HAQAH CHINA LEON INSPECTION HOLDING LIMITED 中国力鸿检验控股有限公司 (Incorporated in the Cayman Islands with limited liability) (於開曼群島註冊成立的有限公司) Stock Code 股份代號：1586 2019 Annual Report 年報 Contents 目錄 | --- | --- | |------------------------------------------------------------|------------------------| | | | | Definitions | 釋義 | | Corporate Profile | 公司概況 | | Corporate Information | 公司資料 | | Financial Highlights | 財務摘要 | | Financial Summary | 財務概要 | | Chairman's Statement | 主席報告 | | Profile of Directors and Senior Manag ...

Financial Performance - The interim report covers the six months ended June 30, 2019, providing a comprehensive financial overview [5] - For the six months ended June 30, 2019, the Group's revenue increased by 68.7% to approximately RMB 171.8 million, up from RMB 101.9 million in the same period of 2018 [42] - The gross profit for the same period increased by 49.9% to approximately RMB 81.3 million, while the gross profit margin decreased from 53.2% to 47.3% [47] - The Group's profit for the Period increased by 73.4% from approximately RMB 7.4 million for the six months ended 30 June 2018 to approximately RMB 12.7 million in the Period, driven by a significant rise in overall business volume [50] - Revenue for the six months ended June 30, 2019, was RMB 171,847,000, an increase of 68.5% compared to RMB 101,895,000 for the same period in 2018 [162] - Gross profit for the same period was RMB 81,269,000, representing a gross margin of 47.3% [162] - Profit for the period was RMB 12,746,000, up 73.5% from RMB 7,352,000 in the prior year [162] - Total comprehensive income for the period was RMB 13,789,000, compared to RMB 7,809,000 in the previous year, reflecting a growth of 76.5% [162] - Basic earnings per share for the period was RMB 3.34 cents, an increase from RMB 2.86 cents in the same period last year [162] Market Expansion and Strategic Initiatives - The company reported a significant expansion into the South Asia market as part of its strategic plan under the "Belt & Road Initiative" [27] - The company aims to leverage its existing infrastructure to support future growth and market expansion initiatives [26] - In May 2019, China Leon acquired Saybolt (Singapore) Pte Ltd., expanding its laboratory testing and inspection services in Singapore, Malaysia, and Indonesia [30] - In June 2019, China Leon won the bid for the overseas supervision business of Datang Hong Kong, enhancing its overseas business operations [31] - The company plans to enhance service capabilities and expand coverage through investments, joint ventures, and acquisitions, with a focus on globalization and diversification [97] - The company aims to provide comprehensive quality management services covering the entire supply chain, aligning with China's national strategy for high-quality development [37] Financial Position and Assets - As of June 30, 2019, the Group had cash and cash equivalents of RMB 84.6 million, indicating a strong financial position to support operations [60] - Trade and bills receivables increased significantly from approximately RMB 42.3 million to RMB 82.2 million, reflecting a substantial growth in business scale [58] - Total assets less current liabilities amounted to RMB 238,429,000, compared to RMB 211,193,000 at the end of 2018 [166] - Non-current assets increased to RMB 209,449,000 from RMB 166,819,000, reflecting a growth of 25.5% [164] - The company’s retained profits increased to RMB 95,911,000 as of June 30, 2019, from RMB 86,549,000 in the previous year, which is an increase of about 10.0% [169] Corporate Governance and Compliance - The report emphasizes the importance of maintaining compliance with the Listing Rules of the Hong Kong Stock Exchange [5] - The company has complied with the corporate governance code provisions, except for the deviation regarding the roles of chairman and CEO being held by the same individual [107] - The audit committee has reviewed the unaudited interim condensed consolidated statements for the period [112] - The Company has established an audit committee in accordance with the Listing Rules to ensure high standards of corporate governance [117] - The Board confirmed compliance with the "Standard Code" during the reporting period [115] Employee and Operational Growth - The Group had a total of 1,260 employees as of June 30, 2019, compared to 841 employees as of June 30, 2018, reflecting a growth of approximately 50% [82] - Selling, distribution and administrative expenses increased from approximately RMB 41.2 million to approximately RMB 57.3 million, primarily due to higher costs from overseas acquisitions and increased R&D expenditure [53] Financial Instruments and Risks - The Group's credit risk is primarily managed through credit verification procedures for all customers, ensuring no significant bad debt risk is faced [76] - The Group is exposed to foreign currency risk primarily from transactions denominated in Hong Kong dollars and United States dollars [78] - The maximum credit risk associated with the Group's financial assets is equivalent to their carrying amount [76] Accounting Policies and Standards - The Group has applied IFRS 16 for the first time in the interim period, which supersedes IAS 17 "Leases" and related interpretations [182] - The application of new and amended IFRSs has had no material impact on the Group's financial performance and positions for the current and prior periods [184] - The accounting policies used in the interim financial statements are consistent with those presented in the annual financial statements for the year ended December 31, 2018 [182] - Lease liabilities include fixed payments, variable payments based on indices, residual value guarantees, and penalties for terminating leases [198] Share Capital and Ownership - The stock code for China Leon Inspection Holding Limited is 1586, indicating its listing on the Hong Kong Stock Exchange [25] - As of June 30, 2019, the issued share capital of the Company was 400,000,000 shares [131] - The interests of Directors and Chief Executive in shares included 225,810,000 shares held jointly by Mr. LI Xiangli, Ms. ZHANG Aiying, and Mr. LIU Yi, representing approximately 56.45% of the issued share capital of the Company [122][126] - The Company had granted a total of 11,000,000 Share Options under the Share Option Scheme, with 850,000 lapsing [153] - The Share Option Scheme aims to reward contributions and retain valuable human resources for the Group [155]

