China Shenghai Group Limited 中國升海集團有限公 司 ( formerly known as China Shenghai Food Holdings Company Limited ) ( 前稱中國升海食品控股有限公司) ( Incorporated in the Cayman Islands with limited liability ) ( 於開曼群島註冊成立之有限公司 ) Stock Code 股份代號 : 1676 2020 INTERIM REPORT 中期報告 CONTENTS 目錄 2 Corporate Information 公司資料 5 Management Discussion and Analysis 管理層討論與分析 14 Corporate Governance and Other Information 企業管治及其他資料 20 Consolidated Statement of Profit or Loss and Other Comprehensive Income – Unaudited 綜合損益及其他全面收益表－未經審核 22 Consol ...

ANNUAL REPORT 2019 年報 China Shenghai Food Holdings Company Limited 中國升海食品控股有限公司 | --- | --- | |-------|-------------------------------------------------------------------------------------------------------------------------------| | | | | | China Shenghai Food Holdings Company Limited 中國升海食品控股有限公 司 | | | Incorporated in the Cayman Islands with limited liability ) 於開曼群島註冊成立之有限公司 ) Stock Code 股份代號 : 1676 | CONTENTS 目錄 | --- | --- | |-------|-------------------------------------------------------------------- ...

[Corporate Information](index=2&type=section&id=Corporate%20Information) [Corporate Information Details](index=3&type=section&id=Corporate%20Information%20Details) This section outlines the company's board members, independent non-executive directors, committee compositions (audit, nomination, remuneration), company secretary, authorized representatives, auditors, legal advisors, principal bankers, registered office, Hong Kong share registrar, China headquarters, and principal place of business in Hong Kong - Executive Directors include Mr. Liu Rongru (Chairman and CEO) and Mr. Zhai Zhisheng; Mr. Jiang Dehua resigned on **August 6, 2019**[4](index=4&type=chunk) - Independent Non-executive Directors include Mr. Liu Dajin and Ms. Zheng Chengxin; Mr. Huang Xingluan resigned on **July 9, 2019**, and Mr. Chen Sixiong was appointed on the same day[4](index=4&type=chunk) - The Audit Committee is chaired by Ms. Zheng Chengxin, with members including Mr. Liu Dajin and Mr. Chen Sixiong[4](index=4&type=chunk) - The company's auditor is BDO Limited, Hong Kong[4](index=4&type=chunk) - The company website is **www.xmwofan.com**, and the stock code is **01676**[7](index=7&type=chunk) [Management Discussion and Analysis](index=6&type=section&id=Management%20Discussion%20and%20Analysis) [Business Review](index=6&type=section&id=Business%20Review) During the reporting period, the company primarily sold dried seafood, algae, fungi, and marine snack products in China, experiencing a **15.6%** revenue decrease to **RMB 274 million** and a gross margin decline to **24.5%** due to the US-China trade war, with supermarkets remaining the main sales channel - The company's business involves selling dried seafood, algae, fungi, and marine snack products in China[11](index=11&type=chunk) Revenue and Gross Profit Overview | Indicator | 2019 (RMB million) | 2018 (RMB million) | Year-on-year Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 274.0 | 324.5 | -15.6% | | Gross Profit | 67.2 | 83.3 | -19.4% | | Gross Profit Margin | 24.5% | 25.7% | -1.2 percentage points | - Product portfolio includes over **100 types of dried seafood**, **30 types of algae and fungi products**, and **60 types of marine snack products**[13](index=13&type=chunk) - Sales channels include supermarkets, trading companies, convenience stores, and other channels, with **supermarkets remaining the primary sales pillar**[14](index=14&type=chunk) [Outlook](index=7&type=section&id=Outlook) The company anticipates continued downward pressure on Chinese consumer confidence from escalating US-China trade tensions, particularly impacting demand for non-essential items like seafood and algae, while actively pursuing strategic adjustments and M&A opportunities to diversify revenue - US-China trade tensions are expected to exert **downward pressure on Chinese consumer confidence**, significantly reducing demand for non-essential items like seafood and algae[20](index=20&type=chunk) - Strategic adjustment: Due to economic uncertainty, the Group will no longer purchase land in mainland China, instead planning to **lease additional factory space** to maximize organic growth prospects[20](index=20&type=chunk) - Future development: Actively seeking **overseas and domestic collaborations and M&A opportunities** to broaden revenue streams and maintain growth momentum[20](index=20&type=chunk) [Operating Results and Financial Review](index=9&type=section&id=Operating%20Results%20and%20Financial%20Review) During the reporting period, the company experienced declines in revenue and gross profit, a decrease in selling and distribution expenses (though increasing as a percentage of revenue), a rise in administrative expenses due to increased depreciation, and a reduction in income tax expense, reflecting an overall adverse market impact on operating performance [Revenue](index=9&type=section&id=Revenue) During the reporting period, the company's revenue decreased by **15.6%** year-on-year to **RMB 274 million**, primarily due to reduced sales volume despite increased average selling prices, with dried seafood remaining the largest contributor at **51.4%** and supermarkets accounting for **52.7%** of total revenue Total Revenue | Indicator | 2019 (RMB thousand) | 2018 (RMB thousand) | Year-on-year Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 273,995 | 324,455 | -15.6% | Revenue by Product Category | Product Category | 2019 (RMB thousand) | Percentage (%) | 2018 (RMB thousand) | Percentage (%) | | :--- | :--- | :--- | :--- | :--- | | Dried Seafood Products | 140,734 | 51.4% | 160,867 | 49.6% | | Algae and Fungi Products | 110,801 | 40.4% | 133,746 | 41.2% | | Marine Snack Products | 22,460 | 8.2% | 29,842 | 9.2% | | **Total** | **273,995** | **100%** | **324,455** | **100%** | Revenue by Sales Channel | Sales Channel | 2019 (RMB thousand) | Percentage (%) | 2018 (RMB thousand) | Percentage (%) | | :--- | :--- | :--- | :--- | :--- | | Supermarkets | 144,342 | 52.7% | 170,613 | 52.6% | | Trading Companies | 60,398 | 22.0% | 75,996 | 23.4% | | Convenience Stores | 13,696 | 5.0% | 14,818 | 4.6% | | Other Sales Channels | 55,559 | 20.3% | 63,028 | 19.4% | | Food Companies | 21,635 | 7.9% | 22,942 | 7.0% | | Gift Shops | 14,144 | 5.2% | 18,129 | 5.6% | | Retail E-commerce | 18,658 | 6.8% | 19,121 | 5.9% | | Others | 1,083 | 0.4% | 2,819 | 