the Accounting Standards for Business Enterprises
The financial statements have been prepared by the Company in conformity with the ASBEs, which truly and fullyreflect the financial position of the Company as at 31 December 2018 and relevant information such as the operatingresults and cash flows for 2018. In addition, the financial statements of the Company also comply with, in all materialrespects, the disclosure requirements of the“Regulation on the Preparation of Information Disclosures of CompaniesIssuing Public Shares, No. 15: General Requirements for Financial Reports”revised by the China Securities RegulatoryCommission in 2014 and the notes thereto.
2. Accounting period
The accounting periods of the Company are divided into annual periods and interim periods. Interim periods refer toreporting periods that are shorter than a full accounting year. The accounting year of the Company is from 1 Januaryto 31 December of each calendar year.
3. Operating cycle
Ordinary operating cycle refers to the period from acquisition of assets used for processing by the Company untiltheir realisation in cash or cash equivalents. The operating cycle of the Company lasts for 12 months, and acts as anindicator for classification of liquidity of assets and liabilities.
4. Functional currency
The Company and its domestic subsidiaries recognise RMB as their functional currency according to the primaryeconomic environment in which they operate. The functional currency of the Company and its domestic subsidiariesis Renminbi (“RMB”). Overseas subsidiaries of the Company recognise U.S. dollar (“USD”or“US$”), Japanese yen(“JPY”), Euro (“EUR”) and South Korean Won (“KRW”) as their respective functional currency according to the generaleconomic environment in which these subsidiaries operate. The Company prepares its financial statements in RMB.
2018 ANNUAL REPORT
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
5. Accounting treatment of business combinations under common control and not under common
control
Business combinations refer to the transactions or events in which two or more separate enterprises merged as asingle reporting entity. Business combinations are divided into business combinations under common control and notunder common control.(1) Business combinations under common control
A business combination involving enterprises under common control is a business combination in whichall of the combining enterprises are ultimately controlled by the same party or parties before and after thecombination, and that control is not transitory. The party that, on the combination date, obtains controlof another enterprise participating in the combination is the absorbing party, while that other enterpriseparticipating in the combination is a party being absorbed. The combination date is the date on which theabsorbing party effectively obtains control of the party being absorbed.Assets and liabilities obtained by the absorbing party are measured at their carrying amount at the combinationdate as recorded by the party being merged. The difference between the carrying amount of the net assetsobtained and the carrying amount of the consideration paid for the combination (or the aggregate nominal valueof shares issued as consideration) is charged to the capital reserve (share capital premium). If the capital reserve(share capital premium) is not sufficient to absorb the difference, any excess shall be adjusted against retainedearnings.Cost incurred by the absorbing party that is directly attributable to the business combination shall be charged toprofit or loss in the period in which they are incurred.(2) Business combination not under common control
A business combination not involving enterprises under common control is a business combination in whichall of the combining enterprises are not ultimately controlled by the same party or parties before and after thecombination. For a business combination not involving enterprises under common control, the party that, on theacquisition date, obtains control of another enterprise participating in the combination is the acquirer, while thatother enterprise participating in the combination is the acquiree. The acquisition date is the date on which theacquirer effectively obtains control of the acquiree.
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
5. Accounting treatment of business combinations under common control and not under common
control(Cont’d)
(2) Business combination not under common control(Cont’d)
For business combination involving entities not under common control, the cost of a business combination isthe aggregate of the fair values, on the date of acquisition, of assets given, liabilities incurred or assumed, andequity instruments issued by the acquirer to be paid by the acquirer, in exchange for control of the acquire plusagency fee such as audit, legal service and evaluation consultation and other management fees charged tothe profit or loss for the period when incurred. Transaction cost attributable to equity or debt securities issuedby the acquirer as consideration is included in the initial costs. Contingent consideration involved is chargedto the combination cost at its fair value on the acquisition date, in the event that adjustment on the contingentconsideration is required as a result of new or additional evidence in relation to circumstances existed on theacquisition date emerges within 12 months from the acquisition date, the combination goodwill shall also beadjusted. The combination cost incurred by the acquirer and the identifiable net assets acquired from thecombination are measured at their fair values on the acquisition date. Where the cost of a business combinationexceeds the acquirer’s interest in the fair value of the acquiree’s identifiable net assets on the acquisitiondate, the difference is recognised as goodwill. Where the cost of a business combination is less than theacquirer’s interest in the fair value of the acquiree’s identifiable net assets, the acquirer shall first reassess themeasurement of the fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities and themeasurement of the cost of combination. If after such reassessment the cost of combination is still less than theacquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference is charged to profit orloss for the period.In relation to the deductible temporary difference acquired from the acquiree, which was not recognised asdeferred tax assets due to non-fulfilment of the recognition criteria at the date of the acquisition, if new orfurther information that is obtained within 12 months after the acquisition date indicates that related conditionsat the acquisition date already existed, and that the implementation of the economic benefits brought by thedeductible temporary difference of the acquiree can be expected, the relevant deferred tax assets shall berecognised and goodwill shall be deducted. When the amount of goodwill is less than the deferred tax assetsthat shall be recognised, the difference shall be recognised in the profit or loss of the period. Except for theabove circumstances, deferred tax assets in relation to business combination are recognised in the profit or lossof the period.For combination of business not under common control achieved by several transactions, these severaltransactions will be judged whether they belong to“transactions in a basket”in accordance with the judgementstandards on“transactions in a basket”as set out in the Notice of the Ministry of Finance on Issuing AccountingStandards for Business Enterprises Interpretation No. 5 (Cai Kuai [2012] No. 19) and Rule of 51 to“AccountingStandard for Business Enterprises No. 33 – Consolidated Financial Statements”. If they belong to“transactionsin a basket”, they are accounted for with reference to the descriptions as set out in the previous paragraphsof this section and Note V. 16“Long-term equity investments”, and if they do not belong to“transactions in abasket”, they are accounted for in separate financial statements and consolidated financial reports:
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XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
5. Accounting treatment of business combinations under common control and not under common
control(Cont’d)
(2) Business combination not under common control(Cont’d)
In separate financial statements, the initial equity investment cost is the aggregate of the carrying amount ofthe equity investment in the acquiree held prior to the acquisition date and the investment cost newly added asat the acquisition date. In respect of any other comprehensive income attributable to the equity interest in theacquiree prior to the acquisition date, other comprehensive income is accounted for on the same accountingtreatment as direct disposal of relevant asset or liability by the acquiree at the time of disposal (i.e. to betransferred to investment income for the period, except for the changes arising from remeasuring net assets ornet liabilities of defined benefit plan using the equity method attributable to the acquiree).In consolidated financial statements, the equity interest in the acquiree held prior to the acquisition date isremeasured at fair value as at the acquisition date, and the difference between the fair value and the carryingamount is recognised as investment income for the current period. In respect of any other comprehensiveincome attributable to the equity interest in the acquiree held prior to the acquisition date, other comprehensiveincome is accounted for on the same accounting treatment as direct disposal of relevant asset or liability bythe acquiree (i.e. to be transferred to investment income at the acquisition date, except for the changes arisingfrom remeasuring net assets or net liabilities of defined benefit plan using the equity method attributable to theacquiree) is transferred to investment income in the period of the acquisition date.
6. Preparation of consolidated financial statements
(1) Basis for principle of determining the scope of consolidated financial statements
The scope of consolidation of the consolidated financial statements is determined on the basis of control. Theterm“control”refers to the fact that the Company has power over the investee and is entitled to variable returnsfrom its involvement with the investee and the ability to use its power over the investee to affect the amount ofthose returns. The scope of consolidation includes the Company and all of its subsidiaries. A subsidiary is anentity controlled by the Company.The Company will conduct reassessment in the event there are changes in actual condition and situationcausing changes in relevant elements involved in the definition of control above.
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
6. Preparation of consolidated financial statements(Cont’d)
(2) Basis for preparation of the consolidated financial statements
Subsidiaries are consolidated from the date on which the Company obtains net assets and the effective controlof decision making of production and operation and are deconsolidated from the date that such control ceases.For disposal of subsidiaries, the operating results and cash flows of such subsidiaries before the date ofdisposal are properly included into the consolidated income statement and consolidated cash flow statements;for disposal of subsidiaries during the reporting period, no adjustment shall be made to the opening balanceof the consolidated balance sheet. For those subsidiaries acquired through business combination not undercommon control, the operating results and cash flows after the acquisition date have been properly included inthe consolidated income statements and consolidated cash flow statements. No adjustments shall be made tothe opening balance of the consolidated balance sheet and the comparative consolidated financial statementsamount. For those subsidiaries acquired through business combinations under common control, the operatingresults and cash flows from the beginning of the consolidation period to the consolidation date are alsopresented in the consolidated income statement and the consolidated cash flow statements. The comparativeamounts presented in the consolidated financial statements are also adjusted accordingly.The financial statements of the subsidiaries are adjusted in accordance with the accounting policies andaccounting period of the Company in the preparation of the consolidated financial statements, where theaccounting policies and the accounting periods are inconsistent between the Company and the subsidiaries.For acquisition of subsidiaries arising from merger of entities not under same control, the financial statements ofthe subsidiaries will be adjusted according to the fair value of the identifiable net assets at the acquisition date.All intra-company significant balances, transactions and unrealised profit are eliminated in the consolidatedfinancial statements.The shareholders’equity and the portion of the profit or loss for the period of the subsidiaries that are notattributable to the Company are presented under shareho l de rs’equity and net profit in the consolidated financialstatements as minority interests and net profit of minority interest respectively. The portion of net profit or lossof subsidiaries for the period attributable to minority interest is presented in the consolidated income statementunder the“profit or loss of minority interest”. When the amount of loss attributable to the minority shareholdersof a subsidiary exceeds the minority shareholders’portion of the opening balance of owners’equity of thesubsidiary, the excess amount shall be allocated against minority interest.
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XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
6. Preparation of consolidated financial statements(Cont’d)
(2) Basis for preparation of the consolidated financial statements(Cont’d)
For the loss of control over a subsidiary due to disposal of a portion of the equity investment or other reasons,the remaining equity is measured at fair value on the date when the control is lost. The difference arising fromthe sum of consideration received for disposal of equity interest and the fair value of remaining equity interestover the share of net assets of the former subsidiary calculated continuously since the purchase date basedon the shareholding percentage before disposal are recognised as investment income in the period when thecontrol is lost. Other comprehensive income related to equity investment in the subsidiary is accounted for onthe same accounting treatment as direct disposal of relevant asset or liability by the acquiree at the time whenthe control is lost (i.e. to be transferred to investment income, except for the changes arising from remeasuringnet assets or net liabilities of defined benefit plan of the subsidiary using the equity method). The remainingequity interests are measured subsequently according to“Accounting Standard for Business Enterprises No. 2– Long-term Equity Investments”or“Accounting Standard for Business Enterprises No. 22 – Recognition andMeasurement of Financial Instruments”. See Note V. 16“Long-term equity investments”or Note V. 10“Financialinstruments”for details.When the Company disposes of equity investment in a subsidiary by a stage-up approach with severaltransactions until the control over the subsidiary is lost, it shall determine whether these several transactionsrelated to the disposal of equity investment in a subsidiary until the control over the subsidiary is lost belongto“transactions in a basket”. Usually, these several transactions related to the disposal of equity investment ina subsidiary are accounted for as transactions in a basket when the terms, conditions and economic impactsof these several transactions meet the following one or more conditions: these transactions are enteredinto at the same time or after considering their impacts on each other; these transactions as a whole canreach complete business results; the occurrence of a transaction depends on at least the occurrence ofanother transaction; an individual transaction is not deemed as economic, but is deemed as economic whenconsidered with other transactions. If they are not transactions in a basket, each of which are accounted forin accordance with applicable rules in“partial disposal of long-term equity investment of a subsidiary withoutlosing control over a subsidiary”separately, and“the control over a subsidiary is lost due to partial disposal ofequity investment or other reasons”(see the preceding paragraph). When several transactions related to thedisposal of equity investment in a subsidiary until the control over the subsidiary is lost belong to transactionsin a basket, each of which is accounted for as disposal of a subsidiary with a transaction until the control overa subsidiary is lost; however, the different between the amount of disposal prior to the loss of control and thenet assets of a subsidiary attributable to the disposal investment shall be recognised as other comprehensiveincome in consolidated financial statements and transferred to profit or loss at the time when the control is lost.
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
7. Classification of joint arrangements and accounting treatment for joint ventures
A joint arrangement refers to an arrangement of two or more parties have joint control. In accordance with theCompany’s rights and obligations under a joint arrangement, the Company classifies joint arrangements into: jointventures and joint operations. Joint operations refer to a joint arrangement during which the Company is entitledto relevant assets and obligations of this arrangement. Joint ventures refer to a joint arrangement during which theCompany only is entitled to net assets of this arrangement.The Company treats investments in joint ventures by using the equity method of accounting in accordancewith accounting policies as set out in Note V. 16 (2)“long-term equity investments by using equity method ofaccounting”.The Company shall, as a joint venture, recognise the assets held and obligations assumed solely by the Company,and recognise assets held and obligations assumed jointly by the Company in appropriation to the share of theCompany; recognise revenue from disposal of the share of joint operations of the Company; recognise fees solelyoccurred by Company and recognise fees from joint operations in appropriation to the share of the Company.When the Company, as a joint venture, invests or sells assets (the assets does not constitute a business, the samebelow) to or purchase assets from joint operations, the Company shall only recognise the part of profit or lost fromthis transaction attributable to other parties of joint operations before these assets are sold to the third party. Ifthe occurrence of these assets meet the impairment loss of asset as set out in“Accounting Standard for BusinessEnterprises No. 8 – Asset Impairment”, the Company shall recognise the full amount of this loss in relation to theCompany invests in or sells assets to joint operations; the Company recognise the loss according to the Company’sshare of commitment in relation to the Company purchase assets from joint operations.8. Standards for recognising cash and cash equivalents
Cash and cash equivalents of the Company include cash on hand, deposits readily available for payment purpose andshort-term (normally fall due within three months from the date of acquisition) and highly liquid investments held theCompany which are readily convertible into known amount of cash and which are subject to insignificant risk of valuechange.
9. Foreign currency operations and translation of statements denominated in foreign currency
(1) Basis for translation of foreign currency transactions
The foreign currency transactions of the Company, when initially recognised, are translated into the functionalcurrency at the prevailing spot exchange rate on the date of exchange, i.e. usually the middle price of RMBexchange rate published by the People’s Bank of China on that date in general and the same hereinafter, whilethe foreign currency exchange operations and transactions of the Company in connection with foreign currencyexchange shall be translated into the functional currency at the exchange rate actually adopted.
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V. Significant Accounting Policies and Accounting Estimates(Cont’d)
9. Foreign currency operations and translation of statements denominated in foreign currency(Cont’d)
(2) Basis for translation of foreign currency monetary items and foreign currency non-monetary items
On the balance sheet date, foreign currency monetary items shall be translated at the spot exchange rate on thebalance sheet date. All differences are included in the profit or loss in the period, except for: the differencesarising from foreign currency borrowings related to the acquisition or construction of fixed assets that arequalified for capitalisation will be accounted for according to the principle of capitalisation; and exchangedifference arising from change in balance of carrying amount other than amortised cost of available for saleforeign monetary items will be included in other comprehensive income.Exchange differences arising from change in exchange rate where the preparation of consolidated financialstatements relates to foreign operations and foreign currency monetary items materially constitute netinvestment in foreign operations shall be recorded into“other comprehensive income”; disposal of foreignoperations shall be included into profits and losses on disposal in the current period.The foreign currency non-monetary items measured at historical cost shall still be measured by the functionalcurrency translated at the spot exchange rate on the date of the transaction. Foreign currency non-monetaryitems measured at fair value are translated at the spot exchange rate on the date of determination of the fairvalue. The difference between the amounts of the functional currency before and after the translation will betreated as changes in fair value (including changes in foreign exchange rates) and recognised in profit or loss forthe period or recognised as other comprehensive income.(3) Basis for translation of foreign currency financial statements
Exchange differences arising from change in exchange rate where the preparation of consolidated financialstatements relates to foreign operations and foreign currency monetary items materially constitute netinvestment in foreign operations shall be recorded into“other comprehensive income”under“translationreserve”; disposal of foreign operations shall be included into profits and losses on disposal in the currentperiod.The financial statements denominated in foreign currency of a foreign operation are translated to RMB incompliance with the following requirements: assets and liabilities on the balance sheet are translated at thespot exchange rate prevailing at the balance sheet date; owner’s equity items except for“retained profit”aretranslated at the spot exchange rates at the dates on which such items arose; income and expenses itemsin the income statement are translated at the average exchange rate for the period in which the transactionoccurred. The retained profit brought forward are reported at the prior year’s closing balance; the retainedprofit as at the end of the year are presented after translated the profit appropriation items; differences betweenthe aggregate of asset and liability items and owners’equity items are recognised as“translation differencesarising on the translation of financial statements denominated in foreign currencies”in other comprehensiveincome. On disposal of foreign operations and loss of control, exchange differences arising from the translationof financial statements denominated in foreign currencies related to the disposed foreign operations whichhas been included in owners’equity in the balance sheet, shall be transferred to profit or loss in whole or inproportionate share in the period in which the disposal took place.
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
9. Foreign currency operations and translation of statements denominated in foreign currency(Cont’d)
(3) Basis for translation of foreign currency financial statements(Cont’d)
Cash flow dominated in foreign currency or from foreign subsidiaries shall be translated at the averageexchange rate for the period in which the transaction occurred. Effects arising from changes of exchange rate ofcash shall be presented separately in the cash flow statements.The opening balance and the prior year’s figures are presented according to the translated amounts of the prioryear.On disposal of the entire owners’equity in a foreign operation of the Company, or upon a loss of control overa foreign operation due to disposal of certain equity investment or other reasons, the Company transfers theexchange differences arising on translation of financial statements of this foreign operation attributable toowners’equity of parent company presented under owners’equity in the balance sheet, to profit or loss in theperiod in which the disposal took place.In case of partial disposal of equity investment or other reason that result in reduction in shareholding in aforeign operation without losing control over it, the proportionate share of exchange differences arising fromthe translation of financial statements will be attributable to minority interests and will not recognised in profitor loss. For partial disposals of equity interests in foreign operations which are associates or joint ventures, theproportionate share of the exchange differences arising from the translation of financial statements of foreignoperations is reclassified to profit or loss.
10. Financial instruments
Financial asset or financial liability will be recognised when the Company became one of the parties under a financialinstrument contract.(1) Classification, recognition and measurement of financial assets
The Company classifies the financial assets according to the business model for managing the financial assetsand characteristics of the contractual cash flows as follows: financial assets measured at amortised cost,financial assets measured at fair value through other comprehensive income, and financial assets measured atfair value through profit or loss.Financial assets are measured at fair value upon initial recognition. For financial assets measured at fair valuethrough profit or loss, relevant transaction costs are directly recognised in profit or loss for the period. Forother categories of financial assets, relevant transaction costs are included in the amount initially recognised.Accounts receivable or bills receivable arising from sales of goods or rendering services or without significantfinancing component, are initially recognised based on the transaction price expected to be entitled by theCompany.
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XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
10. Financial instruments(Cont’d)
(1) Classification, recognition and measurement of financial assets(Cont’d)
Financial assets measured at amortised cost
The Company’s business model for managing the financial assets measured at amortised cost is tocollect the contractual cash flows, and the contractual cash flow characteristics of such financial assetsare consistent with the basic lending arrangements. That is, the cash flows generated on a specific date,represent solely payment of the principal and interest on the outstanding principal amount. The Companysubsequently measures such financial assets at amortised cost using effective interest method, and thegains or losses from amortisation or impairment is recognised in profit or loss for the current period.Financial assets measured at fair value through other comprehensive income
The Company’s business model for managing such financial assets is achieved both by collectingcontractual cash flows and selling of these assets. The contractual cash flow characteristics of suchfinancial assets are consistent with the basic lending arrangements. Such financial assets are measuredby the Company at fair value through other comprehensive income, but the impairment losses or gains,exchange gains or losses, and interest income calculated by effective interest method are recognised inprofit or loss for the current period.In addition, the Company designates certain equity instruments not held for trading as financial assetsmeasured at fair value through other comprehensive income. The Company recognises the dividendsrelated to such financial assets in profit or loss for the current period. Upon derecognition of such financialassets, the accumulated gains or losses previously included in other comprehensive income will betransferred from other comprehensive income to retained earnings, and will not be included in profit orloss for the current period.Financial assets measured at fair value through profit or loss
The Company classifies the financial assets other than those measured at amortised cost and measuredat fair value through other comprehensive as financial assets measured at fair value through profit orloss. In addition, upon initial recognition, the Company designates some financial assets as financialassets measured at fair value through profit or loss in order to eliminate or significantly reduce accountingmismatch. The Company subsequently measures such financial assets at fair value, and the changes infair value are recognised in profit or loss for the current period.
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
10. Financial instruments(Cont’d)
(2) Classification, recognition and measurement of financial liabilities
Financial liabilities are classified as financial liabilities measured at fair value through profit or loss and otherfinancial liabilities at initial recognition. For financial liabilities measured at fair value through profit or loss,relevant transaction costs are directly recognised in profit or loss for the period. For other financial liabilities,relevant transaction costs are included in the amount initially recognised.Financial liabilities measured at fair value through profit or loss
Financial liabilities measured at fair value through profit or loss comprise held-for-trading financialliabilities (including derivatives under financial liabilities) and financial liabilities designated as measured atfair value through profit or loss upon initial recognition.Held-for-trading financial liabilities (including derivatives under financial liabilities) are subsequentlymeasured at fair value, and the changes in fair value are recognised in profit or loss for the current period,except for those related to hedging accounting.The changes in fair value attributable to the changes in the Company’s own credit risk of thefinancial liabilities designated as measured at fair value through profit or loss are recognised in othercomprehensive income, and the accumulated changes in fair value attributable to the changes in theCompany’s own credit risk which were recognised in other comprehensive income are transferredto retained earnings upon derecognition of such liabilities. The remaining changes in fair value arerecognised in profit or loss for the current period. In case that the above accounting treatment for theeffect of changes in such financial liabilities’own credit risk would create, or enlarge, an accountingmismatch, the Company will recognise all gains or losses (including the amount affected by the changesin the Company’s own credit risk) of such financial liabilities in profit or loss for the current period.Other financial liabilities
Other financial liabilities, except for financial liabilities arising from transfer of financial assets not satisfyingderecognition criteria or continue involvement of transferred financial assets and financial guaranteecontracts liability, are classified as financial liabilities measured at amortised cost and are subsequentlymeasured at amortised cost, and the gains or losses arising from derecognition or amortisation arerecognised in profit or loss for the current period.
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XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
10. Financial instruments(Cont’d)
(3) Recognition and measurement of transfers of financial asset
Financial asset that satisfied any of the following criteria shall be derecognised: the contract right to receivethe cash flows of the financial asset has terminated; the financial asset, along with substantially all the riskand return arising from the ownership of the financial asset, has been transferred to the transferee; andthe financial asset has been transferred to the transferee, and the transferor has given up the control on suchfinancial asset, though it does not assign maintain substantially all the risk and return arising from the ownershipof the financial asset.When the entity does not either assign or maintain substantially all the risk and return arising from the ownershipof the financial asset and does not give up the control on such financial asset, to the extent of its continuousinvolvement in the financial asset, the entity recognises such financial asset and the relevant liability accordingly.The extent of the continuous involvement is the extent to which the entity exposes to changes in the value ofsuch financial assets.If all criteria of recognition of transfer of financial assets are satisfied, the difference between the carryingamount of the financial assets transferred and the sum of the consideration received from the transfer and theaccumulated changes in fair value originally included in other comprehensive income shall be recognised in theprofit or loss for the period.If a part of the financial assets is qualified for derecognition, the carrying amount of the financial asset isallocated between the part that continues to be recognised and the part that qualifies for derecognition, basedon the fair values of the respective parts. The difference between the following amounts is recognised in profitor loss for the period: the sum of the consideration received and the carrying amount of the part that qualifiesfor derecognition and the aforementioned carrying amount.For financial assets that are sold or transferred with recourse or endorsement, the Company needs to determinewhether the risk and rewards of ownership of the financial asset have been substantially transferred. If the riskand rewards of ownership of the financial asset have been substantially transferred, the financial assets shall bederecognised. If the risk and rewards of ownership of the financial asset have been retained, the financial assetsshall not be derecognised. If the Company neither transfers nor retains substantially all the risks and rewardsof ownership of the financial asset, the Company shall assess whether the control over the financial asset isretained, and the financial assets shall be accounting for according to the above paragraphs.
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
10. Financial instruments(Cont’d)
(4) Derecognition of financial liabilities
Financial liabilities (or a part thereof) are derecognised only when the present obligation is discharged in full orin part. An agreement is entered between the Company (debtor) and a creditor to replace the original financialliabilities with new financial liabilities with substantially different terms, derecognise the original financialliabilities as well as recognise the new financial liabilities. In case that the Company makes substantial changesto the contractual terms of the original financial liabilities (or a part thereof), the original financial liabilities arederecognised, and the new financial liabilities are recognised in accordance with the revised terms.When financial liabilities (or a part thereof) are derecognised, the difference between the carrying amount of thefinancial liabilities derecognised and the consideration paid (including transferred non-cash assets or assumedfinancial liability) is recognised in profit or loss for the current period.(5) Offset of financial assets and financial liabilities
If the Company owns the legitimate rights of offsetting the recognised financial assets and financial liabilities,which are enforceable currently, and the Company plans to realise the financial assets or to clear off thefinancial liabilities on a net amount basis or simultaneously, the net amount of financial assets and financialliabilities shall be reported in the balance sheet upon offsetting. Otherwise, financial assets and financialliabilities are presented separately in the balance sheet without offsetting.(6) Determination of fair values for financial assets and financial liabilities
The fair value refers to the price that will be received when selling an asset or the price to be paid to transfer aliability in an orderly transaction between market participants on the date of measurement. Financial instrumentsexist in an active market. Fair value is determined based on the quoted price in such market. An active marketrefers to where pricing is easily and regularly obtained from exchanges, brokers, industrial organisationsand price fixing service organisations, representing the actual price of a market transaction that takes placein a fair deal. While financial instruments do not exist in an active market, the fair value is determined usingvaluation techniques. Valuation technologies include reference to be familiar with situation and prices reachedin recent market transactions entered into by both willing parties, reference to present fair values of similarother financial instruments, cash flow discounting method and option pricing models. During the valuationprocess, the Company uses valuation techniques appropriate to the prevailing circumstances with the supportof sufficient data and other information available, selects inputs consistent with the characteristics of the assetsor liabilities considered in the transactions of relevant assets or liabilities by market participants, and givespriority to relevant observable inputs. Unobservable inputs are used only when relevant observable inputs arenot accessible or the access to which is impracticable.
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XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
10. Financial instruments(Cont’d)
(7) Equity instruments
Equity instruments are any contract that evidences a residual interest in the assets of an entity after deductingall of its liabilities. The issuance (including refinancing), repurchase, sale or cancellation of equity instrumentsby the Company is accounted for movement in equity. Transaction costs related to equity transactions arededucted from equity. The Company does not recognise the movement in fair value of equity instruments.The dividends distributed by the Company for its equity instruments (including the“interest”arising from theinstruments classified as equity instruments) during the existence period are accounted for as profit distribution.
11. Bills receivable and accounts receivable
(1) Method for determining the expected credit loss of bills receivable
The Company measures the loss provisions for bills receivable in accordance with the expected credit lossamount for the entire period. Based on the credit risk characteristics of bills receivable, bills receivable aredivided into different groups:
ItemBasis for determining the groups
Bank acceptance billsThe acceptance party is a bank with less credit riskCommercial acceptance billsThe acceptance party is a company with higher credit risk(2) Method for determining the expected credit loss of accounts receivable
For receivables and contract assets that do not contain significant financing components, the Companymeasures loss provisions based on the expected credit loss amount for the entire period.For receivables, contract assets and lease receivables that contain significant financing components, theCompany chooses to always measure the loss provision based on the expected credit loss amount for theentire period.In addition to accounts receivable and contract assets which are individually assessed for credit risk, they arealso classified into different groups based on their credit risk characteristics:
ItemBasis for determining the groups
Amount due from related partiesThis group comprises amounts due from related parties with lower risks.Factoring receivablesThis group comprises factoring receivables with special risks.Amount due fromdistributor customers
This group comprises receivables with their ageing as credit riskcharacteristics.
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
12. Other receivables
The Company measures impairment losses using the expected credit losses amount in the next 12 months orthe entire duration, based on whether the credit risk of other receivables has increased significantly upon initialrecognition. In addition to other receivables which are individually assessed for credit risk, they are also classified intodifferent groups based on their credit risk characteristics:
ItemBasis for determining the groups
Dividends receivableThis group comprises dividends receivable.Interest receivableThis group comprises interest due from financial institutions.Amount due fromgovernment agencies
This group comprises amount due from government agencies with less risks.Amount due from related partiesThis group comprises amount due from related parties with less risks.Other receivablesThis group comprises for all types of deposits, advances and premiums receivable
during daily and recurring activities.
13. Inventories
Whether the Company needs to comply with the disclosure requirements for specific industriesNo(1) Classification of inventories
Inventories mainly include raw materials, work in progress and semi-finished products, turnover materials,finished products and goods etc.(2) Pricing of inventories received and dispatched
Inventories are measured at their planned cost when obtained. Cost of an inventory consists of purchase costs,processing costs and other costs. The difference between the planned cost and the actual cost is calculated bycost variance account, and the cost difference assumed for the inventories will be pay by instalment, so as toadjust the planned cost to the actual cost.Consumable biological assets refer to biological assets held-for-sale which include growing timber. Consumablebiological assets without a stock are stated at historical cost at initial recognition, and subsequently measuredat fair value when there is a stock. Changes in fair values shall be recognised as profit or loss in the currentperiod. The cost of self-planting, self-cultivating consumable biological assets is the necessary expensesdirectly attributable to such assets prior to canopy closure, including borrowing costs eligible for capitalisation.Subsequent expenses such as maintenance cost incurred after canopy closure shall be included in profit or lossfor the current period.
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XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
13. Inventories(Cont’d)
(3) Recognition of net realisable value of inventory and provision for inventory impairment
Net realisable value refers to the amount of the estimated price of inventories less the estimated cost incurredupon completion, estimated sales expenses and taxes and levies in daily operation. The realisable value ofinventories shall be determined on the basis of definite evidence, purpose of holding the inventories and effectof after-balance-sheet-date events.At the balance sheet date, inventories are calculated at the lower of cost and net realisable value. Usually,provision for inventory impairment is made when the net realisable value is lower than the cost. Provisions forimpairment of inventory shall be made according to the amount by which the cost of a single item exceeds itsnet realisable value. For large quantity and low value items of inventories, provision may be made based oncategories of inventories. For items of inventories relating to a product line that is produced and marketed in thesame geographical area and with the same or similar end uses or purposes, which cannot be practicable valuedseparately from other items in that product line, provision for decline in value of inventories may be determinedon an aggregate basis.After making the provision for inventory impairment, in case the factors causing inventory impairment nolonger exists, and the net realisable value of an inventory is higher than its book-value, the original provision forinventory impairment shall be transferred back and incorporated into the profit or loss for the current period.(4) We implement permanent inventory system as our inventory stock taking system.(5) Amortisation of low-value consumables and packaging materials
Low-value consumables and packaging materials are amortised when issued for use.
14. Other non-current financial assets
The Company’s business model for managing such financial assets is achieved both by collecting contractual cashflows and selling of these assets. The contractual cash flow characteristics of such financial assets are consistentwith the basic lending arrangements. Such financial assets are measured by the Company at fair value through othercomprehensive income, but the impairment losses or gains, exchange gains or losses, and interest income calculatedby effective interest method are recognised in profit or loss for the current period.In addition, the Company designates certain equity instruments not held for trading as financial assets measuredat fair value through other comprehensive income. The Company recognises the dividends related to such financialassets in profit or loss for the current period. Upon derecognition of such financial assets, the accumulated gains orlosses previously included in other comprehensive income will be transferred from other comprehensive income toretained earnings, and will not be included in profit or loss for the current period.
