[Company Information](index=3&type=section&id=%E5%85%AC%E5%8F%B8%E8%B5%84%E6%96%99) The report outlines China Boton Group Company Limited's fundamental information, including board, committees, banks, address, and auditor - This report provides an overview of China Boton Group Company Limited (stock code: **3318**), detailing its board members, committee structures, principal bankers, registered address, and auditor, PricewaterhouseCoopers[5](index=5&type=chunk) Financial Statements [Interim Condensed Consolidated Statement of Financial Position](index=4&type=section&id=%E4%B8%AD%E6%9C%9F%E7%AE%80%E6%98%8E%E5%90%88%E5%B9%B6%E8%B5%84%E4%BA%A7%E8%B4%9F%E5%80%BA%E8%A1%A8) As of June 30, 2021, the Group's total assets grew to **RMB 5.976 billion**, driven by a significant increase in trade and other receivables, with total liabilities reaching **RMB 2.896 billion** and total equity rising to **RMB 3.080 billion** Key Balance Sheet Items (RMB in thousands) | Item | June 30, 2021 (Unaudited) | December 31, 2020 (Audited) | Change | | :--- | :--- | :--- | :--- | | **Total Assets** | **5,976,041** | **5,489,194** | **+8.9%** | | Total Non-current Assets | 4,052,124 | 4,082,382 | -0.7% | | Total Current Assets | 1,923,917 | 1,406,812 | +36.8% | | **Total Liabilities** | **2,896,481** | **2,548,858** | **+13.6%** | | Total Non-current Liabilities | 1,080,821 | 1,205,657 | -10.3% | | Total Current Liabilities | 1,815,660 | 1,343,201 | +35.2% | | **Total Equity** | **3,079,560** | **2,940,336** | **+4.7%** | - Significant growth in current assets was primarily due to 'trade and other receivables' increasing from **RMB 781 million** to **RMB 1.281 billion**[7](index=7&type=chunk) - The increase in current liabilities mainly stemmed from 'trade and other payables' rising from **RMB 599 million** to **RMB 1.020 billion**[10](index=10&type=chunk) [Interim Condensed Consolidated Statement of Profit or Loss](index=6&type=section&id=%E4%B8%AD%E6%9C%9F%E7%AE%80%E6%98%8E%E5%90%88%E5%B9%B6%E5%88%A9%E6%B6%A6%E8%A1%A8) In H1 2021, the Group achieved **RMB 1.082 billion** in revenue, a **5.9% increase**, with gross profit up **13.0%** to **RMB 429 million**, and profit for the period surged **65.3%** to **RMB 135 million**, driven by significantly lower finance costs, resulting in **RMB 103 million** attributable to owners, up **59.9%** Income Statement Summary (RMB in thousands) | Item | H1 2021 (Unaudited) | H1 2020 (Unaudited) | Year-on-Year Change | | :--- | :--- | :--- | :--- | | Revenue | 1,081,825 | 1,021,303 | +5.9% | | Gross Profit | 429,486 | 380,216 | +13.0% | | Operating Profit | 197,716 | 167,635 | +17.9% | | Profit for the Period | 134,601 | 81,420 | +65.3% | | Attributable to Owners of the Company | 103,245 | 64,578 | +59.9% | | Basic and Diluted Earnings Per Share (RMB) | 0.10 | 0.07 | +42.9% | - Net finance costs significantly decreased from **RMB 55.8 million** in the prior period to **RMB 24.7 million**, a key driver of profit growth[14](index=14&type=chunk) [Interim Condensed Consolidated Statement of Comprehensive Income](index=7&type=section&id=%E4%B8%AD%E6%9C%9F%E7%AE%80%E6%98%8E%E5%90%88%E5%B9%B6%E7%BB%BC%E5%90%88%E6%94%B6%E7%9B%8A%E8%A1%A8) For the six months ended June 30, 2021, total comprehensive income for the period was **RMB 137 million**, a substantial **77.9% increase** from **RMB 76.93 million** in the prior period, primarily due to strong profit growth Comprehensive Income Statement Summary (RMB in thousands) | Item | H1 2021 (Unaudited) | H1 2020 (Unaudited) | Year-on-Year Change | | :--- | :--- | :--- | :--- | | Profit for the Period | 134,601 | 81,420 | +65.3% | | Other Comprehensive Income (Currency Translation Differences) | 2,238 | (4,491) | N/A | | **Total Comprehensive Income for the Period** | **136,839** | **76,929** | **+77.9%** | | Attributable to Owners of the Company | 110,764 | 60,182 | +84.0% | | Attributable to Non-controlling Interests | 26,075 | 16,747 | +55.7% | [Interim Condensed Consolidated Statement of Changes in Equity](index=8&type=section&id=%E4%B8%AD%E6%9C%9F%E7%AE%80%E6%98%8E%E5%90%88%E5%B9%B6%E6%9D%83%E7%9B%8A%E5%8F%98%E5%8A%A8%E8%A1%A8) During the reporting period, the Group's total equity increased from **RMB 2.940 billion** at the beginning of the year to **RMB 3.080 billion** at period-end, primarily driven by **RMB 135 million** in current profit, with **RMB 103 million** attributable to owners and recognized in retained earnings - As of June 30, 2021, total equity attributable to owners of the Company was **RMB 2.837 billion**, a **4.1% increase** from **RMB 2.725 billion** at the beginning of the year[19](index=19&type=chunk) - Retained earnings, a primary source of equity growth, increased from **RMB 977 million** to **RMB 1.080 billion** due to the injection of current period profit[19](index=19&type=chunk) [Interim Condensed Consolidated Statement of Cash Flows](index=9&type=section&id=%E4%B8%AD%E6%9C%9F%E7%AE%80%E6%98%8E%E5%90%88%E5%B9%B6%E7%8E%B0%E9%87%91%E6%B5%81%E9%87%8F%E8%A1%A8) In H1 2021, the Group's operating cash flow turned positive, generating a net **RMB 78.04 million**, but net cash and cash equivalents decreased by **RMB 9.52 million** at period-end due to net cash outflows from both investing and financing activities Cash Flow Statement Summary (RMB in thousands) | Item | H1 2021 (Unaudited) | H1 2020 (Unaudited) | | :--- | :--- | :--- | | Net Cash Generated From/(Used In) Operating Activities | 78,035 | (1,410) | | Net Cash Used In Investing Activities | (14,333) | (66,244) | | Net Cash Used In Financing Activities | (73,222) | (86,733) | | **Net Decrease in Cash** | **(9,520)** | **(154,387)** | | Cash at Beginning of Period | 263,486 | 324,437 | | Cash at End of Period | 251,469 | 172,147 | Notes to the Interim Condensed Consolidated Financial Statements [Revenue and Segment Information](index=12&type=section&id=6.%20%E6%94%B6%E5%85%A5%E5%8F%8A%E5%88%86%E9%83%A8%E8%B5%84%E6%96%99) The Group operates five segments, with e-cigarette products being the largest revenue source, accounting for **55.5%** of total revenue and growing **13.2%** year-on-year, while food flavors and investment properties also showed strong growth, contrasting with declines in flavor enhancers and daily flavors H1 2021 Segment Revenue (RMB in thousands) | Segment | H1 2021 Revenue | % of Total Revenue | H1 2020 Revenue | Year-on-Year Change | | :--- | :--- | :--- | :--- | :--- | | Flavor Enhancers | 300,289 | 27.8% | 330,161 | -9.1% | | Food Flavors | 91,088 | 8.4% | 70,499 | +29.2% | | Daily Flavors | 65,660 | 6.1% | 73,325 | -10.4% | | E-cigarette Products | 600,583 | 55.5% | 530,628 | +13.2% | | Investment Properties | 24,205 | 2.2% | 16,690 | +45.0% | | **Total** | **1,081,825** | **100.0%** | **1,021,303** | **+5.9%** | H1 2021 Segment Operating Profit/(Loss) (RMB in thousands) | Segment | H1 2021 Operating Profit/(Loss) | H1 2020 Operating Profit/(Loss) | | :--- | :--- | :--- | | Flavor Enhancers | 109,620 | 126,352 | | Food Flavors | 24,880 | 22,719 | | Daily Flavors | 6,172 | 6,960 | | E-cigarette Products | 71,961 | 20,822 | | Investment Properties | 4,157 | 4,126 | | Unallocated | (19,074) | (13,344) | | **Total** | **197,716** | **167,635** | [Notes to Financial Position (Assets and Liabilities)](index=14&type=section&id=%E8%B4%A2%E5%8A%A1%E7%8A%B6%E5%86%B5%E9%99%84%E6%B3%A8%20%28%E8%B5%84%E4%BA%A7%E4%B8%8E%E8%B4%9F%E5%80%BA%29) As of June 30, 2021, the Group's total borrowings slightly decreased to **RMB 1.379 billion**, while net trade receivables significantly increased from **RMB 398 million** to **RMB 738 million**, and trade payables rose from **RMB 256 million** to **RMB 640 million**, reflecting business expansion and changes in working capital needs - Gross trade receivables increased from **RMB 446 million** to **RMB 811 million**, an **81.8% increase**[43](index=43&type=chunk) Borrowings (RMB in thousands) | Item | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Non-current Borrowings | 767,792 | 890,543 | | Current Borrowings | 611,189 | 557,988 | | **Total Borrowings** | **1,378,981** | **1,448,531** | [Notes to Statement of Profit or Loss Items](index=19&type=section&id=%E5%88%A9%E6%B6%A6%E8%A1%A8%E9%A1%B9%E7%9B%AE%E9%99%84%E6%B3%A8) During the reporting period, the Group's revenue primarily derived from goods sales (**RMB 1.058 billion**) and rental income (**RMB 24.21 million**), with basic earnings per share significantly increasing to **RMB 0.10** from **RMB 0.07** in the prior period, and key subsidiaries benefiting from a **15%** preferential tax rate as high-tech enterprises - Key subsidiaries, including Shenzhen Boton, Dongguan Boton, and Jisheng Technology, are recognized as high-tech enterprises, enjoying a **15%** preferential corporate income tax rate[56](index=56&type=chunk) Earnings Per Share Calculation | Item | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Profit Attributable to Owners of the Company (RMB in thousands) | 103,245 | 64,578 | | Weighted Average Number of Ordinary Shares in Issue (thousands) | 1,080,512 | 897,287 | | **Basic Earnings Per Share (RMB)** | **0.10** | **0.07** | [Dividends, Commitments and Contingent Liabilities](index=23&type=section&id=18.