0.9% | | Self-operated Website | 39 | 0.0% | 17 | 0.0% | | **Total** | **273,995** | **100%** | **324,455** | **100%** | [Gross Profit and Gross Profit Margin](index=11&type=section&id=Gross%20Profit%20and%20Gross%20Profit%20Margin) During the reporting period, the company's gross profit decreased by **19.4%** to **RMB 67.2 million**, with the gross profit margin declining from **25.7% to 24.5%**, reflecting a reduction across all product categories Gross Profit and Gross Profit Margin | Indicator | 2019 (RMB thousand) | Gross Profit Margin (%) | 2018 (RMB thousand) | Gross Profit Margin (%) | | :--- | :--- | :--- | :--- | :--- | | Gross Profit | 67,195 | 24.5% | 83,346 | 25.7% | Gross Profit and Gross Profit Margin by Product Category | Product Category | 2019 (RMB thousand) | Gross Profit Margin (%) | 2018 (RMB thousand) | Gross Profit Margin (%) | | :--- | :--- | :--- | :--- | :--- | | Dried Seafood Products | 34,521 | 24.5% | 41,546 | 25.8% | | Algae and Fungi Products | 27,745 | 25.0% | 34,667 | 25.9% | | Marine Snack Products | 4,929 | 21.9% | 7,133 | 23.9% | [Selling and Distribution Expenses](index=11&type=section&id=Selling%20and%20Distribution%20Expenses) Selling and distribution expenses decreased due to reduced product promotion and advertising in new markets, yet their percentage of revenue increased from **7.8% to approximately 8.1%** - Selling and distribution expenses decreased primarily due to the Group's **reduced product promotion and advertising** in new markets[32](index=32&type=chunk) - Selling and distribution expenses as a percentage of revenue increased from **7.8%** for the six months ended June 30, 2018, to approximately **8.1%**[32](index=32&type=chunk) [Administrative Expenses](index=12&type=section&id=Administrative%20Expenses) Administrative expenses increased primarily due to higher depreciation, with their percentage of revenue rising from **1.4% to approximately 2.4%** - Administrative expenses increased due to **higher depreciation expenses**[35](index=35&type=chunk) - Administrative expenses as a percentage of revenue increased from **1.4%** for the six months ended June 30, 2018, to approximately **2.4%**[35](index=35&type=chunk) [Income Tax Expense](index=12&type=section&id=Income%20Tax%20Expense) Income tax expense for the period was **RMB 10.4 million**, a decrease from **RMB 14.5 million** in the prior year, with the effective tax rate slightly declining to **26.4%** and Chinese subsidiaries subject to a **25%** corporate income tax rate Income Tax Expense | Indicator | 2019 (RMB thousand) | 2018 (RMB thousand) | | :--- | :--- | :--- | | Income Tax Expense | 10,401 | 14,534 | - Effective tax rate: **26.4%** in 2019, **26.7%** in 2018[37](index=37&type=chunk) - Chinese subsidiaries are subject to a **25%** corporate income tax rate[37](index=37&type=chunk) [Liquidity and Financial Resources and Capital Structure](index=12&type=section&id=Liquidity%20and%20Financial%20Resources%20and%20Capital%20Structure) The Group maintained a healthy liquidity position during the reporting period, with increased net current assets and cash and cash equivalents, significantly reduced capital expenditures, and no bank borrowings, material capital commitments, or contingent liabilities [Cash Flows](index=12&type=section&id=Cash%20Flows) During the reporting period, the Group primarily met its working capital and other capital requirements through cash generated from operating activities and advances from shareholders - The Group primarily funds its working capital and other capital requirements through **cash generated from operating activities and advances from shareholders**[37](index=37&type=chunk) [Net Current Assets](index=13&type=section&id=Net%20Current%20Assets) Net current assets increased from approximately **RMB 371.1 million** as of December 31, 2018, to approximately **RMB 398.0 million** as of June 30, 2019, primarily due to the combined effect of increased inventories and cash and cash equivalents Net Current Assets | Date | Amount (RMB million) | | :--- | :--- | | December 31, 2018 | 371.1 | | June 30, 2019 | 398.0 | - The increase was primarily attributable to **increases in inventories and cash and cash equivalents**[39](index=39&type=chunk) [Cash and Cash Equivalent and Bank Borrowings](index=13&type=section&id=Cash%20and%20Cash%20Equivalent%20and%20Bank%20Borrowings) The Group maintained a healthy liquidity position during the reporting period, with cash and cash equivalents increasing to approximately **RMB 278.4 million** as of June 30, 2019, from **RMB 234.3 million** at the end of 2018 Cash and Cash Equivalents | Date | Amount (RMB million) | | :--- | :--- | | December 31, 2018 | 234.3 | | June 30, 2019 | 278.4 | [Gearing Ratio](index=13&type=section&id=Gearing%20Ratio) As of June 30, 2019, the gearing ratio remained at **zero** as the Group had no bank borrowings - As of June 30, 2019, the Group's gearing ratio was **zero** due to no bank borrowings[43](index=43&type=chunk) [Capital Expenditures](index=13&type=section&id=Capital%20Expenditures) For the six months ended June 30, 2019, the Group's capital expenditures were approximately **RMB 4 thousand**, a significant decrease from **RMB 3.467 million** in the corresponding period of 2018 Capital Expenditures | Period | Amount (RMB thousand) | | :--- | :--- | | Six months ended June 30, 2019 | 4 | | Six months ended June 30, 2018 | 3,467 | [Capital Commitments](index=13&type=section&id=Capital%20Commitments) As of June 30, 2019, the Group had no material capital commitments - As of June 30, 2019, the Group had **no material capital commitments**[44](index=44&type=chunk) [Contingent Liabilities](index=13&type=section&id=Contingent%20Liabilities) As of June 30, 2019, the Group had no material contingent liabilities or guarantees - As of June 30, 2019, the Group had **no material contingent liabilities or guarantees**[44](index=44&type=chunk) [Pledge of Assets](index=13&type=section&id=Pledge%20of%20Assets) As of June 30, 2019, the Group had not pledged any assets - As of June 30, 2019, the Group had **not pledged any assets**[44](index=44&type=chunk) [Use of Net Proceeds from Initial Public Offering](index=14&type=section&id=Use%20of%20Net%20Proceeds%20from%20Initial%20Public%20Offering) The company listed on July 18, 2017, with net proceeds from the global offering of approximately **HK$123.3 million**, and as of June 30, 2019, most funds were utilized as stated in the prospectus for market expansion, equipment procurement, quality control center construction, sales promotion, and general working capital - Net proceeds from the global offering were approximately **HK$123.3 million**[47](index=47&type=chunk) Use of IPO Proceeds (As of June 30, 2019) | Item | Percentage (%) | Available (HK$ million) | Utilized (HK$ million) | Unutilized (HK$ million) | | :--- | :--- | :--- | :--- | :--- | | Enhance market penetration in North and Central-West China | 36.3% | 44.8 | 37.9 | 6.9 | | Acquire new packaging equipment and establish quality control and testing center | 29.1% | 35.9 | 35.9 | – | | Expand and strengthen sales and promotion efforts | 24.6% | 30.3 | 23.0 | 7.3 | | General working capital | 10.0% | 12.3 | 12.3 | – | - The company has **no intention to use the proceeds for purposes other than those stated in the prospectus**[49](index=49&type=chunk) [Significant Investment, Material Acquisitions and Disposals of Subsidiaries and Associated Companies](index=15&type=section&id=Significant%20Investment,%20Material%20Acquisitions%20and%20Disposals%20of%20Subsidiaries%20and%20Associated%20Companies) During the reporting period, the company had no significant investments, material acquisitions, or disposals of subsidiaries, but will continue to identify potential investment or acquisition opportunities to meet the Group's development needs - The company had **no significant investments, material acquisitions, or disposals of subsidiaries**[51](index=51&type=chunk) - The Group currently has **no plans for any significant investments or acquisitions of capital assets**, but will continue to identify potential investment or acquisition opportunities as needed for its development[51](index=51&type=chunk) [Exchange Risk Exposure](index=15&type=section&id=Exchange%20Risk%20Exposure) The Group primarily operates in China, with most transactions, assets, and liabilities denominated in RMB, and the Board anticipates no significant impact from future currency fluctuations, having adopted no formal hedging policy during the reporting period - The Group primarily operates in China, with most operating transactions settled in **RMB**, and most assets and liabilities denominated in **RMB**[52](index=52&type=chunk) - The Board expects **future currency fluctuations will not materially affect the Group's operations**[52](index=52&type=chunk) - During the reporting period, the Group **did not adopt a formal hedging policy** and did not use any instruments for foreign exchange hedging[52](index=52&type=chunk) [Interim Dividend](index=15&type=section&id=Interim%20Dividend) The Board does not recommend the payment of an interim dividend for the six months ended June 30, 2019 - The Board **does not recommend the payment of an interim dividend** for the six months ended June 30, 2019[55](index=55&type=chunk) [Corporate Governance and Other Information](index=16&type=section&id=Corporate%20Governance%20and%20Other%20Information) [Directors' and Chief Executive's Interests and Short Positions in Shares, Underlying Shares and Debentures](index=16&type=section&id=Directors'%20and%20Chief%20Executive's%20Interests%20and%20Short%20Positions%20in%20Shares,%20Underlying%20Shares%20and%20Debentures) As of June 30, 2019, Executive Director Mr. Liu Rongru held **52.5%** of the company's shares through Precisely Unique Limited, which he controls, making him a substantial controlling shareholder Directors' Shareholding Profile (As of June 30, 2019) | Director Name | Capacity/Nature of Interest | Number of Shares | Approximate Percentage of Shareholding (%) | | :--- | :--- | :--- | :--- | | Mr. Liu Rongru | Interest in controlled corporation/Long position | 525,000,000 | 52.5% | [Interests and Short Positions of the Substantial Shareholders in Shares and Underlying Shares of the Company](index=17&type=section&id=Interests%20and%20Short%20Positions%20of%20the%20Substantial%20Shareholders%20in%20Shares%20and%20Underlying%20Shares%20of%20the%20Company) As of June 30, 2019, substantial shareholders, including Precisely Unique Limited, Mr. Liu Rongru, and his spouse Ms. Lin Yueying, each held **52.5%** of the company's shares Substantial Shareholders' Shareholding Profile (As of June 30, 2019) | Name/Entity | Number of Shares | Approximate Percentage of Shareholding (%) | | :--- | :--- | :--- | | Precisely Unique Limited | 525,000,000 | 52.5% | | Mr. Liu Rongru | 525,000,000 | 52.5% | | Ms. Lin Yueying (Spouse of Mr. Liu Rongru) | 525,000,000 | 52.5% | [Share Option Scheme](index=18&type=section&id=Share%20Option%20Scheme) The company adopted a share option scheme on June 22, 2017, to reward eligible participants, with a maximum of **10%** of the total issued shares (**100 million shares**) available for grant, and no options had been granted as of the interim report date - The Share Option Scheme was adopted on **June 22, 2017**, to recognize and reward eligible participants who have contributed to the Group[65](index=65&type=chunk) - The maximum number of shares that may be granted under the Share Option Scheme shall not exceed **10%** of the total issued shares immediately following the completion of the global offering, which is **100,000,000 shares**[65](index=65&type=chunk) - As of the date of this interim report, **no share options have been granted** under the Share Option Scheme[70](index=70&type=chunk) [Compliance with the Corporate Governance Code](index=20&type=section&id=Compliance%20with%20the%20Corporate%20Governance%20Code) The company complied with the Corporate Governance Code during the reporting period, but a deviation occurred from August 6, 2019, with Mr. Liu Rongru assuming both Chairman and CEO roles, which the Board believes enhances strategy execution and operational efficiency, with plans to restore compliance in the future - The company has **complied with the Corporate Governance Code** for the six months ended June 30, 2019[74](index=74&type=chunk) - Effective **August 6, 2019**, Mr. Liu Rongru assumed both the roles of Chairman and Chief Executive Officer, deviating from Code Provision A.2.1 of the Corporate Governance Code, which stipulates that the roles of chairman and chief executive should be separate[75](index=75&type=chunk) - The Board believes this arrangement