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
15. Long-term receivables
The Company measures the impairment loss of long-term receivables at an amount equal to the expected credit lossin the next 12 months or the lifetime expected credit loss ECL, depending on whether its credit risk has significantlyincreased upon initial recognition. Other than the long-term receivables assessed individually for credit risks, long-term receivables are classified into different groups based on their credit risk characteristics:
ItemBasis for determining the groupsLong-term receivables not yet past dueThis group is comprised of long-term receivables not yet past due with
normal exposures.long-term receivables overdueThis group is comprised of long-term receivables with higher past due
exposures.
16. Long-term equity investments
Long-term equity investments under this section refer to long-term equity investments in which the Company hascontrol, joint control or significant influence over the investee. Long-term equity investment without control or jointcontrol or significant influence of the Company is accounted for as financial assets measured at fair value throughprofit or loss. In case such equity investment is not held for sale, then the Company may choose to designate suchequity investment as financial assets measured at fair value through other comprehensive income. Details on itsaccounting policy please refer to Note V. 10“Financial instruments”.Joint control is the Company’s contractually agreed sharing of control over an arrangement, which relevant activitiesof such arrangement must be decided by unanimously agreem en t fr o m pa rt ie s wh o sh ar e co n tr ol . Si gn if ic an t i nf lu en ceis the power of the Company to participate in the financial and operating policy decisions of an investee, but to fail tocontrol or joint control the formulation of such policies together with other parties.(1) Determination of investment cost
For a long-term equity investment acquired through a business combination involving enterprises undercommon control, the initial investment cost of the long-term equity investment shall be the absorbing party’sshare of the carrying amount of the shareholders’equity under the consolidated financial statements of theultimate controlling party on the date of combination. The difference between the initial cost of the long-termequity investment and the cash paid, non-cash assets transferred as well as the carrying amount of the debtsborne by the absorbing party shall offset against the capital reserve. If the capital reserve is insufficient tooffset, the retained earnings shall be adjusted. If the consideration of the merger is satisfied by issue of equitysecurities, the initial investment cost of the long-term equity investment shall be the absorbing party’s shareof the carrying amount of the shareholders’equity under the consolidated financial statements of the ultimatecontrolling party on the date of combination. With the total face value of the shares issued as share capital,the difference between the initial cost of the long-term equity investment and total face value of the sharesissued shall be used to offset against the capital reserve. If the capital reserve is insufficient to offset, theretained earnings shall be adjusted. For business combination resulted in an enterprise under common controlby acquiring equity of the absorbing party under common control through a stage-up approach with severaltransactions, these transactions will be judged whether they shall be treat as“transactions in a basket”. If theybelong to“transactions in a basket”, these transactions will be accounted for a transaction in obtaining control.If they do not belong to“transactions in a basket”, the initial investment cost of the long-term equity investmentshall be the absorbing party’s share of the carrying amount of the shareholders’equity under the consolidatedfinancial statements of the ultimate controlling party on the date of combination. The difference betweenthe initial cost of the long-term equity investment and the aggregate of the carrying amount of the long-termequity investment before merging and the carrying amount the additional consideration paid for further shareacquisition on the date of combination shall offset against the capital reserve. If the capital reserve is insufficientto offset, the retained earnings shall be adjusted. Other comprehensive income recognised as a result of thepreviously held equity investment accounted for using equity method on the date of combination or recognisedfor financial assets measured at fair value through other comprehensive income will not be accounted for.
2018 ANNUAL REPORT
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
16. Long-term equity investments(Cont’d)
(1) Determination of investment cost(Cont’d)
For a long-term equity investment acquired through a business combination involving enterprises not undercommon control, the initial investment cost of the long-term equity investment shall be the cost of combinationon the date of acquisition. Cost of combination includes the aggregate fair value of assets paid by the acquirer,liabilities incurred or borne and equity securities issued. For business combination resulted in an enterprise notunder common control by acquiring equity of the acquiree under common control through a stage-up approachwith several transactions, these transactions will be judged whether they shall be treat as“transactions in abasket”. If they belong to“transactions in a basket”, these transactions will be accounted for a transaction inobtaining control. If they do not belong to“transactions in a basket”, the initial investment cost of the long-term equity investment accounted for using cost method shall be the aggregate of the carrying amount ofequity investment previously held by the acquiree and the additional investment cost. For previously held equityaccounted for using equity method, relevant other comprehensive income will not be accounted for.Agent fees incurred by the absorbing party or acquirer for the acquisition such as audit, legal service, andvaluation and consultation fees, and other related administration expenses are charged to profit or loss in thecurrent period at the time such expenses incurred.The long-term equity investment acquired through means other than a business combination shall be initiallymeasured at its cost. Such cost is depended upon the acquired means of long-term equity investments,which is recognised based on the purchase cost actually paid by the Company in cash, the fair value of equitysecurities issued by the Company, the agreed value of investment contract or agreement, the fair value ororiginal carrying amount of the non-monetary asset exchange transaction which the asset will be transferred outof the Company, and the fair value of long-term equity investment itself. The costs, taxes and other necessaryexpenses that are directly attributable to the acquisition of the long-term equity investments are also included inthe investment cost. For additional equity investment made in order to obtain significant influence or commoncontrol over investee without resulted in control, the relevant cost for long-term equity investment shall bethe aggregate of fair value of previously held equity investment and additional investment cost determinedaccording to“Accounting Standard for Business Enterprises No. 22 – Recognition and measurement ofFinancial Instruments”.(2) Subsequent measurement and method for profit or loss recognition
Long-term equity investments with joint control (excluding those constitute jo in t v en tur es) o r s ig nif ic ant i nfl ue nceon the investee are accounted for using equity method. In addition, long-term equity investments with controlon the investee are accounted for using cost method and record in the Company’s financial statements.Long-term equity investments accounted for using the cost method
Under the cost method, a long-term equity investment is measured at its initial investment cost. The costfor long-term equity investment is adjusted in the event of additional investment or investment recovery.Except receiving the actual consideration paid for the investment or the declared but not yet distributedcash dividends or profits which is included in the consideration, investment gains for the period isrecognised as the cash dividends or profits declared by the investee.
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
16. Long-term equity investments(Cont’d)
(2) Subsequent measurement and method for profit or loss recognition(Cont’d)
Long-term equity investments accounted for using the equity method
Under the equity method, where the initial investment cost of a long-term equity investment exceedsthe investor’s interest in the fair value of the investee’s identifiable net assets at the acquisition date, noadjustment shall be made to the initial investment cost. Where the initial investment cost is less than theinvestor’s interest in the fair value of the investee’s identifiable net assets at the acquisition date, thedifference shall be charged to profit or loss for the current period, and the cost of the long-term equityinvestment shall be adjusted accordingly.Under the equity method, investment gain and other comprehensive income shall be recognised basedon the Company’s share of the net profits or losses and other comprehensive income made by theinvestee, respectively. Meanwhile, the carrying amount of long-term equity investment shall be adjusted.The carrying amount of long-term equity investment shall be reduced based on the Company’s shareof profit or cash dividend distributed by the investee. In respect of the other movement of net profit orloss, other comprehensive income and profit distribution of investee, the carrying amount of long-termequity investment shall be adjusted and included in the capital reserves. The Company shall recogniseits share of the investee’s net profits or losses based on the fair values of the investee’s individualseparately identifiable assets at the time of acquisition, after making appropriate adjustments thereto. Inthe event of inconformity between the accounting policies and accounting periods of the investee andthe Company, the financial statements of the investee shall be adjusted in conformity with the accountingpolicies and accounting periods of the Company. Investment gain and other comprehensive incomeshall be recognised accordingly. In respect of the transactions between the Company and its associatesand joint ventures in which the assets disposed of or sold are not classified as operation, the share ofunrealised gain or loss arising from internal transactions shall be eliminated by the portion attributableto the Company. Investment gain shall be recognised accordingly. However, any unrealised loss arisingfrom internal transactions between the Company and an investee is not eliminated to the extent that theloss is impairment loss of the transferred assets. In the event that the Company disposed of an assetclassified as operation to its joint ventures or associates, which resulted in acquisition of long-term equityinvestment by the investor without obtaining control, the initial investment cost of additional long-termequity investment shall be the fair value of disposed operation. The difference between initial investmentcost and the carrying amount of disposed operation will be fully included in profit or loss for the currentperiod. In the event that the Company sold an asset classified as operation to its associates or jointventures, the difference between the carrying amount of consideration received and operation shall befully included in profit or loss for the current period. In the event that the Company acquired an assetwhich formed an operation from its associates or joint ventures, relevant transaction shall be accountedfor in accordance with“Accounting Standards for Business Enterprises No. 20 - Business combination”.All profit or loss related to the transaction shall be accounted for.
2018 ANNUAL REPORT
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
16. Long-term equity investments(Cont’d)
(2) Subsequent measurement and method for profit or loss recognition(Cont’d)
Long-term equity investments accounted for using the equity method(Cont’d)
The Company’s share of net losses of the investee shall be recognised to the extent that the carryingamount of the long-term equity investment together with any long-term interests that in substance formpart of the investor’s net investment in the investee are reduced to zero. If the Company has to assumeadditional obligations, the estimated obligation assumed shall be provided for and charged to the profitor loss as investment loss for the period. Where the investee is making profits in subsequent periods, theCompany shall resume recognising its share of profits after setting off against the share of unrecognisedlosses.If there is debit variation in relation to the long-term equity investments in associates and joint ventureheld prior to first adoption of the Accounting Standards for Business Enterprises by the Company on 1January 2007, the amounts amortised over the original residual term using the straight-line method isincluded in the profit or loss for the period.Acquisition of minority interest
Upon the preparation of the consolidated financial statements, capital reserve is adjusted based on thedifference between the additional long term equity investment from acquisition of minority interest and theshare of net assets of the subsidiary attributable to the additional shareholding from the date of acquisition(or date of combination). In the case of insufficient capital surplus to offset impairment, retained earningsshall be adjusted.Disposal of long-term equity investments
In these consolidated financial statements, for disposal of a portion of the long-term equity investmentsin a subsidiary without loss of control, the difference between disposal cost and disposal of long-termequity investments relative to the net assets of the subsidiary is charged to the owners’equity. If disposalof a portion of the long-term equity investments in a subsidiary by the parent company results in a loss incontrol, it shall be accounted for in accordance with the relevant accou nting policies as described in Note V.6. (2)“Preparation Method of the Consolidated Financial Statements”.On disposal of a long-term equity investment otherwise, the difference between the carrying amount ofthe investment and the actual consideration paid is recognised through profit or loss in the current period.
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
16. Long-term equity investments(Cont’d)
(2) Subsequent measurement and method for profit or loss recognition(Cont’d)
Disposal of long-term equity investments(Cont’d)
In respect of long-term equity investment accounted for using equity method with the remaining equityinterest after disposal also accounted for using equity method, other comprehensive income previouslyunder owners’equity shall be accounted for in accordance with the same accounting treatment fordirect disposal of relevant asset or liability by investee on pro rata basis at the time of disposal. Theowners’equity recognised for the movement of other owners’equity (excluding net profit or loss, othercomprehensive income and profit distribution of investee) shall be transferred to profit or loss for thecurrent period on pro rata basis.In respect of long-term equity investment accounted for using cost method with the remaining equityinterest after disposal also accounted for using cost method, other comprehensive income recognisedusing equity method or the recognition and measurement standard of financial instruments beforeobtaining control over the investee shall be accounted for in accordance with the same accountingtreatment for direct disposal of relevant asset or liability by investee, and transferred to profit or loss forthe current period on pro rata basis. Movement of other owners’equity (excluding net profit or loss, othercomprehensive income and profit distribution under net asset of investee accounted for and recognisedusing equity method) shall be transferred to profit or loss for the current period on pro rata basis.In the event of loss of control over investee due to partial disposal of equity investment by the Company,in preparing separate financial statements, the remaining equity interest which can apply commoncontrol or impose significant influence over the investee after disposal shall be accounted for using equitymethod. Such remaining equity interest shall be treated as accounting for using equity method since itis obtained and adjustment was made accordingly. For the remaining equity interest which cannot applycommon control or impose significant influence over the investee after disposal, it shall be accounted forusing the recognition and measurement standard of financial instruments. The difference between its fairvalue and carrying amount as at the date of losing control shall be included in profit or loss for the currentperiod. In respect of other comprehensive income recognised using equity method or the recognition andmeasurement standard of financial instruments before the Company obtained control over the investee,it shall be accounted for in accordance with the same accounting treatment for direct disposal of relevantasset or liability by investee at the time when the control over investee is lost. Movement of other owners’
equity (excluding net profit or loss, other comprehensive income and profit distribution under net asset ofinvestee accounted for and recognised using equity method) shall be transferred to profit or loss for thecurrent period at the time when the control over investee is lost. Of which, for the remaining equity interestafter disposal accounted for using equity method, other comprehensive income and other owners’equityshall be transferred on pro rata basis. For the remaining equity interest after disposal accounted for usingthe recognition and measurement standard of financial instruments, other comprehensive income andother owners’equity shall be fully transferred.
2018 ANNUAL REPORT
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
16. Long-term equity investments(Cont’d)
(2) Subsequent measurement and method for profit or loss recognition(Cont’d)
Disposal of long-term equity investments(Cont’d)
In the event of loss of common control or significant influence over investee due to partial disposal ofequity investment by the Company, the remaining equity interest after disposal shall be accounted forusing the recognition and measurement standard of financial instruments. The difference between itsfair value and carrying amount as at the date of losing common control or significant influence shall beincluded in profit or loss for the current period. In respect of other comprehensive income recognisedunder previous equity investment using equity method, it shall be accounted for in accordance withthe same accounting treatment for direct disposal of relevant asset or liability by investee at the timewhen equity method was ceased to be used. Movement of other owners’equity (excluding net profit orloss, other comprehensive income and profit distribution under net asset of investee accounted for andrecognised using equity method) shall be transferred to profit or loss for the current period at the timewhen equity method was ceased to be used.The Company disposes its equity investment in subsidiary by a stage-up approach with severaltransactions until the control over the subsidiary is lost. If the said transactions belong to“transactions ina basket”, each transaction shall be accounted for as a single transaction of disposing equity investmentof subsidiary and loss of control. The difference between the disposal consideration for each transactionand the carrying amount of the corresponding long-term equity investment of disposed equity interestbefore loss of control shall initially recognised as other comprehensive income, and subsequentlytransferred to profit or loss arising from loss of control for the current period upon loss of control.
17. Investment property
Investment property refers to real estate held to earn rentals or for capital appreciation, or both, which include leasedland use rights, land use rights held for sale after appreciation, leased buildings, etc. In addition, for the vacantbuildings that the Company holds for operating leases, if the Board (or similar bodies) makes a written decision that itis explicitly used for operating leases and that the holdings do not change in the short term, they are also presentedas investment property.Investment property is initially measured at cost. Subsequent expenditures related to an investment property shall beincluded in cost of investment property only when the economic benefits associated with the asset will likely flow tothe Company and its cost can be measured reliably. All other expenditures on investment property shall be includedin profit or loss for the current period when incurred.
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
17. Investment property(Cont’d)
The Company adopts cost method for subsequent measurement of investment property, which is depreciated oramortised using the same policy as that for buildings or land use rights.The method for impaired test of investment property and measurement of impairment provision are detailed in Note V.
“Impairment of long-term assets”.In the event that an owner-occupied property or inventories is converted to an investment property (or vice versa),upon the conversion, the property shall be stated at the carrying amount prior to the conversion.In the event that an investment property is converted to an owner-occupied property, such property shall becomefixed assets or intangible assets since the date of its conversion. In the event that an owner-occupied property isconverted to real estate held to earn rentals or for capital appreciation, such fixed assets or intangible assets shallbecome an investment property since the date of its conversion. For investment property measured at cost duringits conversion, upon the conversion, the property shall be stated at the carrying amount prior to the conversion. Forinvestment property measured at fair value during its conversion, upon the conversion, the property shall be stated atthe fair value on the date of conversion.If an investment property is disposed of or if it withdraws permanently from use and no economic benefit will beobtained from the disposal, the recognition of it as an investment property shall be terminated. When an investmentproperty is sold, transferred, retired or damaged, the amount of proceeds on disposal of the property net of thecarrying amount and related tax and surcharges is recognised in profit or loss for the current period.
18. Fixed assets
(1) Conditions for recognition
Fixed assets are tangible assets that are held for use in the production or supply of goods or services, for rentalto others, or for administrative purposes; and have a useful life of more than one accounting year. Fixed assetsare recognised only if the Company is very likely to receive economic benefits from the asset and its cost canbe measured reliably. A fixed asset shall be initially measured at cost and the effect of any expected costs ofabandoning the asset at the end of its use.
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XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
18. Fixed assets(Cont’d)
(2) Depreciation method
CategoryDepreciation method
Useful lives of
depreciation
(Year)
Estimated
residualvalue (%)
Annualdepreciation
rate (%)
Housing and buildingstructureStraight-line method20-405-102.25-4.75Machinery andequipmentStraight-line method8-205-104.50-11.88TransportationequipmentStraight-line method5-85-1011.25-19.00Electronic equipmentand othersStraight-line method55-1018.00-19.00
(3) Recognition, accounting and depreciation method of fixed assets acquired under finance leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks andrewards of asset ownership to the lessee and titles to the assets may or may not eventually be transferred. Forfixed assets acquired under finance leases, the basis for provision of leased assets depreciation is the sameas that of self-owned fixed assets. When it can be reasonably determined that the ownership of a leased assetwill be transferred at the end of the lease term, it is depreciated over the period of expected use; otherwise, thelease asset is depreciated over the shorter period of the lease term and the period of expected use.
19. Construction in progress
Whether the Company needs to comply with the disclosure requirements for specific industriesNoConstruction in progress is recognised based on the actual construction cost, including all expenditures incurred forconstruction projects, capitalised borrowing costs for the construction in progress before it has reached the workingcondition for its intended use, and other related expenses during the construction period. A construction in progressis reclassified to fixed assets when it has reached the working condition for its intended use.The method for impaired test of construction in progress and measurement of impairment provision are detailed inNote V. 23“Impairment of long-term asset”.
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
20. Borrowing costs
Borrowing costs include interest, amortisation of discounts or premiums related to borrowings, ancillary costsincurred in connection with the arrangement of borrowings, and exchange differences arising from foreign currencyborrowings. For borrowing costs that are directly attributable to the acquisition, construction or production of aqualifying asset, when expenditures for the asset and borrowing costs are being incurred, activities relating to theacquisition, construction or production of the asset that are necessary to prepare the asset for its intended use or salehave commenced, such borrowing costs shall be capitalised as part of the cost of that asset; and capitalisation shalldiscontinue when the qualifying asset is ready for its intended use or sale. Other borrowing costs shall be recognisedas expense in the period in which they are incurred.Where funds are borrowed for a specific purpose, the amount of interest to be capitalised shall be the actual interestexpense incurred on that borrowing for the period less any bank interest earned from depositing the borrowedfunds before being used into banks or any investment income on the temporary investment of those funds. Wherefunds are borrowed for general purpose, the Company shall determine the amount of interest to be capitalised onsuch borrowings by applying a capitalisation rate to the weighted average of the excess amounts of cumulativeexpenditures on the asset over and above the amounts of specific-purpose borrowings. The capitalisation rate shallbe the weighted average of the interest rates applicable to the general-purpose borrowings.During the capitalisation period, exchange differences on a specific purpose borrowing denominated in foreigncurrency shall be capitalised. Exchange differences related to general-purpose borrowings denominated in foreigncurrency shall be included in profit or loss for the current period.Qualifying assets are assets (fixed assets, investment property, inventories, etc.) that necessarily take a substantialperiod of time for acquisition, construction or production to get ready for their intended use or sale.Capitalisation of borrowing costs shall be suspended during periods in which the acquisition, construction orproduction of a qualifying asset is interrupted abnormally, when the interruption is for a continuous period of morethan 3 months, until the acquisition, construction or production of the qualifying asset is resumed.
21. Biological assets
Consumable biological assets refer to biological assets held-not-for-sale, which include forest trees being grown.Consumable biological assets are stated at cost at initial recognition. The cost of self-planting, self-cultivating,self-breeding or self-farming consumable biological assets is the necessary expenses directly attributable to suchassets prior to canopy closure, including borrowing costs eligible for capitalisation. Subsequent expenses such asmaintenance incurred after canopy closure shall be included in profit or loss for the current period.The cost of consumable biological assets shall, at the time of harvest or disposal, be carried forward at carryingamount using the batch averaging method.On the balance sheet date, consumable biological assets are measured at the lower of cost and net realisable value,and the impairment provision for consumable biological assets is made using the same approach as that used forthe recognition of impairment provision for inventories. In case the factors causing impairment no longer exists, thereduced amount shall be recovered and reversed in the provision amount originally provided for impairment. Thereversed amount shall be recognised in profit or loss for the current period.
2018 ANNUAL REPORT
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
22. Intangible assets
(1) Measurement method, useful life and impairment testing
For details of the method of impairment testing and impairment provision of intangible assets, please see Note V.
“Impairment of long-term assets”.(2) Accounting policy of internal research and development expenditure
Research and development expenditure of the Company was divided into expenses incurred during theresearch phase and expenses incurred during the development phase.Expenses incurred during the research phase are recognised as profit or loss in the current period.Expenses incurred during the development phase that satisfy the following conditions are recognised asintangible assets, while those that do not satisfy the following conditions are accounted for in the profit or lossfor the current period:
it is technically feasible that the intangible asset can be used or sold upon completion;there is intention to complete the intangible asset for use or sale;the intangible asset can produce economic benefits, including there is evidence that the products
produced using the intangible asset has a market or the intangible asset itself has a market; and if theintangible asset is for internal use, there is evidence that there exists usage for the intangible asset;there is sufficient support in terms of technology, financial resources and other resources in order to
complete the development of the intangible asset, and there is capability to use or sell the intangibleasset;the expenses attributable to the development phase of the intangible asset can be measured reliably.If the expenses incurred during the research phase and the development phase cannot be distinguishedseparately, all development expenses incurred are accounted for in the profit or loss for the current period.
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
23. Impairment of long-term asset
The Company will judge if there is any indication of impairment as at the balance sheet date in respect of noncurrentnon-financial assets such as fixed assets, construction in progress, intangible assets with a finite useful life,investment properties measured at cost, and long-term equity investments in subsidiaries, joint controlled entities andassociates. If there is any evidence indicating that an asset may be impaired, recoverable amount shall be estimatedfor impairment test. Goodwill, intangible assets with an indefinite useful life and intangible assets beyond workingconditions will be tested for impairment annually, regardless of whether there is any indication of impairment.If the impairment test result shows that the recoverable amount of an asset is less than its carrying amount, theimpairment provision will be made according to the difference and recognised as an impairment loss. The recoverableamount of an asset is the higher of its fair value less costs of disposal and the present value of the future cashflows expected to be derived from the asset. An asset’s fair value is the price in a sale agreement in an arm’s lengthtransaction. If there is no sale agreement but the asset is traded in an active market, fair value shall be determinedbased on the bid price. If there is neither sale agreement nor active market for an asset, fair value shall be based onthe best available information. Costs of disposal are expenses attributable to disposal of the asset, including legalfee, relevant tax and surcharges, transportation fee and direct expenses incurred to prepare the asset for its intendedsale. The present value of the future cash flows expected to be derived from the asset over the course of continueduse and final disposal is determined as the amount discounted using an appropriately selected discount rate.Provisions for assets impairment shall be made and recognised for the individual asset. If it is not possible to estimatethe recoverable amount of the individual asset, the Company shall determine the recoverable amount of the assetgroup to which the asset belongs. The asset group is the smallest group of assets capable of generating cash flowsindependently.For the purpose of impairment testing, the carrying amount of goodwill presented separately in the financialstatements shall be allocated to the asset groups or group of assets benefiting from synergy of business combination.If the recoverable amount is less than the carrying amount, the Company shall recognise an impairment loss. Theamount of impairment loss shall first reduce the carrying amount of any goodwill allocated to the asset group or set ofasset groups, and then reduce the carrying amount of other assets (other than goodwill) within the asset group or setof asset groups, pro rata on the basis of the carrying amount of each asset.An impairment loss recognised on the aforesaid assets shall not be reversed in a subsequent period in respect of therestorable value.
2018 ANNUAL REPORT
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
24. Long-term prepaid expenses
Long-term prepaid expenses are expenditures and other expenses which have incurred but that shall be amortisedover the current period and subsequent periods of more than one year. Long-term prepaid expenses of the Companymainly include expenses on improvement of fixed assets and woodland rent. Long-term prepaid expenses areamortised over the estimated benefit period using the straight-line method.
25. Contract liabilities
A contract liability represents the Company’s obligation to transfer goods to a customer for which the Company hasreceived consideration (or an amount of consideration is due) from the customer. If the customer has already paidthe contract consideration before the Company transfers goods to the customer or the Company has obtained theunconditional collection right, the Company will recognise such amount received or receivable as contract liabilitiesat earlier of the actual payment by the customer or the amount payable becoming due. Contract assets and contractliabilities under the same contract are presented on a net basis, and contract assets and contract liabilities underdifferent contracts are not offset.
26. Employee benefits
(1) Accounting treatment for short-term staff remuneration
Staff remuneration of the Company mainly includes short-term staff remuneration, post-employment benefitsand termination benefits, in which:
Short-term remuneration mainly includes salaries, bonuses, allowance and subsides, staff welfare, medicalinsurance premium, maternity insurance premium, work-related injury insurance premium, housing providentfunds, union operation costs and employee education costs and non-monetary welfare etc. Short-termremuneration incurred during the accounting period in which the Company’s staff provided services for theCompany is recognised as liability and included in profit or loss for the current period or related asset costs. Ofwhich, non-monetary welfare is measured at fair value.(2) Accounting treatment for post-employment benefits
Post-employment benefits mainly include pension insurance premium and unemployment insurance premium.Postemployment benefits include defined contribution plan. For those adopted defined contribution plan,relevant contribution amount is included in related asset costs or profit or loss for the current period during theperiod in which the expenses incurred.
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
26. Employee benefits(Cont’d)
(3) Accounting treatment for termination benefits
When the Company terminates the employment relationship with employees before the end of the employmentcontracts or provides compensation as an offer to encourage employees to accept voluntary redundancy, theCompany shall recognise employee compensation liabilities arising from compensation for staff dismissal andincluded in profit or loss for the current period, when the Company cannot revoke unilaterally compensationfor dismissal due to the cancellation of labour relationship plans and employee redundant proposals; and theCompany recognise cost and expenses related to payment of compensation for dismissal and restructuring,whichever is earlier. However, if the compensation for termination of employment is not expected to be fullypaid within 12 months from the reporting period, it shall be accounted for other long-term staff remuneration.The early retirement plan shall be accounted for in accordance with the accounting principles for compensationfor termination of employment. The salaries or wages and the social contributions to be paid for the employeeswho retire before schedule from the date on which the employees stop rendering services to the scheduledretirement date, shall be recognised (as compensation for termination of employment) in the current profit orloss by the Company if the recognition principles for provisions are satisfied.(4) Accounting treatment for other long-term employee benefit
For other long-term employee benefit provided by the Company for employees which meets the criteria ofdefined contribution plan, accounting treatment for defined contribution plan will be adopted; otherwiseaccounting treatment for defined benefit plan will be adopted.
27. Provisions
Obligations pertinent to the contingencies which satisfy the following conditions are recognised as provisions: (1) Theobligation is a current obligation borne by the Company; (2) it is likely that an outflow of economic benefits will beresulted from the performance of the obligation; and (3) the amount of the obligation can be reliably measured.At the balance sheet date, provisions shall be measured at the best estimate of the necessary expenses required forthe performance of existing obligations, after taking into account relevant risks, uncertainties, time value of moneyand other factors pertinent to the contingencies.If all or some expenses incurred for settlement of provisions are expected to be borne by the third party, thecompensation amount shall, on a recoverable basis, be recognised as asset separately, and compensation amountrecognised shall not be more than the carrying amount of provisions.
2018 ANNUAL REPORT
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
28. Preference shares, perpetual bonds and other financial instruments
(1) Classification of perpetual bonds and preference shares
Perpetual bonds, preference shares and other financial instruments issued by the Company are classified asequity instruments when all of the following conditions are satisfied:
The financial instruments have no contractual obligation to pay in cash or other financial assets to other
parties nor to exchange financial assets or financial liabilities under potential adverse condition with otherparties;If the financial instrument will or may be settled in the entity’s own equity instruments, it is a non-derivative instrument that includes no contractual obligations to deliver a variable number of its ownequity instruments; or a derivative that will be settled only by the Company exchanging a fixed amount ofcash or other financial asset for a fixed number of its own equity instruments.Other than financial instruments classified as equity instruments according to the above conditions, otherfinancial instruments issued by the Company shall be classified as financial liabilities.The financial instruments issued by the Company which are compound financial instruments are recognised asa liability based on the fair value of the liability component, and the amount net of the fair value of the liabilitycomponent from the actual amount received is recognised as“other equity instruments”. Transaction costs thatrelate to the issue of a compound financial instrument are allocated to the liability and equity components inproportion to the allocation of gross proceeds.(2) Accounting treatment of perpetual bonds and preference shares
For financial instruments classified as financial liabilities (such as perpetual bonds and preference shares),except borrowing costs qualifying for capitalisation (please refer to this Note V. 20“Borrowing costs”), its relatedinterest, dividends, gains or losses, and gains or losses arising from redemption or refinancing are credited toprofit or loss for the current period.For financial instruments classified as equity instruments (such as perpetual bonds and preference shares),its issue (including refinancing), repurchase, sale or cancellation are treated by the Company as changes inequity, with related transaction costs deducted from equity. The Company’s distribution to holders of equityinstruments are treated as a distribution of profits.Changes in the fair value of equity instruments are not recognised by the Company.
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
29. Revenue
Whether the Company needs to comply with the disclosure requirements for specific industriesNoAccounting policies adopted for revenue recognition and measurementRevenue is recognised when the customer obtains control of the relevant goods, subject to the fulfilment of thefollowing conditions under the contract entered into between the Company and customers: the parties has approvedthe contract and undertaken to fulfil their respective obligations; the contract clearly states the parties to the contractand their rights and obligations relating to the transferred goods and rendered services; the contract clearly statedthe payment terms relating to the transferred goods; the contract has commercial substance that the fulfilment ofthe contract will result in changes in the risk, time frame or amount of the future cash flow risk of the Company; thecollection of the consideration that the Company is entitled to for transferring the goods is probable.On the effective date of the contract, the Company identifies each performance obligation under such contracts andallocate the transaction price to each performance obligation based on the percentage of respective unit price of agood guaranteed by each performance obligation. The determination of the transaction price has taken into accountthe impact of factors such as variable consideration, the significant financing component existed in the contract, non-cash consideration, consideration payable to the customers.For each of the performance obligations under the contract, if one of the following conditions is fulfilled, the Companyshall recognise the transaction price which was allocated to each of the performance obligations as revenue based onthe progress of performance within a certain period: when the customer simultaneously receives and consumes thebenefits provided by the Company when the Company performs its obligations under the contract; when the customeris able to control the good in progress in the course of performance by the Company under the contract; when theproduct produced by the Company under the contract is irreplaceable and the Company has the right to payment forperformance completed to date during the whole contract term. The progress of performance is determined basedon the nature of the transferred goods with the adoption of input method or output method. When the progress ofperformance cannot be reasonably determined, if the costs incurred by the Company are expected to be recoverable,the revenue will be recognised to the extent of the costs incurred until the progress of performance can be reasonablydetermined.If one of the above conditions is not fulfilled, the Company shall recognise the transaction price which was allocatedto each of the performance obligations as revenue when the customer is able to control the relevant goods. Whendetermining whether the customer has obtained control of the goods, the Company will consider the followingindications: the enterprise has the current right to receive payment for the goods, which is when the customershas the current payment obligations for the goods; the enterprise has transferred the legal title of the goods to thecustomer, which is when the client possesses the legal title of the goods; the enterprise has transferred the physicalpossession of goods to the customer, which is when the customer obtain physical possession of the goods; theenterprise has transferred all of the substantial risks and rewards of ownership of the goods to the customer, whichis when the client obtain all of the substantial risks and rewards of ownership of the goods to the customer; when thecustomer has accepted the goods, which is when other information indicates that the customer has obtained controlof the goods.The point of time of recognition of revenue for sales of goods: the date when the goods are delivered to the customerswith signature confirmation for the domestic sales business, and the date when the goods are loaded onto a vesseland declared at customs for the overseas sales business.
