金达控股(00528) - 2020 - 年度财报

Corporate Information The company is registered in the Cayman Islands, with its principal place of business in Hong Kong and head office in China, primarily banking with Bank of China Board of Directors The Board of Directors comprises four executive, one non-executive, and three independent non-executive directors, chaired by Mr. Ren Weiming - Board members include Ren Weiming (Chairman), Shen Yueming, Zhang Hongwen, Shen Hong (Executive Directors), Yan Jinwei (Non-executive Director), and Liu Yingkit, Law Kwong Shun, Yan Jianmiao (Independent Non-executive Directors)[7][8][9][10] Committees The company has an Audit Committee, Remuneration Committee, and Nomination Committee to ensure effective corporate governance - The Audit Committee is chaired by Mr. Liu Yingkit, the Remuneration Committee by Mr. Yan Jianmiao, and the Nomination Committee by Mr. Law Kwong Shun[10][11][12] Company Details The company is registered in the Cayman Islands, with its principal place of business in Hong Kong and head office in China, primarily banking with Bank of China - The company's registered office is at Cricket Square, Cayman Islands; China head office is in Henggang Town, Haiyan County, Zhejiang Province; Hong Kong principal place of business is on the 54th Floor, Hopewell Centre, 183 Queen's Road East[16] - Principal bankers are Bank of China Rugao Branch and Haiyan Branch[16] - The company's stock code is 00528, and its website is http://www.kingdom-china.com[16](index=16&type=chunk) Chairman's Statement The Chairman's Statement outlines the company's 2020 performance, strategic initiatives, and future outlook including dividend policy 2020 Performance Overview In 2020, Kingdom, as the world's largest linen yarn manufacturer, saw pure linen yarn exports decrease by 29.9% due to COVID-19, yet maintained over 40% of China's total exports, retaining market leadership - Kingdom produced 16,704 tons of linen yarn in 2020, making it the world's largest linen yarn manufacturer[20] - Affected by the COVID-19 pandemic, pure linen yarn exports in 2020 were 7,640 tons, a decrease of approximately 29.9% from 10,900 tons in 2019[21] - Kingdom continued to account for over 40% of China's total pure linen yarn exports in 2020, maintaining its leading position as China's largest pure linen yarn exporter for 18 consecutive years[21] - The company's top five export markets were Italy, India, Turkey, South Korea, and Portugal[21] Strategic Initiatives The company continues to invest in technological innovation, filing 10 patents, and actively promotes sustainable development by partnering with CottonConnect on the REEL Linen Code of Conduct, while also venturing into industrial hemp yarn production in Heilongjiang and investing in new facilities in Ethiopia for long-term benefits - 10 patents were applied for in 2020, of which 3 were invention patents; as of December 31, 2020, there were 60 approved patents and 31 pending patent applications[22] - Partnered with CottonConnect to develop the REEL Linen Code of Conduct, promoting sustainable development in the linen industry[23] - Began production of industrial hemp yarn through a joint venture in Heilongjiang Province (with a 72.72% stake), with an annual capacity of 4,000 tons, marking the Group's first foray into the industrial hemp yarn market[28] - Acquired 300,000 square meters of land in Adama Industrial Park, Ethiopia, to invest in new production facilities, expected to save on land lease, labor, energy, and tax costs, and potentially gain export quotas and tariff exemptions[30] Outlook and Dividend Policy Despite COVID-19 delaying trial production in Ethiopia, the Board remains confident in the Group's future operations and profitability, thus no final dividend for 2020 is recommended to conserve resources for future expansion - The COVID-19 pandemic caused delays in the trial production of the Ethiopia production facility[31] - The Board does not recommend a final dividend for 2020 (2019: HK7.0 cents per ordinary share) to conserve resources for the Group's near-term and future expansion[32] Five Year Financial Summary The Five Year Financial Summary provides an overview of the Group's historical performance across key financial metrics including revenue, gross profit, assets, and liabilities Financial Performance In 2020, the Group's revenue and gross profit significantly declined, shifting from profit to loss, reflecting the severe impact of the pandemic on operations Five Year Financial Summary - Statement of Profit or Loss (RMB thousands) | Indicator | 2020 | 2019 | 2018 | 2017 | 2016 | |:---|:---|:---|:---|:---|:---| | Revenue | 1,057,426 | 1,499,560 | 1,245,643 | 1,023,962 | 856,243 | | Cost of sales | (950,129) | (1,136,293) | (987,762) | (907,694) | (704,365) | | Gross profit | 107,297 | 363,267 | 257,881 | 116,268 | 151,878 | | Other income and gains | 23,269 | 17,364 | 24,308 | 25,575 | 54,358 | | Selling and distribution costs | (38,879) | (49,453) | (48,687) | (39,361) | (37,951) | | Administrative expenses | (76,062) | (82,061) | (73,020) | (49,670) | (58,968) | | Other expenses | (16,847) | (10,327) | (6,818) | (38,200) | (643) | | Finance costs | (36,583) | (22,148) | (21,520) | (17,712) | (16,059) | | Gain on disposal of a subsidiary | 11,123 | 235 | – | – | – | | Profit/(Loss) before tax | (26,682) | 216,877 | 132,144 | (3,100) | 92,615 | | Income tax (expense)/credit | 14,692 | (61,112) | (28,957) | 3,722 | (22,586) | | Profit for the year | (11,990) | 155,765 | 103,187 | 622 | 70,029 | | Attributable to owners of the parent | (10,796) | 151,468 | 102,006 | (3,132) | 66,344 | | Non-controlling interests | (1,194) | 4,297 | 1,181 | 3,754 | 3,685 | Assets and Liabilities At the end of 2020, both the Group's total assets and liabilities decreased, yet net assets remained above RMB 1 billion Five Year Financial Summary - Statement of Financial Position (RMB thousands) | Indicator | 2020 | 2019 | 2018 | 2017 | 2016 | |:---|:---|:---|:---|:---|:---|\n| Total assets | 2,597,130 | 2,725,785 | 2,127,748 | 1,962,416 | 1,930,435 | | Total liabilities | (1,371,027) | (1,444,890) | (974,239) | (912,220) | (843,999) | | Non-controlling interests | (41,886) | (43,085) | (40,620) | (32,439) | (18,685) | | Net assets | 1,184,217 | 1,237,810 | 1,112,889 | 1,017,757 | 1,067,751 | Management Discussion and Analysis Management Discussion and Analysis details the Group's 2020 business performance, market strategies, production operations, financial