%20%E8%82%A1%E5%88%A9) The Board does not recommend an interim dividend for the six months ended June 30, 2021, and at period-end, the Group had capital commitments of **RMB 38.85 million**, primarily for property, plant, and equipment, with no significant contingent liabilities - The Board does not recommend an interim dividend for 2021, consistent with the policy for the same period in 2020[63](index=63&type=chunk) - As of June 30, 2021, the Group's contracted but unprovided capital commitments amounted to approximately **RMB 38.85 million**[65](index=65&type=chunk) Management Discussion and Analysis [Business Review and Segment Performance](index=24&type=section&id=%E4%B8%9A%E5%8A%A1%E5%9B%9E%E9%A1%BE%E4%B8%8E%E5%88%86%E9%83%A8%E8%A1%A8%E7%8E%B0) In H1 2021, despite macroeconomic uncertainties, the Group's total revenue grew **5.9%** to **RMB 1.082 billion**, with net profit surging **65.4%** to **RMB 135 million**, primarily driven by a **13.2%** revenue increase in e-cigarette products, benefiting from the rapid expansion of its own brand 'MEIQ' in the Chinese market H1 2021 Performance Summary | Indicator | H1 2021 | H1 2020 | Year-on-Year Change | | :--- | :--- | :--- | :--- | | Total Revenue (RMB billion) | 1.082 | 1.021 | +5.9% | | Gross Profit (RMB billion) | 0.429 | 0.380 | +13.0% | | Net Profit (RMB billion) | 0.135 | 0.081 | +65.4% | - E-cigarette product revenue increased by **13.2%**, primarily due to newly established domestic subsidiaries distributing the own-brand 'MEIQ' to over **30** major Chinese cities through approximately **6,000** sales channels and franchised stores[75](index=75&type=chunk) - The flavor enhancers segment experienced a **9.1%** revenue decrease due to internal strategic reforms and restructuring, while the daily flavors segment saw a **10.4%** revenue decline due to sluggish market demand and affected customer export businesses[72](index=72&type=chunk)[74](index=74&type=chunk) [Costs, Expenses and Profitability](index=26&type=section&id=%E6%88%90%E6%9C%AC%E3%80%81%E5%BC%80%E6%94%AF%E4%B8%8E%E7%9B%88%E5%88%A9%E8%83%BD%E5%8A%9B) The Group's profitability significantly improved, with gross profit up **13.0%** and net profit margin increasing from **8.0%** to **12.4%**; sales and marketing expenses decreased **10.8%**, while administrative expenses rose **7.3%** due to increased R&D, and net finance costs sharply declined **55.7%**, contributing significantly to profit growth - Net profit margin improved from **8.0%** in the prior period to **12.4%** in the reporting period[78](index=78&type=chunk) - Sales and marketing expenses decreased by **10.8%**, primarily due to reduced advertising costs, operating lease expenses, and agency fees[81](index=81&type=chunk) - Net finance costs decreased from **RMB 55.8 million** to **RMB 24.7 million**, mainly attributable to reduced interest expenses on certain loans[83](index=83&type=chunk) [Outlook and Strategies](index=27&type=section&id=%E5%89%8D%E6%99%AF%E4%B8%8E%E6%88%98%E7%95%A5) Looking ahead, the Group plans to expand core business capacity by establishing a large e-cigarette production base in Jiangxi and a new technology park in Xiantao City, Hubei for flavor enhancers, while also strengthening internal management, team building, and cost control to enhance overall competitiveness - Plans are underway to expand the production capacity of the e-cigarette products segment by establishing a large manufacturing base in Jiangxi[84](index=84&type=chunk) - A new technology park, spanning over **130,000 square meters**, will be established in Xiantao City, Hubei, to increase the production capacity of the flavor enhancers segment[84](index=84&type=chunk) - Emphasis is placed on strengthening internal management, including building efficient teams, enhancing management capabilities, promoting innovative concepts, and implementing strict cost controls[85](index=85&type=chunk) [Financial Position, Liquidity and Capital Management](index=28&type=section&id=%E8%B4%A2%E5%8A%A1%E7%8A%B6%E5%86%B5%E3%80%81%E6%B5%81%E5%8A%A8%E6%80%A7%E4%B8%8E%E8%B5%84%E6%9C%AC%E7%AE%A1%E7%90%86) The Group maintains a sound financial position, with net current assets increasing to **RMB 108 million** and a current ratio of **1.1** as of June 30, 2021; the gearing ratio (total borrowings/total equity) improved from **49.3%** to **44.8%**, indicating optimized financial leverage, and the Group remains confident in its funding sources Key Financial Ratios | Indicator | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Net Current Assets (RMB million) | 108 | 64 | | Current Ratio | 1.1 | 1.0 | | Gearing Ratio | 44.8% | 49.3% | - The Group's transactions are predominantly denominated in RMB, with close monitoring of RMB to USD exchange rate risk, and bank borrowings carry floating interest rates, exposing the Group to interest rate risk[90](index=90&type=chunk) [Other Operating Information](index=30&type=section&id=%E5%85%B6%E4%BB%96%E8%BF%90%E8%90%A5%E4%BF%A1%E6%81%AF) As of June 30, 2021, the Group employed **1,267** staff members, and a legal proceeding initiated in August 2020 against the vendor of an acquisition (Kimree, Inc.) for breach of non-compete undertakings remains ongoing - As of June 30, 2021, the Group had **1,267** employees across China, Hong Kong, and South Korea[95](index=95&type=chunk) - The Company is currently engaged in legal proceedings against the vendor of a 2016 acquisition for breaching non-compete undertakings stipulated in the share transfer agreement, with the litigation ongoing[98](index=98&type=chunk)[99](index=99&type=chunk) Other Information [Directors', Chief Executive's and Major Shareholders' Interests](index=31&type=section&id=%E8%91%A3%E4%BA%8B%E3%80%81%E6%9C%80%E9%AB%98%E8%A1%8C%E6%94%BF%E4%BA%BA%E5%91%98%E5%8F%8A%E4%B8%BB%E8%A6%81%E8%82%A1%E4%B8%9C%E6%9D%83%E7%9B%8A) As of June 30, 2021, Mr. Wang Mingfan, the Company's Chairman and CEO, held approximately **67.51%** of the total share capital, making him the controlling shareholder, with interests encompassing personal, family, and controlled corporate holdings Mr. Wang Mingfan's Shareholding | Interest Type | Number of Shares | Percentage of Total Share Capital | | :--- | :--- | :--- | | Personal Interest | 336,555,052 | - | | Family Interest | 25,262,431 | - | | Corporate Interest | 367,638,743 | - | | **Total** | **729,456,226** | **67.51%** | [Corporate Governance and Committees](index=34&type=section&id=%E5%85%AC%E5%8F%B8%E6%B2%BB%E7%90%86%E4%B8%8E%E5%A7%94%E5%91%98%E4%BC%9A) The Company has established an Audit Committee for financial reporting review, a Remuneration Committee for compensation, and a Nomination Committee for director nominations, all chaired by independent non-executive directors; while largely compliant with corporate governance codes, the roles of Chairman and CEO are not separated, both held by Mr. Wang Mingfan, a structure the Board deems suitable for the Company's development - The Audit Committee, Remuneration Committee, and Nomination Committee have all been established and are led by independent non-executive directors[115](index=115&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk) - The Company does not comply with the corporate governance code provision requiring separation of the Chairman and Chief Executive roles, with Mr. Wang Mingfan holding both positions, a structure the Board believes provides strong and consistent leadership[118](index=118&type=chunk)