facilitates the **execution of the Group's business strategies and enhances operational efficiency**, and plans to identify a suitable candidate to restore compliance with the Code in the future[75](index=75&type=chunk) [Model Code for Securities Transactions by Directors](index=21&type=section&id=Model%20Code%20for%20Securities%20Transactions%20by%20Directors) The company adopted the Model Code as the standard for directors' securities transactions, and all directors confirmed their compliance with the trading standards during the reporting period - The company has **adopted the Model Code** as the code of conduct for directors' securities transactions[78](index=78&type=chunk) - All directors confirmed their **compliance with the trading standards** stipulated in the Model Code during the reporting period[78](index=78&type=chunk) [Audit Committee](index=21&type=section&id=Audit%20Committee) The Audit Committee, comprising three independent non-executive directors with Ms. Zheng Chengxin as Chair, has reviewed and discussed the Group's interim results for the six months ended June 30, 2019 - The Audit Committee comprises **three independent non-executive directors**, with **Ms. Zheng Chengxin appointed as Chair**[79](index=79&type=chunk) - The Audit Committee has **reviewed and discussed the Group's interim results** for the six months ended June 30, 2019[79](index=79&type=chunk) [Update of Directors' Information](index=21&type=section&id=Update%20of%20Directors'%20Information) On July 9, 2019, Mr. Huang Xingluan resigned as an independent non-executive director, and Mr. Chen Sixiong was appointed to the role and various committees; subsequently, on August 6, 2019, Mr. Jiang Dehua resigned as executive director and CEO due to health reasons, and Mr. Liu Rongru was appointed CEO - On **July 9, 2019**, Mr. Huang Xingluan resigned as an independent non-executive director, and Mr. Chen Sixiong was appointed as an independent non-executive director and a member of various committees[80](index=80&type=chunk) - Mr. Chen Sixiong is entitled to an **annual salary of HK$100,000** plus a discretionary bonus[82](index=82&type=chunk) - On **August 6, 2019**, Mr. Jiang Dehua resigned as executive director and chief executive officer due to health reasons, and Mr. Liu Rongru was appointed as the Group's chief executive officer[84](index=84&type=chunk) [Purchases, Sale and Redemption of Listed Securities](index=22&type=section&id=Purchases,%20Sale%20and%20Redemption%20of%20Listed%20Securities) For the six months ended June 30, 2019, neither the company nor any of its subsidiaries purchased, sold, or redeemed any of the company's listed securities on the Stock Exchange - For the six months ended June 30, 2019, **neither the company nor any of its subsidiaries purchased, sold, or redeemed any of the company's listed securities** on the Stock Exchange[85](index=85&type=chunk) [Employees](index=22&type=section&id=Employees) As of June 30, 2019, the Group had **614** full-time employees, a decrease from **645** at the end of 2018, with a competitive remuneration policy based on performance, experience, and industry practice - As of June 30, 2019, the Group had a total of **614 full-time employees** (December 31, 2018: 645 employees)[86](index=86&type=chunk) - The Group's remuneration policy provides **competitive compensation** based on employee performance, experience, and prevailing industry practices[86](index=86&type=chunk) [Consolidated Statement of Profit or Loss and Other Comprehensive Income – Unaudited](index=22&type=section&id=Consolidated%20Statement%20of%20Profit%20or%20Loss%20and%20Other%20Comprehensive%20Income%20%E2%80%93%20Unaudited) [Consolidated Statement of Profit or Loss and Other Comprehensive Income Summary](index=23&type=section&id=Consolidated%20Statement%20of%20Profit%20or%20Loss%20and%20Other%20Comprehensive%20Income%20Summary) For the six months ended June 30, 2019, the company experienced declines in both revenue and profit, with revenue decreasing by **15.6%** year-on-year to **RMB 274 million** and profit for the period attributable to owners decreasing by **27.4%** to **RMB 29.043 million**, resulting in basic and diluted earnings per share of **RMB 0.029** Consolidated Statement of Profit or Loss and Other Comprehensive Income Summary (For the six months ended June 30) | Indicator | 2019 (RMB thousand) | 2018 (RMB thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 273,995 | 324,455 | -15.6% | | Cost of sales | (206,800) | (241,109) | -14.2% | | Gross Profit | 67,195 | 83,346 | -19.4% | | Other income and other gains | 1,266 | 1,465 | -13.6% | | Selling and distribution expenses | (22,118) | (25,301) | -12.6% | | Administrative expenses | (6,695) | (4,667) | +43.5% | | Operating profit | 39,528 | 54,534 | -27.5% | | Profit before income tax | 39,444 | 54,534 | -27.6% | | Income tax expense | (10,401) | (14,534) | -28.5% | | Profit for the period attributable to owners of the company | 29,043 | 40,000 | -27.4% | | Earnings per share (Basic and diluted) | 0.029 | 0.040 | -27.5% | [Consolidated Statement of Financial Position – Unaudited](index=23&type=section&id=Consolidated%20Statement%20of%20Financial%20Position%20%E2%80%93%20Unaudited) [Consolidated Statement of Financial Position Summary](index=24&type=section&id=Consolidated%20Statement%20of%20Financial%20Position%20Summary) As of June 30, 2019, the company's total assets less current liabilities increased to **RMB 478.3 million**, and net assets rose to **RMB 476.0 million**, with net current assets also increasing primarily due to higher inventories and cash and cash equivalents Consolidated Statement of Financial Position Summary (As of June 30) | Indicator | 2019 (RMB thousand) | December 31, 2018 (RMB thousand) | Change (%) | | :--- | :--- | :--- | :--- | | **Non-current Assets** | | | | | Property, plant and equipment | 74,405 | 34,913 | +113.1% | | Prepaid lease payments | 54 | 79 | -31.6% | | Deferred tax assets | 155 | 281 | -44.9% | | Deposits paid to suppliers | 5,661 | 5,616 | +0.8% | | **Total Non-current Assets** | **80,275** | **75,889** | **+5.8%** | | **Current Assets** | | | | | Inventories | 81,992 | 70,306 | +16.6% | | Trade receivables | 68,052 | 109,942 | -38.1% | | Deposits, prepayments and other receivables | 7,399 | 12,713 | -41.8% | | Cash and cash equivalents | 278,381 | 234,253 | +18.8% | | **Total Current Assets** | **435,824** | **427,214** | **+2.0%** | | **Current Liabilities** | | | | | Trade payables | 19,199 | 39,910 | -51.9% | | Accruals and other payables | 13,439 | 7,271 | +84.8% | | Lease liabilities | 1,012 | – | N/A | | Tax provisions | 4,176 | 8,918 | -53.1% | | **Total Current Liabilities** | **37,826** | **56,099** | **-32.6%** | | **Net Current Assets** | **397,998** | **371,115** | **+7.2%** | | **Total Assets Less Current Liabilities** | **478,273** | **447,004** | **+7.0%** | | **Non-current Liabilities** | | | | | Lease liabilities | 2,246 | – | N/A | | **Total Non-current Liabilities** | **2,246** | **–** | **N/A** | | **Net Assets** | **476,027** | **447,004** | **+6.5%** | | **Total Equity** | **476,027** | **447,004** | **+6.5%** | [Consolidated Statement of Changes in Equity – Unaudited](index=25&type=section&id=Consolidated%20Statement%20of%20Changes%20in%20Equity%20%E2%80%93%20Unaudited) [Consolidated Statement of Changes in Equity Summary](index=26&type=section&id=Consolidated%20Statement%20of%20Changes%20in%20Equity%20Summary) For the six months ended June 30, 2019, the company's total equity increased from **RMB 447.0 million** at the end of 2018 to **RMB 476.0 million**, primarily driven by the profit for the period Consolidated Statement of Changes in Equity Summary (For the six months ended June 30) | Indicator | 2019 (RMB thousand) | 2018 (RMB thousand) | | :--- | :--- | :--- | | Total equity at beginning of period (January 1) | 447,004 | 410,132 | | Profit and total comprehensive income for the period | 29,023 | 40,089 | | Total equity at end of period (June 30) | 476,027 | 450,221 | [Consolidated Statement of Cash Flows – Unaudited](index=26&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows%20%E2%80%93%20Unaudited) [Consolidated Statement of Cash Flows Summary](index=27&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows%20Summary) For the six months ended June 30, 2019, net cash generated from operating activities significantly increased to **RMB 44.630 million**, while cash outflow from investing activities substantially decreased, and financing activities primarily involved lease payments, resulting in an increase in cash and cash equivalents to **RMB 278.4 million** at period-end Consolidated Statement of Cash Flows Summary (For the six months ended June 30) | Indicator | 2019 (RMB thousand) | 2018 (RMB thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Net cash generated from operating activities | 44,630 | 39,346 | +13.4% | | Net cash generated from/(used in) investing activities | 453 | (45,364) | N/A (from negative to positive) | | Net cash used in financing activities | (591) | – | N/A | | Net increase/(decrease) in cash and cash equivalents | 44,492 | (6,018) | N/A (from negative to positive) | | Cash and cash equivalents at end of period | 278,381 | 278,811 | -0.15% | [Notes to the Unaudited Interim Financial Report](index=28&type=section&id=Notes%20to%20the%20Unaudited%20Interim%20Financial%20Report) [Corporate Information and Basis of Preparation](index=29&type=section&id=Corporate%20Information%20and%20Basis%20of%20Preparation) The company, incorporated in the Cayman Islands on January 8, 2016, primarily engages in investment holding, with the Group's main business being the packaging and sale of seafood products, listed on the HKEX Main Board on July 18, 2017, and its unaudited interim financial report is prepared in accordance with HKAS 34 - The company was incorporated as a limited company in the Cayman Islands under the Companies Law on **January 8, 2016**[106](index=106&type=chunk) - The company's principal business is **investment holding**, while the Group's principal business is the **packaging and sale of seafood products**[106](index=106&type=chunk) - The company's shares were **listed on the Main Board of The Stock Exchange of Hong Kong Limited on July 18, 2017**[106](index=106&type=chunk) - The unaudited condensed interim financial statements have **not been audited or reviewed** and are prepared in accordance with **HKAS 34**[106](index=106&type=chunk) [Changes in Accounting Policies](index=31&type=section&id=Changes%20in%20Accounting%20Policies) Effective January 1, 2019, the Group first applied HKFRS 16 "Leases" using a modified retrospective approach, recognizing the cumulative effect as an adjustment to the opening equity balance without restating comparative information, which introduced a single lessee accounting model requiring capitalization of most leases - The Group initially applied **HKFRS 16 "Leases"** from **January 1, 2019**[110](index=110&type=chunk) - The Group has elected to apply the **modified retrospective approach**, thus recognizing the cumulative effect of initial application as an adjustment to the opening balance of equity as of **January 1, 2019**, with comparative information not restated[111](index=111&type=chunk) - HKFRS 16 introduces a **single accounting model** requiring lessees to recognize right-of-use assets and lease liabilities for all leases, except for short-term leases and leases of low-value assets[112](index=112&type=chunk) [HKFRS 16, Leases](index=31&type=section&id=HKFRS%2016,%20Leases) This section details the introduction of HKFRS 16 and its impact on the Group's accounting policies, including new lease definitions, lessee accounting treatment, lease investment properties, and lessor accounting, with the Group opting not to separate lease and non-lease components and to assess low-value asset leases individually for capitalization - HKFRS 16 defines a lease based on whether a customer **controls the use of an identified asset for a period of time**[115](index=115&type=chunk) - Lessee accounting: Eliminates the requirement for lessees to classify leases as operating or finance leases, instead requiring **capitalization of all leases** (except for short-term leases and leases of low-value assets)[118](index=118&type=chunk) - Leased investment properties: Continue to be **accounted for at fair value**[124](index=124&type=chunk) - Lessor accounting: The accounting policies applicable to the Group as a lessor **remain largely unchanged** from those in HKAS 17[126](index=126&type=chunk) [Critical accounting judgements and sources of estimation uncertainty in applying the above accounting