position, and future outlook Business Review In 2020, COVID-19 severely impacted the global economy, leading to fashion brand bankruptcies and a shift to online shopping; despite growth in China's textile exports, the Group's pure linen yarn exports fell by 29.5%, with revenue and gross profit declining sharply, turning from profit to loss - The COVID-19 pandemic severely impacted the global economy, leading to fashion brand bankruptcies and a shift in consumer behavior towards online shopping[46] - China's textile industry exports grew by 29.2% in 2020, and cotton market prices rose by 11.9%, potentially positively impacting linen yarn demand[47] - China's total pure linen yarn exports decreased by approximately 24.0% year-on-year in 2020, with Kingdom exporting 7,640 tons, accounting for 49% of China's total exports[48] 2020 Group Financial Performance | Indicator | 2020 (RMB thousands) | 2019 (RMB thousands) | Year-on-year change | |:---|:---|:---|:---|\n| Revenue | 1,057,426 | 1,499,560 | -29.5% | | Gross profit | 107,297 | 363,267 | -70.5% | | Overall gross profit margin | 10.1% | 24.2% | -14.1 percentage points | | Loss/Net profit for the year | (11,141) | 155,765 | Shift from profit to loss | | Basic loss/earnings per share | (0.02) | 0.25 | Shift from profit to loss | | Final dividend | Not recommended | HK7.0 cents/share | Dividend cancelled | Major Markets and Customers The Group's sales network spans over 20 countries and regions globally, with overseas sales accounting for 54.9% of total revenue in 2020, of which EU countries contributed 28.6%; domestic sales decreased by 26.8%, but demand for eco-friendly and sustainable linen products in China is growing - The Group's sales network covers over 20 countries and regions globally, with a subsidiary in Italy and agents in Turkey, Portugal, Italy, Lithuania, and South Korea[56] 2020 Sales Analysis by Domestic and Overseas Markets (RMB thousands) | Market | 2020 Revenue | 2020 Share | 2019 Revenue | 2019 Share | Revenue Year-on-Year Change | Revenue Year-on-Year Change (%) | |:---|:---|:---|:---|:---|:---|:---|\n| China | 476,377 | 45.1% | 650,576 | 43.4% | (174,199) | -26.8% | | EU | 302,630 | 28.6% | 349,183 | 23.3% | (46,553) | -13.3% | | Non-EU | 278,419 | 26.3% | 499,801 | 33.3% | (221,382) | -44.3% | | Total Revenue | 1,057,426 | 100.0% | 1,499,560 | 100.0% | (442,134) | -29.5% | - In 2020, the top five export countries were Italy, Portugal, India, Turkey, and South Korea, accounting for 76.2% of total export revenue (2019: 81.5%)[61] - China's domestic sales decreased by 26.8%, but the market for linen textiles has significant potential as consumers increasingly prefer environmentally friendly and sustainable products[62] Raw Material Procurement and Related Strategies The Group primarily sources flax fiber from France and Belgium, leveraging its bargaining power as a major buyer to stabilize costs; it also collaborates with local farmers in Heilongjiang to secure industrial hemp fiber supply and plans a warehouse there to establish a national hemp material trading hub, further promoting sustainable procurement through the REEL Linen Code of Conduct - Prices for flax fiber, the main raw material for linen yarn, remained stable, primarily imported from high-quality origins like France and Belgium, where the Group, as one of the largest buyers, has strong bargaining power[67] - Collaborated with local farmers in Heilongjiang, China, to ensure a stable supply of industrial hemp fiber, and plans to build a warehouse in Heilongjiang, aiming to establish a national trading hub for hemp materials in China[68] - Partnered with CottonConnect to develop the REEL Linen Code of Conduct, committed to sourcing more sustainable linen and improving environmental, quality, and traceability aspects of the supply chain[69] Production Bases and Productivity As of end-2020, the Group operated four production bases in China with a combined design annual capacity of 22,000 tons of linen and industrial hemp yarn; its first overseas facility in Ethiopia is complete and expected to resume trial production in 2021, further boosting capacity and benefiting from tax incentives - As of December 31, 2020, the Group owned four production bases in China, located in Rugao, Jiangsu; Haiyan, Zhejiang (two phases); and Heilongjiang[73][75] - The combined design annual capacity for linen yarn and industrial hemp yarn at the China production bases reached 22,000 tons (based on standard 24 count specifications)[75] - The Heilongjiang production facility, with a 72.72% stake, is the Group's first venture into the industrial hemp yarn market, with an annual capacity of 4,000 tons[76] - The production facility in Adama Industrial Park, Ethiopia, has completed construction, with Phase I expected to increase annual capacity by 5,000 tons and resume trial production in 2021[80] - The Ethiopia project is expected to save on land lease, labor, energy, and taxes, and may also secure export quotas and tariff exemptions[80] Existing and Planned Production Bases | No. | Plant | Location | Country | Annual Capacity (tons) | Utilization/Status | |:---|:---|:---|:---|:---|:---|\n| 1 | Haiyan Phase I Plant | Zhejiang | China | 7,000 | Close to 100% | | 2 | Rugao Plant | Jiangsu | China | 6,000 | Close to 100% | | 3 | Haiyan Phase II Plant | Zhejiang | China | 5,000 | Close to 100% | | 4 | Qinggang Plant | Heilongjiang | China | 4,000 | Close to 100% | | 5 | Ethiopia | Adama | Ethiopia | 5,000 | Expected to resume trial production in 2021 | Patents, Awards and Recognition As of December 31, 2020, the Group held 60 registered patents and had 31 patent applications pending, reflecting continuous investment in technological innovation - As of December 31, 2020, the Group held 60 registered patents and had 31 pending patent applications[85] Financial Review In 2020, the Group's financial performance significantly deteriorated, with revenue and gross profit sharply declining, turning from profit to loss, primarily due to falling linen yarn prices, exchange losses, and increased finance costs; liquidity indicators decreased, but total equity remained at a high level 2020 Key Financial Indicators Changes (RMB thousands) | Indicator | 2020 | 2019 | Change Rate | |:---|:---|:---|:---|\n| Revenue | 1,057,426 | 1,499,560 | -29.5% | | Gross profit | 107,297 | 363,267 | -70.5% | | Gross profit margin | 10.1% | 24.2% | -14.1 percentage points | | Other income and gains | 23,208 | 17,364 | +33.6% | | Selling and distribution expenses | 38,879 | 49,453 | -21.4% | | Administrative expenses | 76,062 | 82,061 | -7.3% | | Other expenses | 16,847 | 10,327 | +63.1% | | Finance costs | 36,583 | 22,148 | +65.1% | | Loss/Profit for the year | (11,141) | 155,765 | Shift from profit to loss | | Loss/Profit attributable to owners of the parent | (9,947) | 151,468 | Shift from profit to loss | - The decrease in revenue was primarily due to a decline in the selling price of pure linen yarn[86] - The increase in other income and gains was mainly from government grants (RMB 16,598 thousand, 2019: RMB 8,161 thousand) and gains on disposal of non-current assets (RMB 2,755 thousand)[86] - Selling and distribution expenses as a percentage of revenue increased, primarily due to higher sea freight costs caused by the COVID-19 pandemic[89] - Other expenses primarily included a net exchange loss of approximately RMB 14,700 thousand due to the depreciation of the US dollar against the RMB (2019: exchange gain of RMB 5,186 thousand)[91] - Finance costs increased mainly due to higher total interest expenses on bank loans[91] 2020 Statement of Financial Position Key Indicators (RMB thousands) | Indicator | 2020 | 2019 | Change Rate | |:---|:---|:---|:---|\n| Inventories | 793,825 | 795,592 | -0.2% | | Average inventory turnover days | 305 days | 217 days | +88 days | | Trade and notes receivables | 375,836 | 345,813 | +8.7% | | Average trade receivables turnover days | 125 days | 78 days | +47 days | | Trade and notes payables | 198,863 | 358,817 | -44.6% | | Average trade payables turnover days | 107 days | 97 days | +10 days | | Interest-bearing bank and other borrowings | 1,015,603 | 902,351 | +12.6% | | Net current assets | 121,545 | 178,938 | -32.1% | | Current ratio | 109.1% | 113.3% | -4.2 percentage points | | Total equity | 1,227,235 | 1,280,895 | -4.2% | | Total debt to equity ratio | 82.8% | 70.4% | +12.4 percentage points | Capital Commitments As of December 31, 2020, the Group's contractual capital commitments not provided for in the financial statements amounted to approximately RMB 100,889,000, primarily for the purchase of property, plant, and equipment Capital Commitments (RMB thousands) | Indicator | 2020 | 2019 | |:---|:---|:---|\n| Contractual capital commitments outstanding for the purchase of property, plant and equipment | 100,889 | 41,370 | Material Acquisition and Disposal In 2020, the Group terminated a planned RMB 50,000,000 acquisition of land and buildings, fully recovering RMB 48,000,000 in prepayments due to a change in land use - On October 23, 2020, Zhejiang Jinyuan and Jinda Chuangye entered into a settlement agreement to terminate the planned acquisition of a plot of land and buildings located at No. 192, Xinqiao North Road, Wuyuan Town, Haiyan County, Zhejiang Province, China[110] - The termination was due to a change in the land use of the property to commercial purposes, making it unsuitable for the original plan of constructing production facilities[110] - The Group fully recovered the prepayment of RMB 48,000,000 in October 2020[110] Foreign Currency Risk The Group's transactions are primarily denominated in RMB, USD, EUR, and HKD, with exchange rate fluctuations regularly monitored; no foreign exchange forward contracts or cross-currency swap contracts were entered into or outstanding in 2020 - The Group's transactions are primarily denominated in RMB, US dollars, Euros, and Hong Kong dollars, with exchange rate fluctuations regularly monitored[118] - No foreign exchange forward contracts or cross-currency swap contracts were entered into using credit facilities in 2020, and there were no such outstanding contracts as of December 31, 2020[118] Remuneration Policy and Share Option Scheme As of end-2020, the Group's total headcount decreased to 2,890, with total staff costs down 9.7%, mainly due to factory automation and layoffs from the suspended Ethiopia plant trial production; the Group offers comprehensive remuneration, benefits, and training, alongside share option and award schemes to incentivize employees Employee Headcount and Cost Changes | Indicator | 2020 | 2019 | Change Rate | |:---|:---|:---|:---|\n| Total employees | 2,890 people | 3,099 people | -6.7% | | Total staff costs | 184,224 thousand RMB | 204,072 thousand RMB | -9.7% | - The decrease in staff costs was primarily due to reduced personnel requirements from partial factory automation and the termination of local workers due to the suspension of trial production at the Ethiopia factory[124] - The Group provides comprehensive remuneration, retirement plans, and benefits to employees, along with internal and external training[125] - The Group has adopted a share option scheme and a share award plan, aiming to incentivize and reward directors and other employees who contribute to the Group's success[127] Outlook and Plans COVID-19 is expected to significantly improve in H2 2021, with linen yarn demand gradually recovering; the Group will leverage environmental and natural fiber trends, competitive advantages of its Ethiopia plant, and China's domestic market potential, while also exploring entry into the linen fiber/garment market - The impact of the COVID-19 pandemic is expected to continue at least through the first half of 2021, but the situation is anticipated to significantly improve in the second half, with linen yarn demand expected to recover and gradually grow[129] - The use of environmentally friendly and natural fibers has become a trend, and linen yarn, as an eco-friendly fiber, will benefit from this; the Group's REEL Linen Code of Conduct, in collaboration with CottonConnect, will contribute to sustainable development[131] - China has become one of the largest consumer markets for linen textiles, and the Group will leverage its market-leading position to seize domestic market opportunities[135] - Phase I of the Ethiopia factory has been completed and is expected to resume trial production in 2021; its export quotas and tariff reductions will enhance the Group's competitiveness[137] - The Group will explore the possibility of entering the linen fiber/garment market in the future[139] Directors and Senior Management This chapter introduces the background, responsibilities, and key contributions of the company's Board members and senior management Executive Directors Mr. Ren Weiming serves as Chairman and Executive Director, overseeing overall Group management and business development