[Chairman's Statement](index=3&type=section&id=Chairman's%20Statement) The Chairman's Statement reviews the challenging 2020 operating environment, noting the Group's performance growth in flavors, fragrances, and e-vapor despite the global economic recession caused by COVID-19, expressing cautious optimism for future recovery and commitment to sustainability, innovation, and shareholder value - Amidst the 2020 global public health crisis and economic recession, the Group's business maintained growth[7](index=7&type=chunk)[8](index=8&type=chunk) - Looking ahead to 2021, the Group anticipates **4% global economic growth**, focusing on long-term goals like green economy and carbon reduction, while developing innovative flavors, fragrances, and e-vapor products to reward shareholders[9](index=9&type=chunk) Key Performance Indicators for 2020 | Metric | Amount (RMB) | Year-on-Year Growth | | :--- | :--- | :--- | | Annual Revenue | RMB 1.8529 billion | +12.9% | | Net Profit | RMB 173.2 million | +5.9% | [Management Discussion and Analysis](index=5&type=section&id=Management%20Discussion%20and%20Analysis) [Business Overview and Core Competencies](index=5&type=section&id=Business%20Overview%20and%20Core%20Competencies) The Group primarily engages in R&D, production, and sales of flavors and fragrances, alongside design and manufacturing of high-quality e-vapor products. In 2020, total revenue grew by 12.9% despite pandemic challenges, supported by a leading domestic full-chain R&D and production base, multiple proprietary e-vapor brands, and over 5,700 patents, ensuring a solid market position - The Group's core business spans two major segments: flavors and fragrances, and e-vapor, with products applied across tobacco, food, and daily chemical industries[13](index=13&type=chunk) - The Group operates nearly **250,000 square meters** of e-vapor production bases in Huizhou and Jiangxi, holding multiple international quality system certifications, with its "HUOQI" brand ranking **second in China** and "BUBBLE" **first in South Korea**[18](index=18&type=chunk)[19](index=19&type=chunk)[21](index=21&type=chunk) Overall Performance Overview for 2020 | Metric | 2020 (RMB) | 2019 (RMB) | Year-on-Year Change | | :--- | :--- | :--- | :--- | | Total Revenue | RMB 1.8529 billion | RMB 1.6413 billion | +12.9% | | Gross Profit | RMB 774.3 million | RMB 763.7 million | +1.4% | | Net Profit | RMB 173.2 million | RMB 163.5 million | +5.9% | [Segment Revenue Analysis](index=9&type=section&id=Segment%20Revenue%20Analysis) Total revenue grew by 12.9% to RMB 1.853 billion in 2020, primarily driven by the flavor enhancers segment. Flavor enhancers and e-vapor products were the two largest revenue sources, collectively accounting for 82.0% of total revenue, with all segments achieving growth, most notably daily flavors and flavor enhancers Revenue Breakdown by Business Segment (Year Ended December 31) | Business Segment | 2020 Revenue (RMB Million) | % of Total Revenue | 2019 Revenue (RMB Million) | % of Total Revenue | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Flavor Enhancers | 718.2 | 38.8% | 602.2 | 36.7% | +19.3% | | Food Flavors | 145.6 | 7.9% | 136.3 | 8.3% | +6.8% | | Daily Flavors | 153.4 | 8.3% | 132.4 | 8.1% | +15.9% | | E-vapor Products | 800.9 | 43.2% | 739.3 | 45.0% | +8.3% | | Investment Properties | 34.8 | 1.8% | 31.1 | 1.9% | +11.9% | | **Total** | **1,852.9** | **100.0%** | **1,641.3** | **100.0%** | **+12.9%** | - Revenue from the flavor enhancers segment increased by **19.3%**, primarily due to stable sales growth from existing customers in the tobacco industry[27](index=27&type=chunk) - Revenue from the daily flavors segment increased by **15.9%**, mainly driven by increased demand for cleaning and personal hygiene-related fragrance products due to the pandemic[29](index=29&type=chunk) - Revenue from the e-vapor products segment increased by **8.3%**, benefiting from an expanded international distribution network and trade business growth in the Korean market[30](index=30&type=chunk) [Gross Profit and Expense Analysis](index=10&type=section&id=Gross%20Profit%20and%20Expense%20Analysis) Gross profit slightly increased by 1.4% to RMB 774 million in 2020, but gross margin decreased from 46.5% to 41.8% primarily due to rising raw material costs. Sales and marketing expenses decreased by 9.0% due to lower commissions and transportation costs, while administrative expenses rose by 6.7% from increased R&D and office expenditures, and net finance costs declined due to reduced borrowings and interest expenses - Gross margin decreased from **46.5% in 2019 to 41.8% in 2020**, primarily due to increased raw material costs in a challenging economic environment[33](index=33&type=chunk) - Sales and marketing expenses decreased by **9.0% year-on-year**, with their proportion of revenue falling from **8.7% to 7.0%**[34](index=34&type=chunk) - Administrative expenses increased by **6.7% year-on-year**, mainly due to higher R&D and office expenditures[35](index=35&type=chunk) [Financial Position Review](index=11&type=section&id=Financial%20Position%20Review) As of year-end 2020, the Group's financial position remained robust, with net current assets increasing to RMB 63.6 million. Total equity grew to RMB 2.94 billion, and total borrowings decreased to RMB 1.449 billion, reducing the gearing ratio from 54.4% to 49.3%, with manageable foreign exchange risk as most transactions are RMB-denominated within China Key Balance Sheet Indicators (As of December 31) | Metric | 2020 (RMB) | 2019 (RMB) | | :--- | :--- | :--- | | Net Current Assets | RMB 63.6 million | RMB 45.3 million | | Total Equity | RMB 2.9403 billion | RMB 2.7569 billion | | Total Borrowings | RMB 1.4485 billion | RMB 1.5001 billion | | Gearing Ratio (Total Borrowings/Total Equity) | 49.3% | 54.4% | - Capital expenditure was approximately **RMB 167.7 million**, a decrease from **RMB 282.5 million** last year, primarily allocated to fixed asset investments[53](index=53&type=chunk) [Human Resources and Significant Events](index=13&type=section&id=Human%20Resources%20and%20Significant%20Events) As of year-end 2020, the Group's total employee count was 1,212, a decrease from the previous year, mainly due to reduced labor demand in production facilities. During the year, the Group completed a company name change, a connected transaction involving the sale of a 30% equity stake in its subsidiary Dongguan Boton, and initiated legal proceedings against the seller of an acquisition transaction - The Group's employee count decreased from **2,225 to 1,212**, primarily due to reduced labor demand at production facilities in Huizhou and Dongguan, China[57](index=57&type=chunk) - The company's English name changed from "China Flavors and Fragrances Company Limited" to "China Boton Group Company Limited," and its Chinese name from "中國香精香料有限公司" to "中國波頓集團有限公司"[66](index=66&type=chunk) - The Group sold a **30% equity stake** in Dongguan Boton to its management and employees for approximately **RMB 68.85 million**, establishing a five-year profit guarantee requiring an annual growth rate of no less than **10%**[60](index=60&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk) [Directors and Senior Management](index=15&type=section&id=Directors%20and%20Senior%20Management) [Biographies of Directors and Senior Management](index=15&type=section&id=Biographies%20of%20Directors%20and%20Senior%20Management) This section details the personal résumés, professional backgrounds, and industry experience of the company's executive directors, independent non-executive directors, and senior management, highlighting the core management team's extensive experience in flavors, fragrances, e-vapor, finance, and legal fields - Mr. Wang Mingfan, Chairman and CEO, possesses over **thirty years** of enterprise management experience in the flavors and fragrances industry[75](index=75&type=chunk) - Mr. Li Qinglong, Executive