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V. Significant Accounting Policies and Accounting Estimates(Cont’d)
30. Government grants
Government grants are transfer of monetary assets or non-monetary assets from the government to the Companyat no consideration, excluding capital considerations from the government as an investor entitling to correspondingowners’equity. Government grants are classified into government grants related to assets and government grantsrelated to income. Government grants obtained for acquisition or construction of long-term assets or other formsof long-term asset formation are classified as related to assets. Other government grants are classified as relatedto revenue. If related government documents do not specify the objective of the grants, the grants are classifiedas related to assets or income as follows: (1) In case a project for which the grants are granted is specified in suchdocuments, the grants are classified as related to assets and income based on the budgeted ratio of the expenditureon asset formation and the expenditure recorded as expenses, where such ratio should be reviewed and, ifnecessary, changed on each balance sheet date; and (2) in case of general description without specifying any projectin such documents, the grants are classified as related to income. If a government grant is in the form of a transfer ofmonetary asset, the item shall be measured at the amount received or receivable. If a government grant is in the formof a transfer of non-monetary asset, the item shall be measured at fair value. If fair value is not reliably determinable,the item shall be measured at a nominal amount and recognised immediately in profit or loss for the current period.Government grants are generally recognised when received and measured at the amount actually received, butare measured at the amount likely to be received when there is conclusive evidence at the end of the accountingperiod that the Company will meet related requirements of such grants and will be able to receive the grants.The government grants so measured should also satisfy the following conditions: (1) the amount of the grantsbe confirmed with competent authorities in written form or reasonably deduced from related requirements underfinancial fund management measures officially released without material uncertainties; (2) the grants be given basedon financial support projects and fund management policies officially published and voluntarily disclosed by localfinancial authorities in accordance with the requirements under disclosure of government information, where suchpolicies should be open to any company satisfying conditions required and not specifically for certain companies; (3)the date of payment be specified in related documents and the payment thereof be covered by corresponding budgetto ensure such grants will be paid on time as specified; and (4) other relevant conditions (if any) which should besatisfied according to the specific conditions of the Company and the matters relating to such grants.A government grant related to an asset shall be recognised as deferred income, and evenly amortised to profit or lossover the useful life of the asset in a reasonable and systematic manner. For a government grant related to income,if the grant is a compensation for related costs, expenses or losses to be incurred in subsequent periods, the grantshall be recognised as deferred income, and recognised in profit or loss over the periods in which the related costsor losses are recognised, or off set against the relevant costs or expenses; if the grant is a compensation for relatedcosts, expenses or losses already incurred, the grant shall be recognised immediately in profit or loss for the currentperiod.If a government grant contains both assets related and income related component at the same time, the accountingtreatment will depend on the different parts of the government grant; if it is difficult to distinguish, the entiregovernment grant is classified as a government grant related to income.A government grant related to daily activities of the Company is recognised in other gains or off set relevant costsor expenses relying on the essence of economic business; otherwise, recognised in non-operating income or non-operating expenses.For the repayment of a government grant already recognised, if there is any related deferred income, the repaymentshall be off set against the carrying amount of the deferred income, and any excess shall be recognised in profit orloss for the current period; otherwise, the repayment shall be recognised immediately in profit or loss for the currentperiod.
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
31. Deferred income tax assets/deferred income tax liabilities
(1) Current income tax
At the balance sheet date, current income tax liabilities (or assets) for the current and prior periods shall bemeasured at the amount expected to be paid (or recovered) according to the requirements of tax laws. Taxableprofits, which are the basis for calculating the current income tax expense, are determined after adjusting theaccounting profits before tax for the year in accordance with relevant requirements of tax laws.(2) Deferred income tax assets and deferred income tax liabilities
Temporary differences arising from the difference between the carrying amount of an asset or liability and its taxbase, and the difference between the tax base and the carrying amount of those items that are not recognisedas assets or liabilities but have a tax base that can be determined according to tax laws, shall be recognised asdeferred income tax assets and deferred income tax liabilities using the balance sheet liability method.Deferred income tax liabilities are not recognised for taxable temporary differences related to: the initialrecognition of goodwill; and the initial recognition of an asset or liability in a transaction which is neither abusiness combination nor affects accounting profit or taxable profit (or deductible loss) at the time of thetransaction. In addition, the Company recognises the corresponding deferred income tax liability for taxabletemporary differences associated with investments in subsidiaries, associates and joint ventures, except whenboth of the following conditions are satisfied: the Company is able to control the timing of the reversal of thetemporary difference; and it is probable that the temporary difference will not reverse in the foreseeable future.Deferred income tax assets are not recognised for deductible temporary differences related to the initialrecognition of an asset or liability in a transaction which is neither a business combination nor affectsaccounting profit or taxable profit (or deductible loss) at the time of the transaction. In addition, the Companyrecognises the corresponding deferred income tax asset for deductible temporary differences associated withinvestments in subsidiaries, associates and joint ventures to the extent that it is probable that taxable profitswill be available against which the deductible temporary differences can be utilised, except when both of thefollowing conditions are satisfied: it is not probable that the temporary difference will reverse in the foreseeablefuture; and it is not probable that taxable profits will be available in the future, against which the temporarydifference can be utilised.Chenming Paper recognises a deferred income tax asset for the carry forward of deductible losses and taxcredits to subsequent periods, to the extent that it is probable that future taxable profits will be available againstwhich the deductible losses and tax credits can be utilised.At the balance sheet date, deferred income tax assets and deferred income tax liabilities are measured at thetax rates that are expected to apply to the period when the asset is realised or the liability is settled, accordingto the requirements of tax laws.At the balance sheet date, Chenming Paper shall review the carrying amount of a deferred income tax asset.If it is probable that sufficient taxable profits will not be available in future periods to allow the benefit of thedeferred income tax asset to be utilised, the carrying amount of the deferred income tax asset shall be reduced.Any such reduction in amount shall be reversed when it becomes probable that sufficient taxable profits will beavailable.
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V. Significant Accounting Policies and Accounting Estimates(Cont’d)
31. Deferred income tax assets/deferred income tax liabilities(Cont’d)
(3) Income tax expense
Income tax expense comprises current income tax expense and deferred income tax expense.Current income tax expense (current income tax income) and deferred income tax expense (deferred incometax income) are included in profit or loss for the current period, except for: recognised as other comprehensiveincome or current income tax and deferred income tax related to transactions or events that are directlyrecognised in other comprehensive income or owners’equity, which are recognised directly in owners’equity,and deferred income tax arising from a business combination, which is adjusted against the carrying amount ofgoodwill.
(4) Offset of income tax
After granted the legal rights of net settlement and with the intention to use net settlement or obtain assets,repay debt, the Company, at the same time, records the net amount after offsetting its current income taxassets and current income tax liabilities.The Company was granted the legal rights of net settlement of current income tax assets and current incometax liabilities. Deferred income tax assets and deferred income tax liabilities are related to income tax to be paidby the same entity liable to pay tax to the same tax collection and management authority or related to differententities liable to pay tax, but the relevant entity liable to pay tax is intended to apply net settlement of currentincome tax assets and liabilities or, at the same time, obtain assets, repay debt whenever every deferred incometax assets and liabilities with importance would be reversed in the future, the Company records the net amountafter offsetting its current income tax assets and current income tax liabilities.
32. Lease
(1) Accounting treatment for operating leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks andrewards of asset ownership to the lessee and titles to the assets may or may not eventually be transferred. Allother leases are classified as operating leases.
Operating lease business with the Company recorded as lessee
Lease payment for operating lease is recognised as related asset cost or profits and losses for the currentperiod using the straight-line method over the lease term. The initial direct cost is directly accounted inprofit or loss for the current period. Contingent rent is recognised as profit or loss for the current periodupon occurrence.
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
32. Lease(Cont’d)
(1) Accounting treatment for operating leases(Cont’d)
Operating lease business with the Company recorded as lessor
Rental income is recognised in profit or loss for the current period using the straight-line method over the leaseterm. The initial direct cost where the amount is larger is capitalised when incurred, and accounted for as profitor loss for the current period on the same basis as recognition of rental income over the entire lease period;the initial direct cost where the amount is fewer is included in the profit or loss for the period when incurred.Contingent rental is accounted for as profit or loss for the period in which it is incurred.(2) Accounting treatment for finance leases
Financing lease business with the Company recorded as lessee
On the beginning date of the lease, the entry value of leased asset shall be at the lower of the fair valueof the leased asset and the present value of minimum lease payment at the beginning date of thelease. Minimum lease payment shall be the entry value of long-term accounts payable, with differencerecognised as unrecognised financing expenses. In addition, initial direct costs attributable to leaseditems incurred during the process of lease negotiation and signing of lease agreement shall be includedin the value of leased assets. The balance of minimum lease payment after deducting unrecognisedfinancing expenses shall be accounted for long-term liability and long-term liability due within one year.Unrecognised financing expenses shall be recognised as financing expenses for the current period usingeffective interest method during the leasing period. Contingent rent shall be included in profit or loss forthe current period at the time it incurred.Financing lease business with the Company recorded as lessor
On the beginning date of the lease, the entry value of lease receivable shall be the aggregate of minimumlease receivable and initial direct costs at the beginning date of the lease. The unsecured balance shall berecorded. The aggregate of minimum lease receivable, initial direct costs and unsecured balance and thedifferent between their present values shall be recognised as unrealised financing income. The balanceof lease receivable after deducting unrecognised financing income shall be accounted for long-term debtand long-term debt due within one year.Unrecognised financing income shall be recognised as financing income for the current period usingeffective interest method during the leasing period. Contingent rent shall be included in profit or loss forthe current period at the time it incurred.
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V. Significant Accounting Policies and Accounting Estimates(Cont’d)
33. Changes in significant accounting policies and estimates(Cont’d)
(1) Changes in significant accounting policies
√ Applicable Not applicableChanges in accounting policies resulting from the implementation of the new Accounting Standards forBusiness EnterprisesThe Ministry of Finance issued the“Accounting Standard for Business Enterprises No. 22 – Recognitionand Measurement of Financial Instruments (revised in 2017)”(Cai Kuai (2017) No. 7),“Accounting Standardfor Business Enterprises No. 23 – Transfer of Financial Assets (revised in 2017)”(Cai Kuai (2017) No. 8) and“Accounting Standard for Business Enterprises No. 24 – Hedging Accounting (revised in 2017)”(Cai Kuai(2017) No. 9) on 31 March 2017, issued“Accounting Standard for Business Enterprises No. 37 – Presentationof Financial Instruments (revised in 2017)”(Cai Kuai (2017) No. 14) on 2 May 2017 (the“New Standards forFinancial Instruments”), and issued“Accounting Standard for Business Enterprises No. 14 – Revenue (revised in2017)”(Cai Kuai (2017) No. 22) on 5 July 2017 (the“New Standard for Revenue”), which required the enterpriseslisted in both domestic and overseas markets and the enterprises listed in overseas markets and adopting theInternational Financial Reporting Standards or Accounting Standards for Business Enterprises for financialreport preparation to adopt the New Standards for Financial Instruments and the New Standard for Revenuefrom 1 January 2018.As approved at the eleventh meeting of the eighth session of the Board of the Company on 25 October 2018,the Company began to adopt the above five accounting standards within the timeframe as required by theMinistry of Finance.Under the New Standards for Financial Instruments, all recognised financial assets are measured at amortisedcost or fair value subsequent to initial recognition. On the adoption date of the New Standards for FinancialInstruments, through assessing the business model of the management on financial assets based on theCompany’s existing facts and conditions on that date, and through assessing the characteristics of contractcash flows of the financial assets based on the facts and conditions at the initial recognition of such financialassets, the financial assets are classified into three categories: measured at amortised cost, measured at fairvalue through comprehensive income; and measured at fair value through profit or loss. Among other things, forthe equity instrument investment measured at fair value through comprehensive income, upon derecognition ofsuch financial assets, the accumulated gains or losses previously included in other comprehensive income willbe transferred from other comprehensive income to retained earnings, and will not be included in profit or lossfor the current period.
XIIIFinancial Report
V. Significant Accounting Policies and Accounting Estimates(Cont’d)
33. Changes in significant accounting policies and estimates(Cont’d)
(1) Changes in significant accounting policies(Cont’d)
Under the New Standards for Financial Instruments, the Company makes provision for impairment andrecognise credit impairment loss for financial assets measured at amortised cost, investment in debtinstruments measured at fair value through other comprehensive income, lease receivables, contract assets andfinancial guarantee contracts based on their expected credit losses.The Company adopts the New Standards for Financial Instruments retrospectively, but chooses not to makerestatement in case there is any inconsistency with the requirements of the New Standards for FinancialInstruments for the comparative figures in the financial statements of prior periods.In order to adopt the New Standard for Revenue, the Company reassessed the recognition and measurement,accounting and presentation and other aspects of major contract revenues. According to the New Standardfor Revenue, the Company chooses to adjust only the cumulative impact of contracts that were not completedas at 1 January 2018. The retained earnings as at the beginning of the first adoption period (i.e. 1 January2018) and the amounts of relevant items in the financial statements are adjusted with the cumulative impactedamounts of first adoption, and no adjustment has been made to the financial statements of 2017. Since theadoption of the New Standard for Revenue has no material impact on the recognition and measurement of theCompany’s revenue, only the advance receipts will need to be adjusted.(2) Changes in significant accounting estimates
Applicable √ Not applicable(3) Adjustment to the relevant items in the financial statements at the beginning of the year for the adoption of
the New Standards for Financial Instruments or the New Standard for Revenue for the first time
√ Applicable Not applicable
A. Comparison of recognition and measurement of financial assets before and after the adoption of the New
Standards for Financial Instruments
31 December 2017 (before change)1 January 2018 (after change)Category of financial assetsCategory of measurementCarrying amountCategory of measurementCarrying amount
Bills receivable and accounts receivableLoans and receivables7,886,097,430.59Amortised cost7,886,097,430.59Available-for-sale financial assetsAvailable-for-sale
financial assets
2,453,000,000.00Financial assets measured at fair value
through profit or loss
2,453,000,000.00Financial assets measured at fair valuethrough other comprehensive income
—
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V. Significant Accounting Policies and Accounting Estimates(Cont’d)
33. Changes in significant accounting policies and estimates(Cont’d)
(3) Adjustment to the relevant items in the financial statements at the beginning of the year for the adoption of
the New Standards for Financial Instruments or the New Standard for Revenue for the first time(Cont’d)
B. Reconciliation of the category and carrying amount of financial instruments on the date of first adoption
Item
31 December 2017
(before change)ReclassificationRemeasurement
1 January 2018
(after change)
Assets:
Financial assets measured atair value through profit or loss94,000,000.00-94,000,000.00Held-for-trading financial assets94,000,000.0094,000,000.00Available-for-sale financial assets2,453,000,000.00-2,453,000,000.00Other non-current financial assets2,453,000,000.002,453,000,000.00
C. Impact of the adoption of the New Standard for Revenue on the Company:
ChangeItem
Amount as at
1 January2018 (after change)
Amount as at 31December 2017(before change)
Advances on salesContract liabilities243,182,891.22Advances on salesAdvance receipts243,182,891.22
(4) Explanation on the retrospective adjustment to the comparative data in prior period for the first adoption of
the New Standards for Financial InstrumentsApplicable √ Not applicable
XIIIFinancial Report
VI. Taxation
1. Main tax types and tax rates
Tax typeTax base and tax rate
Value added tax (VAT)16% for general, 10% for sales of water and gas and 6% for the service
industry. VAT is computed on the difference after deduction of inputvalue-added tax.Urban maintenance and construction tax7%, 5% and 1% of actual payment of turnover tax.Enterprise income tax (EIT)25% of taxable income; for the companies which are subject to
preferential policies, please refer to the table below; the overseascompanies shall pay taxes at the tax rate pursuant to the requirements ofthe countries or regions where the companies are located.
Disclosure of taxable entities subject to different EIT tax ratesName of taxable entityEIT tax rate
Shandong Chenming Paper Holdings Limited15%Haicheng Haiming Mining Company Limited15%Shouguang Meilun Paper Co., Ltd.15%Jilin Chenming Paper Co., Ltd.15%Jiangxi Chenming Paper Co., Ltd.15%Zhanjiang Chenming Pulp & Paper Co., Ltd.15%Shouguang Shun Da Customs Declaration Co, Ltd.10%Qingdao Chenming Pulp and Paper Electronic Commodity Exchange Co., Ltd.10%Zhanjiang Chenming Arboriculture Development Co., Ltd.Exempt from EITYangjiang Chenming Arboriculture Development Co., Ltd.Exempt from EIT
2. Tax incentives
(1) Enterprise income tax
On 16 August 2018, the Company received a high and new technology enterprise certificate with a certificationnumber of GR201837000311. Pursuant to the requirements under the Law of the People’s Republic of China onEnterprise Income Tax and the relevant policies, the Company is subject to a corporate income tax rate of 15%of taxable income, and is entitled to the preferential treatment from 2018 to 2020.Haicheng Haiming Mining Company Limited, a subsidiary of the Company, received a high and new technologyenterprise certificate with a certification number of GR201821000291 on 12 October 2018. Pursuant to therequirements under the Law of the People’s Republic of China on Enterprise Income Tax and the relevantpolicies, Haicheng Haiming is subject to an enterprise income tax rate of 15% of taxable income, and is entitledto the preferential treatment from 2018 to 2020.
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VI. Taxation(Cont’d)
2. Tax incentives(Cont’d)
(1) Enterprise income tax
(Cont’d)
Shouguang Meilun Paper Co., Ltd., a subsidiary of the Company, received a high and new technology enterprisecertificate with a certification number of GR201837000455 on 16 August 2018. Pursuant to the requirementsunder the Law of the People’s Republic of China on Enterprise Income Tax and the relevant policies, ShouguangMeilun is subject to an enterprise income tax rate of 15% of taxable income, and is entitled to the preferentialtreatment from 2018 to 2020.Jilin Chenming Paper Co., Ltd., a subsidiary of the Company, received a high and new technology enterprisecertificate with a certification number of GR201622000039 on 1 November 2016. Pursuant to the requirementsunder the Law of the People’s Republic of China on Enterprise Income Tax and the relevant policies, JilinChenming is subject to an enterprise income tax rate of 15% of taxable income, and is entitled to thepreferential treatment from 2016 to 2018.Jiangxi Chenming Paper Co., Ltd., a subsidiary of the Company, received a high and new technology enterprisecertificate with a certification number of GR201636000018 on 15 November 2016. Pursuant to the requirementsunder the Law of the People’s Republic of China on Enterprise Income Tax and the relevant policies, JiangxiChenming is subject to an enterprise income tax rate of 15% of taxable income, and is entitled to thepreferential treatment from 2016 to 2018.For Zhanjiang Chenming Pulp & Paper Co., Ltd., which is a subsidiary of the Company, its high and newtechnology enterprise certificate with a certification number of GR20154400016 obtained on 30 September2015 has expired, and is making a renewal application. It has passed the preliminary review and issuedan announcement. As at the date of the audit report, it has not obtained the new high and new technologyenterprise certificate, and is subject to an EIT tax rate of 15% for the current period.Pursuant to the requirements of Rule 27(1) of Law of the People’s Republic of China on Enterprise Income Taxand Rule 86(1) of regulations for the Implementation of Law of the People’s Republic of China on EnterpriseIncome Tax, Zhanjiang Chenming Arboriculture Development Co., Ltd. and Yangjiang Chenming ArboricultureDevelopment Co., Ltd., which are the subsidiaries of the Company, have completed the filings for EIT reductionfor exemption from EIT.
XIIIFinancial Report
VI. Taxation(Cont’d)
2. Tax incentives(Cont’d)
(2) Value-added Tax (
“VAT”)Pursuant to Rule 10 of the Interim Regulation of the People’s Republic of China on Value Added Tax, ZhanjiangChenming Arboriculture Development Co., Ltd. and Yangjiang Chenming Arboriculture Development Co., Ltd.,which are the subsidiaries of the Company, are exempt from VAT, and have completed the filings for VATreduction for exemption from VAT.Pursuant to the Value-added Tax Preferential Catalogue on Products and Services Applying Integrated Use ofResources (Cai Shui [2015] No. 78), taxpayers who sell self-produced products and services applying integrateduse of resources may enjoy the immediate VAT refund policy. Zhanjiang Chenming New-style Wall MaterialsCo., Ltd., a subsidiary of the Company, produced products applying raw materials containing more than 30%of fly ash. It belongs to a company that uses pollutants for production, and is therefore subject to the immediateVAT refund policy in 2018.Pursuant to the Value-added Tax Preferential Catalogue on Products and Services Applying Integrated Useof Resources (Cai Shui [2015] No. 78), taxpayers who sell self-produced products and services applyingintegrated use of resources may enjoy the immediate VAT refund policy. Shandong Chenming Panels Co., Ltd.,a subsidiary of the Company, produced products applying integrated use of resources, and is therefore subjectto the immediate VAT refund policy in 2018.Pursuant to the Value-added Tax Preferential Catalogue on Products and Services Applying Integrated Use ofResources (Cai Shui [2015] No. 78), taxpayers who sell self-produced products and services applying integrateduse of resources may enjoy the immediate VAT refund policy. Shouguang Chenming Cement Co., Limited, asubsidiary of the Company, produced products applying integrated use of resources, and is therefore subject tothe immediate VAT refund policy in 2018.
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements
1. Monetary funds
Unit: RMBItemClosing balanceOpening balance
Treasury cash2,078,321.662,344,438.45Bank deposit2,379,479,920.862,802,063,936.01Other monetary funds16,911,216,505.2711,639,084,086.97
Total19,292,774,747.7914,443,492,461.43
Of which: Total deposits in overseas banks614,601,451.77508,707,081.55
Notes: Other monetary funds of RMB9,099,325,370.71 (31 December 2017: RMB4,822,551,296.94) were the guarantee deposit for
the application for bank acceptance with the banks by the Group.Other monetary funds of RMB3,703,195,695.22 (31 December 2017: RMB1,333,152,563.36) were the guarantee deposit for
the application for letter of credit with the banks by the Group.Other monetary funds of RMB2,357,084,376.63 (31 December 2017: RMB4,939,992,248.75) were the guarantee deposit for
the application for guarantees with the banks by the Group.Other monetary funds of RMB397,220,000.00 (31 December 2017: RMB90,037,977.92) were the guarantee deposit for the
application for loans with the banks by the Group.Other monetary funds of RMB1,353,360,000.00 (31 December 2017: RMB453,350,000.00) were the Group’s statutory reserve
deposit at the banks.Other monetary funds of RMB1,031,062.71 were locked-up due to litigations, resulting in restriction on the use of that
account’s balance.
2. Held-for trading financial assets
Unit: RMBItemClosing balanceOpening balance
Financial assets designated at fair value through profit or loss94,000,000.00Of which: equity instruments94,000,000.00
Total94,000,000.00
Other explanation: The three-year repurchase agreement entered into with Shanghai Zhongneng EnterpriseDevelopment (Group) Co., Ltd. was disposed during the period, the annual 4% premium was accounted to financialassets designated at fair value through profit or loss.
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
3. Bills receivable and accounts receivable
Unit: RMBItemClosing balanceOpening balance
Bills receivable1,213,116,491.464,220,231,853.56A accounts receivable3,404,487,004.593,665,865,577.03
Total4,617,603,496.057,886,097,430.59
(1) Bills receivable
1) Classification of bills receivable
Unit: RMBItemClosing balanceOpening balance
Bank acceptance bills1,213,116,491.464,120,231,853.56Commercial acceptance bills—100,000,000.00
Total1,213,116,491.464,220,231,853.56
Unit: RMB
Closing balanceOpening balanceBook balanceBad debts provisionCarrying amountBook balanceBad debts provisionCarrying amountCategoryAmountPercentageAmount
ProvisionpercentageAmountPercentageAmount
Provisionpercentage
Bills receivable assessedindividually for impairment15,000,000.001.23%1,500,000.0010.00%13,500,000.00Of which: Bank acceptance bills15,000,000.001.23%1,500,000.0010.00%13,500,000.00Bills receivable assessed collectivelyfor impairment1,199,616,491.4698.77%1,199,616,491.464,220,231,853.56100.00%4,220,231,853.56Of which:
Bank acceptance bills1,199,616,491.4698.77%1,199,616,491.464,120,231,853.5697.63%4,120,231,853.56Commercial acceptance bills100,000,000.002.37%100,000,000.00
Total1,214,616,491.46100.00%1,500,000.000.12%1,213,116,491.464,220,231,853.56100.00%4,220,231,853.56
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VII. Notes to items of the consolidated financial statements(Cont’d)
3. Bills receivable and accounts receivable(Cont’d)
(1) Bills receivable
(Cont’d)
1) Classification of bills receivable(Cont’d)
Item assessed individually for impairment:
Unit: RMBClosing balanceNameBook balance
Bad debtprovision
ProvisionpercentageReasons for provision
Bank acceptancebills receivable fromChangjiang (Hubei)Publishing & PrintMaterials Co., Ltd
15,000,000.001,500,000.0010.00%Bills matured but not
collected
Total15,000,000.001,500,000.00——
2) Bills receivable of the Company pledged at the end of the period
Unit: RMBItem
Pledged amount
at the end of
the period
Bank acceptance bills431,715,666.94Commercial acceptance bills
Total431,715,666.94
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
3. Bills receivable and accounts receivable(Cont’d)
(1) Bills receivable
(Cont’d)
3) Outstanding bills receivable endorsed or discounted by the Company as at the end of the period
Unit: RMBItem
Derecognisedamount as at theend of the period
Recognisedamount as at theend of the period
Bank acceptance bills6,447,164,627.19Commercial acceptance bills20,213,954.89
Total6,467,378,582.08
4) Bills transferred to accounts receivable due to non-performance of the issuers at the end of the period
Unit: RMB
Item
Amountstransferred toaccounts receivable
at the end of
the period
Bank acceptance bills17,600,000.00
Total17,600,000.00
Other explanation: As at 31 December 2018, bills with the carrying amount of RMB160,470,621.92 (31December 2017: RMB972,379,999.17) were pledged in exchange for borrowings. As at 31 December2018, bills with the carrying amount of RMB7,845,045.02 (31 December 2017: RMB692,007,430.76) werepledged and a letter of guarantee was issued therefor. As at 31 December 2018, bills with the carryingamount of RMB263,400,000.00 were pledged and a bank acceptance bills was issued therefor.During the year, the accumulated bills issued by the Company to banks amounted to RMB5,214,973,227.57(Last year: RMB3,742,679,994.55), with discount expenses incurred of RMB105,363,776.82 (Last year:
RMB72,693,293.53). As at 31 December 2018, outstanding discounted bills receivable amounted toRMB1,194,662,827.01 (Last year: RMB2,169,102,479.25).
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
3. Bills receivable and accounts receivable(Cont’d)
(2) Accounts receivable
1) Disclosure of accounts receivable by category
Unit: RMB
Closing balanceOpening balanceBook balanceBad debts provisionCarrying amountBook balanceBad debts provisionCarrying amountCategoryAmountPercentageAmount
ProvisionpercentageAmountPercentageAmount
Provisionpercentage
Accounts receivable assessedindividually for impairment71,960,343.901.90%55,240,343.9076.76%16,720,000.0039,859,139.430.99%39,859,139.43100.00%0.00Of which:
Accounts receivable assessedcollectively for impairment3,711,403,752.2398.10%323,636,747.648.72%3,387,767,004.593,988,541,011.2899.01%322,675,434.258.09%3,665,865,577.03Of which:
Accounts receivable from related parties5,838,812.920.15%947,246.6416.22%4,891,566.28238,924,747.455.93%0.00%238,924,747.45Accounts receivable fromdistributor clients3,043,388,184.3780.44%320,207,886.8610.52%2,723,180,297.513,599,616,263.8389.36%322,225,434.258.95%3,277,390,829.58Factoring receivables662,176,754.9417.50%2,481,614.140.37%659,695,140.80150,000,000.003.72%450,000.000.30%149,550,000.00
Total3,783,364,096.13100.00%378,877,091.5410.01%3,404,487,004.594,028,400,150.71100.00%362,534,573.689.00%3,665,865,577.03
Items assessed individually for impairment:
Unit: RMBClosing balanceNameBook balance
Bad debts
provision
ProvisionpercentageReasons for provision
FOSHAN SHUNDE XINGCHENPAPER CO., LTD.
26,236,528.7026,236,528.70100.00%Unlikely to be recoveredBEIJING HUAXIA CULTURE MEDIA CO., LTD.8,207,950.428,207,950.42100.00%Unlikely to be recoveredJIANGXI LONGMING ENTERPRISE CO., LTD.1,763,987.741,763,987.74100.00%Unlikely to be recoveredNANCHANG XINGBO PAPER CO., LTD.1,656,205.971,656,205.97100.00%Unlikely to be recoveredJIANGSU YIHONG PAPER CO., LTD.3,490,464.473,490,464.47100.00%Unlikely to be recoveredQINGDAO TENGFARUN PACKAGINGCO., LTD.
3,239,582.933,239,582.93100.00%Unlikely to be recoveredSIHONG GUANGFA COLOR PRINTING ANDPACKAGING CO., LTD.
934,371.82934,371.82100.00%Unlikely to be recoveredPINGYI HUIFENG PAPER CO., LTD.636,988.62636,988.62100.00%Unlikely to be recoveredQINGTAO BAOYUE PAPER CO., LTD.553,898.05553,898.05100.00%Unlikely to be recoveredBAYAN NUR TAILI PACKAGING CO., LTD.503,562.66503,562.66100.00%Unlikely to be recoveredWENXIAN HUARONG PACKAGINGMATERIAL CO., LTD.
426,858.60426,858.60100.00%Unlikely to be recoveredJILIN SAIWEI TRADING CO., LTD.6,709,943.926,709,943.92100.00%Unlikely to be recoveredWUHAN TIANRUI PAPER CO., LTD.17,600,000.00880,000.005.00%Bills matured but not collected
Total71,960,343.9055,240,343.90——
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
3. Bills receivable and accounts receivable(Cont’d)
(2) Accounts receivable
(Cont’d)
1) Disclosure of accounts receivable by category(Cont’d)
In the groups, accounts receivable with collective provision for bad debts based on receivables fromrelated parties:
Unit: RMBClosing balanceItemBook balance
Bad debts
provision
ProvisionPercentage (%)
Within 1 year3,139,712.63156,985.635.001-2 years840,164.9884,016.5010.002-3 years1,440,863.50288,172.7020.00Over 3 years418,071.81418,071.81100.00
Total5,838,812.92947,246.6416.22
In the groups, accounts receivable with collective provision for bad debts based on receivables fromdistributor clients:
Unit: RMBClosing balanceItemBook balance
Bad debts
provision
ProvisionPercentage (%)
Within 1 year3,410,823,735.53142,948,405.144.191-2 years70,258,834.417,025,883.4410.002-3 years64,708,946.1912,941,789.2420.00Over 3 years159,773,423.18159,773,423.18100.00
Total3,705,564,939.31322,689,501.008.71
Disclosed by ageing:
Unit: RMBAgeingClosing balance
Within 1 year (including 1 year)3,287,578,057.391-2 years63,989,099.452-3 years52,919,847.75
Total3,404,487,004.59
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
3. Bills receivable and accounts receivable(Cont’d)
(2) Accounts receivable
(Cont’d)
2) Provision, recovery or reversal of bad debt provision for the period
Provision of bad debt provision for the period:
Unit: RMBChanges in the periodCategoryOpening balanceProvision
Recoveryor reversalWritten offClosing balance
Accounts receivable withprovision for bad debt362,534,573.6825,885,927.289,543,409.42378,877,091.54
Total362,534,573.6825,885,927.289,543,409.42378,877,091.54
3) Particulars of accounts receivable actually written off during the period
Unit: RMBItemAmount written off
Accounts receivable actually written-off9,543,409.42
4) Top five accounts receivable based on closing balance of debtors
The total amount of the Company’s top five accounts receivable based on closing balance of debtorsfor the year was RMB1,020,957,610.67, which accounted for 26.99% of the closing balance of thetotal accounts receivable. The closing balance of corresponding bad debt provision amounted toRMB9,867,905.24.