policies](index=38&type=section&id=Critical%20accounting%20judgements%20and%20sources%20of%20estimation%20uncertainty%20in%20applying%20the%20above%20accounting%20policies) In applying HKFRS 16, the Group makes significant judgments in classifying leasehold land and building interests held for own use and in assessing lease terms, including renewal options, which impact the measurement of right-of-use assets and lease liabilities - The Group classifies leasehold land and building interests held for own use into **two separate asset components**: the ownership interest is accounted for under the revaluation model, while the right to use the property under the lease agreement is accounted for at depreciated cost[131](index=131&type=chunk) - In determining the lease term, the Group assesses the **likelihood of exercising renewal options**, considering all relevant facts and circumstances, including favorable terms, leasehold improvements, and the importance of the underlying asset to the Group's operations[135](index=135&type=chunk) [Transitional Impact](index=40&type=section&id=Transitional%20Impact) Upon transition to HKFRS 16, the Group recognized an opening balance of lease liabilities of **RMB 3.767 million** as of January 1, 2019, with a corresponding adjustment to right-of-use assets, and no significant impact on leases previously classified as finance leases - Upon transition to HKFRS 16 (i.e., **January 1, 2019**), the Group recognized an opening balance of lease liabilities of **RMB 3.767 million**[139](index=139&type=chunk) Impact of HKFRS 16 on Consolidated Statement of Financial Position (January 1, 2019) | Consolidated Statement of Financial Position Item | December 31, 2018 Carrying Amount (RMB thousand) | Operating Lease Contracts Capitalized (RMB thousand) | January 1, 2019 Carrying Amount (RMB thousand) | | :--- | :--- | :--- | :--- | | Property, plant and equipment | 34,913 | 3,767 | 38,680 | | Total non-current assets | 75,889 | 3,767 | 79,656 | | Lease liabilities (current) | – | 1,158 | 1,158 | | Net current assets | 371,115 | (1,158) | 369,957 | | Current liabilities | 56,099 | 1,158 | 57,257 | | Total assets less current liabilities | 447,004 | 2,609 | 449,613 | | Lease liabilities (non-current) | – | 2,609 | 2,609 | | Total non-current liabilities | – | 2,609 | 2,609 | | Net assets | 447,004 | – | 447,004 | Net Book Value of Right-of-Use Assets (By Class of Underlying Asset) | Asset Class | January 1, 2019 (RMB thousand) | June 30, 2019 (RMB thousand) | | :--- | :--- | :--- | | Other properties leased for own use | 3,767 | 3,220 | | Plant, machinery and equipment | 34,913 | 71,185 | [Lease Liabilities](index=46&type=section&id=Lease%20Liabilities) As of June 30, 2019, the present value of the Group's lease liabilities was **RMB 3.258 million**, with **RMB 1.012 million** due within one year Maturity Analysis of Lease Liabilities | Term | June 30, 2019 (RMB thousand) | January 1, 2019 (RMB thousand) | | :--- | :--- | :--- | | Within 1 year | 1,012 | 1,158 | | After 1 year but within 2 years | 897 | 969 | | After 2 years but within 5 years | 1,349 | 1,640 | | **Present Value of Lease Liabilities** | **3,258** | **3,767** | [Revenue and Segment Information](index=47&type=section&id=Revenue%20and%20Segment%20Information) The Group's revenue is recognized from the sale of goods when control transfers to customers, operating as a single reportable segment for packaging and selling dried seafood, algae, fungi, and marine snack products, with no single customer contributing **10%** or more of revenue, and all sales occurring within China - Revenue is recognized when **control of the goods is transferred to the customer**[154](index=154&type=chunk) - The Group has **only one reportable and operating segment**: the packaging and sale of dried seafood, algae and fungi products, and marine snack products[155](index=155&type=chunk) - For the six months ended June 30, 2019, **no customer contributed 10% or more** of the Group's revenue[156](index=156&type=chunk) - All of the Group's sales by geographical location are **within mainland China**[156](index=156&type=chunk) [Seasonality of Operations](index=47&type=section&id=Seasonality%20of%20Operations) The Group's product sales typically peak before traditional Chinese holidays, and the company mitigates seasonal impacts by diversifying its product range to maintain stable overall sales volume and revenue - The Group's product sales are typically **higher before traditional Chinese holidays**[158](index=158&type=chunk) - The Group mitigates the seasonal impact by **diversifying its product range** to maintain stable overall sales volume and revenue[158](index=158&type=chunk) [Profit Before Income Tax](index=48&type=section&id=Profit%20Before%20Income%20Tax) Profit before income tax is stated after deducting items such as amortization of prepaid lease payments, cost of inventories, research expenses, depreciation of plant and equipment, depreciation of right-of-use assets, and staff costs Deductions from Profit Before Income Tax (For the six months ended June 30) | Item | 2019 (RMB thousand) | 2018 (RMB thousand) | | :--- | :--- | :--- | | Amortisation of prepaid lease payments | 25 | 25 | | Cost of inventories recognized | 206,800 | 241,109 | | Research expenses | 318 | 380 | | Depreciation of plant and equipment | 3,731 | 119 | | Depreciation of right-of-use assets | 546 | 686 | | Staff costs (salaries and wages) | 17,339 | 12,997 | | Staff costs (retirement benefit scheme contributions) | 1,210 | 1,430 | [Income Tax Expense_Notes](index=48&type=section&id=Income%20Tax%20Expense_Notes) Income tax expense for the reporting period was **RMB 10.401 million**, primarily comprising China corporate income tax and deferred tax expense, with Chinese subsidiaries subject to a **25%** corporate income tax rate and no Hong Kong profits tax provision due to no taxable profit Components of Income Tax Expense (For the six months ended June 30) | Item | 2019 (RMB thousand) | 2018 (RMB thousand) | | :--- | :--- | :--- | | Current tax – China corporate income tax | 10,275 | 14,477 | | Deferred tax expense | 126 | 57 | | **Total** | **10,401** | **14,534** | - The tax rate for the company's Chinese subsidiaries is **25%**[166](index=166&type=chunk) - As the Group recorded **no taxable profit in Hong Kong** during the reporting period, no provision for Hong Kong profits tax was