Director, has over **thirty years** of R&D and production experience in the flavors and fragrances industry[76](index=76&type=chunk) - Independent Non-Executive Directors possess profound professional backgrounds in legal, accounting, and financial services[79](index=79&type=chunk)[80](index=80&type=chunk)[81](index=81&type=chunk) [Corporate Governance Report](index=18&type=section&id=Corporate%20Governance%20Report) [Corporate Governance Practices and the Board](index=18&type=section&id=Corporate%20Governance%20Practices%20and%20the%20Board) The company is committed to maintaining high corporate governance standards, adhering to most Code provisions during the reporting period, with the sole deviation being the combined roles of Chairman and CEO held by Mr. Wang Mingfan, which the Board believes provides strong leadership. The Board comprises three executive and three independent non-executive directors, ensuring a balanced structure, and regularly convenes to fulfill its oversight and decision-making responsibilities - During the reporting period, the company complied with the Corporate Governance Code in Appendix 14 of the Listing Rules, with the only deviation being the combined roles of Chairman and CEO, both held by Mr. Wang Mingfan[88](index=88&type=chunk)[106](index=106&type=chunk) - The Board comprises **6 members**, including **3 executive directors and 3 independent non-executive directors**, meeting the Listing Rules' requirement for at least one-third independent non-executive directors[90](index=90&type=chunk)[102](index=102&type=chunk) - A total of **five Board meetings** were held during the year, with all directors attending in full[94](index=94&type=chunk) [Board Committees and Risk Management](index=22&type=section&id=Board%20Committees%20and%20Risk%20Management) The Board has three specialized committees: Remuneration, Nomination, and Audit, all chaired by independent non-executive directors to ensure independence and effectiveness. Each committee met during the reporting period, fulfilling responsibilities in remuneration review, director nomination, financial oversight, and risk management. The company has established risk management and internal control systems, annually reviewed by internal auditors, which the Board deems effective and adequate - The Remuneration Committee, Nomination Committee, and Audit Committee are all majority-comprised of independent non-executive directors, who also serve as chairmen[109](index=109&type=chunk)[114](index=114&type=chunk)[116](index=116&type=chunk) - The Audit Committee, composed of **three independent non-executive directors**, held **three meetings** during the year, reviewing financial reports and internal control systems, and making recommendations to the Board regarding the appointment of external auditors[116](index=116&type=chunk)[117](index=117&type=chunk) - The Board engaged a professional accounting firm as internal auditor to conduct an annual review of the company's risk management and internal control systems, which were deemed effective and adequate[121](index=121&type=chunk) [Shareholder Rights and Communication](index=26&type=section&id=Shareholder%20Rights%20and%20Communication) The company outlines procedures for shareholders to convene extraordinary general meetings, make inquiries, and submit proposals to the Board, safeguarding shareholder rights. Emphasizing investor communication, the company ensures timely and fair information disclosure through announcements, financial reports, and general meetings - Shareholders holding not less than **one-tenth of the company's paid-up capital** have the right to request the Board to convene an extraordinary general meeting[124](index=124&type=chunk) - The company encourages shareholders to submit inquiries to the Board or propose suggestions at general meetings by written correspondence mailed to the Hong Kong head office[125](index=125&type=chunk)[126](index=126&type=chunk) [Directors' Report](index=26&type=section&id=Directors'%20Report) [Business Review, Results and Dividends](index=26&type=section&id=Business%20Review%2C%20Results%20and%20Dividends) This report outlines the Group's principal business as an investment holding company, with subsidiaries engaged in flavors, fragrances, and e-vapor. Group results for the reporting period are presented in the consolidated income statement. Based on the company's dividend policy, and considering financial performance, capital requirements, and future expansion plans, the Board decided not to recommend any dividend for the year ended December 31, 2020 - The Board does not recommend the payment of any dividend for the year ended December 31, 2020[136](index=136&type=chunk) - The company's dividend policy stipulates that dividend declarations are determined by the Board based on multiple factors, including financial performance, capital requirements, and future expansion plans[137](index=137&type=chunk)[138](index=138&type=chunk) [Share Capital, Directors and Shareholder Interests](index=28&type=section&id=Share%20Capital%2C%20Directors%20and%20Shareholder%20Interests) During the reporting period, the total number of issued ordinary shares increased to 1,080,512,146 due to the full conversion of perpetual subordinated convertible securities. The report details shareholdings of directors and major shareholders, with Chairman Mr. Wang Mingfan as the controlling shareholder, holding approximately 65.66% of equity interests, and also outlines all directors' service contracts and emoluments - Due to the full conversion of perpetual subordinated convertible securities with a principal amount of **HK$552.7 million**, the company issued **184,237,332 new ordinary shares**[140](index=140&type=chunk) Major Directors' Shareholdings (As of December 31, 2020) | Director Name | Nature of Interest | Total Shares | % of Total Issued Shares | | :--- | :--- | :--- | :--- | | Mr. Wang Mingfan | Personal, Family & Corporate Interest | 709,456,226 | 65.66% | | Mr. Yang Yingchun | Personal Interest | 2,000,000 | 0.19% | [Connected Transactions and Other Matters](index=32&type=section&id=Connected%20Transactions%20and%20Other%20Matters) During the reporting period, the Group undertook a discloseable connected transaction involving the sale of a 30% equity stake in its subsidiary Dongguan Boton to its management and connected persons, aimed at facilitating its proposed A-share listing. The report also disclosed customer and supplier concentration, with the top five customers accounting for 35.3% of total revenue and top five suppliers for 30.4% of total purchases, indicating certain dependency risks. The company confirmed maintaining sufficient public float - The Group sold a **30% equity stake** in Dongguan Boton to its management and employees for approximately **RMB 68.85 million**, constituting a connected transaction under the Listing Rules[170](index=170&type=chunk)[172](index=172&type=chunk) - The **top five customers accounted for 35.3% of total revenue**, with the largest customer at **11.9%**; the **top five suppliers accounted for 30.4% of total purchases**, with the largest supplier at **6.7%**[183](index=183&type=chunk) - During the year, neither the company nor any of its subsidiaries purchased, redeemed, or sold any of the company's listed securities[178](index=178&type=chunk) [Independent Auditor's Report](index=36&type=section&id=Independent%20Auditor's%20Report) [Independent Auditor's Report](index=36&type=section&id=Independent%20Auditor's%20Report) PricewaterhouseCoopers issued an unmodified opinion on the Group's consolidated financial statements for the year ended December 31, 2020, affirming that the statements present a true and fair view of the Group's financial position, performance, and cash flows, prepared in accordance with relevant accounting standards and the Companies Ordinance. The report highlighted two key audit matters: goodwill impairment assessment and fair value assessment of investment properties - The auditor concluded that the consolidated financial statements present a true and fair view of the Group's financial position in accordance with Hong Kong Financial Reporting Standards, issuing