4. Prepayments
(1) Presentation of prepayments stated according to ageing analysis
Unit: RMBClosing balanceOpening balanceAgeingAmountPercentageAmountPercentage
Within 1 year793,395,209.0291.86%1,766,616,133.8290.03%1-2 years70,343,811.728.14%195,535,339.539.97%
Total863,739,020.74—1,962,151,473.35—
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
4. Prepayments(Cont’d)
(2) Top five prepayments according to closing balance of prepaid parties
Name of entityAmountMaterial supplied
Percentage ofprepayments (%)
JIANGXI ZHONGLIAN ENERGYDEVELOPMENT CO., LTD.192,642,331.67Coal22.30HENAN XIN YU INTERNATIONAL PULP ANDPAPER CO., LTD64,970,763.39Wood pulp7.52JIANGXI CHENMING NATURAL GAS CO., LTD.40,323,934.04Natural gas4.67SHANGHAI XULIN INTERNATIONALTRADING CO., LTD.24,034,711.80Wood pulp2.78SHANGHAI HONGSHENG PAPER CO., LTD22,225,288.05Wood pulp2.57
Total344,197,028.9539.85
5. Other receivables
Unit: RMBItemClosing balanceOpening balance
Interest receivables198,577,632.4315,295,213.24Other receivables1,934,512,350.96523,439,443.31
Total2,133,089,983.39538,734,656.55
(1) Interest receivable
Classification of interest receivable
Unit: RMBItemClosing balanceOpening balance
Fixed term deposit1,002,811.951,445,843.74Bond investment25,018,561.36Interest on guarantee deposit172,556,259.1213,849,369.50
Total198,577,632.4315,295,213.24
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
5. Other receivables(Cont’d)
(2) Other receivables
(Cont’d)
1) Other payables by nature
Unit: RMBNature
Closing book
balance
Opening book
balance
Open credit1,960,044,821.28379,466,915.61Reserve and borrowings1,957,000.0079,132,212.68Guarantee deposit18,064,797.4618,594,327.30Insurance premium2,034,980.18627,067.87Advances4,099,146.511,136,328.43Investment—4,568,145.95Others162,793,258.20156,937,002.32
Total2,148,994,003.63640,462,000.16
2) Particulars of bad debt provision
Unit: RMBPhase 1Phase 2Phase 3
Bad debt provision
Expectedcredit loss for
the next12 months
Expectedcredit lossover the entirelife (not credit-
impaired)
Expectedcredit lossover the entire
life (credit-
impaired)Total
Balance as at 1 January65,335,559.8336,391,783.78101,727,343.61Balance as at 1 January2018 during the year————– Transferred into Phase 265,335,559.8365,335,559.83– Transferred into Phase 331,141,687.0531,141,687.05– Reversal to Phase 25,250,096.735,250,096.73Provision for the year140,255,990.39140,255,990.39Reversal for the year24,168,421.412,616,739.0926,785,160.50Transfer for the year477,781.05477,781.05Writing-off for the year238,739.78238,739.78
Balance as at 31 December 2018180,706,607.9833,775,044.69214,481,652.67
Changes in carrying book balances with significant changes in loss provision for the yearApplicable √ Not applicable
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
5. Other receivables(Cont’d)
(2) Other receivables
(Cont’d)
2) Particulars of bad debt provision(Cont’d)
By ageing
Unit: RMBAgeingClosing balance
Items within 1 year (including 1 year)363,135,234.651-2 years327,549,153.892-3 years128,669,380.43Over 3 years1,115,158,581.99
Total1,934,512,350.96
3) Provision, recovery or reversal of bad debt provision for the year
Bad debt provision for the year:
Unit: RMBChanges for the yearCategory
OpeningbalanceProvision
Recoveryor reversal
Transferor writing-off
Closingbalance
Bad debt provision for other receivables101,727,343.61140,255,990.3926,785,160.50716,520.83214,481,652.67
Total101,727,343.61140,255,990.3926,785,160.50716,520.83214,481,652.67
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
5. Other receivables(Cont’d)
(2) Other receivables
(Cont’d)
4) Top five other receivables according to closing balance of debtors
Unit: RMB
Name of entityNatureClosing balanceMaturity
Percentage toclosing balance
of otherreceivables
Closing balance
of bad debt
provision
SHENZHEN QIANHAI RUILI ASSETMANAGEMENT CO., LTD.
Consideration forequity transfer
1,767,832,915.12Within 1 year82.86%88,391,645.76WEIFANG SIME DARBY WESTPORT CO., LTD
Shareholder’sborrowings
60,836,961.431-2 years2.83%6,083,696.14CHINA BOHAI BANKInterest on
guarantee
27,625,000.00Within 1 year1.29%GUANGDONG ZHONGTUOCONSTRUCTION CO., LTD.
Relocationpayment
15,200,000.003 to 4 years0.71%15,200,000.00DALIAN NUODEYING LOGISTICS CO., LTD.Deposits7,066,054.89Within 1 year0.33%893,018.39
Total—1,878,560,931.44--88.02%110,568,360.29
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
6. Inventories
Whether the Company needs to comply with the disclosure requirements of the real estate industryNo(1) Categories of inventories
Unit: RMBClosing balanceOpening balanceItemBook balance
Impairmentprovision forinventories orperformance costsCarrying amountBook balance
Impairment
provisionfor inventoriesCarrying amount
Raw materials3,275,454,669.279,525,360.593,265,929,308.682,431,905,097.568,138,005.872,423,767,091.69Work-in-process products102,153,808.77102,153,808.77115,619,584.501,835,271.09113,784,313.41Goods in stock1,690,248,067.4334,943,475.271,655,304,592.161,419,054,457.141,419,054,457.14Consumable biological assets1,511,542,610.361,511,542,610.361,756,375,954.071,756,375,954.07Developing products309,823,656.6473,265,542.87236,558,113.77309,823,674.86309,823,674.86
Total6,889,222,812.47117,734,378.736,771,488,433.746,032,778,768.139,973,276.966,022,805,491.17
(2) Impairment provision for inventories or performance costs
Unit: RMBIncrease for the periodDecrease for the periodItemClosing balanceProvisionOthers
Reversalor transferOthersClosing balance
Raw materials8,138,005.879,525,360.598,138,005.879,525,360.59Work-in-process products1,835,271.091,835,271.09Goods in stock34,943,475.2734,943,475.27Developing products73,265,542.8773,265,542.87
Total9,973,276.96117,734,378.739,973,276.96117,734,378.73
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
6. Inventories(Cont’d)
(3) Changes in consumable biological assets
Increase for the periodDecrease for the periodItemOpening balance
Increasein breeding
Increasein purchase
Decreasein fair valueOther decreasesDecrease in salesClosing balance
Consumable biologicalassets measured at cost543,605,518.7341,520,519.59585,126,038.32Consumable biological assetsmeasured at fair value1,212,770,435.3421,464,400.6537,972,595.88226,916,866.77926,416,572.04
Total1,756,375,954.0741,520,519.5921,464,400.6537,972,595.88226,916,866.771,511,542,610.36
7. Non-current assets due within one year
Unit: RMBItemClosing balanceOpening balance
Long-term receivables due within one year4,007,503,281.866,901,695,875.94
Total4,007,503,281.866,901,695,875.94
8. Other current assets
Unit: RMBItemClosing balanceOpening balance
VAT recoverable1,365,819,497.97946,555,831.51Prepaid tax13,217,451.883,703,141.50Receivables under financial lease due within one year8,234,007,148.7010,618,498,357.25Prepaid expenses662,919,414.09Others5,349,312.49
Total10,281,312,825.1311,568,757,330.26
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
9. Long-term receivables
(1) Particulars of Long-term receivables
Unit: RMBClosing balanceOpening balanceDiscount rate rangeItemBook balanceBad debt provisionCarrying amountBook balanceBad debt provisionCarrying amount
Finance lease payments12,992,711,023.11145,746,721.1212,846,964,301.9917,367,307,787.46109,695,662.3517,257,612,125.114.00-10.00Including: Unrealisedfinancing income1,491,762,037.161,491,762,037.161,331,474,723.851,331,474,723.85Less: non-current assetsdue within one year4,028,313,053.6820,809,771.824,007,503,281.866,921,710,823.3220,014,947.386,901,695,875.94Subtotal7,472,635,932.27124,936,949.307,347,698,982.979,114,122,240.2989,680,714.979,024,441,525.32—
Deposit for finance lease588,925,607.06588,925,607.06456,925,607.06456,925,607.06Less: Unrealisedfinancing income10,013,819.1710,013,819.1780,505,043.2080,505,043.20Less: non-current assetsdue within one yearSubtotal578,911,787.89578,911,787.89376,420,563.86376,420,563.86
Total8,051,547,720.16124,936,949.307,926,610,770.869,490,542,804.1589,680,714.979,400,862,089.18
Particulars of bad debt impairment provision
Unit: RMBPhase 1Phase 2Phase 3
Bad debt provision
Expectedcredit loss for
the next12 months
Expectedcredit loss over
the entire life
(not credit-
impaired)
Expectedcredit loss over
the entire life(credit-impaired)Total
Balance as at 1 January89,680,714.9789,680,714.97Balance as at 1 January 2018during the year————– Transferred into Phase 289,680,714.9789,680,714.97Provision for the period35,256,234.3335,256,234.33
Balance as at 31 December 2018124,936,949.30124,936,949.30
Changes in carrying book balances with significant changes in loss provision for the yearApplicable √ Not applicable
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
9. Long-term receivables(Cont’d)
(2) Long-term receivable derecognised due to transfers of financial asset
Method of transfer of financial asset
Long-termreceivablederecognised
Gains orlosses related toderecognition
Transfer of creditor’s rights1,992,048,915.11Transferred at par
Total1,992,048,915.11
10. Long-term equity investments
Unit: RMB
Change for the periodInvesteeOpening balance
Additionalcontribution
Withdrawncontribution
Investmentgain or lossrecognizer under
equity method
Adjustment of
othercomprehensive
income
Other changein equity interest
Distribution ofcash dividendor profit declared
Impairment
provisionOthersClosing balance
Closingbalance ofimpairment
provision
I. Joint ventureShouguang Chenming HuisenNew-style Construction Materials Co., Ltd.3,087,296.72485,538.073,572,834.79Weifang Sime Darby West Port Co., Ltd104,784,922.41-1,625,064.70103,159,857.71Weifang Xingxing United Chemical Co., Ltd.110,000,000.00-746,762.88109,253,237.12
Sub-total107,872,219.13110,000,000.00-1,886,289.51215,985,929.62
II. AssociatesJiangxi Jiangbao Media Colour Printing Co. Ltd.1,754,051.46-942,052.71811,998.75Zhuhai Dechen New Third Board EquityInvestment Fund Company(Limited Partnership)51,918,433.41335,384.3152,253,817.72Ningbo Kaichen Huamei Equity Investment FundPartnership (Limited Partnership)198,981,173.01604,043.93199,585,216.94Wuhan Chenming Wan Xing Real Estate Co., Ltd.26,415,056.6226,415,056.62Jiangxi Chenming Port Co., Ltd.4,927,893.82-2,771,641.512,156,252.31Xuchang Chenming Paper Co., Ltd.21,496,272.32-15,501,726.365,994,545.96Chenming (Qingdao) Asset Management Co., Ltd.8,200,000.00-313,478.537,886,521.47
Sub-total283,996,608.3229,696,272.3226,415,056.62-18,589,470.87268,688,353.15
Total391,868,827.45139,696,272.3226,415,056.62-20,475,760.38484,674,282.77
Note: For the disposal of 30% equity interest of Xuchang Chenming Paper Co., Ltd., method of calculation changed from cost method to
equity method.
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
11. Other non-current liabilities
Unit: RMBItemClosing balanceOpening balance
Equity instrument investment103,000,000.002,453,000,000.00
Total103,000,000.002,453,000,000.00
Other explanation: as the Company’s shareholding in the investee is low without significant effects, it is notpracticable to adopt the income approach or the market approach for the shareholding in the investee. Moreover,there was no recent introduction external of investor, which, together with transfer of equity among the shareholdersserves as references for the determination of fair value, which may be classified as“limited circumstances”for thebest estimate of fair value of available cost.
12. Investment properties
(1) Investment properties under the cost method
√ Applicable Not applicable
Unit: RMBItem
Housing andbuilding structureTotal
I. Original carrying amount1. Opening balance4,847,572,022.074,847,572,022.072. Increase for the period173,485,489.13173,485,489.13(1) Purchase79,841,366.7479,841,366.74(2) Transfer from inventories\fixedassets\construction in progress29,386,869.4329,386,869.43(3) Transfer from intangible assets14,138,227.9214,138,227.92(4) Debt payment50,119,025.0450,119,025.043. Decrease for the period4. Closing balance5,021,057,511.205,021,057,511.20II. Accumulated depreciation and accumulated amortisation1. Opening balance38,036,912.2538,036,912.252. Increase for the period138,027,559.33138,027,559.33(1) Provision or amortisation138,027,559.33138,027,559.333. Decrease for the period4. Closing balance176,064,471.58176,064,471.58III. Provision for impairmentIV. Carrying amount1. Closing carrying amount4,844,993,039.624,844,993,039.622. Opening carrying amount4,809,535,109.824,809,535,109.82
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
13. Fixed assets
Unit: RMBItemClosing balanceOpening balance
Fixed assets27,913, 986,152.6828,227,509,503.05
Total27,913,986,152.6828,227,509,503.05
(1) Particulars of fixed assets
Unit: RMBItem
Housing andbuilding structure
Machinery and
equipmentVehicles
Electronicequipment and
othersTotal
I. Original carrying amount:
1. Opening balance8,550,130,664.6132,357,264,151.18355,292,830.51439,890,095.3341,702,577,741.632. Increase for the period1,251,284,977.91323,505,907.2727,928,847.8414,195,130.181,616,914,863.20(1) Acquisition261,093,361.74107,307,669.7327,928,847.8414,195,130.18410,525,009.49(2) Transferred from constructionin progress937,650,059.54216,198,237.541,153,848,297.08Others52,541,556.6352,541,556.633. Decrease for the period131,810,109.98589,188,732.7338,155,648.8513,885,769.24773,040,260.80(1) Disposal or retirement7,621,392.9261,110,377.2637,801,306.638,652,462.98115,185,539.79Decrease in equity transfer94,801,847.63528,078,355.47354,342.225,233,306.26628,467,851.58Transferred toinvestment property29,386,869.4329,386,869.434. Closing balance9,669,605,532.5432,091,581,325.72345,066,029.50440,199,456.2742,546,452,344.03II. Accumulated depreciation1. Opening balance1,437,843,056.3311,437,397,169.74143,458,304.23264,188,740.2713,282,887,270.572. Increase for the period258,321,798.731,287,268,441.3733,322,547.2413,410,425.241,592,323,212.58(1) Provision231,118,698.361,287,268,441.3732,971,952.4713,163,774.381,564,522,866.58Others27,203,100.37350,594.77246,650.8627,800,346.003. Decrease for the period17,258,733.41398,647,954.953,427,612.6919,826,640.92439,160,941.97(1) Disposal or retirement2,770,759.99398,647,954.953,422,145.0019,784,838.00424,625,697.94Transferred into constructionin progress439,039.635,467.6941,802.92486,310.24Investment property14,048,933.7914,048,933.794. Closing balance1,678,906,121.6512,326,017,656.16173,353,238.78257,772,524.5914,436,049,541.18III. Provision for impairment1. Opening balance51,900,151.11139,905,410.6513,092.92362,313.33192,180,968.012. Decrease for the period5,177,720.125,177,720.12Provision5,177,720.125,177,720.123. Decrease for the period942,037.96942,037.96Disposal or retirement942,037.96942,037.964. Closing balance50,958,113.15145,083,130.7713,092.92362,313.33196,416,650.17IV. Carrying amount1. Closing carrying amount7,939,741,297.7419,620,480,538.79171,699,697.80182,064,618.3527,913,986,152.682. Opening carrying amount7,060,387,457.1720,779,961,570.79211,821,433.36175,339,041.7328,227,509,503.05
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
13. Fixed assets(Cont’d)
(1) Particulars of fixed assets(Cont’d)
Note: As at 31 December 2018, housing, building structure and equipment with the carrying amount of RMB8,079,811,565.53
(31 December 2017: carrying amount of RMB4,422,080,751.05) were pledged as collateral for intangible assets with thecarrying amount of RMB873,985,362.13 (31 December 2017: carrying amount of RMB597,992,087.19), and investmentproperties with the carrying amount of RMB4,691,453,227.24 was pledged as collateral for long-term borrowings with thecarrying amount of RMB4,733,171,900.00 (31 December 2017: carrying amount of RMB1,922,342,000.00) and short-termborrowings with the carrying amount of RMB180,000,000.00 (31 December 2017: carrying amount of RMB50,000,000).Other decreases in the original carrying amount refers to fixed assets reversed due to incomplete liquidation of Zhanjiang
Chenming.
(2) Particulars of temporarily idle fixed assets
Unit: RMBItem
Originalcarrying amount
Accumulateddepreciation
Provision forimpairmentCarrying amountRemark
Housing and building structure52,541,556.537,063,028.1845,478,528.35Machinery and equipment402,047,541.87155,924,037.0920,501,583.51225,621,921.27
Total454,589,098.40162,987,065.2720,501,583.51271,100,449.62
(3) Particulars of fixed assets without obtaining property right certificates
Unit: RMBItemCarrying amount
Reason for notyet obtaining property
right certificates
Housing and building structure(JIANGXI CHENMING)
222,926,579.95Scheduled operation
commencement
not imminentHousing and building structure(SHOUGUANG MEILUN)
281,622,650.70Scheduled operation
commencement not
imminentHousing and building structure(HAIMING MINING)
131,891,347.86Scheduled operation
commencement
not imminentHousing and building structure(JILIN CHENMING)
484,269,328.58Scheduled operation
commencement
not imminentHousing and building structure(CHENMING PAPER)
74,963,006.89Scheduled operation
commencement
not imminentHousing and building structure(ZHANJIANG CHENMING)
1,212,867,479.62Scheduled operation
commencement
not imminent
Total2,408,540,393.60
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
14. Construction in progress
Unit: RMBItemClosing balanceOpening balance
Construction in progress11,861,494,351.337,668,669,413.87Materials for project9,856,470.2215,275,630.45
Total11,871,350,821.557,683,945,044.32
(1) Particulars of construction in progress
Unit: RMBClosing balanceOpening balanceItemBook balance
Provision for
impairmentCarrying amountBook balance
Provision forimpairmentCarrying amount
400T/d Mechanical pulpproject (Headquarters)190,246,507.11190,246,507.1123,575,818.5723,575,818.57Newsprint machine to culturalpaper machine and relatedpulp line transformation(Headquarters)1,426,602,125.571,426,602,125.57902,644,220.48902,644,220.48Chemical pulp project (Meilun)3,016,785,495.663,016,785,495.661,801,971,276.321,801,971,276.32High-end cultural paper (Meilun)1,701,781,479.301,701,781,479.30697,210,244.24697,210,244.24Haiming mining magnesite deepprocessing project (Haiming)486,501,551.60486,501,551.601,047,440,597.941,047,440,597.94200,000-ton magnesia-aluminaspinel project (Haiming)558,876,283.14558,876,283.140.000.00Huanggang Chenmingintegrated forestry, pulp andpaper project3,605,150,078.663,605,150,078.662,267,821,283.492,267,821,283.49Integrated terminal project(Huanggang Chenming)0.000.00191,050,346.34191,050,346.34100,000-ton paper machinechanging project(Xuchang Chenming)0.000.00170,475,982.49170,475,982.49Membrane treatment project(Zhanjiang Chenming)74,505,129.7274,505,129.720.000.00Back pressure unit project26,452,503.4126,452,503.410.000.00Others802,022,132.9827,428,935.82774,593,197.16581,243,870.2314,764,226.23566,479,644.00
Total11,888,923,287.1527,428,935.8211,861,494,351.337,683,433,640.1014,764,226.237,668,669,413.87
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
14. Construction in progress(Cont’d)
(2) Changes in material construction in progress projects for the period
Unit: RMB
Project name
Budget(RMB’00 million)Opening balance
Increase forthe period
Transfer tofixed asset for
the period
Otherdeductions for
the periodClosing balance
AccumulatedInvestmentto budget
Constructionin progress
Accumulated
capitalised
interest
Of which:
capitalisedinterest amountfor the period
Capitalisation
rate of theinterest amount for
the periodSource of fund
Upgrading and renovation ofback pressure unit of captivepower plant (headquarter)
1.13177,001,786.08177,001,786.0820.80%0.17self-raised and
borrowings400T/d Mechanical pulpproject (Headquarters)
1.3023,575,818.57166,670,688.54190,246,507.11146.00%0.953,859,068.333,530,174.422.11%self-raised and
borrowingsMembrane treatment for reclaimedwater recycling (Headquarters)
3.20145,410,753.42145,410,753.4245.00%0.6self-raised and
borrowingsNew annual 200,000 ton of fly ashcement ceramsite production project
0.5730,122,443.4930,122,443.4953.00%0.6self-raised and
borrowingsNewsprint machine to culturalpaper machine and related pulp linetransformation (Headquarters)
3.72902,644,220.48523,957,905.091,426,602,125.57162.59%0.9614,556,448.1512,333,058.592.35%self-raised and
borrowingsChemical pulp project (Meilun)30.001,801,971,276.321,214,814,219.343,016,785,495.6670.00%0.95137,290,465.3566,513,856.865.48%self-raised and
borrowingsHigh-end cultural paper (Meilun)37.61697,210,244.241,004,571,235.061,701,781,479.3046.00%0.9842,158,682.5233,184,591.173.30%self-raised and
borrowingsHaiming mining magnesite deepprocessing project (Haiming)
18.501,047,440,597.9421,566,889.76582,505,936.10486,501,551.60107.00%197,619,920.72self-raised and
borrowings200,000-ton magnesia-aluminaspinel project
8.500.00558,876,283.14558,876,283.1465.75%0.838,915,496.558,915,496.551.60%self-raised and
borrowingsHuanggang Chenming Forest andPaper Integration Project(Pulping Project)(Huanggang Chenming)
34.852,267,821,283.491,411,690,254.4970,829,154.123,532,305.203,605,150,078.66103.00%1148,245,107.0275,975,528.325.68%self-raised and
borrowingsIntegrated terminal project(Huanggang Chenming)
3.51191,050,346.3459,893,062.73250,943,409.0771.00%1self-raised and
borrowingsBiomass power generation project(southern district)(Huanggang Chenming)
5.1357,186,086.82104,576,396.564,222,117.46157,540,365.9232.00%1self-raised and
borrowings100,000-ton paper machine changingproject (Xuchang Chenming)
1.80170,475,982.49170,475,982.49self-raised and
borrowingsMembrane treatment project(Zhanjiang Chenming)
1.2074,505,129.7274,505,129.7262.00%0.8self-raised and
borrowingsBack pressure unit project(Zhanjiang Chenming)
0.6026,452,503.4126,452,503.410.60%self-raised and
borrowings
Total151. 627,159,375,856.695,520,109,550.83904,278,499.29178,230,405.1511,596,976,503.08——452,645,188.64200,452,705.91—
Note: Xuchang Chenming ceased to be included in the scope of consolidation due to equity transfer, and the construction in progress
was included in other decreases.
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
14. Construction in progress(Cont’d)
(3) Particulars of provision for construction in progress impairment
Unit: RMBItem
Amountfor the yearReason for the provision
Mechanical pulp project (Fuyu Chenming)3,742,840.00Impairment of projectCogeneration Project (southern district)(Huanggang Pulp and Paper)
12,771,903.87Project was under
replanningDifferentiated viscose and spinning and chemical project(southern district) (Huanggang Pulp and Paper)
5,852,792.26Project was under
replanningMarsh gas power generation (Headquarters)5,061,399.69Project was under
replanning
Total27,428,935.82—
(4) Materials for project
Unit: RMBClosing balanceOpening balanceItemBook balance
Impairment
provisionCarrying amountCarrying amountCarrying amountCarrying amount
Special materials9,856,470.229,856,470.2211,285,247.5211,285,247.52Special equipment3,990,382.933,990,382.93
Total9,856,470.229,856,470.2215,275,630.4515,275,630.45
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
15. Intangible assets
(1) Particulars of intangible assets
Unit: RMBItemLand use rights
UnpatentedtechnologySoftwareTotal
I. Original carrying amount1. Opening balance2,385,510,515.6724,305,385.832,409,815,901.502. Increase for the period65,645,347.0015,895,213.334,351,628.1285,892,188.45(1) Acquisition65,645,347.0015,895,213.334,351,628.1285,892,188.453. Decrease for the period152,907,869.142,663,130.81155,570,999.95(1) Disposal152,907,869.142,663,130.81155,570,999.954. Closing balance2,298,247,993.5315,895,213.3325,993,883.142,340,137,090.00II. Accumulated amortisation1. Opening balance330,449,712.1020,144,810.31350,594,522.412. Increase for the period55,294,736.151,705,104.301,352,967.8758,352,808.32(1) Provision55,294,736.151,705,104.301,352,967.8758,352,808.323. Decrease for the period6,502,384.901,663,130.818,165,515.71(1) Disposal6,502,384.901,663,130.818,165,515.714. Closing balance379,242,063.351,705,104.3019,834,647.37400,781,815.02III. Impairment provisionIV. Carrying amount1. Closing carryingamount1,919,005,930.1814,190,109.036,159,235.771,939,355,274.982. Opening carryingamount2,055,060,803.574,160,575.522,059,221,379.09
Note: As at 31 December 2018, housing, building structure and equipment with the carrying amount of RMB8,079,811,565.53
(31 December 2017: carrying amount of RMB4,422,080,751.05) were pledged as collateral for intangible assets with thecarrying amount of RMB873,985,362.13 (31 December 2017: carrying amount of RMB597,992,087.19), and investmentproperties with the carrying amount of RMB4,691,453,227.24 was pledged as collateral for long-term borrowings with thecarrying amount of RMB4,733,171,900.00 (31 December 2017: carrying amount of RMB1,922,342,000.00) and short-termborrowings with the carrying amount of RMB180,000,000.00 (31 December 2017: carrying amount of RMB50,000,000).The emission right of Huanggang Pulp and Paper is categorised as others (Other Rights Certificate), with the number
of pollutant discharge permit being 91421100679765869N001P, the issuing authority being Huanggang Ministry ofEnvironmental Protection and the expiry date ranging between 14 September 2018 and 13 September 2021.
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
16. Goodwill
(1) Original carrying amount of goodwill
Unit: RMBName of investee or itemgenerating goodwillOpening balance
Increase for
the period
Decrease for
the periodClosing balance
Shandong ChenmingPanels Co., Ltd.5,969,626.575,969,626.57Jilin Chenming PaperCo., Ltd.14,314,160.6014,314,160.60
Total20,283,787.1720,283,787.17
(2) Provision for impairment of goodwill
Unit: RMBName of investee oritem generating goodwillOpening balance
Increase for
the period
Decrease for
the periodClosing balance
Machine-made papersector - Jilin ChenmingPaper Co., Ltd.14,314,160.6014,314,160.60
Total14,314,160.6014,314,160.60
Information related to the asset group or groups to which goodwill belongsThe asset group Shandong Chenming Panels Co., Ltd.The recoverable amount of the asset group Shandong Chenming Panels Co., Ltd. is determined based on thepresent value of the estimated future cash flows. Future cash flows are based on the financial budget from 2019to 2023 approved by the management, and adopt 7.28% as the discount rate which is the interest rate of the5-year bonds issued by the Company in 2018. The cash flows of the asset group Shandong Chenming PanelsCo., Ltd. for more than 5 years are calculated based on the growth rate of 5%. Other key assumptions usedin estimating future cash flows include the estimated sales and gross profit based on the performance of suchasset group in the past and the expectation to market development by the management. The managementbelieves that any reasonable change in the above assumptions will not result in the total book value of the assetgroup Shandong Chenming Panels Co., Ltd. exceeding its recoverable amount.The asset group Jilin Chenming Paper Co., Ltd.
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
16. Goodwill(Cont’d)
(2) Provision for impairment of goodwill(Cont’d)
The recoverable amount of the asset group Jilin Chenming Paper Co., Ltd. is determined based on the presentvalue of the estimated future cash flows. Future cash flows are based on the financial budget from 2019 to 2023approved by the management, and adopt 7.28% as the discount rate which is the interest rate of the 5-yearbonds issued by the Company in 2018. The cash flows of the asset group Jilin Chenming Paper Co., Ltd. formore than 5 years are calculated based on the growth rate of 5%. Other key assumptions used in estimatingfuture cash flows include the estimated sales and gross profit based on the performance of such asset groupin the past and the expectation to market development by the management. The management believes that,based on the above assumptions, the book value of the asset group Jilin Chenming Paper Co., Ltd. in aggregateexceeds its recoverable amount, and recognises the impairment of the goodwill of the machine-made papersegment - Jilin Chenming Paper Co., Ltd.
17. Long-term prepaid expenses
Unit: RMBItemOpening balance
Increase for
the period
Amortisationfor the periodOther deductionsClosing balance
Railway expenses7,674,716.58704,814.606,969,901.98Rentals41,132,847.782,061,665.402,098,208.8341,096,304.35Woodland expenses90,315,005.094,607,746.785,574,339.672,498,376.7286,850,035.48
Total139,122,569.456,669,412.188,377,363.102,498,376.72134,916,241.81
18. Deferred income tax assets/deferred income tax liabilities
(1) Deferred income tax assets before offsetting
Unit: RMBClosing balanceOpening balanceItem
Deductibletemporarydifference
Deferred income
tax assets
Deductibletemporarydifference
Deferred income
tax assets
Provision for impairment ofassets1,009,229,761.95201,814,843.08691,231,679.05173,959,565.59Unrealised profitarising from intra-grouptransactions53,691,645.1313,422,911.28273,585,917.9668,396,479.49Deductible loss1,832,638,038.33291,277,348.301,006,688,665.35173,250,557.91Outstanding payables464,741,048.8572,646,157.78512,378,679.9177,803,599.22Deferred income136,079,842.6324,712,438.18157,069,341.9528,878,648.19
Total3,496,380,336.89603,873,698.622,640,954,284.22522,288,850.40
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
18. Deferred income tax assets/deferred income tax liabilities(Cont’d)
(2) The breakdown of unrecognised deferred income tax assets
Unit: RMBItemClosing balanceOpening balance
Deductible temporary difference293,812,600.65136,902,031.73Deductible loss618,945,325.05521,429,433.24
Total912,757,925.70658,331,464.97
(3) Expiry of deductible loss of unrecognised deferred income tax assets falls in the periods as follows
Unit: RMBYearClosing amountOpening amountRemark
201889,165,185.03201958,075,279.7058,161,318.09202068,154,676.8969,723,168.31202179,493,561.61161,307,173.38202291,517,702.92143,072,588.432023321,704,103.93
Total618,945,325.05521,429,433.24—
19. Other non-current assets
Unit: RMBClosing balanceOpening balanceItemBook balance
Impairment
provisionCarrying amountBook balance
Impairment
provisionCarrying amount
Prepayments for properties458,224,099.89458,224,099.89451,277,549.54451,277,549.54Prepayments for land45,230,000.0045,230,000.00Prepayments for engineering22,445,137.1822,445,137.18Prepayments for equipment223,822,509.86223,822,509.8648,446,648.1648,446,648.16Deposits36,000,000.0036,000,000.00Equity transfer694,000,000.00694,000,000.00Pre-paid expenses42,771,382.7342,771,382.73
Total1,522,493,129.661,522,493,129.66499,724,197.70499,724,197.70
Other explanations: Deposits of RMB36,000,000.00 were used for the acquisition of equity in Goldtrust Futures, andequity transfer amount of RMB694,000,000.00 were used for the acquisition of equity in Guangdong Nanyue Bank.
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
20. Short-term borrowings
(1) Classification of short-term borrowings
Unit: RMBItemClosing balanceOpening balance
Pledged borrowings971,604,153.412,956,876,168.82Mortgage borrowings180,000,000.0050,000,000.00Guaranteed borrowings9,918,242,061.0512,100,224,483.51Credit borrowings7,531,565,147.435,823,854,220.70Discounted borrowings21,626,534,000.0014,165,620,000.00
Total40,227,945,361.8935,096,574,873.03
Particulars of the short-term borrowings: for classification and amount of pledged borrowing and mortgageborrowing, please see notes in relation to monetary funds and assets with restricted ownerships or right to use.(2) Overdue short-term borrowings
Total outstanding accounts payable as at the end of the period amounted to RMB0.00.