Company Overview - China Leon Inspection Holding Limited is the first PRC third-party inspection and testing service provider listed on the Hong Kong Stock Exchange, with stock code 1586[10]. - The company holds the largest market share in China's coal testing and inspection industry, maintaining long-term relationships with reputable customers[12]. - The company offers a comprehensive range of services, including inspection and testing for coal quality assurance, surveying for contract fulfillment, and ancillary services to prevent dishonest activities[11]. - China Leon is committed to providing world-class services through strict standards and industry-leading technical equipment[10]. - The company has a vast service center network located at major coal-trade ports in China, enhancing its service capabilities[12]. - The company aims to become the world's leading international third-party independent inspection and testing service provider[13]. Strategic Plans and Development - The strategic plans include consolidating the leading position in the coal testing industry, upgrading service center networks, strengthening research and development, and pursuing strategic acquisitions[13]. - The company plans to strengthen its service center network and enhance R&D efforts as part of its strategic direction[15]. - The company is focused on expanding its service coverage through strategic investments and acquisitions[13]. - The Group plans to further expand into upstream and downstream related markets for commodities and innovate in supply chain quality management in 2019[37]. - The establishment of service centers in upstream coal production areas and inland downstream areas reflects the Group's strategy to explore new business models[30]. - The Group's expansion into import and export inspection services now includes minerals, petrochemicals, and agricultural products, marking the beginning of diversified business development[30]. Financial Performance - Revenue for 2018 amounted to approximately RMB233.8 million, representing an increase of 16.4% from approximately RMB200.9 million recorded in 2017[17]. - Gross profit for 2018 amounted to approximately RMB122.9 million, representing an increase of 11.0% from approximately RMB110.7 million recorded in 2017[17]. - Profit attributable to owners of the parent for 2018 amounted to approximately RMB14.0 million, representing a decrease of 60.7% from approximately RMB35.6 million recorded in 2017[17]. - Net profit for 2018 was RMB4.9 million, representing a decrease of 85.9% compared to 2017[26]. - Total assets as of 31 December 2018 were RMB328.9 million, an increase from RMB254.4 million in 2017[21]. - Total liabilities as of 31 December 2018 were RMB131.9 million, an increase from RMB56.1 million in 2017[21]. - The gross profit margin decreased from 55.1% in 2017 to 52.6% in 2018[90]. - The Group's profit for the year decreased by 85.9%, from approximately RMB34.7 million in 2017 to approximately RMB4.9 million in 2018, primarily due to the expansion of its testing and inspection business through overseas acquisitions[126]. Research and Development - Significant investment in research and development led to the automation of coal testing processes, including the development of an automated coal testing laboratory and a mobile standardized coal laboratory[31]. - The new information system "LEON LIMS 1.0" has improved operational efficiency by enabling informatization management throughout the entire coal inspection process[31]. - The company emphasizes the importance of technological improvements and R&D collaboration to achieve competitive advantages in the market[111]. - Continued investment in research and development led to the upgrade of traditional coal testing to fully automated testing systems, enhancing service capabilities[96]. Leadership and Governance - The Board consists of eight Directors, including four executive Directors, one non-executive Director, and three independent non-executive Directors[50]. - Mr. Li Xiangli, aged 56, is the Chairman, CEO, and an executive Director, responsible for strategic planning and overall management since his appointment on January 13, 2016[52]. - The Company has a strong leadership team with extensive industry experience, enhancing its strategic capabilities[52][56]. - The Board's composition includes a balance of executive and independent directors, ensuring effective governance[50]. - The roles of chairman and CEO are held by the same individual, Mr. LI Xiangli, which deviates from the CG Code provision A.2.1[178]. - The Chairman and CEO, Mr. Li Xiangli, holds both positions, which the board believes enhances decision-making efficiency and opportunity capture[181]. Market Environment - The coal testing and inspection industry is expected to develop steadily due to tightened regulations and a favorable market environment[24]. - The demand for power generation is expected to grow more rapidly in 2019, while coal consumption and trading volume may see slight growth[87]. - The industry and market environment in 2019 is projected to be favorable for the future business development of the company[87]. Operational Efficiency - The company plans to enhance service capabilities through strategic acquisitions and joint ventures, focusing on opportunities that can improve service coverage[115]. - Future strategies include leveraging technology and automation to improve service capabilities and customer experience, aiming to increase market share[101]. - The Group's finance costs increased by 281.4% from approximately RMB0.7 million in 2017 to RMB2.6 million in 2018 due to costs incurred from an interest-bearing Secured Guaranteed Note issued in 2018[126]. Financial Position - The Group's financial position remains strong, with sufficient resources to support operations and meet foreseeable capital expenditures[146][150]. - Total debt increased significantly from RMB 17,742,000 in 2017 to RMB 76,085,000 in 2018, representing a growth of 328.5%[161]. - The gearing ratio rose sharply from 8.9% in 2017 to 38.6% in 2018, indicating a higher level of financial leverage[161].