an **unmodified opinion**[192](index=192&type=chunk) - Key Audit Matter One: Goodwill impairment assessment, involving impairment testing of approximately **RMB 1.626 billion** in goodwill, primarily from acquisitions of Kimree, Inc. and four tobacco businesses, where the auditor reviewed management's key assumptions including cash flow forecasts, discount rates, and growth rates[198](index=198&type=chunk) - Key Audit Matter Two: Fair value assessment of investment properties, involving the fair value assessment of approximately **RMB 554 million** in investment properties, where the auditor evaluated the valuation methods and key assumptions used by external valuers, such as market rent, capitalization rates, and reversionary yields[198](index=198&type=chunk)[201](index=201&type=chunk) [Consolidated Financial Statements](index=41&type=section&id=Consolidated%20Financial%20Statements) [Summary of Consolidated Financial Statements](index=41&type=section&id=Summary%20of%20Consolidated%20Financial%20Statements) This section presents the Group's core financial statements for 2020, including the balance sheet, income statement, statement of comprehensive income, statement of changes in equity, and cash flow statement. Financial data indicates stable total asset size, increased total equity, slightly decreased debt levels, and positive cash flow from operating activities Key Financial Data for 2020 (Consolidated Statements) | Metric | 2020 (RMB Thousand) | 2019 (RMB Thousand) | | :--- | :--- | :--- | | **Income Statement:** | | | | Revenue | 1,852,933 | 1,641,338 | | Operating Profit | 316,402 | 298,626 | | Profit for the Year | 173,205 | 163,533 | | **Balance Sheet (Period-end):** | | | | Total Assets | 5,489,194 | 5,459,003 | | Total Liabilities | 2,548,858 | 2,702,137 | | Total Equity | 2,940,336 | 2,756,866 | | **Cash Flow Statement:** | | | | Net Cash Generated from Operating Activities | 145,741 | 323,274 | | Net Cash Used in Investing Activities | (166,608) | (300,897) | | Net Cash Used in Financing Activities | (42,604) | (4,443) | [Notes to the Financial Statements](index=48&type=section&id=Notes%20to%20the%20Financial%20Statements) [Notes to the Financial Statements](index=48&type=section&id=Notes%20to%20the%20Financial%20Statements) This section provides detailed explanations and supplementary information for the consolidated financial statements, including principal accounting policies, critical accounting estimates and judgments, financial risk management, segment information, and detailed analysis of each statement item. The notes are crucial for understanding the Group's financial position, operating results, and cash flows - Segment information (Note 5) indicates that flavor enhancers and e-vapor products are the Group's primary sources of revenue and profit[387](index=387&type=chunk)[390](index=390&type=chunk) - Within intangible assets (Note 9), goodwill has a carrying amount of approximately **RMB 1.626 billion**, primarily from acquisitions of Kimree and four tobacco businesses, which management has tested for impairment with no impairment found[419](index=419&type=chunk)[422](index=422&type=chunk)[428](index=428&type=chunk) - Total borrowings (Note 23) amounted to **RMB 1.449 billion**, with approximately **RMB 891 million** being non-current borrowings, mostly secured by collateral including subsidiary equity, properties, and land use rights[511](index=511&type=chunk)[515](index=515&type=chunk) - Related party transactions (Note 34) disclose that the Group's ultimate controlling company is Chuanghua Limited and detail key management personnel's emoluments[558](index=558&type=chunk)[560](index=560&type=chunk) [Five-Year Financial Summary](index=111&type=section&id=Five-Year%20Financial%20Summary) [Five-Year Financial Summary](index=111&type=section&id=Five-Year%20Financial%20Summary) This section provides a summary of the Group's key financial data for five consecutive fiscal years from 2016 to 2020, illustrating historical trends in core metrics such as revenue, profit, assets, liabilities, and equity. The data indicates a continuous growth trend in the Group's revenue and asset size over the past five years Five-Year Financial Data Summary (RMB Thousand) | Metric | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | 1,852,933 | 1,641,338 | 1,146,419 | 1,089,202 | 963,459 | | Gross Profit | 774,311 | 763,672 | 588,206 | 617,563 | 496,334 | | Profit Attributable to Owners of the Company | 116,622 | 119,434 | 127,465 | 130,108 | 92,051 | | Total Assets | 5,489,194 | 5,459,003 | 5,006,914 | 4,578,377 | 4,351,142 | | Total Liabilities | 2,548,858 | 2,702,137 | 2,355,188 | 2,077,075 | 2,077,254 | [Details of Investment Properties](index=112&type=section&id=Details%20of%20Investment%20Properties) [Details of Investment Properties](index=112&type=section&id=Details%20of%20Investment%20Properties) This section lists the Group's investment properties, detailing each property's geographical location and current use. These properties are primarily located in Shenzhen, Guangdong Province, China, and are used for office or industrial purposes - The Group's investment properties are primarily located in Nanshan District and Futian District, Shenzhen, Guangdong Province, China, including parts of Boton Technology Park and United Plaza, currently used for office and industrial purposes[582](index=582&type=chunk)

Financial Performance - Revenue for the six months ended June 30, 2020, was RMB 1,021,303 thousand, a significant increase of 66.5% compared to RMB 613,405 thousand in 2019[12] - Gross profit for the same period was RMB 380,216 thousand, up from RMB 306,383 thousand, reflecting a gross margin improvement[12] - Operating profit increased to RMB 167,635 thousand from RMB 137,390 thousand, indicating a growth of 22.0% year-over-year[12] - Net profit attributable to the owners of the company was RMB 64,578 thousand, compared to RMB 69,347 thousand in the previous year, showing a slight decline of 6.0%[12] - The company's profit for the six months ended June 30, 2020, was RMB 81,420 thousand, an increase from RMB 77,721 thousand in 2019, representing a growth of approximately 9.1%[17] - Total comprehensive income for the same period was RMB 76,929 thousand, compared to RMB 74,991 thousand in 2019, reflecting an increase of about 2.6%[17] - The company reported a basic earnings per share of RMB 0.07, compared to RMB 0.08 in the previous year[12] - The net profit for the period was RMB 81,420 thousand, a significant rise from RMB 77,721 thousand in the same period last year, showing a growth of approximately 4.5%[46][51] - The company reported a financial cost net amount of RMB (55,801) thousand, which is a decrease from RMB (49,198) thousand in the previous year, indicating improved financial management[46][51] - The income tax expense for the six months ended June 30, 2020, was RMB 30,414,000, up from RMB 10,990,000 in the same period last year, marking an increase of 176.5%[80] Assets and Liabilities - Total assets as of June 30, 2020, were RMB 5,356,393 thousand, a decrease from RMB 5,459,003 thousand at the end of 2019[6] - Total liabilities decreased to RMB 2,517,558 thousand from RMB 2,702,137 thousand, indicating a reduction of 6.8%[9] - Cash and cash equivalents were RMB 172,147 thousand, down from RMB 324,437 thousand, reflecting a decrease of 46.9%[6] - Inventory increased to RMB 246,014 thousand from RMB 213,925 thousand, representing a rise of 14.9%[6] - The total equity attributable to owners of the company increased to RMB 2,661,727 thousand from RMB 2,601,545 thousand, marking a growth of 2.3%[6] - Total borrowings decreased to RMB 1,394,266,000 as of June 30, 2020, down from RMB 1,500,050,000 as of December 31, 2019, a reduction of approximately 7.1%[67] - Current liabilities totaled RMB 800,603,000, slightly down from RMB 823,143,000 in the previous period, indicating a decrease of about 2.7%[70] Cash Flow - The net cash used in operating activities was RMB (1,410) thousand, a significant decline from RMB 10,263 thousand generated in 2019[24] - Cash flow from investing activities showed a net outflow of RMB (66,244) thousand, compared to RMB (106,323) thousand