21. Bills payable and accounts payable
Unit: RMBItemClosing balanceOpening balance
Bills payable4,218,969,554.931,278,395,090.71Accounts payable4,150,228,644.664,013,936,527.74
Total8,369,198,199.595,292,331,618.45
(1) Classification of bills payable
Unit: RMBClassificationClosing balanceOpening balance
Commercial acceptance bills49,670,407.62283,744,411.80Bank acceptance bills4,169,299,147.31994,650,678.91
Total4,218,969,554.931,278,395,090.71
Total outstanding bills payable as at the end of the period amounted to RMB0.00.
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
21. Bills payable and accounts payable(Cont’d)
(2) Particulars of accounts payable
Unit: RMBClassificationClosing balanceOpening balance
Within 1 year3,566,507,866.143,398,781,721.681-2 years261,760,924.33415,562,463.452-3 years80,120,125.9772,014,432.53Over 3 years241,839,728.22127,577,910.08
Total4,150,228,644.664,013,936,527.74
(3) Significant advance receipts for over 1 year
Unit: RMBItemClosing balanceReasons
SHANGHAI CONSTRUCTION NO. 7(GROUP) CO., LTD.
53,498,159.55Quality guarantee deposit
for engineeringSHANDONG SHENHUA SHANDA ENERGY &ENVIRONMENT CO., LTD
11,736,736.36Quality guarantee deposit
for engineeringHAO HUNG CO., LTD.5,646,338.36Quality guarantee deposit
for engineeringFUJIAN WEIDONG INDUSTRIAL CO., LTD.5,363,200.00Quality guarantee deposit
for engineeringSHANDONG SANTE ENERGY CO., LTD.5,261,251.30Quality guarantee deposit
for engineeringRECYCLE AMERICA ALLIANCE4,537,536.75Quality guarantee deposit
for engineering
Total86,043,222.32—
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
22. Contract liabilities
Unit: RMBItemClosing balanceOpening balance
Advance loans419,540,133.74243,182,891.22
Total419,540,133.74243,182,891.22
Income included in the opening carrying amount of contract liabilities recognised during the year wasRMB243,182,891.22.
23. Staff remuneration payables
(1) Particulars of staff remuneration payables
Unit: RMBItemOpening balance
Increase for
the period
Decrease for
the periodClosing balance
I. Short-term remuneration184,868,925.111,227,431,484.521,277,192,035.50135,108,374.13II. Retirement benefit plan– defined contributionscheme261,966.99191,456,901.19191,453,834.61265,033.57
Total185,130,892.101,418,888,385.711,468,645,870.11135,373,407.70
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
23. Staff remuneration payables(Cont’d)
(2) Particulars of short-term remuneration
Unit: RMBItemOpening balance
Increase for
the period
Decrease for
the periodClosing balance
1. Salaries, bonuses,allowance and subsidies133,765,532.39950,236,783.811,038,225,712.7045,776,603.502. Staff welfare42,795,040.7233,707,571.909,087,468.823. Social insurance premium1,471,027.8581,809,468.5981,827,300.991,453,195.45Of which: Medicalinsurance premium508,362.5768,634,736.6068,658,399.06484,700.11Work-related injuryinsurance premium146.676,709,700.746,707,287.502,559.91Maternity insurancepremium962,518.616,326,432.306,326,919.25962,031.66Others138,598.95134,695.183,903.774. Housing provident funds7,126,858.9798,412,066.7496,724,518.298,814,407.425. Union funds and workers’
education23,566,423.6519,242,063.0316,267,986.0126,540,500.676. Other short-termremuneration18,939,082.2534,936,061.6310,438,945.6143,436,198.27
Total184,868,925.111,227,431,484.521,277,192,035.50135,108,374.13
(3) Defined contribution plan
Unit: RMBItemOpening balance
Increase for
the period
Decrease for
the periodClosing balance
1. Basic pension insurance176,970.81182,587,586.42182,751,023.8913,533.342. Unemployment insurance84,996.188,869,314.778,702,810.72251,500.23
Total261,966.99191,456,901.19191,453,834.61265,033.57
Other explanations: In accordance with regulations, the Company participated in the pension insurance andunemployment insurance schemes set up by the government, pursuant to which, the Company contributedto such schemes at 18.00% and 0.70% of basic salary of the staff, respectively. Other than such monthlycontributions, there was no further payment obligation of the Company. Such expenses are charged to profit orloss or as costs of such assets upon occurrence.
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
24. Taxes payable
Unit: RMBItemClosing balanceOpening balance
Value added tax101,147,703.11128,785,997.13Enterprise income tax279,044,478.52304,239,481.46Individual income tax21,204,181.795,296,935.04Urban maintenance and construction tax1,675,884.947,324,998.53Land use tax16,727,507.7815,556,098.12Property tax26,049,416.8825,352,235.76Educational surcharges and others2,685,191.815,702,856.39Stamp duty3,116,833.814,367,412.25
Total451,651,198.64496,626,014.68
25. Other payables
Unit: RMBItemClosing balanceOpening balance
Interest payable226,788,777.5985,480,380.32Other payables1,550,929,239.891,426,629,545.41
Total1,777,718,017.481,512,109,925.73
(1) Interest payable
Unit: RMBItemClosing balanceOpening balance
Interest on corporate bonds132,103,351.6279,728,028.58Interest payable on short-term borrowings34,393,759.325,752,351.74Interest on medium-term notes60,291,666.65
Total226,788,777.5985,480,380.32
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
25. Other payables(Cont’d)
(2) Other payables
1) Other payables by nature
Unit: RMBItemClosing balanceOpening balance
Open credit164,919,560.2273,980,061.13Deposit969,423,011.351,067,548,473.43Accrued expenses281,151,124.64228,591,392.54Others135,435,543.6856,509,618.31
Total1,550,929,239.891,426,629,545.41
2) Significant advance receipts for over 1 year
Unit: RMBItemClosing balanceReasons
Nine Dragons Dawei Holdings Co., Ltd.30,000,000.00DepositShenzhen Dongchan Capital Group Co., Ltd.9,093,918.30DepositShandong Yingli Industrial Co., Ltd.6,000,000.00DepositShenzhen Feichuang Tongda Technology Ltd.5,250,315.24DepositBeijing Guodian Futong Science andTechnology Development Co., Ltd.
5,196,000.00Deposit
Total55,540,233.54
26. Non-current assets due within one year
Unit: RMBItemClosing balanceOpening balance
Long-term receivables due within one year4,234,248,448.363,625,430,347.40Long-term payables due within one year2,732,057,322.65Other non-current liabilities due within one year250,000,000.00
Total7,216,305,771.013,625,430,347.40
27. Other current liabilities
Unit: RMBItemClosing balanceOpening balance
Short-term bonds payable2,816,956,481.6810,797,248,631.76Game2,816,956,481.6810,797,248,631.76
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
27. Other current liabilities(Cont’d)
Increase/decrease in short-term commercial papers payable:
Unit: RMB
Name of commercial paperPar valueDate of issueTermAmountOpening balance
Issue during
the periodInterest at par value
Amortisationof premium/
discount
Redemptionduring the periodClosing balance
2017 Second Tranche of Short-termCommercial Paper1,500,000,000.002017/4/13365 days1,497,000,000.001,556,014,166.6719,425,000.00750,000.001,576,189,166.672017 Fourth Tranche of Super &Short-term Commercial Paper1,000,000,000.002017/4/24270 days998,500,000.001,037,100,000.001,037,100,000.002017 Fifth Tranche of Super &Short-term Commercial Paper1,000,000,000.002017/8/9270 days998,500,000.001,020,133,335.0017,333,333.33666,665.001,038,133,333.332017 Sixth Tranche of Super &Short-term Commercial Paper1,000,000,000.002017/9/7267 days998,500,000.001,016,534,445.7817,966,666.67833,332.001,035,334,444.442017 Seventh Tranche of Super &Short-term Commercial Paper1,000,000,000.002017/9/19269 days998,526,027.401,014,925,571.8422,859,722.22818,872.601,038,604,166.672017 Eighth Tranche of Super &Short-term Commercial Paper1,500,000,000.002017/10/11270 days1,497,750,000.001,521,633,333.3342,233,333.331,500,000.001,565,366,666.662017 Ninth Tranche of Super &Short-term Commercial Paper1,000,000,000.002017/10/20270 days998,500,000.001,013,597,223.2628,155,555.56999,999.001,042,752,777.822017 Tenth Tranche of Super &Short-term Commercial Paper1,000,000,000.002017/10/25145 days999,194,444.441,010,236,666.339,161,388.89322,222.561,019,720,277.782017 Eleventh Tranche of Super &Short-term Commercial Paper1,000,000,000.002017/11/16270 days998,500,000.001,006,487,222.8935,274,444.441,166,666.001,042,928,333.332017 Twelfth Tranche of Super &Short-term Commercial Paper600,000,000.002017/12/19270 days599,100,000.00600,586,666.6625,920,000.00800,000.00627,306,666.672018 First Tranche of Super &Short-term Commercial Paper1,000,000,000.002018/1/5172 days999,044,400.00999,044,400.0025,520,833.33955,600.001,025,520,833.332018 Second Tranche of Super &Short-term Commercial Paper1,000,000,000.002018/1/17270 days998,520,697.95998,520,697.9544,261,111.111,479,302.051,044,261,111.112018 Third Tranche of Super &Short-term Commercial Paper1,000,000,000.002018/2/5270 days998,500,000.00998,500,000.0047,075,000.001,500,000.001,047,075,000.002018 Fourth Tranche of Super &Short-term Commercial Paper1,000,000,000.002018/3/28233 days998,500,000.00998,500,000.0042,388,888.891,500,000.001,042,388,888.892018 Fifth Tranche of Super &Short-term Commercial Paper1,000,000,000.002018/4/24270 days998,500,000.00258,387,520.0053,185,374.97371,556,240.00683,129,134.972018 Sixth Tranche of Super &Short-term Commercial Paper600,000,000.002018/5/9270 days599,100,000.00599,100,000.0030,891,666.71800,000.00630,791,666.712018 Seventh Tranche of Super &Short-term Commercial Paper600,000,000.002018/5/28180 days599,400,000.00599,400,000.0018,316,666.67600,000.00618,316,666.672018 Eighth Tranche of Super &Short-term Commercial Paper600,000,000.002018/6/28180 days599,400,000.00599,400,000.0021,350,000.00600,000.00621,350,000.002018 Ninth Tranche of Super &Short-term Commercial Paper1,500,000,000.002018/7/4171 days1,498,575,000.001,498,575,000.0043,750,000.001,425,000.001,543,750,000.002018 Tenth Tranche of Super &Short-term Commercial Paper600,000,000.002018/8/9270 days409,066,750.00409,066,750.0016,227,777.78500,000.00425,794,527.782018 Eleventh Tranche of Super &Short-term Commercial Paper600,000,000.002018/10/29270 days448,004,115.00448,004,115.007,583,333.33300,000.00455,887,448.332018 Twelfth Tranche of Super &Short-term Commercial Paper620,000,000.002018/12/19176 days619,393,778.00619,393,778.001,858,888.89101,037.00621,353,703.89
Total———20,350,075,212.7910,797,248,631.769,025,892,260.95570,738,986.12389,174,936.2117,966,098,333.372,816,956,481.68
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
28. Long-term borrowings
(1) Types of long-term borrowings
Unit: RMBItemClosing balanceOpening balance
Pledge borrowings362,064,033.51275,000,000.00Secured borrowings4,733,171,900.003,592,342,000.00Guarantee borrowings6,097,254,963.856,530,519,307.37Credit borrowings840,692,035.94873,692,035.94Less: long-term borrowings due within 1 year4,234,248,448.363,625,430,347.40
Total7,798,934,484.947,646,122,995.91
Note: For classifications and amounts of secured borrowings and pledged assets, please see notes in respect of monetary funds and
assets with restricted ownerships or right to use.
29. Bonds payable
(1) Bonds payable
Unit: RMBItemClosing balanceOpening balance
17 Chenming bond 01- Chenming Paper1,198,710,000.001,198,305,304.7517 Chenming bond 01- Leasing Company997,955,974.8218 Chenming bond 01- Chenming Paper898,852,500.00
Total2,097,562,500.002,196,261,279.57
(2) Increase/decrease in bonds payable (excluding other financial instruments such as preference shares and
perpetual bonds classified as financial liabilities)
Unit: RMB
Name of bondPar valueDate of issueTermAmount
Openingbalance
Issue during
the period
Interest atpar value
Amortisationof premium/
discount
Redemption
duringthe period
Amortisation ofissuance feesClosing balance
17 Chenming bond 01- Chenming Paper1,200,000,000.002017/8/225 years1,198,200,000.001,198,305,304.7578,000,000.00404,695.2578,000,000.001,198,710,000.0017 Chenming bond 01- Leasing Company1,000,000,000.002017/3/213 years997,000,000.00997,955,974.8264,800,000.002,044,025.181,064,800,000.0018 Chenming bond 01- Chenming Paper900,000,000.002018/4/25 years898,650,000.00898,650,000.0049,140,000.00202,500.0049,140,000.00898,852,500.00
Total———3,093,850,000.002,196,261,279.57898,650,000.00191,940,000.002,651,220.431,191,940,000.002,097,562,500.00
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
30. Long-term payables
Unit: RMBItemClosing balanceOpening balance
Long-term payables3,900,255,693.445,550,881,435.64
Total3,900,255,693.445,550,881,435.64
(1) By nature
Unit: RMBItemClosing balanceOpening balance
Retention for the financial leasing operations167,083,436.84245,190,103.51China Development Bank Spceial funds622,500,000.00700,000,000.00Financial leasing5,842,729,579.254,605,691,332.13Less: due within 1 year2,732,057,322.65
Total3,900,255,693.445,550,881,435.64
31. Provision
Unit: RMBItemClosing balanceOpening balanceReason
Pending litigation325,259,082.28325,259,082.28Losses from Arjo’s lawsuit
Total325,259,082.28325,259,082.28—
Note: ArjowigginsHKK2Limited (“HKK2 Company”) submitted a winding-up petition to Hong Kong High Court due to joint venture dispute,paying compensation for economic loss of RMB167 million, legal costs of USD3.54 million and arbitration fee and relevant interests ofHK$3.3 million to HKK2. The Company made provision of accrued liabilities of RMB325 million for such pending litigation in 2017. Onthe balance sheet date, Hong Kong High Court had not given a verdict for such litigation.
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
32. Deferred income
Unit: RMBItemOpening balance
Increase for
the period
Decrease for
the periodClosing balanceReason
Government grants2,133,757,550.2175,327,556.00346,689,908.601,862,395,197.61
Total2,133,757,550.2175,327,556.00346,689,908.601,862,395,197.61—
Items in respect of government grants:
Unit: RMB
Liabilities item
Openingbalance
New grantsfor the period
Include in non-operating income
for the period
Include inother incomefor the period
Amountcharged against
cost expensesOther changesClosing balance
Asset-related/income-related
Special subsidy funds forenvironmental protection816,090,223.9917,477,975.5649,191,971.68749,420,276.75Asset-relatedProject fund for National technologicalsupport scheme1,781,924.68164,700.001,617,224.68Asset-relatedSewage treatment and waterconservation reconfiguration project6,131,402.5259,528,100.001,192,682.8864,466,819.64Asset-relatedFinancial grants for technologicalmodification project192,900,814.511,700,000.003,000.0013,582,557.60181,015,256.91Asset-relatedZhanjiang integrated forestry,pulp and paper project271,889,991.565,396,664.12172,986,880.8093,506,446.64Asset-relatedInterest subsidy95,580,066.97524,356.00456,950.0478,596,758.6317,050,714.30Asset-relatedRailway line change compensation13,705,208.33368,750.0413,336,458.29Asset-relatedLogistics park project53,626,701.004,960,000.006,626,701.0051,960,000.00Asset-relatedHuanggang pulp-forestry-paper project681,039,716.66681,039,716.66Asset-relatedOthers1,011,499.998,615,100.00644,316.258,982,283.74Asset-related
Total2,133,757,550.2175,327,556.0024,107,676.5670,998,592.61251,583,639.431,862,395,197.61
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
33. Other non-current liabilities
Unit: RMBItemClosing balanceOpening balance
Financial management250,000,000.00250,000,000.00Less: other non-current liabilities due within one year250,000,000.00Medium-term notes2,047,948,069.73
Total2,047,948,069.73250,000,000.00
34. Share capital
Unit: RMBIncrease/decrease during the year(+/-)Opening balanceNew issueBonus issue
Shares converted
from reservesOthersSubtotalClosing balance
RMB ordinary shares (A shares)1,113,278,456.00556,639,228.00556,639,228.001,669,917,684.00Domestic listed foreign shares (Bshares)470,923,511.00235,461,755.00235,461,755.00706,385,266.00Overseas listed foreign shares (Hshares)352,203,500.00176,101,750.00176,101,750.00528,305,250.00Total number of shares1,936,405,467.00968,202,733.00968,202,733.002,904,608,200.00
35. Other equity instruments
(1) Preference shares, perpetual bonds and other financial instruments outstanding at the end of the period
ItemOpening balance
Increaseduring the year
Decreaseduring the yearClosing balance
Perpetual bonds5,570,800,000.002,582,800,000.002,988,000,000.00Preference shares4,477,500,000.004,477,500,000.00
Total10,048,300,000.002,582,800,000.007,465,500,000.00
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
35. Other equity instruments(Cont’d)
(2) Changes in perpetual bonds outstanding at the end of the year
Outstandingfinancial instrumentsOpening balance
Increaseduring the year
Decreaseduring the yearClosing balance
15 Lu Chenming MTN0011,291,900,000.001,291,900,000.0015 Lu Chenming MTN0021,290,900,000.001,290,900,000.0017 Lu Chenming MTN001996,000,000.00996,000,000.0017 Lu Chenming MTN0021,992,000,000.001,992,000,000.00
Total5,570,800,000.002,582,800,000.002,988,000,000.00
Note: Particulars of issue: The Company issued medium-term notes amounting to RMB2.6 billion on 6 July and 8 September
2015 at a coupon rate of 6.00% and 5.78%. The proceeds net of issue costs amounted to RMB2,582.80 million.The Company issued medium-term notes amounting to RMB3.0 billion on 12 July and 28 September 2017 at a coupon
rate of 6.80% and 6.30%. The proceeds net of issue costs amounted to RMB2,988.00 million.Particulars of the notes as perpetual bondsThe notes are debts without a defined maturity date and will continue indefinitely until the exercise of the right of
redemption by the Company. The Company has the right to defer any payment of interest. The right of redemption of the
notes is vested with the Company so that it is up to the Company to decide whether to redeem or not.
Based on the above, the notes do not contain any term giving rise to any contractual obligation to deliver cashor other financial assets to any other entity, or to exchange any financial asset or financial liability with any otherentity under potential adverse circumstances. Consequently, they were eligible to be recognised and accountedfor as equity instruments and included under other equity instruments.(2) Changes in perpetual bonds outstanding at the end of the year
Outstandingfinancial instrumentsOpening balance
Increaseduring the year
Decreaseduring the yearClosing balance
Chenming You 012,238,750,000.002,238,750,000.00Chenming You 02999,000,000.00999,000,000.00Chenming You 031,239,750,000.001,239,750,000.00
Total4,477,500,000.004,477,500,000.00
Notes: Particulars of issue: The Company non-publicly issued preference shares amounting to RMB4,500 million on 17 March,
17 August and 22 September 2016. The proceeds net of issue costs amounted to RMB4,477.50 million.Particulars of the preference shares as equity Instruments
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
35. Other equity instruments(Cont’d)
(2) Changes in perpetual bonds outstanding at the end of the year(Cont’d)
Shareholders of preference shares participate in profit distribution in two portions, namely the fixed dividenddistributed based on a fixed dividend rate and the distribution of retained earnings realised for the year.A. Distribution of fixed dividend
According to the Articles of Association, the Company shall distribute fixed dividends to holders of thepreference shares at fixed dividend rate if there are distributable profits after making good losses and thecontribution to reserve fund according to law. The Board is authorised by the general meeting to declareand pay all dividends on the preference shares in accordance with the issuance plan under the frameworkand principles considered and approved in the general meeting in respect of the preference shares. Thegeneral meeting of the Company has the right to cancel part of or all of the current dividends on thepreference shares. However, when the general meeting of the Company considers the cancellation of partof or all of the current dividends on the preference shares, the Company shall inform the shareholders ofpreference shares at least 10 working days before the date of dividend payment in accordance with therequirements of the related authorities.B. Participation in the distribution of retained earnings realised for the year.
Holders of preference shares participate in the distribution of the retained earnings through receipt of cashwhich is non-cumulative and non-deferrable. In the event of making good losses and the contribution toreserve fund according to law, after receiving fixed dividends at fixed dividend rate as agreed, holders ofpreference shares can also participate in the distribution of the retained earnings for the year in proportion.Specific terms are as follows: the retained earnings for the year arises from net profit attributable toowners of the parent company on a consolidated basis upon distribution of relevant fixed income toholders of financial instruments such as the preference shares which may be classified under equity. 50%of the retained earnings shall be distributed to holders of preference shares and ordinary shareholders.Holders of preference shares shall participate in the distribution of the retained earnings by receiving cashdividends, and the ordinary shareholders shall participate in the distribution of the retained earnings byreceiving cash dividends or dividends on ordinary shares.Based on the above, the preference shares do not contain any term giving rise to any contractualobligation to deliver cash or other financial assets to any other entity, or to exchange any financial assetor financial liability with any other entity under potential adverse circumstances. Consequently, they wereaccounted for as other equity instruments – preference shares.
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
36. Capital reserves
Unit: RMBItemOpening balance
Increasefor the period
Decreasefor the periodClosing balance
Capital premium (share premium)5,478,935,277.691,057,807,869.764,421,127,407.93Other capital reserves670,322,507.21670,322,507.21
Total6,149,257,784.901,057,807,869.765,091,449,915.14
Other particulars, including changes (increase or decrease) during the period and reasons for such changes:
In accordance with the profit distribution plan of the Company at the 2017 annual general meeting, based onthe share capital as at the end of 2017, a capitalisation issue to ordinary shareholders was made out of the capitalreserves of 5 shares for every 10 shares held, while capital premium decreased by RMB968,202,733.00 in A share, Bshare and H share; the acquisition of 49% equity in Guangdong Huirui Investment Co., Ltd. was acquired duringthe year to offset against capital premium of RMB403,226.07; 55% equity in Shanghai Hongtai Real Estate Co.,Ltd. was acquired during the year to offset against capital premium of RMB39,830,949.61; 14.2742% equityin Wuhan Chenming Hanyang Paper Holdings Co., Ltd. was acquired during the year to offset capital premium ofRMB32,170,961.08; perpetual bonds accounted as equity instruments were repaid to offset capital reserve ofRMB17,200,000.00.
37. Other comprehensive income
Unit: RMBDuring the period
ItemOpening balance
Incurredbefore incometax for the period
Less: Transferred
from OtherComprehensive
Income inprior periods to
profit or lossduring the period
Less: incometax expenses
Attributable toparent company
after tax
Attributableto minorityshareholders
after taxClosing balance
II. Other comprehensive income to be
reclassified to profit or loss insubsequent periods-354,165,127.80-382,355,053.21-382,355,053.21-736,520,181.01Exchange differences on translation of
foreign operations-354,165,127.80-382,355,053.21-382,355,053.21-736,520,181.01
Total other comprehensive income-354,165,127.80-382,355,053.21-382,355,053.21-736,520,181.01
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
38. Special reserves
Unit: RMBItemOpening balance
Increasefor the period
decreasefor the periodClosing balance
Safety production—3,257,998.47—3,257,998.47
Total—3,257,998.47—3,257,998.47
39. General risk reserves
Unit: RMBItemOpening balance
Increasefor the period
Decreasefor the periodClosing balance
General risk reserves—64,123,919.23—64,123,919.23
Total—64,123,919.23—64,123,919.23
Note: Pursuant to the requirements under the Notice of the Ministry of Finance on Issuing the Administrative Measures for the Provision of
Reserves of Financial Enterprises (Cai Jin [2012] No. 20), the assets of a financial enterprise that are subject to risks and losses shallmake provisions, including loans and advances, available-for-sale financial assets, held-to-maturity investments, long-term equityinvestments, deposits with banks, borrowings, debt assets, other receivables and others. The general reserve balance shall not be lowerthan 1.5% of the closing balance of the risk assets in principle. The general provisions may be used to make up the losses, but not fordividend distribution or capital transfers.
The Company makes provision for general risk in accordance with 1.5% of the closing balance of deposits with banks,loans, discounted assets, borrowings, held-for-trading financial assets, debt investments and other receivables.
40. Surplus reserves
Unit: RMBItemOpening balance
Increasefor the period
Amortisationfor the periodClosing balance
Statutory surplus reserves1,132,116,106.4016,772,805.711,148,888,912.11
Total1,132,116,106.4016,772,805.711,148,888,912.11
Explanation on surplus reserve, including specifications on increase/decrease and reasons during the period:
Pursuant to the Companies Law and the Articles of Association, the Company transferred 10% of the net profit tothe statutory surplus reserves. There was no need to transfer if the accumulated amounts of the statutory reservesexceeded 50% of the Company’s registered capital.The Company can transfer the discretionary surplus reserve upon the transfer of statutory surplus reserve. Onceapproved, the discretionary surplus reserve can be used to offset loss for prior years or increase the share capital.