strategy; Mr. Shen Yueming, Mr. Zhang Hongwen, and Ms. Shen Hong, as Executive Directors, are responsible for daily operations, management, and financial control, respectively - Mr. Ren Weiming (61 years old) has been involved in the silk and textile industry since 1979, serving as Chairman and General Manager of Zhejiang Jinda Chuangye Co., Ltd. since 2000, and joined the Group in March 2003, responsible for overall management and business development strategy[146] - Mr. Shen Yueming (59 years old) joined the Group in March 2003, responsible for daily operations and management, and participates in decision-making[148] - Mr. Zhang Hongwen (54 years old) joined the Group in 2003, previously serving as Assistant to the General Manager's Office and Head of the Capital Settlement Department at Jinda Chuangye[152] - Ms. Shen Hong (54 years old) joined the Group in March 2003, serving as the Group's Management Director, with over 20 years of financial experience[153] Non-executive Director Mr. Yan Jinwei, as a Non-executive Director, possesses extensive experience in textile trading and serves as Honorary Permanent President of the Hong Kong Textile Merchants Association - Mr. Yan Jinwei (71 years old) joined the Group in September 2004, serving as Chairman of Yiyu Co., Ltd., engaged in linen and linen blend textile trading, and is the Honorary Permanent President of the Hong Kong Textile Merchants Association[154] Independent Non-executive Directors Mr. Liu Yingkit, Mr. Law Kwong Shun, and Mr. Yan Jianmiao, as Independent Non-executive Directors, bring professional backgrounds and extensive experience in finance, accounting, investment banking, and international economics, respectively - Mr. Liu Yingkit (47 years old) joined the Group in November 2006, is a Fellow of the Hong Kong Institute of Certified Public Accountants, holds a Master's degree in Finance, and has extensive experience in financial accounting[159] - Mr. Law Kwong Shun (47 years old) joined the Group in May 2010, has over 10 years of experience in investment banking and corporate finance advisory, and is a member of the American Institute of Certified Public Accountants and the Hong Kong Institute of Certified Public Accountants[160] - Mr. Yan Jianmiao (55 years old) joined the Group in May 2016, is a professor in the Department of International Economics at Zhejiang University, and holds a Ph.D. in Economics[164] Senior Management Mr. Chan Yan Kwan serves as the company's Financial Controller and Company Secretary, with over 20 years of experience in accounting and finance - Mr. Chan Yan Kwan (52 years old) joined the Group in January 2014, serving as Financial Controller and Company Secretary, with over 20 years of experience in accounting and finance, and is a Fellow of the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants of the UK[167] Report of the Directors The Report of the Directors provides detailed information on the Group's principal activities, results, risks, stakeholder relationships, dividend policy, and corporate governance Principal Activities and Results The company primarily engages in the production and sale of linen yarn, with 2020 results presented in the consolidated statement of profit or loss - The company is an investment holding company, and its principal subsidiaries are engaged in the production and sale of linen yarn[173] - The Group's 2020 results are presented in the consolidated statement of profit or loss on page 87[174] Business Review and ESG The Group's business review and future development are detailed in the Chairman's Statement and Management Discussion and Analysis; the Group is committed to environmental sustainability, reducing emissions through eco-friendly equipment, and complying with relevant laws and regulations - The Group's business review and future development are elaborated in the Chairman's Statement (page 4) and Management Discussion and Analysis (page 9)[175] - The Group is committed to environmental sustainability, with factories actively adopting eco-friendly and energy-saving equipment; in 2020, photovoltaic solar energy accounted for 4.3% of total electricity consumption, and annual consumption of electricity, water, steam, and natural gas decreased by 17.0%, 11.4%, 1.2%, and 12.5%, respectively[177] - Except for continuing connected transactions announced on March 12, 2021, the Group complied with relevant laws and regulations materially affecting the company during 2020[179] Principal Risks and Uncertainties Key risks include linen yarn demand, trade protectionism, raw material supply stability, cotton price volatility, USD depreciation against RMB, Ethiopia project execution risks, and production disruptions from pandemics - Principal risks include demand for linen yarn, trade protectionism in certain countries, and potential punitive tariffs on Chinese-made products[185] - Other risks include stable supply of raw materials, sustained decline in cotton prices, depreciation of the US dollar against the RMB, execution risks of the new expansion project in Ethiopia, and production disruptions caused by pandemic outbreaks[185] Relationship with Stakeholders The Group values its relationships with employees, customers, and business partners, providing a fair and safe work environment, competitive remuneration, career development opportunities, and continuous training resources - The Group considers employees, customers, and business partners crucial for sustainable development[186] - The company provides a fair and safe working environment, promotes employee diversity, and offers competitive remuneration, benefits, and career development opportunities based on performance[186] - The Group continuously provides training and development resources to employees to enhance their performance and self-fulfillment[186] Important Events Since Year-End No significant events affecting the company have occurred from the end of the financial year up to the date of this report - No significant events affecting the company have occurred from the end of the financial year up to the date of this report[190] Dividend and Reserves The Board does not recommend a final dividend for 2020; as of December 31, 2020, the company's distributable reserves were RMB 648,096,000, with charitable and other donations totaling approximately RMB 1,175,000 during the year - The Board decided at its meeting on March 19, 2021, not to recommend a final dividend for 2020[192] Dividend and Donations (RMB