in the previous year, indicating a reduction in cash outflow by approximately 37.7%[24] - Financing activities resulted in a net cash outflow of RMB (86,733) thousand, contrasting with a net inflow of RMB 304,025 thousand in 2019, highlighting a significant change in financing strategy[24] - The company's cash and cash equivalents at the end of the period were RMB 172,147 thousand, down from RMB 513,875 thousand at the end of June 2019, indicating a decrease of approximately 66.5%[24] Market and Segment Performance - The segment revenue from flavor enhancers was RMB 332,319 thousand, while the revenue from health products was RMB 530,628 thousand, indicating strong performance in these categories[46] - Revenue from flavor enhancers was RMB 330.2 million, up 20.6% from RMB 273.7 million, driven by stable growth in the tobacco market in several provinces in China[103] - Revenue from health products surged to RMB 530.6 million, a significant increase of 164.1% from RMB 200.9 million, primarily due to the extensive sales network of the subsidiary in South Korea[106] - Gross profit for the six months was approximately RMB 380.2 million, representing a 24.1% increase from RMB 306.4 million, with health products contributing 52.0% to total revenue[109] Corporate Governance and Compliance - The audit committee consists of three independent non-executive directors, overseeing the financial reporting and risk management processes[164] - The remuneration committee is responsible for approving the compensation arrangements for senior employees, including salary and bonus plans[165] - The nomination committee reviews the board's structure and diversity, making recommendations for director appointments and succession planning[166] - The company has maintained compliance with the corporate governance code throughout the reporting period, except for the separation of the roles of chairman and CEO[167] - The company emphasizes the importance of corporate governance to enhance transparency and protect the interests of stakeholders[167] - The board of directors has confirmed adherence to the standard code of conduct for securities trading during the reporting period[170] Employee and Operational Changes - The group had 1,571 employees as of June 30, 2020, compared to 1,538 employees in 2019[129] - Employee benefits expenses, excluding research and development costs, were RMB 61,102,000, a decrease from RMB 65,309,000 in the previous year, down by 6.7%[76] Strategic Developments - The company has expanded its market presence in over 20 countries, including the United States and the European Union, since 2016, focusing on e-cigarettes and related products[27] - The company plans to continue focusing on its existing business operations and developing innovative flavor and electronic cigarette products despite the COVID-19 pandemic[118] - The group faced significant economic challenges due to the COVID-19 pandemic but began to see a slight recovery in the second quarter of 2020[98] - The group’s operations gradually resumed, with sales exceeding the same period last year after overcoming the stagnation in the first quarter[98] Legal and Shareholder Matters - The company filed a lawsuit against two sellers regarding a 2016 equity transfer agreement for the acquisition of Kimree, Inc. for RMB 750 million due to breach of non-competition clauses[143] - As of June 30, 2020, the total equity held by Mr. Wang Mingfan, including personal and family interests, amounts to 586,028,375 shares, representing 54.24% of the total issued shares[147] - The company has a 47% equity interest in Dongguan Boton Spice Co., Ltd., with a registered capital of approximately RMB 85 million[151] - The company changed its name from "China Flavors and Fragrances Company Limited" to "China Boton Group Company Limited" effective May 19, 2020[139] - The company's stock abbreviation was changed from "CHINA FLAVORS" to "CHINA BOTON" on June 16, 2020[140] - The company changed its website from "http://www.chinaffl.com" to "http://www.boton.com.hk" effective August 7, 2020, to reflect the name change[141]

Financial Performance - For the year ended December 31, 2019, the company's total revenue was approximately RMB 1,641,300,000, an increase of 43.2% compared to RMB 1,146,400,000 in 2018[22] - The company's net profit for the same period was RMB 163,500,000, reflecting an increase of 11.8% from RMB 146,300,000 in 2018[22] - The gross profit increased to approximately RMB 763,700,000, up 29.8% from RMB 588,200,000 in the previous year[22] - The health products segment saw a significant revenue increase to approximately RMB 739.3 million, up 221.2% from RMB 230.2 million in the previous year, driven by expanded distribution in South Korea and the United States[31] - The gross profit for the year was approximately RMB 763.7 million, a 29.8% increase from RMB 588.2 million in 2018, but the gross margin decreased from 51.3% to 46.5%[36] - The net profit for the year was approximately RMB 163.5 million, an increase of 11.8% from RMB 146.3 million in 2018, with a net profit margin of about 10.0%[46] Revenue Breakdown - The health products and flavor enhancers segments contributed over 81.7% of the total revenue for the company in 2019[22] - The revenue from flavor enhancers was approximately RMB 602.2 million, a slight decrease of 0.07% from RMB 602.6 million in 2018[28] - The revenue from food flavors was approximately RMB 136.3 million, a decrease of 5.6% from RMB 144.4 million in 2018[29] - The revenue from daily-use fragrances was approximately RMB 132.4 million, down 7.3% from RMB 142.9 million in 2018[30] - The investment property segment generated revenue of approximately RMB 31.1 million, an increase of 18.3% from RMB 26.3 million in 2018[32] Business Strategy and Future Plans - The company plans to continue strengthening its five business segments to maintain its leading position in the flavors and fragrances industry[12] - The company is committed to developing more innovative flavor and fragrance products as well as electronic cigarette products[12] - The company aims to enhance shareholder value and return on investment through continuous support and engagement with its stakeholders[12] - The group plans to standardize and institutionalize operations and production units in 2020 to enhance efficiency and R&D capabilities[49] - The group aims to expand its overseas network and maintain market leadership in 2020 despite challenges posed by the COVID-19 pandemic[49] - The company plans to continue developing its electronic cigarette business in China and other countries, as well as researching the feasibility of applying electronic cigarette atomizers in healthcare and medical fields[159] Financial Management and Governance - The management has implemented strict credit control and conservative financial policies to improve cash flow and enhance liquidity ratios[22] - The company has established a strong financial management structure, with a focus on overall financial planning and management[80] - The company has maintained a high level of corporate governance to enhance transparency and protect shareholder interests[95] - The company has adopted policies and procedures to ensure effective corporate governance and continuous improvement[95] - The board of directors as of December 31, 2019, includes three executive directors and three independent non-executive directors[98] - The company has established various board committees to enhance governance practices[95] Shareholder Information - The company reported no dividend distribution for the year ending December 31, 2019, compared to a dividend of HKD 0.034 per share in 2018[161] - As of December 31, 2019, the company's distributable reserves were approximately RMB 415.3 million, a decrease from RMB 442.7 million in 2018[168] - The total number of shares outstanding as of December 31, 2019, was 896,274,814, with a par value of HKD 0.10 per share[163] - Mr. Wang Mingfan holds a total of 498,134,529 shares, representing 55.58% of the company's issued share capital[178] - The major shareholders include Mr. Wang Mingfan with 55.58%, Chuanghua Co., Ltd. with 38.86%, and Full Ashley Enterprises Limited with 2.16%[192] Corporate Changes - The company is proposing a name change to "China Boton Group Limited" to reflect its evolving business strategy[12] - The company announced a name change to "China Boton Group Company Limited" to enhance corporate identity and align with its main operating subsidiaries[74] - The company has been focusing on expanding its brand recognition under the "Boton" name, which has been accumulated over the years[74] Employee and Operational Information - The group employed a total of 2,225 employees as of December 31, 2019, an increase from 1,348 employees in 2018, primarily due to increased labor demand at production facilities in Huizhou and Dongguan[64] - Capital expenditure for fixed assets was approximately RMB 282,500,000 for the year ended December 31, 2019, compared to RMB 231,800,000 in 2018[59] Risk Management - The board is responsible for maintaining an effective risk management and internal control system, with an annual review conducted by an external auditor[142] - The company secretary is responsible for ensuring compliance with board procedures and maintaining relationships with shareholders[143]