made[166](index=166&type=chunk) [Earnings Per Share](index=49&type=section&id=Earnings%20Per%20Share) For the six months ended June 30, 2019, basic and diluted earnings per share were **RMB 0.029**, a decrease from **RMB 0.040** in the prior year, with no potential dilutive ordinary shares during the period Basic and Diluted Earnings Per Share | Period | Earnings Per Share (RMB) | | :--- | :--- | | Six months ended June 30, 2019 | 0.029 | | Six months ended June 30, 2018 | 0.040 | - Basic earnings per share are calculated based on the profit attributable to owners of the company of **RMB 29,043,000** and the weighted average of **1,000,000,000 shares**[166](index=166&type=chunk) - There were **no potential dilutive ordinary shares** for the six months ended June 30, 2019, and 2018, thus diluted earnings per share were the same as basic earnings per share[167](index=167&type=chunk) [Plant and Equipment](index=49&type=section&id=Plant%20and%20Equipment) For the six months ended June 30, 2019, the Group's cost of acquiring plant and equipment items was approximately **RMB 4 thousand**, a significant decrease from **RMB 3.467 million** in the corresponding period of 2018 Acquisition Cost of Plant and Equipment | Period | Amount (RMB thousand) | | :--- | :--- | | Six months ended June 30, 2019 | 4 | | Six months ended June 30, 2018 | 3,467 | [Non-current Prepayments for Acquisition of Plant and Equipment](index=50&type=section&id=Non-current%20Prepayments%20for%20Acquisition%20of%20Plant%20and%20Equipment) This amount primarily refers to prepayments for leasehold improvements and the acquisition of equipment and machinery - This amount primarily refers to **prepayments for leasehold improvements and the acquisition of equipment and machinery**[169](index=169&type=chunk) [Inventories](index=50&type=section&id=Inventories) As of June 30, 2019, total inventories increased to **RMB 81.992 million**, primarily comprising raw materials and finished goods, with no inventory write-downs during the reporting period Inventory Composition (As of June 30) | Item | 2019 (RMB thousand) | December 31, 2018 (RMB thousand) | | :--- | :--- | :--- | | Raw materials | 15,390 | 13,752 | | Finished goods | 66,602 | 56,554 | | **Total** | **81,992** | **70,306** | - There were **no write-downs of inventories** for the six months ended June 30, 2019, and 2018[171](index=171&type=chunk) [Trade Receivables](index=51&type=section&id=Trade%20Receivables) As of June 30, 2019, net trade receivables significantly decreased to **RMB 68.052 million** from **RMB 109.942 million** at the end of 2018, with the Group granting trade customers credit periods of **30 to 180 days** and all receivables expected to be recovered within one year Ageing Analysis of Trade Receivables (As of June 30) | Ageing | 2019 (RMB thousand) | December 31, 2018 (RMB thousand) | | :--- | :--- | :--- | | 0-30 days | 43,153 | 73,329 | | 31-60 days | 23,453 | 34,245 | | 61-90 days | 1,446 | 2,368 | | **Total** | **68,052** | **109,942** | - The Group's policy is to grant trade customers a credit period generally ranging from **30 to 180 days**[175](index=175&type=chunk) - All trade receivables are **expected to be recovered within one year**[175](index=175&type=chunk) [Deposits, Prepayments and Other Receivables](index=51&type=section&id=Deposits,%20Prepayments%20and%20Other%20Receivables) As of June 30, 2019, total deposits, prepayments, and other receivables decreased to **RMB 7.399 million** from **RMB 12.713 million** at the end of 2018, with a secured loan fully repaid on June 28, 2019 Composition of Deposits, Prepayments and Other Receivables (As of June 30) | Item | 2019 (RMB thousand) | December 31, 2018 (RMB thousand) | | :--- | :--- | :--- | | Secured loan receivable | – | 7,532 | | Others | 7,363 | 4,945 | | Amount due from a related party | 36 | 236 | | **Total** | **7,399** | **12,713** | - The **secured loan was fully repaid on June 28, 2019**[178](index=178&type=chunk) - Amount due from a related party is **unsecured, interest-free**, and repayable upon the expiry of the lease term[178](index=178&type=chunk) [Trade Payables](index=53&type=section&id=Trade%20Payables) As of June 30, 2019, trade payables significantly decreased to **RMB 19.199 million** from **RMB 39.910 million** at the end of 2018, with a typical credit period of **30 days** and book values considered to approximate fair values Ageing Analysis of Trade Payables (As of June 30) | Ageing | 2019 (RMB thousand) | December 31, 2018 (RMB thousand) | | :--- | :--- | :--- | | 0-30 days | 19,199 | 39,910 | - The credit period for trade payables varies depending on terms agreed with different suppliers, typically **30 days**[181](index=181&type=chunk) - Trade payables are short-term in nature, and their **carrying amounts are considered to approximate their fair values**[182](index=182&type=chunk) [Accruals and Other Payables](index=54&type=section&id=Accruals%20and%20Other%20Payables) As of June 30, 2019, total accruals and other payables significantly increased to **RMB 13.439 million** from **RMB 7.271 million** at the end of 2018, primarily due to increased payables for the acquisition of plant and equipment Composition of Accruals and Other Payables (As of June 30) | Item | 2019 (RMB thousand) | December 31, 2018 (RMB thousand) | | :--- | :--- | :--- | | Payables for acquisition of plant and equipment | 6,790 | 1,790 | | Others | 6,649 | 5,481 | | **Total** | **13,439** | **7,271** | [Capital, Reserves and Dividends](index=54&type=section&id=Capital,%20Reserves%20and%20Dividends) The Board does not recommend an interim dividend, and the company's authorized share capital is **HK$100 million**, with an issued share capital of **HK$10 million** divided into **1 billion fully paid shares** [Dividends](index=54&type=section&id=Dividends) The Board does not recommend the payment of an interim dividend for the six months ended June 30, 2019 - The Board **does not recommend the payment of an interim dividend** for the six months ended June 30, 2019[184](index=184&type=chunk) [Share Capital](index=54&type=section&id=Share%20Capital) The company, incorporated on January 8, 2016, has an authorized share capital of **HK$100 million** divided into **10 billion shares** of HK$0.01 each, with an issued share capital of **HK$10 million** comprising **1 billion fully paid shares** as of June 30, 2019 - As of June 30, 2019, the company's authorized share capital was **HK$100,000,000**, divided into **10,000,000,000 shares**[188](index=188&type=chunk) - As of June 30, 2019, the issued share capital was **HK$10,000,000**, divided into **1,000,000,000 shares**, all fully paid or credited as fully paid[188](index=188&type=chunk) - Historical changes in share capital include a **share split and increase in authorized share capital on June 21, 2017**, and the **global offering of 250,000,000 ordinary shares on July 18, 2017**[186](index=186&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk) [Material Related Party Transactions](index=57&type=section&id=Material%20Related%20Party%20Transactions) The Group's related parties include controlling shareholder and director Mr. Liu Rongru, companies controlled by his spouse, and his cousins, with the reporting period seeing lease expenses and procurement transactions with these parties, alongside disclosure of key management personnel remuneration [Name and Relationship with Related Parties](index=57&type=section&id=Name%20and%20Relationship%20with%20Related%20Parties) The Group's related parties include Mr. Liu Rongru (controlling shareholder and director), Xiamen Yehong Food Co., Ltd. (controlled by the controlling shareholder's spouse), and Mr. Liu Rongjian and Mr. Liu Rongzhong (Mr. Liu Rongru's cousins) - Related parties include: **Mr. Liu Rongru** (controlling shareholder and director), **Xiamen Yehong Food Co., Ltd.** (controlled by the spouse of the controlling shareholder), **Mr. Liu Rongjian** (Mr. Liu Rongru's cousin), and **Mr. Liu Rongzhong** (Mr. Liu Rongru's cousin)[191](index=191&type=chunk) [Significant Related Party Transactions](index=58&type=section&id=Significant%20Related%20Party%20Transactions) During the reporting period, the Group engaged in lease expenses and procurement transactions with related parties, including **RMB 100 thousand** in lease expenses with Xiamen Yehong Food Co., Ltd., and procurement transactions of **RMB 356 thousand** and **RMB 508 thousand** with Mr. Liu Rongjian and Mr. Liu Rongzhong, respectively Significant Related Party Transactions (For the six months ended June 30) | Related Party | Type of Transaction | 2019 (RMB thousand) | 2018 (RMB thousand) | | :--- | :--- | :--- | :--- | | Xiamen Yehong Food Co., Ltd. | Cost of sales – Lease expenses | 60 | 60 | | Xiamen Yehong Food Co., Ltd. | Administrative expenses – Lease expenses | 40 | 40 | | Mr. Liu Rongjian | Cost of sales – Purchases | 356 | 139 | | Mr. Liu Rongzhong | Cost of sales – Purchases | 508 | 273 | - The Directors confirmed that the aforementioned procurement transactions were entered into on **terms similar to those entered into with third parties**[194](index=194&type=chunk) [Key Management Personnel Remuneration](index=59&type=section&id=Key%20Management%20Personnel%20Remuneration) During the reporting period, the Group's total remuneration for key management personnel was **RMB 2.106 million**, slightly lower than **RMB 2.132 million** in the corresponding period of 2018 Key Management Personnel Remuneration (For the six months ended June 30) | Item | 2019 (RMB thousand) | 2018 (RMB thousand) | | :--- | :--- | :--- | | Short-term benefits | 2,084 | 2,098 | | Contributions to retirement benefit schemes | 22 | 34 | | **Total** | **2,106** | **2,132** | [Commitments](index=59&type=section&id=Commitments) As of June 30, 2019, the Group had no outstanding capital commitments, and total future minimum lease payments under irrevocable operating leases as of December 31, 2018, amounting to **RMB 7.210 million**, have been recognized as lease liabilities under HKFRS 16 since January 1, 2019 [Capital Commitments](index=59&type=section&id=Capital%20Commitments) As of June 30, 2019, the Group had no outstanding capital commitments - As of June 30, 2019, the Group had **no outstanding capital commitments**[197](index=197&type=chunk) [Operating Lease Commitments](index=60&type=section&id=Operating%20Lease%20Commitments) As of December 31, 2018, total future minimum lease payments under irrevocable operating leases amounted to **RMB 7.210 million**, which have been recognized as lease liabilities in the statement of financial position under HKFRS 16 since January 1, 2019 Operating Lease Commitments as of December 31, 2018 (RMB thousand) | Term | Amount | | :--- | :--- | | Within 1 year | 2,554 | | Second to fifth year (inclusive) | 4,656 | | **Total** | **7,210** | - From **January 1, 2019**, future lease payments are recognized as lease liabilities in the statement of financial position in accordance with the policy set out in Note 2[201](index=201&type=chunk) [Fair Value Measurement of Financial Instruments](index=61&type=section&id=Fair%20Value%20Measurement%20of%20Financial%20Instruments) As of June 30, 2019, and 2018, the carrying amounts of the Group's principal financial instruments did not significantly differ from their fair values, as they were all immediately or short-term due - The Group's principal financial instruments include **trade receivables, other receivables, bank balances and cash, trade payables, and other payables**[203](index=203&type=chunk) - As of June 30, 2019, and 2018, the **carrying amounts of all financial instruments did not significantly differ from their fair values**, as they were all immediately or short-term due[204](index=204&type=chunk) [Comparative Figures](index=61&type=section&id=Comparative%20Figures) The Group initially adopted HKFRS 16 using the modified retrospective method on January 1, 2019, and consequently, comparative information has not been restated - The Group initially adopted **HKFRS 16 using the modified retrospective method on January 1, 2019**[205](index=205&type=chunk) - Under this method, **comparative information has not been restated**[205](index=205&type=chunk)

| --- | --- | --- | |-------|-------|------------------------------------------------------------------------------------------------------------------------------------| | | | | | | | China Shenghai Food Holdings Company Limited | | | | 中 國 升 海 食 品 控 股 有 限 公 司 ( Incorporated in the Cayman Islands with limited liability ) ( 於開曼群島註冊成立之有限公司 ) | | | | Stock Code 股份代號：1676 2018 ANNUAL REPORT 年報 | | --- | --- | |-------|----------------------------------------------------------------------------------| | | | | | ...