thousands) | Indicator | 2020 | 2019 | |:---|:---|:---|\n| Proposed final dividend | Nil | 39,484 | | Distributable reserves | 648,096 | 646,020 | | Charitable and other donations | 1,175 | 282 | Share Capital and Property, Plant and Equipment Details of the Group's share capital changes are in note 27 to the financial statements; during 2020, the Group acquired approximately RMB 89,349,000 in property, plant, and equipment - Details of the Group's share capital changes are set out in note 27 to the financial statements[195] - During 2020, the Group acquired approximately RMB 89,349,000 in property, plant, and equipment[197] Directors' Information and Interests Board members remained unchanged in 2020 and up to the report date; some directors are subject to retirement by rotation and eligible for re-election; directors confirmed their independence and no service contracts terminable within one year; directors and chief executive hold interests in company shares, with Mr. Ren Weiming holding 50.01% - The Board members remained unchanged during 2020 and up to the date of this annual report, comprising four executive directors, one non-executive director, and three independent non-executive directors[200] - In accordance with the company's articles of association, Ms. Shen Hong, Mr. Liu Yingkit, and Mr. Law Kwong Shun will retire by rotation at the upcoming Annual General Meeting and are eligible for re-election[201] - The company has received confirmation of independence from its independent non-executive directors, and the Board considers all independent non-executive directors to be independent[206] - The directors have not entered into any service contracts with the Group that are not terminable by the Group within one year without payment of compensation[204] Directors' Long Positions in Company Shares (as of December 31, 2020) | Director Name | Personal Interests (shares) | Corporate Interests (shares) | Total Shares Held (shares) | Approximate Percentage of Issued Share Capital (%) | |:---|:---|:---|:---|:---|\n| Mr. Ren Weiming | 12,072,000 | 302,800,000 | 314,872,000 | 50.01 | | Mr. Yan Jinwei | 418,000 | 67,000,000 | 67,418,000 | 10.71 | | Ms. Shen Hong | 504,000 | – | 504,000 | 0.08 | - Mr. Ren Weiming is deemed to have an interest in the shares held by Kingdom Investment, which holds approximately 76.38% of the issued share capital[226] Interests and Short Positions of Substantial Shareholders As of December 31, 2020, excluding directors, substantial shareholders included Kingdom Investment Holdings Limited (BVI) and Millionfull International Co., Ltd., holding 48.09% and 10.29% of the company's shares, respectively Substantial Shareholders' Long Positions in Company Shares (as of December 31, 2020) | Shareholder Name | Capacity | Number of Shares (shares) | Approximate Percentage of Issued Share Capital (%) | |:---|:---|:---|:---|\n| Kingdom Investment Holdings Limited (BVI) | Beneficial owner | 302,800,000 | 48.09 | | Millionfull International Co., Ltd. | Beneficial owner | 64,800,000 | 10.29 | - Kingdom Investment (BVI) is 76.38% owned by Mr. Ren Weiming, an executive director and substantial shareholder[236] - Millionfull International is owned 51.00% by Mr. Yan Jinwei, a non-executive director, and 23.00% by his spouse, respectively[236] Share Option Scheme and Share Award Plan The company has a share option scheme and a share award plan to incentivize employees; no share options were granted or exercised in 2020; under the share award plan, 5,159,250 vested shares were transferred to employees, and 1,000,000 shares returned to the pool due to resignations, with 12,200,750 shares remaining unvested as of end-2020 - The share option scheme was adopted on May 30, 2016, aiming to provide incentives to directors, employees, and others; the exercise price of share options shall not be less than a specified market price, and the exercise period shall not exceed 10 years[241][242][247] - No share options were granted or exercised under the share option scheme during 2020[249] - The share award plan was adopted on August 26, 2016, aiming to incentivize, recognize, and reward eligible persons who contribute to the Group's success[250] - During 2020, 5,159,250 vested shares were transferred to employees, and 1,000,000 granted shares were returned to the share pool due to employee resignations[256] - As of December 31, 2020, a total of 12,200,750 granted shares are expected to vest between 2021 and 2022, with an additional 1,030,000 shares available for future grants to employees[256] Connected Transactions The Group has multiple continuing connected transactions with director-controlled companies, including office and plant leases, procurement of electricity, chemicals, additives, and tools, and sales of finished goods and electricity; some transactions were exempt from disclosure due to small amounts, but chemical and tool procurement transactions were not timely disclosed due to oversight, with a framework agreement retroactively effective from March 12, 2021 - The Group has multiple continuing connected transactions with Jinda Chuangye and its associated companies (such as Zhejiang Yuyuan Photovoltaic Co., Ltd., Jinxiu Jiangnan Silk Co., Ltd., Huitong Financial Leasing (Shanghai) Co., Ltd.), in which Mr. Ren Weiming holds controlling interests[269][272][273][274][276][278][281] - Transaction types include leasing offices and plants (as lessee), leasing motor vehicles (as lessee), leasing offices (as lessor), purchasing electricity, purchasing chemicals and additives, purchasing tools and accessories, and selling finished goods and electricity[269][272][273][274][276][278][281] - In 2020, the Group's operating lease expenses for leasing offices and plants from Jinda Chuangye amounted to RMB 476,000[269][1024] - In 2020, the Group purchased electricity from Zhejiang Yuyuan Photovoltaic Co., Ltd. for RMB 2,166,000, with electricity prices discounted by approximately 3.5% compared to market prices[278][1024] - In 2020, the Group purchased chemicals, additives, and tools from Jinxiu Jiangnan Silk Co., Ltd. totaling RMB 8,367,000[281][1024] - In 2020, the Group sold finished goods to Jinxiu Jiangnan Silk Co., Ltd. for RMB 75,000[278][1024] - In 2020, the Group and Jinda Chuangye agreed to cancel the acquisition of buildings and land use rights for RMB 50,000,000, with the prepayment of RMB 48,000,000 fully refunded[110][1026] - The independent non-executive directors have reviewed the continuing