Financial Performance - Revenue for the six months ended June 30, 2019, was RMB 613,405 thousand, an increase of 12.5% compared to RMB 545,377 thousand for the same period in 2018[11] - Gross profit for the same period was RMB 306,383 thousand, representing a gross margin of approximately 50%[11] - Operating profit decreased to RMB 137,390 thousand, down 8.1% from RMB 149,501 thousand in the previous year[11] - Net profit attributable to the company's owners was RMB 69,347 thousand, a decrease of 11.7% from RMB 78,667 thousand in the prior year[11] - Total comprehensive income for the same period was 74,991 thousand RMB, down from 79,401 thousand RMB, indicating a decrease of about 5.2%[15] - The company's profit for the six months ended June 30, 2019, was 77,721 thousand RMB, a decrease from 84,454 thousand RMB in the same period of 2018, representing a decline of approximately 8.6%[15] - The company reported a basic earnings per share of RMB 0.08, down from RMB 0.10 in the same period last year[11] - The company's net profit for the six months ended June 30, 2019, was RMB 84,454,000, compared to RMB 62,872,000 for the same period in the previous year, indicating a year-on-year increase[58] - The company's profit attributable to equity holders for the six months ended June 30, 2019, was RMB 69,347,000, a decrease from RMB 78,667,000 in 2018, representing a decline of approximately 11.8%[95] Assets and Liabilities - Total assets as of June 30, 2019, were RMB 5,428,779 thousand, an increase of 8.4% from RMB 5,006,914 thousand as of December 31, 2018[9] - Total liabilities increased to RMB 2,729,462 thousand, up 16% from RMB 2,355,188 thousand at the end of 2018[9] - The total borrowings as of June 30, 2019, amounted to RMB 1,713,775,000, an increase from RMB 1,337,526,000 as of December 31, 2018[78] - Total liabilities as of June 30, 2019, amounted to RMB 703,389 thousand, with current liabilities at RMB 418,685 thousand[12] - The total value of prepayments increased to RMB 171,137,000 as of June 30, 2019, compared to RMB 89,867,000 as of December 31, 2018[74] Cash Flow - The net cash generated from operating activities was 10,263 thousand RMB, significantly lower than 62,356 thousand RMB in the previous year, reflecting a decline of approximately 83.5%[23] - The net cash used in investing activities was 106,323 thousand RMB, compared to 92,126 thousand RMB in the prior year, showing an increase of about 15.4%[23] - Financing activities generated a net cash inflow of 304,025 thousand RMB, up from 133,335 thousand RMB, representing an increase of approximately 128.3%[23] - The company's cash and cash equivalents at the end of the period were 513,875 thousand RMB, an increase from 281,585 thousand RMB, indicating a growth of about 82.3%[23] Market Expansion and Strategy - The company plans to continue expanding its market presence and invest in new product development to drive future growth[11] - The company has expanded its market presence into over 20 countries, including the United States and the European Union, since 2016, focusing on e-cigarettes and related products[26] - The company plans to continue investing in new product development and market expansion strategies to enhance its competitive position in the industry[26] - The company plans to enhance its research and development capabilities in the fragrance and electronic cigarette markets to maintain its competitive edge[103] Accounting and Financial Standards - The adoption of Hong Kong Financial Reporting Standard 16 resulted in an increase in right-of-use assets by RMB 30,246,000[39] - The total assets increased by RMB 29,374,000 as of June 30, 2019, due to accounting policy changes[43] - The total liabilities increased by RMB 30,238,000 as of June 30, 2019, reflecting the recognition of lease liabilities[43] - The pre-tax profit for the six months ended June 30, 2019, decreased by RMB 865,000 due to the accounting policy change[43] - Earnings per share decreased by 0.098 cents as a result of the adoption of the new accounting standard[41] - The group recognized lease liabilities amounting to RMB 30,246,000 as of January 1, 2019, with current lease liabilities at RMB 5,007,000 and non-current lease liabilities at RMB 25,239,000[35] - The group opted not to reassess contracts at the date of initial application to determine if they contain leases[42] - The group utilized a simplified transition approach for the adoption of the new standard, measuring right-of-use assets at the amount of lease liabilities[33] - The accounting policy changes did not require restatement of comparative figures for the fiscal year 2018[33] Segment Performance - For the six months ended June 30, 2019, the total revenue from external customers was RMB 545,377,000, with the breakdown as follows: RMB 288,401,000 from flavor enhancers, RMB 69,079,000 from food flavors, RMB 57,173,000 from daily fragrances, RMB 108,692,000 from health products, and RMB 22,032,000 from investment properties[56] - The operating profit for the same period was RMB 149,501,000, with the contributions from each segment being RMB 91,310,000 from flavor enhancers, RMB 19,354,000 from food flavors, RMB 6,308,000 from daily fragrances, RMB 18,504,000 from health products, and RMB 25,932,000 from investment properties[58] - The operating revenue from health products surged to approximately RMB 200,900,000, a significant increase of 84.8% compared to RMB 108,700,000 in the previous year[109] - The revenue from flavor enhancers was approximately RMB 273,700,000, a decrease of 5.1% from RMB 288,400,000 in the same period last year[106] - The revenue from food flavors decreased to approximately RMB 63,700,000, down 7.8% from RMB 69,100,000 in 2018 due to delayed orders[107] - The revenue from daily-use fragrances was approximately RMB 60,700,000, an increase of 6.1% from RMB 57,200,000 in the previous year[108] - The revenue from investment properties decreased significantly by 34.5% to approximately RMB 14,400,000 from RMB 22,000,000 in 2018 due to the termination of a lease contract[110] Governance and Management - The company emphasizes the importance of corporate governance to enhance transparency and protect the interests of shareholders, customers, employees, and other stakeholders[150] - The board believes that the current structure, where the CEO also serves as the chairman, provides strong and continuous leadership for long-term business planning and strategy execution[151] - All directors confirmed compliance with the standard code of conduct for securities trading throughout the six-month period ending June 30, 2019[151] - The audit committee consists of three independent non-executive directors and has reviewed the group's unaudited interim consolidated financial statements for the six months ending June 30, 2019[146] - The remuneration committee is responsible for considering and approving the compensation arrangements for senior employees, including salary and bonus plans[147] - The nomination committee reviews the board's structure and diversity, making recommendations for director appointments[148]