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
41. Retained profit
Unit: RMBItemThe periodThe prior period
Retained profit as at the end of the prior year before adjustment8,866,614,844.406,745,974,781.02Accumulated adjustments to retained profit as at the beginningof the year (increase“+”, decrease“-”)Retained profit as at the beginning of the year after adjustment8,866,614,844.406,745,974,781.02Plus: Net profit for year attributable to shareholders ofthe parent company2,509,828,858.473,769,325,450.93Less: Transfer of general risk reserve64,123,919.23Transfer of statutory surplus reserves16,772,805.71Ordinary dividend payable1,161,843,280.201,161,843,280.20Perpetual bonds interest payable347,140,000.00153,140,000.00Preferred shares interest payable679,141,006.88333,702,107.35Retained profit as at the end of the period9,107,422,690.858,866,614,844.40
42. Revenue and operating cost
Unit: RMBAmount for the yearAmount for the prior yearItemRevenueOperating costsRevenueOperating costs
Principal activities28,215,233,444.1319,278,736,866.8529,234,821,975.8819,688,819,943.41Other activities660,522,719.43567,019,951.66237,631,588.1040,370,531.68
Total28,875,756,163.5619,845,756,818.5129,472,453,563.9819,729,190,475.09
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
42. Revenue and operating cost(Cont’d)
Information related to revenue:
Unit: RMBCategory of contract
Machine-madepaper segment
Financialsegment
Magnesiummining segmentOther segmentTotal
Type of goodsMachine-made paper24,303,557,365.1324,303,557,365.13Financial leasing2,202,061,690.162,202,061,690.16Magnesium mining416,152,447.97416,152,447.97Electricity and steam154,541,407.23154,541,407.23Construction materials288,669,257.79288,669,257.79Paper chemicals110,998,714.22110,998,714.22Hotel services26,182,589.8226,182,589.82Others707,622,726.125,447,245.69660,522,719.431,373,592,691.24Total25,011,180,091.252,202,061,690.16421,599,693.661,240,914,688.4928,875,756,163.56By geographical areaDomestic20,715,914,941.042,202,061,690.16401,516,862.231,240,914,688.4924,560,408,181.92Overseas4,295,265,150.2120,082,831.434,315,347,981.64Total25,011,180,091.252,202,061,690.16421,599,693.661,240,914,688.4928,875,756,163.56
Breakdown of revenue from principal activitiesBy industry
Amount for the yearAmount for the prior yearIndustryRevenueOperating costsRevenueOperating costs
Machine-made paper24,303,557,365.1317,849,873,914.5626,280,449,337.8218,620,269,325.34Electricity and steam154,541,407.23115,739,913.92198,073,854.15132,197,323.45Construction materials288,669,257.79228,873,017.91255,747,205.45207,731,864.76Paper chemicals110,998,714.22104,827,034.51109,914,856.6887,993,296.40Hotel26,182,589.8210,147,902.7724,368,815.976,002,436.17Financial leasing2,202,061,690.16167,892,149.501,967,883,247.48282,366,339.02Magnesium mining416,152,447.97198,076,427.48Others713,069,971.81603,306,506.20398,384,658.33352,259,358.27
Total28,215,233,444.1319,278,736,866.8529,234,821,975.8819,688,819,943.41
2018 ANNUAL REPORT
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
42. Revenue and operating cost(Cont’d)
Machine-made paper by category of major products
Amount for the yearAmount for the prior yearIndustryRevenueOperating costsRevenueOperating costs
Duplex press paper6,155,644,742.234,518,550,774.156,368,897,144.234,681,114,971.82Coated paper4,697,177,229.033,407,051,401.875,489,860,030.013,806,504,813.36White paper board6,440,247,745.665,395,302,715.506,906,078,714.804,769,506,903.63Electrostatic paper2,404,374,935.481,440,077,827.512,371,439,780.861,503,657,404.54Anti-sticking raw paper1,208,193,494.70728,105,243.011,207,953,706.05795,913,212.90Newsprint paper9,238,718.817,455,316.43793,309,261.25644,140,835.06Household paper749,151,937.19703,211,713.08689,570,026.52634,573,721.02Light weight coated paper198,364,650.45167,271,261.11515,092,105.82424,005,449.53Writing paper118,511,116.2268,838,838.47275,304,569.70192,214,424.47Others2,322,652,795.361,414,008,823.431,662,943,998.581,168,637,589.01
Total24,303,557,365.1317,849,873,914.5626,280,449,337.8218,620,269,325.34
Machine-made paper by geographical areas
Amount for the yearAmount for the prior yearIndustryRevenueOperating costsRevenueOperating costs
Mainland China20,008,292,214.9213,741,799,550.4022,349,540,450.6715,002,256,973.81Other countries and regions4,295,265,150.214,108,074,364.173,930,908,887.153,618,012,351.53
Total24,303,557,365.1317,849,873,914.5726,280,449,337.8218,620,269,325.34
Revenue from top 5 customers
Period
Total revenue from
top 5 customers
Percentageof the totalrevenue in thesame period (%)
20182,031,261,823.957.0320171,948,080,321.716.61
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
43. Taxes and surcharges
Unit: RMBItem
Amountfor the year
Amount forthe prior year
Urban maintenance and construction tax54,001,398.4850,478,779.11Educational surcharges26,130,730.3730,952,621.80Resource tax14,792,493.31Property tax54,081,329.5552,257,985.73Land use tax51,224,066.0346,488,866.36Vehicle and vessel tax216,968.912,281,116.73Stamp duty26,256,847.6426,392,019.08Local education surcharges12,085,006.254,696,322.19Water engineering funds2,718,637.284,611,250.65Land appreciation tax368,549.40Others8,482,450.88915,417.98
Total250,358,478.10219,074,379.63
44. Selling and distribution expenses
Unit: RMBItem
Amountfor the year
Amount forthe prior year
Wages132,591,972.27151,993,338.94Depreciation expenses13,122,208.6615,151,851.01Office expenses4,403,154.3613,050,224.96Travel expenses29,777,817.1325,480,477.96Selling commissions26,874,918.1920,470,833.82Transportation expenses869,865,309.41928,273,255.31Cargo handling charges13,435,084.7317,074,801.73Rental expenses9,362,720.629,476,394.77Hospitality expenses57,922,888.4676,249,386.92Warehouse expenses3,137,071.932,129,846.61Others30,006,092.7345,115,140.24
Total1,190,499,238.491,304,465,552.27
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VII. Notes to items of the consolidated financial statements(Cont’d)
45. General and administrative expenses
Unit: RMBItem
Amountfor the year
Amount forthe prior year
Wages and surcharges286,951,672.01290,808,448.52Welfare expenses47,180,086.0838,910,702.51Depreciation expenses156,273,458.9687,835,791.30Amortisation of intangible assets and long-term expenses39,967,397.6539,674,943.49Production interruption loss55,876,227.1982,259,940.92Repair cost and consumption of materials35,079,467.5835,983,121.43Audit fees5,755,228.953,012,975.33Travel expenses24,336,676.6813,590,172.35Business hospitality expenses74,890,255.0661,654,826.69Waste disposal expenses12,445,936.3221,193,488.53Insurance premium25,343,799.3023,384,036.83Office expenses10,861,986.2012,398,147.24Rental expenses36,689,373.2825,292,119.19Others156,189,076.64156,064,904.34
Total967,840,641.90892,063,618.67
46. R&D expenses
Unit: RMBItem
Amountfor the year
Amount forthe prior year
Installation expenses1,489,393.971,764,926.50Depreciation expenses36,497,685.7339,874,857.07Consumption of raw materials426,981,894.02442,456,123.25Consumption of semi-finished products96,310,870.021,787,02179.78Consumption of auxiliary materials133,554,802.94136,143,829.79Consumption of goods in stock—2,098,057.15Travel expenses521,322.611,303,187.01Wages and surcharges106,705,510.8988,161,597.60Welfare expenses3,019,837.651,965,668.85Housing provident funds4,232,757.633,460,638.04Insurance premium19,103,988.338,682,381.13Union funds415,339.74793,145.84Utilities99,972,218.72110,718,140.68Other expenses1,068,066.151,181,548.50
Total929,873,688.401,017,306,281.19
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
47. Finance expenses
Unit: RMBItem
Amountfor the year
Amount forthe prior year
Finance expenses3,667,168,014.562,484,773,417.87Less: interest income692,370,142.41606,383,791.43Less: capitalised interest amount318,561,106.91191,662,767.82Foreign exchange gains and losses-156,373,853.85241,855,705.05Bank charges241,636,705.91188,719,568.05
Total2,741,486,438.032,117,302,131.72
48. Loss on impairment of assets
Unit: RMBItem
Amountfor the year
Amount forthe prior year
I. Loss on bad debts141,361,141.80II. Loss on inventory impairment and impairment lossof performance costs of contracts117,733,282.00III. Loss on fixed assets impairment5,177,720.12IV. Loss on construction in progress impairment27,428,935.82V. Loss on goodwill impairment14,314,160.60
Total164,654,098.54141,361,141.80
49. Credit impairment loss
Unit: RMBItem
Amountfor the year
Amount forthe prior year
Bad debt loss of bills receivable and accounts receivable27,385,927.28Bad debt loss of other receivables112,957,716.39Bad debt loss of long-term receivables35,999,108.96Bad debt loss of other current assets– 48,697,835.90
Total127,644,916.73
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VII. Notes to items of the consolidated financial statements(Cont’d)
50. Other income
Unit: RMBSource of other income
Amountfor the year
Amount forthe prior year
Government grants - amortised deferred income included in profit or loss70,998,592.6190,469,765.78Government grants - directly included in profit or loss26,815,747.8145,060,491.99
Total97,814,340.42135,530,257.77
51. Investment income
Unit: RMBItem
Amountfor the year
Amount forthe prior year
Income from long-term equity investments accountedfor using the equity method-20,475,760.3818,506,834.57Investment gain on disposal of long-term equity investments113,688,671.06480,189.88Investment gain on holding of available-for-sale financial assets128,691,400.00Disposal of other non-current financial assets155,750,000.00Income on external entrusted loans13,330,575.78
Total248,962,910.68161,009,000.23
52. Gain on change in fair value
Unit: RMBSource of gain on change in fair value
Amountfor the year
Amount forthe prior year
Gain on change in fair value of consumable biologicalassets measured at fair value-21,464,400.65-21,000,042.33Gain on change in fair value of financial assets measured at fair value94,000,000.00Gain on change in fair value of other non-current financial assets-94,000,000.00
Total-115,464,400.6572,999,957.67
53. Asset disposal income
Unit: RMBSource of asset disposal income
Amountfor the year
Amount forthe prior year
Net income from disposal of non-current assets17,149,722.72-2,757,178.42
Total17,149,722.72-2,757,178.42
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
54. Non-operating income
Unit: RMB
Item
Amountfor the year
Amount forthe prior year
Amounts included
in extraordinarygains and losses
for the year
Gain on debt restructuring24,309.62Government grants277,480,950.83265,709,360.70277,480,950.83Gain on destroyed and scrappednon-current assets146,138.79146,138.79Gain on business combination involvingenterprises not under common control143,867,008.14Others41,769,147.6535,665,689.8441,769,147.65
Total319,396,237.27445,266,368.30319,396,237.27
Government grants included in profit or loss for the year:
Unit: RMBGrants item
Amountfor the year
Amount forthe prior year
Amortised deferred income17,480,975.56Grants Income239,989,155.01265,709,360.70Tax refund20,010,820.26
Total277,480,950.83265,709,360.70
55. Non-operating expenses
Unit: RMB
Item
Amountfor the year
Amount forthe prior year
Amounts included
in extraordinarygains and losses
for the year
Donation8,740,500.001,950,000.008,740,500.00Loss on destroyed and scrappednon-current assets3,324,345.713,324,345.71Provision3,590,000.00325,259,082.283,590,000.00Others3,529,693.4050,733.363,529,693.40
Total19,184,539.11327,259,815.6319,184,539.11
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VII. Notes to items of the consolidated financial statements(Cont’d)
56. Income tax expenses
(1) Particulars of income tax expenses
Unit: RMBItem
Amountfor the year
Amount forthe prior year
Income tax expenses for the period723,140,689.50802,346,750.56Deferred income tax expenses-81,563,194.58-24,831,023.70
Total641,577,494.92777,515,726.86
(2) The reconciliation between accounting profit and income tax expenses
Unit: RMBItemAmount for the year
Total profit3,206,316,116.19Income tax expenses calculated at statutory/applicable tax rates480,947,417.43Effect of different tax rates applicable to subsidiaries202,387,066.71Effect of adjustments for income tax for prior periods72,043,426.04Effect of income not subject to tax-114,214,911.60Effect of additional deductible expenses-153,225,494.48Effect of costs, expenses and loss not deductible for tax purposes19,512,338.94Effect of utilisation of previously unrecognised deductible losson deferred income tax assets-24,147,770.84Effect of current unrecognised deductible temporary difference or deductibleloss arising from deferred tax income assets158,275,422.72Income tax expenses641,577,494.92
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
57. Items on statements of cash flow
(1) Cash received relating to other operating activities
Unit: RMBItem
Amountfor the year
Amount forthe prior year
Default penalty and fine52,469,446.8135,665,689.84Finance expenses - Interest income278,115,215.56227,093,507.28Income-related government grants362,143,279.08303,645,280.74Open credit and other income35,794,381.99253,031,630.62Net proceedings from the financial leasing business6,191,859,054.14—Deposit of Leasing Company—8,830,000.00
Total6,920,381,377.58828,266,108.48
Explanation on cash received relating to other operating activities: Pursuant to the new standards, thegovernment grants related to assets and income were all included in operating activities.(2) Cash paid relating to other operating activities
Unit: RMBItem
Amountfor the year
Amount forthe prior year
Financial institutions charge241,636,705.91188,719,568.05Business hospitality expenses128,872,141.01137,904,213.61Travel expenses55,398,230.1625,480,477.96Office expenses19,426,972.8413,050,224.96Transportation expenses937,436,432.35928,273,255.31Leasing expenses14,452,327.889,476,394.77Waste disposal expenses31,586,754.9021,193,488.53Insurance premium19,073,069.4623,384,036.83Repair expenses51,165,035.2935,983,121.43Cargo handling charges19,073,069.4617,074,801.73Intermediary service expenses62,252,620.5157,637,480.41Net proceedings from the financial leasing business—6,209,844,676.71Donation8,530,000.001,950,000.00Others112,331,848.36321,369,313.67
Total1,701,235,208.137,991,341,053.97
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VII. Notes to items of the consolidated financial statements(Cont’d)
57. Items on statements of cash flow(Cont’d)
(3) Cash received relating to other investing activities
Unit: RMBItem
Amountfor the year
Amount forthe prior year
Asset-related government grants—99,341,073.00Principal withdrawal of entrusted loans—900,000,000.00
Total—999,341,073.00
(4) Cash paid relating to other investing activities
Unit: RMBItem
Amountfor the year
Amount forthe prior year
Security deposit for Goldtrust Futures36,000,000.00—Security deposit for Western Trust5,000,000.00—Security deposit for acquisition of equity interest in Nanyue Bank694,000,000.00—Compensation liability103,042,210.54—
Total838,042,210.54—
(4) Cash received relating to other financing activities
Unit: RMBItem
Amountfor the year
Amount forthe prior year
Short-term commercial paper12,915,683,724.5716,570,426,739.99Perpetual bonds—2,988,000,000.00Loan from the Finance Company100,000,000.00—Equipment leaseback3,702,500,000.002,857,984,827.85
Total16,718,183,724.5722,416,411,567.84
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
57. Items on statements of cash flow(Cont’d)
(6) Cash paid relating to other financing activities
Unit: RMBItem
Amountfor the year
Amount forthe prior year
Repayment of short-term commercial paper and MTN18,036,968,519.4613,726,553,994.41Repayment of perpetual bonds2,600,000,000.004,001,277,281.68Repayment of equipment leaseback2,790,756,044.941,257,472,246.21Repayment of interest on preference shares679,141,006.88333,706,007.35Repayment of interest on perpetual bonds347,140,000.00153,140,000.00Increase in restricted bank deposits for the year5,272,132,418.303,509,014,813.10Security deposit for financial leasing32,200,000.00—Acquisition of non-controlling interests in Shanghai Hongtai2,089,074,400.00—Acquisition of non-controlling interests in Guangdong Huirui120,600,000.00—Acquisition of non-controlling interests in Wuhan Chenming60,896,600.00—
Total32,028,908,989.5822,981,164,342.75
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VII. Notes to items of the consolidated financial statements(Cont’d)
58. Supplementary information on cash flow statement
(1) Supplementary information on cash flow statement
Unit: RMBSupplementary information
Amountfor the year
Amount forthe prior year
1. Reconciliation of net profit as cash flows fromoperating activities:
——Net profit2,564,738,621.273,758,962,846.67Plus: Provision for impairment of assets292,299,015.27141,361,141.80Depreciation of fixed assets, consumption of oil andgas assets, depreciation of bearer biological assets1,686,464,360.701,613,399,119.31Amortisation of intangible assets49,169,532.6390,224,458.07Amortisation of long-term prepaid expenses8,377,363.1016,218,441.95Loss on disposal of fixed assets, intangible assets andother long-term assets (“-”denotes gain)-16,986,475.182,757,178.42Loss on changes in fair value (“-”denotes gain)115,279,025.65-72,999,957.67Finance expenses (“-”denotes gain)3,348,593,728.382,338,613,808.53Investment loss (“-”denotes gain)– 248,962,910.68-161,009,000.23Decrease in deferred income tax assets (“-”denotes increase)-81,584,848.22-24,831,023.70Decrease in inventories (“-”denotes increase)-748,682,942.57-1,109,545,250.30Decrease in operating receivables (“-”denotes increase)12,866,522,125.36-15,769,361,315.41Increase in operating payables (“-”denotes decrease)-5,735,524,708.679,199,975,595.49Net cash flows from operating activities14,099,701,887.0423,766,042.932. Major investing and financing activities notinvolving cash settlements:
——3. Net change in cash and cash equivalents:
——Closing balance of cash2,381,558,242.522,804,408,374.46Less: Opening balance of cash2,804,408,374.461,979,861,045.62Net increase in cash and cash equivalents-422,850,131.94824,547,328.84
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
58. Supplementary information on cash flow statement(Cont’d)
(2) Net cash received from disposing subsidiaries during the current period
Unit: RMBAmount
Cash or cash equivalents received in this period from disposalof subsidiaries in this period30,000,000.00Of which:
—Xuchang Chenming Paper Co. Ltd.30,000,000.00Less: cash and cash equivalents held by subsidiaries on the date of losing control10,389,739.30Of which:
—Net cash received from disposing subsidiaries19,610,260.70Of which:
—Xuchang Chenming Paper Co. Ltd.19,610,260.70
(3) Cash and cash equivalents composition
Unit: RMBItemClosing balanceOpening balance
I. Cash2,381,558,242.522,804,408,374.46Of which: Treasury cash2,078,321.662,344,438.45Bank deposit that can be used for payment at any time2,379,479,920.862,802,063,936.01III. Balance of cash and cash equivalent as at end of period2,381,558,242.512,804,408,374.46
Other explanation: Cash and cash equivalents did not include the restricted cash and cash equivalents used bythe Company or subsidiaries within the Group.
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VII. Notes to items of the consolidated financial statements(Cont’d)
59. Assets with restricted ownerships or right to use
Unit: RMBItem
Closingcarrying amountReason for such restrictions
Monetary funds16,911,216,505.27As guarantee deposits for bank acceptance
bills, letter of credit, and bank borrowingsdeposits, and deposit reservesBills receivable431,715,666.94As collateral for short-term borrowings,
letters of guarantee and letters of creditFixed assets8,079,811,565.53As collateral for bank borrowingsIntangible assets873,985,362.13As collateral for bank borrowings and long-
term payablesInvestment properties4,691,453,227.24As collateral for bank borrowings
Total30,988,182,327.11—
XIIIFinancial Report
VII. Notes to items of the consolidated financial statements(Cont’d)
60. Foreign currency items
(1) Foreign currency items
Unit: RMBItem
Closing foreigncurrency balanceExchange rate
Closing balance
in RMB
Monetary funds——Of which: USD65,298,230.916.8632448,154,818.38EUR1,117,538.107.84738,769,656.73HKD953,429.430.8762835,394.87JPY1,266,974.000.061978,425.69GBP2,949.918.772925,879.27KRW481,186,778.000.00512,454,052.57Accounts receivables——Of which: USD360,449,354.216.86322,473,836,007.81EUR12,193,661.977.847395,687,323.58HKDJPY146,734,998.000.06199,082,896.38Other receivablesOf which: USD30,062,101.726.8632206,322,216.52EUR658,111.287.84735,164,396.65Long-term borrowings——Of which: USD367,307,309.206.86322,520,903,524.50EUR21,056,153.797.8473165,233,955.64HKDAccounts payableOf which: USD42,111,655.106.8632289,020,711.28EUR28,596,874.917.8473224,408,256.48JPY309,605.000.061919,164.55Other payablesOf which: USD363,791,451.016.86322,496,773,486.57EUR601,452.967.84734,719,781.81JPY492,960.000.061930,514.22Non-current liabilities due within one yearOf which: USD199,953,464.766.86321,372,320,619.34EUR32,000,000.007.8473251,113,600.00Short-term borrowingsOf which: USD474,868,282.736.86323,259,115,998.03
2018 ANNUAL REPORT
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VII. Notes to items of the consolidated financial statements(Cont’d)
60. Foreign currency items(Cont’d)
(2) Explanation on overseas operating entities (including major overseas operating entities), which shall disclose
their overseas principal places of business, functional currency and basis. Reasons shall be disclosed ifthere is any change in the functional currency.√ Applicable Not applicableNo.Name of subsidiary
Principal place
of business
Place ofincorporation
Functional
currency
1Chenming GmbHHamburg, GermanyHamburg, GermanyEUR2Chenming Paper Korea Co., Ltd.Seoul, KoreaSeoul, KoreaKRW3Chenming (HK) LimitedHong Kong, ChinaHong Kong, ChinaUSD4Chenming International Co., Ltd.Los Angeles, USALos Angeles, USAUSD5Chenming Paper Japan Co., Ltd.Tokyo, JapanTokyo, JapanJPY6Chenming Paper United States Co., Ltd.Los Angeles, USALos Angeles, USAUSD
XIIIFinancial Report
VIII. Change in scope of consolidation
1. Disposal of subsidiaries
Whether there is loss of control over subsidiaries on a single disposal√ Yes No
Unit: RMB
Name of subsidiary
Consideration of
disposal ofequity interest
Shareholdingof disposal ofequity interest
Nature ofdisposal ofequity interest
Time ofloss of controlBasis for time
Differencebetweenconsideration
and shareof net assets
of relevantsubsidiary as per
consolidated
financial
statements
Remainingshareholdingas of the dateof loss of control
Carrying amount
of remainingshareholdingas of the date of
loss of control
Fair valueof remainingshareholdingas of the date of
loss of control
Gain or lossin fair valueof remainingshareholding
Determination
and keyassumptionof fair valueof remainingshareholdingas of the date of
loss of control
Relevant othercomprehensiveincome of former
subsidiarytransferred toprofit or lossXuchang Chenming Paper Co., Ltd.30,000,000.0030.00%Disposal1 January 2018Without control17,007,455.3630.00%30,000,000.0021,496,272.32-8,503,727.68——
Whether there was disposal of investment in a subsidiary through several transactions resulting in loss of controlduring the periodYes √ No
2. Change in scope of consolidation due to other reasons
Explanation on the changes in scope of consolidation caused by other reasons (e.g. setting up new subsidiaries andliquidating subsidiaries) and their related information:
During the year, the scope of consolidation included 4 newly established subsidiaries, namely Shandong ChenmingCoated Paper Sales Co. Ltd., Chenming Paper United States Co., Ltd., Beijing Chenming Financial Leasing Co., Ltd.,and Jiangxi Chenming Supply Chain Managment Co., Ltd. For details, please see Note IX. 1“Interest in subsidiaries”.
2018 ANNUAL REPORT
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IX. Interest in other entities
1. Interest in subsidiaries
(1) Constitution of the Group
Principle placePlace ofShareholdingName of subsidiaryof businessincorporationNature of businessDirectIndirectAcquisition
Zhanjiang ChenmingPulp & Paper Co., Ltd.
Zhanjiang, ChinaZhanjiang, ChinaPaper making100.00%EstablishmentShouguang Meilun Paper Co., Ltd.Shouguang, ChinaShouguang, ChinaPaper making100.00%EstablishmentJilin Chenming Paper Co., Ltd.Jilin, ChinaJilin, ChinaPaper making100.00%Merger and
acquisitionHuanggang ChenmingPulp & Paper Co., Ltd.
Huanggang, ChinaHuanggang, ChinaPulp production100.00%EstablishmentShandong Chenming PaperSales Co., Ltd.
Shouguang, ChinaShouguang, ChinaSales of paper100.00%EstablishmentShouguang Chenming Importand Export Trade Co., Ltd.
Shouguang, ChinaShouguang, ChinaImport and
export trade
100.00%EstablishmentJiangxi Chenming SupplyChain Management Co., Ltd.
Jiangxi, ChinaJiangxi, ChinaTrading70.00%EstablishmentChenming GmbHHamburg, GermanyHamburg, GermanyPaper product trading100.00%EstablishmentShouguang ChenmingPapermaking Machine Co., Ltd.
Shouguang, ChinaShouguang, ChinaMachinery
manufacturing
100.00%EstablishmentShouguang Hongxiang Printingand Packaging Co., Ltd.
Shouguang, ChinaShouguang, ChinaPrinting and packaging100.00%Merger and
acquisitionShouguang ChenmingModern Logistic Co., Ltd.
Shouguang, ChinaShouguang, ChinaTransportation100.00%EstablishmentShouguang ChenmingIndustrial Logistics Co., Ltd.
Shouguang, ChinaShouguang, ChinaLogistics100.00%EstablishmentJinan Chenming InvestmentManagement Co., Ltd.
Jinan, ChinaJinan, ChinaInvestment
management
100.00%EstablishmentHuanggang Chenming ArboricultureDevelopment Co., Ltd.
Huanggang, ChinaHuanggang, ChinaArboriculture100.00%EstablishmentChenming Arboriculture Co., Ltd.Wuhan, ChinaWuhan, ChinaArboriculture100.00%EstablishmentChenming Paper Korea Co., Ltd.Seoul, KoreaSeoul, KoreaSales of paper100.00%EstablishmentShandong Chenming PowerSupply Holdings Co., Ltd.
Shouguang, ChinaShouguang, ChinaPower100.00%EstablishmentShouguang Shun DaCustoms Declaration Co, Ltd.
Shouguang, ChinaShouguang, ChinaCustoms declaration100.00%EstablishmentShanghai Chenming IndustrialCo., Ltd.
Shanghai, ChinaShanghai, ChinaProperty investment
and management
100.00%EstablishmentWuxi Song Ling Paper Co., Ltd.Wuxi, ChinaWuxi, ChinaPaper making100.00%Merger and
acquisitionShandong Chenming PaperGroup (Fuyu) Sales Co., Ltd.
Fuyu, ChinaFuyu, ChinaSales of paper100.00%Establishment
XIIIFinancial Report
IX. Interest in other entities(Cont’d)
1. Interest in subsidiaries(Cont’d)
(1) Constitution of the Group(Cont’d)
Principle placePlace ofShareholdingName of subsidiaryof businessincorporationNature of businessDirectIndirectAcquisition
Shandong Chenming GroupFinance Co., Ltd.
Jinan, ChinaJinan, ChinaFinance80.00%20.00%EstablishmentJiangxi Chenming Paper Co., Ltd.Nanchang, ChinaNanchang, ChinaPaper making51.00%49.00%EstablishmentQingdao Chenming InternationalLogistics Co., Ltd.
Qingdao, ChinaQingdao, ChinaLogistics30.00%70.00%EstablishmentShouguang ChenmingArt Paper Co., Ltd.
Shouguang, ChinaShouguang, ChinaPaper making75.00%EstablishmentHailaer Chenming Paper Co., Ltd.Hailaer, ChinaHailaer, ChinaPaper making75.00%EstablishmentShandong Grand View Hotel Co., Ltd.Shouguang, ChinaShouguang, ChinaCatering70.00%EstablishmentHaicheng Haiming Mining Co., Ltd.Haicheng, ChinaHaicheng, ChinaMining60.00%EstablishmentWuhan Chenming HanyangPaper Holdings Co., Ltd.
Wuhan, ChinaWuhan, ChinaPaper making65.21%EstablishmentChengdu Chenming CultureCommunication Co., Ltd.
Chengdu, ChinaChengdu, ChinaMarketing100.00%EstablishmentShandong Chenming FinancialLeasing Co., Ltd.
Jinan, ChinaJinan, ChinaFinancial leasing100.00%EstablishmentQingdao Chenming Nonghai FinancialLeasing Co., Ltd.
Qingdao, ChinaQingdao, ChinaFinancial leasing100.00%EstablishmentChenming (HK) LimitedHong Kong, ChinaHong Kong, ChinaPaper product trading100.00%EstablishmentShouguang Hongyi DecorativePackaging Co., Ltd.
Shouguang, ChinaShouguang, ChinaPackaging100.00%Merger and
acquisitionShouguang Xinyuan Coal Co., Ltd.Shouguang, ChinaShouguang, ChinaCoal100.00%Merger and
acquisitionShouguang City Run Sheng WastedPaper Recycle Co., Ltd.
Shouguang, ChinaShouguang, ChinaPurchase and
sale of waste
100.00%Merger and
acquisitionShouguang Wei Yuan LogisticsCompany Limited
Shouguang, ChinaShouguang, ChinaLogistics100.00%Merger and
acquisitionShandong Chenming Panels Co., Ltd.Shouguang, ChinaShouguang, ChinaPanels100.00%Merger and
acquisitionShandong Chenming FloorBoard Co., Ltd.
Shouguang, ChinaShouguang, ChinaFloor board100.00%Merger and
acquisitionShouguang Chenming CementCo., Limited
Shouguang, ChinaShouguang, ChinaCement100.00%EstablishmentWuhan Chenming QiannengElectric Power Co., Ltd.
Wuhan, ChinaWuhan, ChinaElectric power51.00%EstablishmentShandong ChenmingInvestment Limited
Jinan, ChinaJinan, ChinaInvestment100.00%EstablishmentJapan Chenming Paper Co., Ltd.Tokyo, JapanTokyo, JapanPaper product trading100.00%EstablishmentChenming International Co., Ltd.Los Angeles,
the United States
Los Angeles,the United States
Paper product trading100.00%Establishment
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IX. Interest in other entities(Cont’d)
1. Interest in subsidiaries(Cont’d)
(1) Constitution of the Group(Cont’d)
Principle placePlace ofShareholdingName of subsidiaryof businessincorporationNature of businessDirectIndirectAcquisition
Zhanjiang Chenming ArboricultureDevelopment Co., Ltd.
Zhanjiang, ChinaZhanjiang, ChinaArboriculture100.00%EstablishmentYangjiang Chenming ArboricultureDevelopment Co., Ltd.
Yangjiang, ChinaYangjiang, ChinaArboriculture100.00%EstablishmentNanchang Chenming ArboricultureDevelopment Co., Ltd.
Nanchang, ChinaNanchang, ChinaArboriculture100.00%EstablishmentGuangdong Huirui InvestmentCo., Ltd.
Zhanjiang, ChinaZhanjiang, ChinaInvestment100.00%Merger and
acquisitionZhanjiang Chenming New-styleWall Materials Co., Ltd
Zhanjiang, ChinaZhanjiang, ChinaWall materials100.00%EstablishmentJilin Chenming New-styleWall Materials Co., Ltd.
Jilin, ChinaJilin, ChinaWall materials100.00%EstablishmentJilin Chenming Logistics Co., Ltd.Jilin, ChinaJilin, ChinaLogistics100.00%EstablishmentJiangxi Chenming Logistics Co., Ltd.Nanchang, ChinaNanchang, ChinaLogistics100.00%EstablishmentFuyu Chenming Paper Co., Ltd.Fuyu, ChinaFuyu, ChinaPaper making100.00%EstablishmentZhanjiang Meilun Pulp & PaperCo., Ltd.
Zhanjiang, ChinaZhanjiang, ChinaPaper making100.00%EstablishmentShanghai Chenming FinancialLeasing Co., Ltd.
Shanghai, ChinaShanghai, ChinaFinancial leasing100.00%EstablishmentGuangzhou ChenmingFinancial Leasing Co., Ltd.
Guangzhou, ChinaGuangzhou, ChinaFinancial leasing100.00%EstablishmentShanghai Hongtai Real EstateCo., Ltd.
Shanghai, ChinaShanghai, ChinaReal estate100.00%Merger and
acquisitionShanghai Hongtai PropertyManagement Co., Ltd.
Shanghai, ChinaShanghai, ChinaProperty Management100.00%Merger and
acquisitionShandong Chenming CommercialFactoring Co., Ltd.
Jinan, ChinaJinan, ChinaBusiness factoring100.00%EstablishmentGuangzhou Chenming CommercialFactoring Co., Ltd.
Guangzhou, ChinaGuangzhou, ChinaBusiness factoring51.00%EstablishmentQingdao Chenming Pulp & PaperElectronic Commodity SpotTrading Center Co., Ltd.
Qingdao, ChinaQingdao, ChinaTrading30.00%70.00%EstablishmentBeijing Chenming MeilunTechnology Co., Ltd.
Beijing, ChinaBeijing, ChinaMarketing100.00%EstablishmentShandong Chenming CoatedPaper Sales Co. Ltd.
Shouguang, ChinaShouguang, ChinaSales100.00%EstablishmentZhanjiang Chenming Port Co., Ltd.Zhanjiang, ChinaZhanjiang, ChinaCargo loading100.00%EstablishmentBeijing Chenming FinancialLeasing Co., Ltd.
Beijing, ChinaBeijing, ChinaFinance100.00%EstablishmentChenming Paper United StatesCo., Ltd.
The United States3200 EL CAMINO
REAL, UITE 130,IRVINE,CA
Paper trading100.00%Establishment
XIIIFinancial Report
IX. Interest in other entities(Cont’d)
1. Interest in subsidiaries(Cont’d)
(2) Major non-wholly owned subsidiaries
Unit: RMB
Name of subsidiaryMinority interests
Gain or lossattributable tominority interestsduring the period
Dividendto minorityinterests declaredduring the period
Closingbalance ofminority interests
Wuhan Chenming HanyangPaper Holdings Co., Ltd.
34.79%16,400,725.1284,476,555.75Shouguang Chenming ArtPaper Co., Ltd.
25.00%29,663,023.8681,277,315.43Haicheng Haiming Mining Co., Ltd.40.00%50,552,395.60144,317,440.76
(3) Key financial information of major non-wholly owned subsidiaries
Unit: RMB
Closing balanceOpening balanceName of subsidiaryCurrent assetsNon-current assetsTotal assetsCurrent liabilitiesNon-current liabilitiesTotal liabilitiesCurrent assetsNon-current assetsTotal assetsCurrent liabilitiesNon-current liabilitiesTotal liabilities
Wuhan Chenming HanyangPaper Holdings Co., Ltd.304,800,513.201,128,834,779.701,433,635,292.901,116,394,677.0343,004,618.521,159,399,295.55489,799,209.301,241,278,595.221,731,077,804.521,438,701,718.2353,182,469.271,491,884,187.50Shouguang Chenming ArtPaper Co., Ltd.874,366,187.24618,223,904.521,492,590,091.761,167,480,830.071,167,480,830.07371,585,385.81662,367,808.011,033,953,193.82827,496,027.57827,496,027.57Haicheng Haiming Mining Co., Ltd.175,097,261.051,711,242,454.231,886,339,715.281,522,288,114.911,522,288,114.9175,944,768.921,181,346,911.131,257,291,680.051,022,879,067.161,022,879,067.16
Unit: RMB
Amount for the yearAmount for the prior yearName of subsidiaryRevenueNet profit
Totalcomprehensive
income
Cash flows from
operatingactivitiesRevenueNet profit
Totalcomprehensive
income
Cash flows from
operatingactivities
Wuhan Chenming Hanyang Paper Holdings Co., Ltd.1,364,181,429.1935,042,380.3335,042,380.33316,577,834.651,326,430,263.2138,962,265.6338,962,265.63624,821.83Shouguang Chenming Art Paper Co., Ltd.909,260,241.77118,652,095.44118,652,095.44-99,931,648.76711,899,986.3054,257,436.1054,257,436.101,912,526.67Haicheng Haiming Mining Co., Ltd.421,599,693.66126,380,989.01126,380,989.0175,115,059.89-5,459,132.11-5,459,132.114,186,562.69
2018 ANNUAL REPORT
XIIIFinancial Report
IX. Interest in other entities(Cont’d)
2. Transaction changing shareholding in but not causing to loss of control over subsidiaries
(1) Changing in shareholding in subsidiaries
During the year, the Company acquired 14.27% equity interest in Shanghai Hongtai Real Estate Co., Ltd.,holding 65.21% of shares upon completion of the transaction; acquired 49% equity interest in GuangdongHuirui Investment Co., Ltd., holding 100% of shares upon completion of the transaction; and acquired 55%equity interest in Shanghai Hongtai Real Estate Co., Ltd., holding 100% of shares upon completion of thetransaction.(2) Impact on minority interests and equity attributable to the owners of the parent company
Unit: RMBWuhan Chenming
Hanyang PaperHoldings Co., Ltd.
Guangdong HuiruiInvestment Co., Ltd.
Shanghai HongtaiReal Estate Co., Ltd.
(30% equity interest)
Shanghai HongtaiReal Estate Co., Ltd.
(25% equity interest)
– -Cash61,668,493.87120,600,000.001,171,957,789.46917,116,610.54Total acquisition cost/disposalconsideration
61,668,493.87120,600,000.001,171,957,789.46917,116,610.54Less: share of net assets insubsidiaries based onshares acquired/disposed
29,497,532.79120,196,773.931,140,288,356.59908,955,093.80Difference32,170,961.08403,226.0731,669,432.878,161,516.74
Of which: capitalreserve adjustment
-32,170,961.08-403,226.07-31,669,432.87-8,161,516.74
Note: During the period, the Company acquired 30% and 25% of equity interest in Shanghai Hongtai Real Estate Co., Ltd.,
respectively, and was recognised in capital reserve separately as the transactions did not constitute a package deal.
XIIIFinancial Report
IX. Interest in other entities(Cont’d)
3. Interest in joint arrangements or associates
(1) Major joint ventures and associates
Name of joint venturesand associates
Principle placeof business
Principle placeof business
Nature ofbusinessShareholding
AccountingmethodDirectIndirect
Weifang Senda Meixi Port Co., Ltd.Weifang, ChinaWeifang, ChinaPort construction50.00%Equity methodNingbo Kaichen Huamei EquityInvestment Fund Partnership(Limited Partnership)
Ningbo, ChinaNingbo, ChinaInvestment
management
40.00%Equity methodWeifang Xingxing UnitedChemical Co., Ltd.