connected transactions and confirmed they were conducted in the ordinary course of business on normal commercial terms and in the overall interests of the shareholders[292][296] - Due to oversight, the procurement transactions with Jinxiu Jiangnan in 2020 were not timely disclosed; a framework agreement was entered into on March 12, 2021, with retroactive effect, to comply with Listing Rules reporting, announcement, and annual review requirements[289] Other Financial Information Details of the Group's bank and other borrowings are in note 26 to the financial statements; neither the company nor its subsidiaries purchased, sold, or redeemed any listed securities in 2020; the company's articles of association and Cayman Islands Companies Law contain no pre-emptive rights; details of the Group's pension schemes are in notes 2.4 and 7 to the financial statements - Details of the Group's bank and other borrowings are set out in note 26 to the financial statements[304] - Neither the company nor any of its subsidiaries purchased, sold, or redeemed any listed securities during 2020[304] - There are no pre-emptive rights provisions in the company's articles of association or the Cayman Islands Companies Law[304] - Details of the Group's pension schemes are set out in notes 2.4 and 7 to the financial statements[304] Directors' Interests in Competing Business As of December 31, 2020, no director or their associates held interests in businesses directly or indirectly competing with the Group; Mr. Ren Weiming holds interests in "excluded businesses" such as silk, banking, and finance leasing, which differ from the Group's products, and he has committed not to compete with the Group's business - As of December 31, 2020, no director or their respective associates had any interest in any business that directly or indirectly competes or may compete with the Group's business[308] - Mr. Ren Weiming holds interests in private companies engaged in the silk and/or silk product manufacturing and/or trading industry, banking, and financial leasing, which are considered "excluded businesses" as they differ from the products manufactured by the Group[309] - Mr. Ren Weiming has undertaken not to directly or indirectly participate in or engage in any business that competes with the Group's business[310] - The Group has received annual confirmations from Kingdom Investment and Mr. Ren Weiming, confirming their full compliance with the non-competition undertaking[317] Corporate Strategy and Long Term Business Model The company is committed to sustainable development and technological innovation, developing proprietary intellectual property, building product brands, and pursuing advanced management to become one of the world's largest linen yarn manufacturers, achieving long-term value creation - The company is committed to sustainable development and technological innovation, developing proprietary intellectual property, product brand marketing, and pursuing excellent management to become one of the world's largest linen yarn manufacturers[318] - The Board regularly reviews progress on ESG-related objectives to achieve sustainable development of the Group's business, thereby creating or maintaining long-term value[319][320] Dividend Policy The company adopted a dividend policy on December 14, 2018, stipulating annual dividends of no less than 20% of the Group's profit attributable to shareholders, though distribution remains at the Board's sole discretion, considering various financial and business factors - The company adopted a dividend policy on December 14, 2018, stipulating annual dividends of no less than 20% of the Group's profit attributable to shareholders[321] - Dividend distribution is at the sole discretion of the Board, considering factors such as the Group's financial performance, shareholder interests, business conditions, working capital requirements, future expansion plans, creditworthiness, and economic conditions[324] - The dividend policy does not constitute a legally binding commitment, and the company reserves the right to update, revise, and amend the policy at any time[325] Corporate Governance The Group's principal corporate governance practices are set out in the Corporate Governance Report on page 58 - The Group's principal corporate governance practices are set out in the Corporate Governance Report on page 58[326] Closure of Register of Members To determine eligibility for attending and voting at the Annual General Meeting, the company will suspend share transfer registration from May 14, 2021, to May 21, 2021 (both dates inclusive) - To determine eligibility for attending and voting at the Annual General Meeting, the company will suspend share transfer registration from Friday, May 14, 2021, to Friday, May 21, 2021 (both dates inclusive)[327] - Unregistered share holders must submit all transfer documents to Tricor Investor Services Limited, the company's Hong Kong share registrar, by 4:30 p.m. on Thursday, May 13, 2021[327] Auditors Ernst & Young will retire, and a resolution for their re-appointment will be proposed at the upcoming Annual General Meeting; the company has not changed auditors in the past three years - Ernst & Young will retire, and a resolution for their re-appointment will be proposed at the upcoming Annual General Meeting[332] - The company has not changed auditors in the past three years[332] Corporate Governance Report The Corporate Governance Report details the company's 2020 corporate governance practices, Board operations, committee functions, internal controls, and shareholder rights Corporate Governance Practices The company adopted the Corporate Governance Code in Appendix 14 of the Listing Rules and complied with all code provisions in 2020, except for the non-segregation of Chairman and Chief Executive roles - The company has adopted the Corporate Governance Code as set out in Appendix 14 of the Listing Rules as its own code[342] - During 2020, the company's corporate governance practices complied with all code provisions, except for the non-segregation of the roles of Chairman and Chief Executive[343] Model Code for Directors' Securities Transactions The company adopted the Model Code for Securities Transactions by Directors, and all directors confirmed compliance with the code in 2020 - The company has adopted the Model Code for Securities Transactions by Directors and has established a code of conduct no less exacting than the Model Code[344] - All directors