Financial Performance - For the year ended December 31, 2018, the company's total revenue was approximately RMB 1,146,400,000, representing a slight increase of 5.3% compared to the previous year[12]. - The net profit for the same period was RMB 146,300,000, reflecting a moderate decrease of 6.3% year-on-year[12]. - The gross profit decreased to approximately RMB 588,200,000, down 4.8% from RMB 617,600,000 in 2017, with a gross margin decline from 56.7% in 2017 to 51.3% in 2018[29]. - The health products segment saw significant revenue growth, reaching approximately RMB 230,200,000, a substantial increase of 15.3% from RMB 199,700,000 in 2017, driven by the launch of several new products[27]. - The flavor enhancer segment generated revenue of approximately RMB 602,600,000, a slight increase of 2.8% from RMB 586,400,000 in 2017, maintaining its leading revenue position within the company[24]. - The net profit for the year was approximately RMB 146,300,000, a moderate decrease of 6.3% from RMB 156,100,000 in 2017, with a net profit margin decreasing to about 12.8% from 14.3%[37]. - Other income for the year was approximately RMB 12,900,000, a decrease from RMB 26,300,000 in 2017, primarily due to reduced government subsidies received by certain subsidiaries[33]. - As of December 31, 2018, the group's net current assets amounted to approximately RMB 74.9 million, an increase from RMB 59.9 million in 2017[39]. - Cash and bank deposits increased to RMB 306.1 million as of December 31, 2018, compared to RMB 175.6 million in 2017, primarily due to cash generated from operating activities and new borrowings[39]. - Total equity as of December 31, 2018, was approximately RMB 2.65 billion, up from RMB 2.50 billion in 2017, mainly due to an increase in share premium and other reserves[41]. - The total borrowings amounted to approximately RMB 1.34 billion as of December 31, 2018, with a debt-to-equity ratio of 50.4%, up from 47.3% in 2017[41]. - The group recorded a net exchange loss of approximately RMB 2.8 million in 2018, a decrease from RMB 14.4 million in 2017[48]. - Capital expenditures for fixed assets were approximately RMB 231.8 million in 2018, compared to RMB 199 million in 2017[49]. Business Strategy and Market Position - The company aims to strengthen its existing business, expand market share, and enhance R&D capabilities to maintain its leading position in the flavors and fragrances industry[12]. - The company plans to develop more innovative products, including electronic cigarette products, to adapt to the rapidly changing market[13]. - The company continues to improve product quality and create more innovative products in response to the slowing Chinese economy and trade tensions[18]. - The company is one of the major producers of flavors and fragrances in China, serving various industries including tobacco, beverages, and cosmetics[17]. - The company signed a framework agreement for cooperation in the development and utilization of natural flavor and fragrance resources on April 13, 2018[12]. - The company is considering a spin-off of Dongguan Boton Flavor Co., Ltd. for independent listing on the Shenzhen Stock Exchange, focusing on food and daily-use fragrance businesses[59]. - The proposed spin-off is currently in the feasibility study stage, with the Hong Kong Stock Exchange having granted conditional exemptions for the process[61]. Corporate Governance - The company emphasizes the importance of corporate governance to enhance transparency and protect shareholder interests[78]. - The company has adhered to all provisions of the corporate governance code as of December 31, 2018, except for specific deviations[79]. - The company has adopted the standard code for securities trading by directors, confirming compliance throughout the review year[80]. - The board of directors held four meetings during the fiscal year ending December 31, 2018, with an attendance rate of 100% for most executive directors[84]. - The company emphasizes the importance of board diversity and will review its composition at least once a year to enhance decision-making efficiency[83]. - Independent non-executive directors are required to submit annual confirmations of their independence, ensuring compliance with listing rules[94]. - The board is responsible for overseeing the management and strategic direction of the group, including financial policy formulation and investment approvals[87]. - The company has established clear guidelines for management's authority, requiring board approval for significant transactions and conflicts of interest[88]. - The company has established a remuneration committee responsible for recommending the remuneration policy for all directors and senior management, ensuring transparency and alignment with corporate objectives[101]. - The nomination committee is tasked with reviewing the board's structure and diversity at least once a year, ensuring alignment with the company's strategic goals[107]. - The audit committee is responsible for reviewing the company's financial reporting system and internal controls, meeting at least twice a year to discuss audit work and financial policies[110]. - The company paid RMB 6,100,000 for audit services to the independent auditor during the review year[113]. - The chairman and CEO roles are held by the same individual, which the board believes provides strong and consistent leadership for long-term business planning[98]. - The board has three committees: remuneration, nomination, and audit, each with defined roles and responsibilities[100]. - The company will continue to assess the effectiveness of its corporate governance structure, including the potential separation of the chairman and CEO roles[99]. - The audit committee has recommended the reappointment of the external auditor, ensuring compliance with financial regulations[111]. Shareholder Engagement - The company ensures effective communication with shareholders through announcements and news releases on the Hong Kong Stock Exchange, enhancing transparency[123]. - The company allows shareholders to propose suggestions at the annual general meeting, promoting shareholder engagement and participation[121]. - The annual general meeting is scheduled to be held on May 10, 2019, providing an opportunity for shareholders to discuss company matters[124]. - The company will issue a circular detailing the scrip dividend plan to shareholders on or around May 23, 2019[132]. - As of December 31, 2018, the company's distributable reserves amounted to RMB 442,700,000, an increase from RMB 370,400,000 in 2017[138]. Environmental and Social Responsibility - The company has implemented environmental policies that comply with national and regional regulations, focusing on sustainable development[196]. - The company has relocated its production facilities to Dongguan, which has improved operational efficiency and reduced emissions[191]. - The company aims to minimize greenhouse gas emissions through energy-efficient practices and pollution reduction measures[197]. - The company encourages stakeholder feedback on its ESG report to enhance future reporting and address stakeholder concerns[194]. - Total greenhouse gas emissions amounted to 7,930 tons, with Shenzhen contributing 2,917 tons, Huizhou 2,622 tons, and Dongguan 2,391 tons[199]. - Wastewater discharge increased from 5,215 cubic meters in 2017 to 12,000 cubic meters in 2018, primarily from the Dongguan production facility[200]. - Other two core production bases reduced wastewater discharge to zero in 2018, down from 2,756 cubic meters and 4,072 cubic meters in 2017[200]. - The company has installed a wastewater treatment system to process wastewater, with treated "grey water" reused for irrigation and flushing[200]. - The Huizhou production facility did not generate wastewater in 2018 due to the production process not requiring water resources[200]. - Dongguan production facility uses water resources for cleaning production-related containers and workshops[200]. - The density of emissions is recorded at 5.86 tons per cubic meter[199].