Weifang, ChinaWeifang, ChinaChemical50.00%Equity methodZhuhai Dechen New Third BoardEquity Investment Fund Company(Limited Partnership)
Zhuhai, ChinaZhuhai, ChinaInvestment
management
50.00%Equity method
(2) Key financial information of major joint ventures
Unit: RMBClosing balance/Amount for the yearOpening balance/Amount for the prior year
Weifang SendaMeixi Port Co., Ltd.
WeifangXingxing UnitedChemical Co., Ltd.
Weifang SendaMeixi Port Co., Ltd.
WeifangXingxing UnitedChemical Co., Ltd.
Current assets55,386,175.2897,755,183.56104,769,683.99—Of which: Cash andcash equivalents
53,489,910.5335,030,150.7020,253,054.23—Non-current assets528,403,804.8638,098,361.81325,782,379.60—Total assets583,789,980.14135,853,545.37430,552,063.59—Current liabilities1,236,372.3032,584,182.7632,781,806.73—Non-current liabilities389,620,042.41201,622,321.84—Total liabilities390,856,414.7132,584,182.76234,404,128.57—Equity attributable toshareholders ofthe parent company
192,933,565.43103,269,362.61196,147,935.02—Share of net assets basedon shareholding
96,466,782.7251,634,681.3198,073,967.51—– -Others6,693,074.9957,618,555.816,710,954.90—Carrying amount ofinvestment injoint ventures
103,159,857.71109,253,237.12104,784,922.41—Finance expenses-346,852.57-8,403.59-308,457.69—Net profit-3,214,369.5926,370,424.95-2,578,637.02—
Total comprehensiveincome
-3,214,369.5926,370,424.95-2,578,637.02—
2018 ANNUAL REPORT
XIIIFinancial Report
IX. Interest in other entities(Cont’d)
3. Interest in joint arrangements or associates(Cont’d)
(3) Key financial information of major associates
Unit: RMBClosing balance/Amount for the yearOpening balance/Amount for the prior year
NingboKaichen HuameiEquity InvestmentFund Partnership(Limited Partnership)
Zhuhai DechenNew Third BoardEquity Investment
Fund Company(Limited Partnership)
NingboKaichen HuameiEquity InvestmentFund Partnership(Limited Partnership)
Zhuhai DechenNew Third BoardEquity Investment
Fund Company(Limited Partnership)
Current assets79,292,150.815,492,635.42146,452,805.1614,081,866.81Non-current assets119,000,000.0099,020,000.0051,000,000.0089,760,000.00Total assets198,292,150.81104,512,635.42197,452,805.16103,841,866.81Current liabilities13,135.405,000.005,000.00Total liabilities13,135.405,000.005,000.00Equity attributable toshareholders ofthe parent company
198,279,015.41104,507,635.42197,452,805.16103,836,866.81Share of net assetsbased on shareholding
79,311,606.1652,253,817.7278,977,173.0151,918,433.41Carrying amount ofinvestment in associates
199,585,216.9352,253,817.72198,981,173.0151,918,433.41Net profit1,510,109.81670,768.61-2,547,194.841,266,311.79
Total comprehensive income1,510,109.81670,768.61-2,547,194.841,266,311.79
XIIIFinancial Report
IX. Interest in other entities(Cont’d)
3. Interest in joint arrangements or associates(Cont’d)
(4) Summary financial information of non-major joint ventures and associates
Unit: RMBClosingbalance/Amount
for the year
Opening balance/
Amount forthe prior year
Joint ventures:
——Total carrying amount of investment3,572,834.793,087,296.74Total amount of the following items based on shareholding——– Net profit485,538.07-251,183.31Associates:
——Total carrying amount of investment18,761,580.9933,097,001.90Total amount of the following items based on shareholding——
– Net profit-11,838,692.5920,463,638.03
(5) Excess loss of joint ventures or associates
Unit: RMB
Name of joint ventures or associates
Accumulatedunrecognisedloss incurredfor prior periods
Unrecognisedloss (or share
of net profit)for the period
Unrecognisedloss (or share
of net profit)for the period
Arjo Wiggins Chenming SpecialtyPaper Co., Ltd.7,308,869.167,308,869.16
2018 ANNUAL REPORT
XIIIFinancial Report
X. Risk relating to financial instruments
Principal financial instruments of the Company include equity investments, debt investments, loans, accounts receivable,accounts payable, convertible bonds and others, further information of which are set out in relevant items of this note VII.Risks relating to these financial instruments and relevant risk management policies of the Company are described below.The management of the Company manages and controls the risk exposures to ensure they are under control.The Company adopts sensitivity analysis techniques to analyse the possible effects of rational and probable changes inrisk variables to profit or loss for the period or to the interests of shareholders. Since risk variables seldom change on astand-alone basis, while the correlation between variables may have significant influence to the ultimate amount of changeeffected by the change in a single risk variable, the analysis below is based on the assumption that the changes in eachvariable occurred separately.
(I) Objective and policies of risk management
The objective of the risk management of the Company is to maintain an appropriate balance between risks andreturn so as to minimise the negative effects of risks on the Company’s operating results in order to maximise thebenefits of the shareholders and other stakeholders. Based on such objective, the principal strategy of the Company’srisk management is to identify and analyse all types of risks of the Company, establish appropriate risk tolerancethresholds, carry out risk management procedures and perform risk monitoring on all kinds of risks in a timely andreliable manner, thus controlling the risk exposures within a prescribed level.1. Market risk
(1) Foreign exchange risk
Foreign exchange risk describes the risk of loss arising from variation of the exchange rate. The Companyis primarily exposed to risks relating to USD, EUR, HKD, JPY, GB P an d KR W. S ave for sev eral sub sidi arie sof the Company whose purchases and sales are denominated in USD, EUR, HKD, JPY, GBP and KRW,other principal activities of the Company are settled in RMB. As at 31 December 2018, except for thefollowing assets and liabilities whose balance were denominated in USD, EUR, HKD, JPY, GBP and KRW,the Company adopted RMB to present the balance of its assets and liabilities. The foreign exchange risksarising from assets and liabilities denominated in foreign currencies may affect the operating results of theCompany.
Closing balanceItemUSDEURHKDJPYGBPKRW
Cash and cash equivalents65,298,230.911,117,538.10953,429.431,266,974.002,949.91481,186,778.00Bills receivable andaccounts receivable360,449,354.2112,193,661.97146,734,998.00Other receivables30,062,101.72658,111.28Accounts payable42,111,655.1028,596,874.91309,605.00Other payables363,791,451.01601,452.96492,960.00Short-term borrowings474,868,282.73Long-term borrowings367,307,309.2021,056,153.79Non-current liabilitiesdue within one year199,953,464.7632,000,000.00
XIIIFinancial Report
X. Risk relating to financial instruments(Cont’d)
(I) Objective and policies of risk management(Cont’d)
1. Market risk(Cont’d)
(1) Foreign exchange risk
(Cont’d)
Opening balanceItemUSDEURHKDJPYGBPKRW
USD822,476,228.0628,772,352.0183,601.58249,812.673,256,758.821,432,970.52USD324,940,401,37343,401,672.498,504,840.764,266.69Short-term borrowings4,627,480,497.941,162,895,564.23Accounts payable631,675,626.4981,833,084.13Non-current liabilitiesdue within one year695,892,300.001,344,180,244.00Long-term borrowings2,102,216,801.841,210,916,961.53
The Company has been paying close attention to the effect of fluctuation in exchange rate on the foreignexchange risks of the Company and has adopted the following measures to avoid foreign exchangerisk: A. to have reasonable allocation between assets and liabilities denominated in foreign currencies,gradual reduction in foreign borrowings and appropriate allocation of liabilities denominated in EUR foroverseas subsidiaries to avoid foreign exchange risk; B. to closely monitor the exchange rate changes inthe international market and fix the exchange rate for certain business denominated in foreign currencieswhen the swap price is appropriate.Exchange rate risk sensitivity analysis:
Exchange rate risk - sensitivity analysis assumes that there is a high level of effectiveness in hedgingboth net investment in foreign operations and cash flow. Based on the assumptions, with other factorsunchanged, the exchange rate might float within a reasonable range, and has the following before taxeffect on profit or loss and shareholders’equity for the current period:
For the yearFor the prior yearCurrencyExchange rate changeEffect on profitEffect on profit
USD5% appreciation against RMB-699,372,242.37– 345,492,429.84USD5% devaluation against RMB699,372,242.37345,492,429.84EUR5% appreciation against RMB-49,590,467.35-171,382,591.47EUR5% devaluation against RMB49,590,467.35171,382,591.47GBP5% appreciation against RMB3,097.41162,837.94GBP5% devaluation against RMB-3,097.41-162,837.94HKD5% appreciation against RMB1,001,100.904,180.08HKD5% devaluation against RMB-1,001,100.90-4,180.08JPY5% appreciation against RMB154,559,377.35-437,732.67JPY5% devaluation against RMB-154,559,377.35437,732.67KRW5% appreciation against RMB505,246,116.9071,861.86KRW5% devaluation against RMB-505,246,116.90-71,861.86
2018 ANNUAL REPORT
XIIIFinancial Report
X. Risk relating to financial instruments(Cont’d)
(I) Objective and policies of risk management(Cont’d)
1. Market risk(Cont’d)
(2) Interest rate risk – risk of cash flow movements
The risk of cash flow movement of the Company arising from interest rate movement was mainlyattributable to variable-rate bank loans (for details, please see this Note VII. 28). The Company’s policy isto maintain the floating rate of these borrowings. An increase in interest rate will increase the cost of newinterest-bearing debts and the interest expenses of outstanding interest-bearing debts at floating interestrates, and have a significant adverse impact on the Company’s financial results. The Company will maketimely adjustment based on the latest market conditions.Interest rate risk sensitivity analysis:
The interest rate risk sensitivity analysis is based on the below assumptions:
Change in market interest rate influences interest income or expense of variable-rate financial
instruments;For fixed-rate financial instruments measured at fair value, market interest rate only influences its
interest income or expense;For derivative financial instruments designated as hedging instruments, the change in market rates
influences its fair value, and all interest rate hedging are anticipated to be highly effective;Change in fair value of derivative financial instruments and other financial assets and liabilities is
calculated by using discounted cash flow method in accordance with the market interest rate on the
balance sheet date.Based on the assumption above, if other variables remain the same, the pre-tax impact of potentialreasonable change of interest rate on the current profit or loss and shareholders’equity is shown asfollows:
For the yearFor the prior yearItem
Change ininterest rateImpact on profit
Impact onshareholders’equityImpact on profit
Impact onshareholders’equity
Short-term borrowingsIncreases by 1%-18,260,916.24-18,260,916.24-50,151,578.98-50,151,578.98Short-term borrowingsDecreases by 1%18,260,916.2418,260,916.2450,151,578.9850,151,578.98Long-term borrowingsIncreases by 1%-27,863,489.83-27,863,489.83-61,395,527.30-61,395,527.30
Long-term borrowingsDecreases by 1%27,863,489.8327,863,489.8361,395,527.3061,395,527.30
XIIIFinancial Report
X. Risk relating to financial instruments(Cont’d)
(I) Objective and policies of risk management(Cont’d)
2. Credit risk
The“Accounting Standards for Business Enterprises No. 22 – Recognition and Measurement of FinancialInstruments”revised in 2017 performs impairment accounting treatment and recognises loss provision forfinancial assets within the scope of application based on expected credit losses. The standard specifies animpairment model for the“three-stage”change in credit quality upon initial recognition.3. Liquidity risk
The Company maintains and monitors a level of cash and cash equivalents deemed adequate by themanagement to meet the operation needs of the Company and to reduce the effect of cash flow movements.The management of the Company monitors the usage of bank borrowings, and ensures compliance withborrowing agreements.The Company considers bank loans as its primary source of fund. As at 31 December 2018, unutilised bankloans of the Company amounted to RMB2,959,469.33 (31 December 2017: RMB2,790,036.09).The maturity analysis of financial assets and financial liabilities held by the Company according to theundiscounted outstanding contractual obligations is as follows:
ItemWithin 1 year1-2 years2-3 years3-4 yearsOver 4 years
Financial assetsMonetary funds19,292,774,747.79Bills receivable1,199,616,491.46Accounts receivable3,451,563,448.1671,098,999.3971,505,067.2442,904,871.67166,291,709.67Other receivablesLong-term receivables4,657,708,557.152,889,005,394.66481,421,051.9335,296,958.58Non-current assets due within one year4,016,428,811.52Other current assets10,281,312,825.13SubtotalFinancial liabilitiesShort-term borrowings40,227,945,361.89Bills payable4,218,969,554.93Accounts payable3,566,507,866.14261,760,924.3380,120,125.97241,839,728.22Other payables283,814,281.72897,818,538.38104,694,209.08166,523,011.36Non-current liabilities due within one year7,216,305,771.01Long-term borrowings2,032,389,007.221,011,033,152.67746,925,900.001,625,309,510.84Long-term payables1,254,714,430.971,137,685,779.68978,390,070.781,029,465,412.01
Bonds payable2,097,562,500.00
2018 ANNUAL REPORT
XIIIFinancial Report
X. Risk relating to financial instruments(Cont’d)
(II) Transfer of financial assets
Financial assets transferred and ceased to be recognised but with involvement of the transferorDuring the year, the Company discounted bank acceptance of RMB5,214,973,227.57 (last year: RMB3,742,679,994.55)in total. As key risks such as interest rate risk and rewards of the acceptance had been transferred to relevant banks,the Company ceased to recognise the discounted acceptance not yet due. Pursuant to discount agreements, thebanks were entitled to require the Company to settle any balance of such acceptance if not accepted when due, andthe Company therefore had on-going involvement with them. As at 31 December 2018, discounted bank acceptancenot yet due amounted to RMB1,194,662,827.01 (31 December 2017: RMB2,169,102,479.25).
XI. Fair value
1. Fair value of assets and liabilities measured at fair value as at the end of the period
Unit: RMBFair value as at the end of the periodItemLevel 1Level 2Level 3Total
I. Continuous measurementof fair value————1. Equity instrumentinvestment103,000,000.00103,000,000.002. Consumable biologicalassets926,416,572.04926,416,572.04Total assets continuouslymeasured at fair value1,029,416,572.041,029,416,572.04II. Discontinuousmeasurement of fair value————
2. Level 3 continuous and non-continuous measurement, valuation techniques and qualification and
quantification of key inputs
The Company uses the harvest present value method to assess the fair value of consumable biological assets. Theharvest present value method is to estimate the discounted value of the net income of the assessed forest assetsduring final felling by using the harvest table, deducting the difference of the discounted value of the forest productioncost spent during the period from the assessment bench mark date to final felling, which is a method to assess thevalue of the assessed forest assets.
XIIIFinancial Report
XI. Fair value(Cont’d)
3. Level 3 continuous measurement, adjustment between opening and closing value and sensitivity of
unobservable inputs
The Company adopts sensitivity analysis techniques to analyse the possible effects of rational and probable changesin risk variables to profit or loss for the period or to the interests of shareholders. Since risk variables seldom changeon a stand-alone basis, while the correlation between variables may have significant influence to the ultimate amountof change effected by the change in a single risk variable, the analysis below is based on the assumption that thechanges in each variable occurred separately.
For the yearFor the prior yearItem
Change in investmentyield or discount rateImpact on profit
Impact onshareholders’equityImpact on profit
Impact onshareholders’equity
Consumable biological assetsIncreases by 1%-39,808,078.34-39,808,078.34-49,440,118.54-49,440,118.54Consumable biological assetsDecreases by 1%43,368,412.2643,368,412.2653,618,250.6353,618,250.63
Note: In the prior period, the income method was used to evaluate the impact of the change in the discount rate on the fair value. In the
current period, the harvest present value method is used to assess the impact of the change in investment yield on fair value.
4. Fair value of financial assets and financial liabilities not measured at fair value
The Company’s financial assets and financial liabilities not measured at fair value mainly consist of: accountsreceivable, short-term borrowings, accounts payable, long-term borrowings, bonds payable and long-term payables.The carrying amount of the above financial assets and financial liabilities deviates from the fair value by a smallamount.
2018 ANNUAL REPORT
XIIIFinancial Report
XII. Related parties and related party transactions
1. Parent company of the Company
Name of parent company
Place ofincorporationBusiness natureRegistered capital
Shareholdingof the parent
company inthe Company
Voting rightof the parent
company inthe Company
Chenming Holdings Co., Ltd.ShouguangInvestment in
manufacture of paper,electricity,steam, arboriculture
1,238,787,700.0027.83%27.83%
Explanation on the parent company of the Company: The ultimate controller of the Company is Shonguang State-owned Assets Supervision and Administration Office.
2. Subsidiaries of the Company
Please refer to Note IX. 1. Interest in subsidiaries for details.
3. Joint ventures and associates of the Company
Please refer to Note IX. 3. Interest in joint ventures or associates for details.Balance of related party transaction between the Company and its joint ventures or associates during the period orprior periods are as follows:
Name of joint ventures or associatesRelation
Shouguang Chenming Huisen New-style Construction Materials Co., Ltd.A joint venture of the CompanyXuchang Chenming Paper Co., Ltd.An associate of the CompanyWeifang Sime Darby West Port Co., Ltd.A joint venture of the CompanyJiangxi Jiangbao Media Colour Printing Co., Ltd.An associate of the CompanyZhuhai Dechen New Third Board Equity InvestmentFund Company (Limited Partnership)
An associate of the CompanyNingbo Kaichen Huamei Equity InvestmentFund Partnership (Limited Partnership)
An associate of the CompanyChenming (Qingdao) Asset Management Co., Ltd.An associate of the CompanyJiangxi Chenming Port Co., Ltd.An associate of the CompanyWeifang Xingxing Joint Chemical Co., Ltd.A joint venture of the Company
XIIIFinancial Report
XII. Related parties and related party transactions(Cont’d)
4. Other related parties
Name of other related partiesRelation
Shandong Shouguang Jinxin Investment DevelopmentHoldings Group Co., Ltd.
Shareholder of the Company’s largest shareholderShouguang Henglian Enterprise Investment LimitedShareholder of the Company’s largest shareholderShouguang Ruifeng Enterprise Investment LimitedShareholder of the Company’s largest shareholderChenming Holdings (Hong Kong) LimitedSubsidiary of the Company’s largest shareholderZhanjiang Chenming Real Estate Co., Ltd.Subsidiary of the Company’s largest shareholderQingdao Hongji Weiye Investment Co., Ltd.Subsidiary of the Company’s largest shareholderShouguang Hengying Real Estate Co., Ltd.Subsidiary of the Company’s largest shareholderShouguang Hengtai Enterprise Investment Co., Ltd.A company invested by the Directors and
senior management of the CompanyShouguang Huixin Construction Materials Co., Ltd.A company invested by the Directors and
senior management of the CompanyShouguang Chenming Guangyuan Real Property Co., Ltd.and its subsidiaries
A company invested by the Directors and
senior management of the CompanyQingdao Chenming Nonghai Investment Co., Ltd.and its subsidiaries
A company invested by the Directors and
senior management of the CompanyNanchang Chenjian New-style Wall Materials Co., Ltd.A company invested by the Directors and
senior management of the CompanyShouguang Hengde Enterprises Investment Co., Ltd.A company invested by the Directors and
senior management of the CompanyZhejiang Huaming Investment Management Co., Ltd.and its subsidiaries
Directors and senior management served
by the Company’s DirectorsHebei Chenming Zhongjin Real Estate Development Co., Ltd.and its subsidiaries
Directors and senior management served
by the Company’s SupervisorsWuhan Chenming Zhongjin Real Estate Co., Ltd.and its subsidiaries
Directors and senior management served
by the Company’s SupervisorsWuhan Rongsheng Zhongjin Development andInvestment Co., Ltd. and its subsidiaries
Directors and senior management served
by the Company’s SupervisorsQingzhou Chenming Denaturation Amylum Co., Ltd.Share participating company of the CompanyZhejiang Guangyu Idall Print Co., Ltd.Share participating company of the CompanyAnhui Time Source CorporationShare participating company of the CompanyShandong Hongqiao Venture Capital Co., Ltd.Share participating company of the CompanyShanghai Hengzheng Venture Investment Center(Limited Partnership)
Share participating company of the CompanyLide Technology Co., Ltd.Share participating company of the CompanyJiangxi Chenming Natural Gas Co., Ltd. and its subsidiariesDirectors and senior management served
by the Company’s Directors
2018 ANNUAL REPORT
XIIIFinancial Report
XII. Related parties and related party transactions(Cont’d)
5. Related party transactions
(1) Purchase and sales of goods and rendering and receiving services
Table on purchase of goods/receiving of services
Unit: RMB
Related party
Detailsof relatedparty transaction
Amount for thereporting period
Transactionfacility approved
Whether thetransactionfacilityis exceeded
Amount forthe prior period
Jiangxi Chenming NaturalGas Co., Ltd.
Procurement of naturalgas and medium oil, etc.
347,639,077.35350,000,000.00No147,672,678.06Weifang Xingxing JointChemical Co., Ltd.
Procurement ofhydrogen peroxide etc.85,728,655.93Not applicableNot applicable—Table on sales of goods/providing of services
Unit: RMBRelated party
Details of relatedparty transaction
Amount for thereporting period
Amount for the
prior period
Shouguang Chenming HuisenNew-style Construction Materials Co., Ltd.
Sales of electricityand gas
6,528,609.08—Shouguang Huixin ConstructionMaterials Co., Ltd.
Sales of cement,coal, oil etc.
19,056,566.01—Anhui Time Source CorporationSales of paper—164,772,473.79Jiangxi Jiangbao Media Colour PrintingCo., Ltd.
Sales of paper—381,903.20
XIIIFinancial Report
XII. Related parties and related party transactions(Cont’d)
5. Related party transactions(Cont’d)
(2) Guarantee
The Company as guarantor
Unit: RMB
Party being guaranteed
Amount under
guarantee
Starting dateof guarantee
Expiry dateof guarantee
Whetherperformanceof guaranteeis completed
Weifang Sendamei West Port Co., Ltd.135,000,000.0020 December 201720 December 2027NoShandong Chenming Paper Sales Co., Ltd.350,000,000.0024 February 201821 February 2019NoShandong Chenming Paper Sales Co., Ltd.250,000,000.0010 April 201810 April 2019NoShandong Chenming Paper Sales Co., Ltd.130,000,000.004 July 20185 July 2019NoShandong Chenming Paper Sales Co., Ltd.200,000,000.0013 July 201814 January 2019NoShandong Chenming Paper Sales Co., Ltd.420,000,000.0023 July 201824 July 2019NoShandong Chenming Paper Sales Co., Ltd.300,000,000.0021 August 201822 February 2019NoShandong Chenming Paper Sales Co., Ltd.254,260,749.6012 September 201812 March 2019NoShandong Chenming Paper Sales Co., Ltd.300,000,000.0026 October 201826 October 2019NoShandong Chenming Paper Sales Co., Ltd.575,786,616.475 November 20185 May 2019NoShandong Chenming Paper Sales Co., Ltd.420,090,519.439 November 201810 May 2019NoShandong Chenming Paper Sales Co., Ltd.450,000,000.0014 November 201814 November 2019NoShandong Chenming Paper Sales Co., Ltd.100,000,000.0016 November 201816 May 2019NoShouguang Meilun Paper Co., Ltd.57,450,000.0019 January 201818 January 2019NoShouguang Meilun Paper Co., Ltd.102,627,454.2318 October 201816 April 2019NoShouguang Meilun Paper Co., Ltd.108,446,151.6313 December 201811 June 2019NoShouguang Meilun Paper Co., Ltd.170,000,000.0011 December 20186 December 2019NoShouguang Meilun Paper Co., Ltd.249,263,998.3930 August 201826 February 2019NoChenming (HK) Limited94,986,688.001 March 201718 March 2019NoChenming (HK) Limited247,075,200.0023 March 201820 March 2019NoChenming (HK) Limited322,570,400.0028 May 201815 May 2019NoChenming (HK) Limited206,170,528.0022 June 201822 June 2019NoChenming (HK) Limited65,886,720.003 July 20183 January 2019NoChenming (HK) Limited302,598,488.003 July 201819 June 2019NoChenming (HK) Limited302,323,960.0010 July 201822 June 2019NoChenming (HK) Limited56,964,560.008 August 201815 July 2019NoChenming (HK) Limited96,771,120.0010 August 201815 July 2019NoChenming (HK) Limited226,005,176.0019 November 20188 November 2019NoChenming (HK) Limited200,000,000.005 December 20185 December 2019NoChenming (HK) Limited65,200,400.007 December 20186 December 2019NoChenming (HK) Limited171,580,000.0011 December 201822 March 2019NoChenming (HK) Limited34,316,000.0011 December 201822 March 2019NoChenming (HK) Limited159,088,976.0023 April 20187 April 2021No
2018 ANNUAL REPORT
XIIIFinancial Report
XII. Related parties and related party transactions(Cont’d)
5. Related party transactions(Cont’d)
(2) Guarantee
(Cont’d)
Party being guaranteed
Amount under
guarantee
Starting dateof guarantee
Expiry dateof guarantee
Whetherperformanceof guaranteeis completed
Chenming (HK) Limited91,280,560.004 May 20186 April 2021NoChenming (HK) Limited96,084,800.0011 May 201811 April 2020NoChenming (HK) Limited57,376,352.0017 May 20185 May 2021NoChenming (HK) Limited254,512,536.778 August 201825 May 2021NoChenming (HK) Limited254,512,536.778 August 201825 May 2021NoChenming (HK) Limited305,412,400.004 September 201821 June 2021NoChenming (HK) Limited305,412,400.006 September 201821 June 2021NoChenming (HK) Limited192,855,920.0030 November 201830 October 2020NoChenming (HK) Limited288,254,400.002 November 201610 September 2019NoChenming (HK) Limited363,749,600.0018 January 20178 April 2019NoChenming (HK) Limited281,391,200.007 November 201730 September 2019NoChenming (HK) Limited141,251,400.0024 May 201727 April 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.100,000,000.0018 January 201817 January 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.125,000,000.009 February 20188 February 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.32,000,000.0025 June 201818 June 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.99,730,254.3927 July 201821 July 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.50,000,000.0031 August 201816 August 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.100,000,000.0013 September 201812 September 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.110,000,000.0017 October 201817 October 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.200,000,000.0012 October 201811 October 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.100,000,000.0017 October 201827 September 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.99,903,967.0017 October 201817 October 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.80,000,000.0019 October 201819 October 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.115,000,000.006 November 20184 November 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.90,000,000.0012 November 201812 November 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.166,670,000.009 November 20188 November 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.97,116,354.193 December 201825 November 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.100,000,000.0020 December 201819 December 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.100,000,000.0026 December 201825 December 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.339,220,180.047 January 20188 January 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.48,999,600.0027 April 201826 April 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.50,711,407.5223 November 201822 November 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.48,166,397.6523 November 201822 November 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.31,000,000.003 June 201521 May 2020NoZhanjiang Chenming Pulp & Paper Co., Ltd.200,000,000.0020 June 201720 June 2019No
XIIIFinancial Report
XII. Related parties and related party transactions(Cont’d)
5. Related party transactions(Cont’d)
(2) Guarantee
(Cont’d)
Party being guaranteed
Amount under
guarantee
Starting dateof guarantee
Expiry dateof guarantee
Whetherperformanceof guaranteeis completed
Zhanjiang Chenming Pulp & Paper Co., Ltd.35,688,640.005 June 201521 May 2020NoZhanjiang Chenming Pulp & Paper Co., Ltd.137,264,000.0021 December 201720 December 2019NoZhanjiang Chenming Pulp & Paper Co., Ltd.49,000,000.0013 February 201811 February 2020NoZhanjiang Chenming Pulp & Paper Co., Ltd.10,000,000.0023 February 201811 February 2020NoZhanjiang Chenming Pulp & Paper Co., Ltd.10,000,000.0026 February 201811 February 2020NoZhanjiang Chenming Pulp & Paper Co., Ltd.30,000,000.0028 February 201811 February 2020NoZhanjiang Chenming Pulp & Paper Co., Ltd.330,000,000.0031 October 201830 October 2020NoZhanjiang Chenming Pulp & Paper Co., Ltd.70,000,000.0031 October 201830 October 2020NoZhanjiang Chenming Pulp & Paper Co., Ltd.100,000,000.0018 December 201831 October 2020NoJilin Chenming Paper Co., Ltd.49,300,000.0025 October 201830 April 2019NoJilin Chenming Paper Co., Ltd.22,620,000.0026 October 20182 May 2019NoJiangxi Chenming Paper Co., Ltd.76,500,000.0029 May 201824 May 2019NoJiangxi Chenming Paper Co., Ltd.22,500,000.0020 June 201820 June 2019NoJiangxi Chenming Paper Co., Ltd.99,000,000.0010 July 20188 July 2019NoJiangxi Chenming Paper Co., Ltd.4,429,170.516 July 20182 January 2019NoJiangxi Chenming Paper Co., Ltd.51,000,000.0016 August 201814 August 2019NoJiangxi Chenming Paper Co., Ltd.28,000,000.0024 August 201824 August 2019NoJiangxi Chenming Paper Co., Ltd.68,000,000.0029 January 20141 January 2019NoJiangxi Chenming Paper Co., Ltd.60,000,000.0024 July 20141 January 2019NoJiangxi Chenming Paper Co., Ltd.60,000,000.0029 July 20141 January 2019NoJiangxi Chenming Paper Co., Ltd.40,000,000.0025 September 20141 January 2019NoJiangxi Chenming Paper Co., Ltd.50,000,000.0016 March 201716 March 2019NoJiangxi Chenming Paper Co., Ltd.100,000,000.001 April 201716 March 2019NoJiangxi Chenming Paper Co., Ltd.73,000,000.0012 June 201712 June 2019NoJiangxi Chenming Paper Co., Ltd.150,000,000.0029 November 201729 November 2019NoShandong Chenming Financial Leasing Co., Ltd.130,000,000.0011 June 201811 June 2019NoShandong Chenming Financial Leasing Co., Ltd.72,000,000.007 November 20187 November 2019NoShandong Chenming Financial Leasing Co., Ltd.80,000,000.0017 October 201817 October 2019NoShandong Chenming Financial Leasing Co., Ltd.200,000,000.0019 October 201815 April 2019NoShandong Chenming Financial Leasing Co., Ltd.311,537,810.002 March 201617 February 2019NoShandong Chenming Financial Leasing Co., Ltd.311,537,810.0018 March 20162 February 2019NoShandong Chenming Financial Leasing Co., Ltd.175,000,000.0021 September 201721 September 2020No
2018 ANNUAL REPORT
XIIIFinancial Report
XII. Related parties and related party transactions(Cont’d)
5. Related party transactions(Cont’d)
(2) Guarantee
(Cont’d)
Party being guaranteed
Amount under
guarantee
Starting dateof guarantee
Expiry dateof guarantee
Whetherperformanceof guaranteeis completed
Huanggang Chenming Pulp & Paper Co., Ltd.21,840,000.0014 December 201526 March 2019NoHuanggang Chenming Pulp & Paper Co., Ltd.21,840,000.0014 December 201526 June 2019NoHuanggang Chenming Pulp & Paper Co., Ltd.32,770,000.0014 December 201526 September 2019NoHuanggang Chenming Pulp & Paper Co., Ltd.27,070,000.0014 December 201526 December 2019NoHuanggang Chenming Pulp & Paper Co., Ltd.5,700,000.0024 June 201626 December 2019NoHuanggang Chenming Pulp & Paper Co., Ltd.32,770,000.0024 June 201626 March 2020NoHuanggang Chenming Pulp & Paper Co., Ltd.530,000.0024 June 201626 June 2020NoHuanggang Chenming Pulp & Paper Co., Ltd.32,240,000.005 January 201726 June 2020NoHuanggang Chenming Pulp & Paper Co., Ltd.38,240,000.005 January 201726 September 2020NoHuanggang Chenming Pulp & Paper Co., Ltd.38,240,000.005 January 201726 December 2020NoHuanggang Chenming Pulp & Paper Co., Ltd.43,690,000.005 January 201726 March 2021NoHuanggang Chenming Pulp & Paper Co., Ltd.43,690,000.005 January 201726 June 2021NoHuanggang Chenming Pulp & Paper Co., Ltd.3,900,000.005 January 201726 September 2021NoHuanggang Chenming Pulp & Paper Co., Ltd.36,260,000.003 February 201726 September 2021NoHuanggang Chenming Pulp & Paper Co., Ltd.40,160,000.003 February 201726 December 2021NoHuanggang Chenming Pulp & Paper Co., Ltd.40,160,000.003 February 201726 March 2022NoHuanggang Chenming Pulp & Paper Co., Ltd.33,420,000.003 February 201726 June 2022NoHuanggang Chenming Pulp & Paper Co., Ltd.54,905,600.0026 September 201626 March 2019NoHuanggang Chenming Pulp & Paper Co., Ltd.17,330,952.6426 September 201626 June 2019NoHuanggang Chenming Pulp & Paper Co., Ltd.44,531,362.5819 September 201826 June 2020NoHuanggang Chenming Pulp & Paper Co., Ltd.43,642,107.0914 November 201814 November 2020NoHuanggang Chenming Pulp & Paper Co., Ltd.40,649,014.005 December 201626 June 2019NoHuanggang Chenming Pulp & Paper Co., Ltd.66,702,050.005 December 201626 September 2019NoHuanggang Chenming Pulp & Paper Co., Ltd.41,747,636.005 December 201626 December 2019NoHuanggang Chenming Pulp & Paper Co., Ltd.24,954,414.0012 April 201726 December 2019NoHuanggang Chenming Pulp & Paper Co., Ltd.66,702,050.0012 April 201726 March 2020NoHuanggang Chenming Pulp & Paper Co., Ltd.10,358,436.0012 April 201726 June 2020No
Total16,150,497,024.90
XIIIFinancial Report
XII. Related parties and related party transactions(Cont’d)
5. Related party transactions(Cont’d)
(3) Related party lending and borrowing
Unit: RMBRelated partyBorrowing amountStarting dateExpiry dateDescription
BorrowingChenming Holdings Co., Ltd.376,000,000.0028 August 201817 July 2019LendingWeifang Sime Darby West Port Co., Ltd.59,500,000.009 July 20188 July 2022(4) Distribution band of remuneration of key management staff
Unit: RMBItem
Amountduring the year
Amount during
the prior year
Remuneration of key management staff24,601,900.0024,539,700.00Distribution band of remuneration of key management staff
Band of annual remuneration
Amountduring the year
Amount during
the prior year
Total24.6019 million24.5397 millionOf which: (number of staff in each band of amount)RMB4.80-5.20 million11RMB3.60-4.00 millionRMB3.20-3.60 millionRMB2.80-3.20 million1RMB2.40-2.80 million1RMB2.00-2.40 million32RMB1.60-2.00 million13RMB1.20-1.60 million51RMB0.80-1.20 million1Below RMB0.80 million1514
2018 ANNUAL REPORT
XIIIFinancial Report
XII. Related parties and related party transactions(Cont’d)
5. Related party transactions(Cont’d)
(4) Distribution band of remuneration of key management staff(Cont’d)
Breakdown of remuneration of key management staff
Amount during the year (RMB’0,000)Key management staff
Basic annualremuneration
Social welfare
contribution
Payments ofhousing funds
Total(RMB’0,000)
Pan Ailing12.0012.00Huang Lei12.0012.00Liang Fu12.0012.00Wang Fengrong12.0012.00Sub-total of independentnon-executive Directors
48.0048.00Yang Guihua12.0012.00Zhang Hong12.0012.00Sub-total ofnon-executive Directors
24.0024.00Chen Hongguo491.035.632.34499.00Hu Changqing190.467.821.72200.00Yin Tongyuan120.91.821.48124.20Geng Guanglin146.245.632.34154.21Li Feng132.515.632.34140.48Chen Gang178.125.632.34186.09Sub-total of executive Directors1,259.2632.1612.561,303.98Li Dong0Sun Yinghua60.055.632.3468.02Yang Hongqin12.902.170.8315.90Zhang Xiaofeng2.502.50Total of Supervisors75.457.803.1786.42Sub-total of othersenior management members
946.7734.5416.48997.79Total2,353.4474.532.212,460.19
XIIIFinancial Report
XII. Related parties and related party transactions(Cont’d)
5. Related party transactions(Cont’d)
(4) Distribution band of remuneration of key management staff(Cont’d)
Breakdown of remuneration of key management staff
Cont’d
Amount during the prior year (RMB’0,000)Key management staff
Basic annualremuneration
Social welfare
contribution
Payments ofhousing funds
Total(RMB’0,000)
Pan Ailing12.0012.00Huang Lei12.0012.00Liang Fu12.0012.00Wang Fengrong12.0012.00Sub-total of independentnon-executive Directors
48.0048.00Yang Guihua12.0012.00Zhang Hong12.0012.00Sub-total ofnon-executive Directors
24.0024.00Chen Hongguo491.595.232.18499.00Yin Tongyuan290.595.232.18298.00Geng Guanglin185.705.232.18193.11Li Feng234.815.232.18242.22Sub-total of executive Directors1,167.9232.9013.771,214.59Li Dong54.853.291.4059.54Sun Yinghua44.514.892.0051.40Yang Hongqin16.142.250.9719.36Liu Jilu2.082.08Zhang Xiaofeng2.502.50Total of Supervisors134.8810.434.37134.88Sub-total of other seniormanagement members
973.9828.7612.021,014.76Total2.368.7560.1125.112,453.97
2018 ANNUAL REPORT
XIIIFinancial Report
XII. Related parties and related party transactions(Cont’d)
5. Related party transactions(Cont’d)
(4) Distribution band of remuneration of key management staff(Cont’d)
The 5 highest paid individuals of the Company during the year comprised of 3 directors and 2 other senior
management members of the Company. The remuneration bands of the 2 senior management memberswere RMB2.00-2.40 million.A. Remuneration of the five highest paid individuals
Item
Amountsduring the year
(RMB’0,000)
Amounts during
the prior year
(RMB’0,000)
Basic annual remuneration1,262.581,421.26Provident fund11.088.72Social welfare contribution30.3420.92
Total1,304.001,450.90
B. Distribution band of remuneration of the five highest paid individuals
Band of annual remuneration
Number ofindividualsduring the year
Number ofindividuals during
the prior year
RMB4.80-5.20 million11RMB3.20-3.60 millionRMB2.80-3.20 million1RMB2.40-2.80 million1RMB2.00-2.40 million32RMB1.60-2.00 million1RMB1.20-1.60 millionDuring the year, no other emoluments were paid by the Company to the directors of the Company
and the 5 highest paid individuals as an inducement to join or upon joining the Company or ascompensation for loss of office. None of the directors waived any emoluments during the year.