have confirmed their compliance with the provisions of the Model Code throughout 2020 and up to the date of this annual report[344] The Board The Board comprises eight directors, overseeing Group business, strategic decisions, and performance; in 2020, the Board met regularly and met Listing Rules requirements for independent non-executive directors; while Chairman and CEO roles are not segregated, the Board believes this structure facilitates efficient operations - The Board of Directors comprises eight directors, including four executive directors, one non-executive director, and three independent non-executive directors[345] - The Board is responsible for overseeing the Group's business, strategic decisions, and performance, and holds regular meetings[345][350] 2020 Board and Committee Meeting Attendance | Director | Board | Remuneration Committee | Audit Committee | Nomination Committee | Annual General Meeting | |:---|:---|:---|:---|:---|:---|\n| Mr. Ren Weiming | 5/5 | – | – | – | 1/1 | | Mr. Shen Yueming | 5/5 | – | – | 1/1 | 1/1 | | Mr. Zhang Hongwen | 5/5 | 1/1 | – | – | 1/1 | | Ms. Shen Hong | 5/5 | – | – | – | 1/1 | | Mr. Yan Jinwei | 5/5 | – | – | – | 1/1 | | Mr. Liu Yingkit | 5/5 | – | 2/2 | 1/1 | 1/1 | | Mr. Law Kwong Shun | 5/5 | 1/1 | 2/2 | 1/1 | 1/1 | | Mr. Yan Jianmiao | 5/5 | 1/1 | 2/2 | – | 1/1 | - During 2020, the Board complied with the Listing Rules' requirements for at least three independent non-executive directors, with at least one possessing appropriate professional accounting or financial management expertise, and independent non-executive directors constituting at least one-third of the Board members[356] - Mr. Ren Weiming, the company's Chairman, also oversees the Group's general operations; the Board believes this structure helps establish strong and stable leadership, enabling the company to operate effectively[372] - Mr. Liu Yingkit and Mr. Law Kwong Shun have served as independent non-executive directors for over nine years and will be re-appointed through separate resolutions[364] Directors' Continuous Training and Development The company regularly updates directors with information and encourages continuous professional development; in 2020, all directors attended training covering corporate governance, latest Listing Rule changes, and case studies - Directors are regularly informed of the company's latest performance, condition, and outlook, and are encouraged to participate in continuous professional development[380] - In 2020, the company arranged training covering corporate governance, latest Listing Rule changes, and case studies, which all directors attended[380] Directors' and Officers' Liability Insurance and Indemnity The company has arranged liability insurance for directors and officers to indemnify them against potential legal proceedings; no claims occurred in 2020 - The company has arranged liability insurance to indemnify directors and officers against potential legal proceedings[382] - No claims were made against directors and officers during 2020[382] Company Secretary Company Secretary Mr. Chan Yan Kwan completed no less than 15 hours of relevant professional training in 2020 - Company Secretary Mr. Chan Yan Kwan completed no less than 15 hours of relevant professional training in 2020[383] Board Committees The Board has a Remuneration Committee, Nomination Committee, and Audit Committee, each with clear written terms of reference, reporting regularly to the Board; most members of each committee are independent non-executive directors, ensuring their independence - The Board has established an Audit Committee, Remuneration Committee, and Nomination Committee to oversee specific aspects of the company's affairs[384] - All Board committees have clear written terms of reference and report regularly to the Board[384] - The majority of members on each Board committee are independent non-executive directors[387] Remuneration Committee The Remuneration Committee reviews and recommends directors' and senior management's remuneration and benefits to the Board, ensuring their appropriateness; one meeting was held in 2020 to review and approve director remuneration - The primary function of the Remuneration Committee is to review and recommend to the Board the remuneration and other benefits of directors and senior management, and to monitor them regularly to ensure their appropriateness[389] - The Remuneration Committee comprises one executive director (Mr. Zhang Hongwen) and two independent non-executive directors (Mr. Yan Jianmiao, Mr. Law Kwong Shun)[390] - One meeting was held in 2020 to review and approve director remuneration[393] Nomination Committee The Nomination Committee reviews the Board Diversity Policy and recommends director candidates based on skills, knowledge, and experience; one meeting was held in 2020 to review the Board's structure, size, composition, and diversity policy - The primary function of the Nomination Committee is to review the Board Diversity Policy and provide recommendations to the Board regarding the appointment or re-appointment of directors and succession planning for directors, based on their skills, knowledge, and experience[397] - The Nomination Committee members include one executive director (Mr. Shen Yueming) and two independent non-executive directors (Mr. Liu Yingkit, Mr. Law Kwong Shun)[397] - One meeting was held in 2020 to review the Board's structure, size, composition, and diversity policy[399] - Measurable objectives for Board diversity include: at least half of the Board members having textile industry experience, at least one director holding a position in a textile industry association, and gender not being a primary consideration[427][428][430] Audit Committee The Audit Committee reviews and monitors the Group's financial reporting process, risk management, and internal control systems, providing recommendations to the Board; two meetings were held in 2020 to review financial results, external auditor relationship, and internal audit reports - The primary responsibilities of the Audit Committee are to review and monitor the Group's financial reporting process, risk management and internal control systems, and internal audit function, and to provide advice to the Board[433] - The Audit Committee comprises three independent non-executive directors: Mr. Liu Yingkit (Chairman), Mr. Law Kwong Shun, and Mr. Yan Jianmiao[437] - Two meetings were held in 2020 to review the company's relationship with