XIIIFinancial Report
XII. Related parties and related party transactions(Cont’d)
6. Related party accounts receivable and accounts payable
(1) Accounts receivables
Unit: RMBClosing balanceOpening balanceItemRelated partyBook balanceBad debtBook balanceBad debt
Accounts receivableShouguang Chenming Huisen
New-style ConstructionMaterials Co., Ltd.
774,832.2038,741.612,995,456.40149,772.82PrepaymentsJiangxi Chenming Natural
Gas Co., Ltd.
33,567,041.9218,519,096.64PrepaymentsShouguang Chenming
Natural Gas Co., Ltd.
25,586,691.3337,493,155.33Other receivablesArjo Wiggins Chenming
Specialty Paper Co., Ltd.
1,191,705.081,191,705.081,191,705.081,191,705.08Other receivablesWeifang Sime Darby
West Port Co., Ltd.
60,836,961.43304,184.8075,500,000.003,775,000.00
(2) Accounts payable
Unit: RMBItemRelated party
Closingbook balance
Openingbook balance
Accounts payableWeifang Xingxing Joint Chemical Co., Ltd.18,544,025.96Other payablesChenming Holdings Co., Ltd.376,000,000.00Other payablesShouguang Hengtai Enterprise
Investment Company Limited
44,392,007.6942,189,702.27
2018 ANNUAL REPORT
XIIIFinancial Report
XIII. Undertaking and contingency
1. Significant commitments
Significant commitments as at the balance sheet date
(1) Capital commitment
ItemClosing balanceOpening balance
Contracted but not yet recognised in the financial statementsCommitments in relation to acquisition andconstruction of long-term assets1,463,816,242.903,826,992,695.73Huirui BT Project2,500,000,000.00
Total1,463,816,242.906,326,992,695.73
(2) Operating lease commitments
As at the balance sheet date, the Company entered into irrevocable operating lease contracts with externalcompanies as follows:
ItemClosing balanceOpening balance
Minimum lease payments under irrevocable operating leases:
The first year after balance sheet date5,315,217.184,382,201.43The second year after balance sheet date4,929,546.644,777,714.37The third year after balance sheet date4,406,104.835,133,887.63In the years thereafter86,672,608.29179,556,362.24
Total101,323,476.94193,850,165.67
XIIIFinancial Report
XIII. Undertaking and contingency(Cont’d)
2. Contingency
(1) Significant contingency as at the balance sheet date
Contingent liabilities arising from pending litigation and its financial impactsIn October 2005, the Company and Hong Kong ArjowigginsHKK2Limited (“HKK2”) jointly established ArjoWiggins Chenming Specialty Paper Co., Ltd. in Shouguang, Shandong Province, which is engaged in theproduction of special paper, decoration paper and draft paper. However, such company experienced poormanagement due to financial crisis. Hence, such company was forced to dissolve in October 2008.In October 2012, HKK2 submitted for arbitration application to Hong Kong International Arbitration Centre, HongKong Special Administration of PRC, on the ground of default of the joint venture agreement by the Company.In November 2015, Hong Kong International Arbitration Centre announced arbitration result, stating that theCompany should compensate HKK2 with economic loss of RMB167 million, arbitration fee of HK$3.30 millionand legal fee of USD3.54 million, together with interest thereon calculated at 8% per annum. In October 2016,the Company received a statutory demand, stating that if the Company fails to perform the arbitration resultswithin 21 days, the liquidation application on H shares of the Company will be submitted. Subsequently, HKK2submitted H shares liquidation application to the arbitration centre.In November 2016, the Company submitted application to the Court of First Instance of the High Court of theHKSAR and received an injunction, stating that“the applicant is prohibited from applying for liquidation on theCompany”.In February 2017, HKK2 submitted an appeal to the court. In June 2017, the court dismissed the injunctionreceived by the Company. In the same month, the Company received the liquidation application submittedby the defendant to the High Court of Hong Kong, which alleged that the Company should compensate thedefendant with economic loss of RMB167 million, legal fee of USD3.54 million and arbitration fee of HK$3.30million, together with interest thereon due to failure in compliance of the arbitration results.In September 2017, the Company procured a deposit of HK$389 million to the High Court of Hong Kong,and appealed against the injunction to the court. In May 2018, the court session of the case commenced. Atpresent, the injunction case is still in progress.In 2017, the Company made provision of RMB325,259,082.28 for the expected liability arising from thislitigation. However, as at 31 December 2018, judgment of the court of Hong Kong is yet to be made, and theexpected loss is uncertain. Hence, such expected liability is still stated under the balance sheet.
2018 ANNUAL REPORT
XIIIFinancial Report
XIV. Post-balance sheet event
1. Profit distribution
(1) Fixed dividend of Chenming You 01
On 6 March 2019, the resolution on payment of 2019 fixed dividend on preference shares was passed atthe thirty-sixth extraordinary meeting of the eighth session of the Board. Among which, the first-tranche ofpreference shares will be issued in 22.50 million shares (with a par value of RMB100 per share). Based on thecoupon rate of 4.36%, dividend of RMB4.36 (tax inclusive) per preference share will be distributed, amountingto RMB98.10 million (tax inclusive) in aggregate.(2) 2018 profit distribution proposal
On 29 March 2019, the twelfth meeting of the eighth session of the Board of the Company was held to considerthe 2018 profit distribution proposal. Based on the total ordinary share capital of 2,904,608,200 shares as atthe end of 2018 and the 1,162,790,698 simulated ordinary shares converted from the preference shares using aconversion ratio of 1 share valued at RMB3.87 as at the end of 2018, a cash dividend of RMB2.4 (tax inclusive)per 10 shares will be distributed to ordinary shareholders, a cash dividend of RMB2.40 (tax inclusive) per 10simulated ordinary shares converted from the preference shares will be distributed to holders of preferenceshares, and no capitalisation issue will be made out of the capital reserves. A cash dividend of RMB697,105,968will be distributed to ordinary shareholders and a variable cash dividend of RMB279,069,767.52 will bedistributed to holders of preference shares.
2. Other post-balance sheet date event
The resolution on the establishment of Shanghai Sales Co., Ltd. was passed at the thirty-fifth extraordinary meeting ofthe eighth session of the Board. The Company decided to establish Shanghai Sales Co., Ltd, with registered capitalof RMB100 million, thereby fully utilising the advantages of Shanghai Financial Center, expanding and enhancingthe Shanghai platform, putting greater efforts in market development, as well as enhancing the overall strength andcomprehensive competitiveness of the CompanyThe resolution on the cooperation to initiate the establishment of Weifang Chenming Growth Driver ReplacementEquity Investment Fund was passed at the thirty-sixth extraordinary meeting of the eighth session of the Board. TheCompany decided to establish Weifang Chenming Growth Driver Replacement Equity Investment Fund Partnership(Limited Partnership), with registered capital of RMB1,000 million. It is primarily engaged in investment activities aspermitted by laws, and focused on the implementation of major works on supporting the growth driver replacement inWeifang, protected legal rights of all partners and obtained investment gains through equity or other investments.
XIIIFinancial Report
XV. Other material matters
1. Corrections on previous accounting errors
(1) Retrospective restatement method
Unit: RMB
Corrections onaccounting errorsResolutions
Names ofaffected items in
the statements
for respectivecomparable period
Cumulativeamount affected
Some of the financial leasingoperations conductedby Shandong ChenmingFinancial Leasing Co., Ltd., asubsidiary of the Company,did not comply with laws.Hence, interest income arisingfrom such operations shallrecognise as interest incomeand interest expense insteadof revenue and operatingcosts.
The resolution on correction of previousaccounting errors and retrospectiverestatement was passed at the twelfthmeeting of the eighth session of the Boardand the thirteenth meeting of the eighthsession of the Supervisory Board.
Operating income
from principal
activities
-379,290,284.15
The resolution on correction of previousaccounting errors and retrospectiverestatement was passed at the twelfthmeeting of the eighth session of the Boardand the thirteenth meeting of the eighthsession of the Supervisory Board
Interest expense-379,290,284.15
Note: Some of the financial leasing operations conducted by Shandong Chenming Financial Leasing Co., Ltd., a subsidiary of the
Company, did not comply with laws. Hence, interest income arising from such operations shall recognise as interest incomeand interest expense instead of revenue and operating costs. For adjustment for errors in 2017, revenue was reduced byRMB379,290,284.15, while finance cost reduced by RMB379,290,284.15. At the same time, for adjustment for errors in 2016,revenue was reduced by RMB340,195,777.53, while finance cost reduced by RMB340,195,777.53. For adjustment for errors in2015, revenue was reduced by RMB49,262,640.70, while finance cost reduced by RMB49,262,640.70. As such errors are itemsunder income statement, opening retained profit will not be affected.
2018 ANNUAL REPORT
XIIIFinancial Report
XV. Other material matters(Cont’d)
2. Segment information
(1) Basis for determination and accounting policies
According to the internal organisation structure, the requirement of management and the internal reportingsystem of the Company, the operating businesses of the Company are categorised into 4 operating segments.The management of the Company evaluates the operating results of such segments on a regular basis, inorder to allocate the resources and evaluate their results. On the basis of operating segments, the Companydetermines 4 reporting segments, namely machine-made paper segment, financial service segment, magnesiumore segment and other segment. The primary products or services provided by each reporting segment of theCompany include machine-made paper and relevant products, financial leasing services and financial services,magnesium ore and other products.The information from the reporting segments is disclosed in accordance with the accounting policies andmeasurement standards adopted by each of the reporting segment when reporting to the management, whichare consistent with the accounting policies and measurement standards adopted in the preparation of thefinancial statements.(2) Financial information of reporting segment
Unit: RMB’0,000ItemMachine-made paperFinancial servicesMagnesium oreOthers
Inter-segment
eliminationTotal
Income from principal activities2,467,420.00287,193.0041,615.24115,466.3890,171.282,821,523.34Cost for principal activities1,806,528.16126,269.9419,954.37113,969.11138,847.891,927,873.69Total assets12,608,630.433,520,186.80188,774.24898,873.436,684,591.4210,531,873.48Total liabilities8,596,980.921,893,336.74153,313.95448,735.813,147,663.067,994,704.36
XIIIFinancial Report
XVI. Notes to major financial statement items of the parent company
1. Bills receivable and accounts receivable
Unit: RMBItemClosing balanceOpening balance
Bills receivable436,662,187.80787,095,075.51Accounts receivable1,349,276,965.048,188,750.45
Total1,785,939,152.84795,283,825.96
(1) Bills receivable
1) Bills receivable by category
Unit: RMBItemClosing balanceOpening balance
Bank acceptance bills436,662,187.80787,095,075.51Commercial acceptance bills
Total436,662,187.80787,095,075.51
2) Bills receivable pledged at the end of the period
Unit: RMBItem
Closingpledged amount
Bank acceptance bills431,715,666.94Commercial acceptance bills
Total431,715,666.94
2018 ANNUAL REPORT
XIIIFinancial Report
XVI. Notes to major financial statement items of the parent company(Cont’d)
1. Bills receivable and accounts receivable(Cont’d)
(1) Bills receivable
(Cont’d)
3) Outstanding bills receivable endorsed or discounted by the Company as at the end of the period
Unit: RMB
Item
Derecognised
amountas at the endof the period
Recognised
amountas at the endof the period
Bank acceptance bills11,748,686,945.38Commercial acceptance bills1,782,100,000.00
Total13,530,786,945.38
4) Bills transferred to accounts receivable due the default of the issuer as at the end of the period
Unit: RMB
Item
Amounttransferredto accounts
receivableas at the endof the period
Commercial acceptance bills5,000,000.00
Total5,000,000.00
Other explanation: During the year, the accumulated bank acceptance bills issued by the Company tobanks amounted to RMB160,905,138.71 (2017: RMB373,074,516.02), with discount expenses incurredof RMB3,553,992.73 (2017: RMB7,043,917.95). As at 31 December 2018, outstanding discounted billsreceivable amounted to RMB32,370,000.00 (2017: RMB22,172,826.30).
XIIIFinancial Report
XVI. Notes to major financial statement items of the parent company(Cont’d)
1. Bills receivable and accounts receivable(Cont’d)
(2) Accounts receivable
1) Accounts receivable by category
Unit: RMB
Closing balanceOpening balanceBook balanceBad debt provisionBook balanceBad debt provisionCategoryAmountPercentageAmountPercentageCarrying amountAmountPercentageAmountPercentageCarrying amount
Including:
Accounts receivable that are collectivelyassessed for bad debt provision1,349,962,797.42100.00%685,832.380.05%1,349,276,965.048,860,393.90100.00%671,643.457.58%8,188,750.45Including:
Receivables from related parties1,342,192,951.9899.42%1,342,192,951.984,208,410.4547.50%4,208,410.45Receivables from customers of distributors7,769,845.440.58%685,832.388.83%7,084,013.06Accounts receivable that are collectivelyassessed for bad debt provision basedon credit risk characteristics4,651,983.4552.50%671,643.4514.44%3,980,340.00
Total1,349,962,797.42100.00%685,832.380.05%1,349,276,965.048,860,393.90100.00%671,643.457.58%8,188,750.45
By age
Unit; RMBAgeClosing balance
Within 1 year (inclusive)1,343,661,038.961 to 2 years2 to 3 years5,615,926.08Over 3 years
Total1,349,276,965.04
2) Top five accounts receivable based on closing balance of debtors
The total amount of the Company’s top five accounts receivable based on closing balance of debtorsfor the year was RMB1,340,842,975.00, which accounted for 99.32% of the closing balance of thetotal accounts receivable. The closing balance of corresponding bad debt provision amounted toRMB1,047,391.21.
2018 ANNUAL REPORT
XIIIFinancial Report
XVI. Notes to major financial statement items of the parent company(Cont’d)
2. Other receivables
Unit: RMBItemClosing balanceOpening balance
Interest receivable77,257,506.2555,570,669.83Other receivables19,328,057,454.9922,295,632,815.00
Total19,405,314,961.2422,351,203,484.83
(1) Interest receivable
Classification of interest receivable
Unit: RMBItemClosing balanceOpening balance
Time deposit77,257,506.2555,570,669.83
Total77,257,506.2555,570,669.83
(2) Other receivables
1) Other receivables by nature
Unit: RMBNature
Closingbook balance
Openingbook balance
Open credit19,297,217,793.3022,208,959,701.11Payment for equipment45,241,076.4720,754,940.07Standby credit and borrowings7,681,197.42389,539.61Deposit9,958,377.28Insurance premium466,935.7217,518.66Investment4,568,145.95Others39,175,451.96129,819,327.47
Total19,399,740,832.1522,364,509,172.87
XIIIFinancial Report
XVI. Notes to major financial statement items of the parent company(Cont’d)
2. Other receivables
(2) Other receivables
2) By age
Unit: RMBAgeClosing balance
Within 1 year (inclusive)19,272,345,409.011 to 2 years67,661,717.482 to 3 years8,441,937.61Over 3 years51,291,768.05
Total19,399,740,832.15
3) Provision, recovery or reversal of bad debt provision for the period
Bad debt provision for the current year amounted to RMB2,807,019.29. The amount for bad debtprovision recovered or reversed for during the current period was RMB0.00.4) Top five other receivables according to closing balance of debtors
Unit: RMB
Name of entityNatureClosing balanceMaturity
Percentage
to closing
balanceof otherreceivables
Closing balanceof baddebt provisionShandong ChenmingFinancial Leasing Co., Ltd.Open credit8,150,499,316.05Within 1 year42.01%Shanghai ChenmingFinancial Leasing Co., Ltd.Open credit2,192,000,000.00Within 1 year11.30%Huanggang ChenmingPulp & Paper Co., Ltd.Open credit2,022,781,568.75Within 1 year10.43%Shanghai Chenming IndustryCo., Ltd.Open credit1,297,668,824.89Within 1 year6.69%Haicheng Haiming Mining Co., Ltd.Open credit1,233,662,555.30Within 1 year6.36%
Total—14,896,612,264.99—76.79%
2018 ANNUAL REPORT
XIIIFinancial Report
XVI. Notes to major financial statement items of the parent company(Cont’d)
3. Long-term equity investments
Unit: RMBClosing balanceOpening balanceItemBook balanceImpairment provisionCarrying amountBook balanceImpairment provisionCarrying amount
Investment in subsidiaries22,114,152,649.9022,114,152,649.9018,310,508,366.4818,310,508,366.48Investment in associates and joint ventures373,264,793.34373,264,793.34360,525,877.01360,525,877.01
Total22,487,417,443.2422,487,417,443.2418,671,034,243.4918,671,034,243.49
(1) Investment in subsidiaries
Unit: RMBInvesteeOpening balance
Increasefor the period
Decreasefor the periodClosing balance
Impairment
provisionfor the period
Closingbalance provision
of impairment
Chenming Paper Korea Co., Ltd.6,143,400.006,143,400.00Chenming GmbH4,083,235.004,083,235.00Shandong Chenming Paper Group(Fuyu) Sales Co., Ltd.1,000,000.001,000,000.00Haicheng Haiming Mining Co., Ltd.144,000,000.00144,000,000.00Hailaer Chenming Paper Co., Ltd.12,000,000.0012,000,000.00Huanggang ChenmingPulp & Paper Co., Ltd.1,200,000,000.0050,000,000.001,250,000,000.00Huanggang Chenming ArboricultureDevelopment Co., Ltd.70,000,000.0070,000,000.00Jilin Chenming Paper Co., Ltd.1,501,350,000.001,501,350,000.00Jinan Chenming InvestmentManagement Co., Ltd.100,000,000.00100,000,000.00Jiangxi Chenming Paper Co., Ltd.822,867,646.40822,867,646.40Shandong Chenming PowerSupply Holdings Co., Ltd.157,810,117.43157,810,117.43Wuhan Chenming Hanyang PaperHoldings Co., Ltd.202,824,716.3461,668,493.87264,493,210.21Shandong Grand View Hotel Co., Ltd.80,500,000.0080,500,000.00Zhanjiang Chenming Pulp & Paper Co., Ltd.5,000,000,000.0027,500,000.005,027,500,000.00Shouguang Chenming ModernLogistic Co., Ltd.10,000,000.0010,000,000.00Shouguang Chenming Art Paper Co., Ltd.113,616,063.80113,616,063.80Shouguang Meilun Paper Co., Ltd.4,449,441,979.314,449,441,979.31Shouguang Shun Da CustomsDeclaration Co, Ltd.1,500,000.001,500,000.00Shandong Chenming Paper Sales Co., Ltd.662,641,208.20662,641,208.20
XIIIFinancial Report
XVI. Notes to major financial statement items of the parent company(Cont’d)
3. Long-term equity investments(Cont’d)
(1) Investment in subsidiaries(Cont’d)
InvesteeOpening balance
Increasefor the period
Decreasefor the periodClosing balance
Impairment
provisionfor the period
Closingbalance provision
of impairment
Shouguang Chenming Importand Export Trade Co., Ltd.250,000,000.00250,000,000.00Shouguang ChenmingPapermaking Machine Co., Ltd.2,000,000.002,000,000.00Shouguang Chenming IndustrialLogistics Co., Ltd.10,000,000.0010,000,000.00Shouguang Chenming HongxinPackaging Co., Ltd.3,730,000.003,730,000.00Shandong Chenming GroupFinance Co., Ltd.2,400,000,000.001,600,000,000.004,000,000,000.00Chenming Arboriculture Co., Ltd.45,000,000.0045,000,000.00Shanghai Chenming Industry Co., Ltd.1,000,000,000.002,000,000,000.003,000,000,000.00Chenming (HK) Limited118,067,989.55118,067,989.55Chenming Paper USA Co., Ltd.6,407,800.006,407,800.00Xuchang Chenming Paper Co., Ltd.60,000,000.0060,000,000.00
Total18,310,508,366.483,863,644,283.4260,000,000.0022,114,152,649.90
2018 ANNUAL REPORT
XIIIFinancial Report
XVI. Notes to major financial statement items of the parent company(Cont’d)
3. Long-term equity investments(Cont’d)
(2) Investment in associates and joint ventures
Unit: RMB
Change for the periodInvesteeOpening balance
Additionalcontribution
Withdrawncontribution
Investmentgain or lossrecognizer under
equity method
Adjustment
of othercomprehensive
income
Other change inequity interest
Distribution ofcash dividend orprofit declared
Impairment
provisionOthersClosing balance
Closingbalance ofimpairment
provision
I. Joint venturesShouguang Chenming HuisenNew-style ConstructionMaterials Co., Ltd.3,087,296.72485,538.073,572,834.79Weifang Sime Darby WestPort Co., Ltd.104,784,922.41-1,625,064.70103,159,857.71
Subtotal107,872,219.13-1,139,526.63106,732,692.50
II. AssociatesJiangxi Jiangbao MediaColour Printing Co., Ltd.1,754,051.46-942,052.71811,998.75Zhuhai Dechen New ThirdBoard Equity InvestmentFund Company(Limited Partnership)51,918,433.41335,384.3152,253,817.72Ningbo Kaichen HuameiEquity InvestmentFund Partnership(Limited Partnership)198,981,173.01604,043.93199,585,216.93Chenming (Qingdao) AssetManagement Co., Ltd.8,200,000.00-313,478.537,886,521.47Xuchang Chenming Paper Co., Ltd.21,496,272.32-15,501,726.355,994,545.97
Subtotal252,653,657.8829,696,272.32-15,817,829.35266,532,100.84
Total360,525,877.0129,696,272.32-16,957,355.99373,264,793.34
XIIIFinancial Report
XVI. Notes to major financial statement items of the parent company(Cont’d)
4. Revenue and operating costs
Unit: RMBItemAmount for the reporting periodAmount for the prior period
RevenueCostsRevenueCosts
Principal activities4,196,033,317.732,902,204,877.946,033,262,719.793,970,890,010.22Other activities1,478,808,522.941,378,583,504.421,167,660,784.171,020,463,556.73
Total5,674,841,840.674,280,788,382.367,200,923,503.964,991,353,566.95
5 Investment income
Unit: RMBItem
Amount for thereporting period
Amount forthe prior period
Income from long-term equity investments accountedfor using the equity method-16,957,355.99-3,265,824.03Investment gain on held-for-trading financial assets128,691,400.00Investment gain from disposal of held-for-trading financial assets155,750,000.00Investment gain from long-term equity investments accountedfor using the equity method590,000,000.00Interest income from entrusted loans13,312,368.97
Total728,792,644.01138,737,944.94
2018 ANNUAL REPORT
XIIIFinancial Report
XVII.Supplementary information
1. Breakdown of extraordinary gains and losses for the current period
√ Applicable Not applicable
Unit: RMBItemAmountRemark
Profit or loss from disposal of non-current assets17,149,722.72Unauthorised or unofficially approved tax rebate or reductionGovernment grants (except for the government grants closely relatedto the normal operation of the Company and granted constantlyat a fixed amount or quantity in accordance with a certainstandard based on state policies) accounted for in profit or lossfor the current period535,691,291.26Except for effective hedging business conducted over the courseof ordinary operation of the Company, gain or loss arising fromfair value change in held-for-trading financial assets,derivative financial assets, held-for-trading financial liabilitiesand derivative financial liabilities, as well as investment gainon disposal of held-for-trading financial assets,derivative financial assets, held-for-trading financial liabilities,derivative financial liabilities and other equity investments61,750,000.00Gain or loss from change in fair value of consumable biologicalassets adopting fair value method for follow-up measurements-21,464,400.65Non-operating gains and losses other than the above items23,291,720.22Less: Effect of income tax52,960,460.82Effect of minority interest7,328,864.01
Total556,129,008.72—
Notes for the Company’s extraordinary gain or loss items as defined in the Explanatory Announcement on InformationDisclosure for Companies Offering Their Securities to the Public No.1 - Extraordinary Gains or Losses and theextraordinary gain or loss items as illustrated in the Explanatory Announcement on Information Disclosure forCompanies Offering Their Securities to the Public No.1 - Extraordinary Gains or Losses defined as its recurring gain orloss items.Applicable √ Not applicable
XIIIFinancial Report
XVII.Supplementary information(Cont’d)
2. Returns on net assets and earnings per share
Earnings per shareProfit for the reporting period
Rate on net assets
on weightedaverage basis
Basic(RMB per share)
Diluted(RMB per share)
Net profit attributable to ordinary shareholdersof the Company8.51%0.510.51Net profit after extraordinary gains andlosses attributable to ordinary shareholdersof the Company5.32%0.320.32
Note: The net profit attributable to ordinary shareholders of the company has deducted other equity instruments - perpetual debt can be
deferred and accrued to the interest paid in subsequent periods. The impact of dividends on the preference shares of other equityinstruments declared to be released after consideration and approval. When calculating the financial indicators of earnings pershare and weighted average return on equity, the interest on perpetual bonds of RMB347,140,000 and the dividends on issuance ofpreference shares of RMB679,141,006.88 are deducted during the reporting period.
Item
Profit for thereporting period
Net profit attributable to the Company2,509,828,858.47Less: Effect of cumulative interest on perpetual bonds347,140,000.00Dividends on perference shares679,141,006.88Net profit attributable to ordinary shareholders1,483,547,851.59
3. Differences in accounting data under domestic and overseas accounting standards
(1) Differences between the net profit and net assets disclosed in accordance with international accounting
standards and China accounting standards in the financial reportApplicable √ Not applicable(2) Differences between the net profit and net assets disclosed in accordance with overseas accounting
standards and China accounting standards in the financial reportApplicable √ Not applicable
2018 ANNUAL REPORT
XIV
Documents Available for Inspection
I. The financial statements signed and sealed by the legal representative, financial representative and head of the financial
department of the Company;II. The original copy of the auditors’report which is sealed by the accounting firm and signed and sealed by the certified publicaccountant;III. The original copies of the documents and announcements of the Company disclosed in the designated newspaper and on
the website as approved by China Securities Regulatory Commission during the reporting period;IV. The annual report disclosed on the website of the Stock Exchange of Hong Kong Limited;V. Other related information.
The Board of Shandong Chenming Paper Holdings Limited
29 March 2019