external auditors, 2019 final results, 2020 interim results, and continuing connected transactions, and two communications with external auditors were conducted without management present[441] - The Audit Committee also reviewed and approved the internal audit report and considered the effectiveness of the internal audit function[441] Internal Control and Risk Management The company established a sound and effective internal control and risk management system, comprising the Board, Audit Committee, management team, and all departments as three lines of defense; in 2020, the Audit Committee conducted two reviews and evaluations of the internal control system, finding no material deficiencies or weaknesses - The company has established sound and effective internal controls to safeguard shareholders' investments and company assets[447] - The company has implemented an optimized risk management and internal control system, including the Board, Audit Committee, management team, and all departments[449] - The risk management system is structured into three lines of defense: individual departments as the first line, internal control and management teams as the second line, and the Audit Committee under the Board as the third line[449] - During 2020, the Audit Committee conducted two reviews and evaluations of the effectiveness of the internal control system, finding no material deficiencies or weaknesses[454][459] Inside Information The company has established procedures and internal controls for handling and disseminating inside information, strictly prohibiting unauthorized use of confidential information; the Chairman and Financial Controller are the primary spokespersons for external media communications - The company is aware of its obligations under Chapter 13 of the Listing Rules and the Securities and Futures Ordinance, and should announce any inside information as soon as reasonably practicable[462] - The company's policy strictly prohibits unauthorized use of confidential information or inside information[463] - The Chairman and Financial Controller are the primary spokespersons for all external media communications of the company[463] Annual Remuneration Payable to Senior Management For the year ended December 31, 2020, one senior management member's annual remuneration ranged between RMB 1,000,001 and RMB 1,500,000 2020 Senior Management Member Annual Remuneration Range | Remuneration Range (RMB) | Number of Individuals | |:---|:---|\n| 1,000,001 – 1,500,000 | 1 | Auditors' Remuneration In 2020, the company paid external auditor Ernst & Young RMB 1,950,000 for audit services and RMB 84,000 for tax services 2020 Auditor's Remuneration (RMB thousands) | Service Type | Fees Paid | |:---|:---|\n| Audit services | 1,950 | | Tax services | 84 | - Apart from audit and tax services, the company did not engage Ernst & Young for any other non-audit services during 2020[469] Accountability and Audit The Board is responsible for preparing true and fair consolidated financial statements in compliance with accounting standards and Listing Rules; the Board believes the Group can continue as a going concern and has no disagreements with the Audit Committee on external auditor selection and appointment - Directors are aware of their responsibility to prepare true and fair consolidated financial statements and ensure compliance with all applicable accounting standards and Listing Rules[470] - Directors believe the financial statements have been prepared on a going concern basis, and no material uncertainties have been identified that may cast significant doubt on the Group's ability to continue as a going concern[470] - The directors had no disagreements with the Audit Committee regarding the selection and appointment of external auditors[444] Shareholders' Rights Shareholders holding at least one-tenth of the company's paid-up capital may request the Board in writing to convene an extraordinary general meeting or propose resolutions; shareholders can send inquiries to the Board via mail or email - Any one or more shareholders holding not less than one-tenth of the company's paid-up capital have the right to request the Board in writing to convene an extraordinary general meeting or propose resolutions[474] - Shareholders can send inquiries and questions to the Board via mail to the principal place of business in Hong Kong or by email to ir@kingdom-china.com[484] Constitutional Documents and Investor Relations No changes to the company's constitutional documents occurred in 2020, with the latest version available on the company and Stock Exchange websites; the company maintains communication with investors and shareholders through various channels to enhance transparency and confidence - No changes to the company's constitutional documents occurred in 2020, and the latest version is available on the company's and the Stock Exchange's websites[491] - The company maintains contact with analysts and fund managers through various channels, including one-on-one meetings, telephone communications, and press releases[487] - The company's general meetings provide a platform for shareholders to communicate with the Board, and the Chairman of the Board and chairmen of various committees or their representatives will attend to answer questions[487] - As of December 31, 2020, the company's market capitalization was approximately HK$812,284,620[492] Independent Auditor's Report The Independent Auditor's Report provides an opinion on the Group's consolidated financial statements as of December 31, 2020, outlining the basis, key matters, and responsibilities of the audit Opinion The auditor believes Kingdom Holdings Limited's consolidated financial statements present a true and fair view of the Group's financial position as of December 31, 2020, and its financial performance and cash flows for the year then ended, in compliance with IFRS and Hong Kong Companies Ordinance disclosure requirements - The auditor believes the consolidated financial statements present a true and fair view of the Group's consolidated financial position as of December 31, 2020, and its consolidated financial performance and consolidated cash flows for the year then ended, in accordance with International Financial Reporting Standards[502] - The consolidated financial statements have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance[502] Basis for Opinion The auditor conducted the audit in accordance with Hong Kong Standards on Auditing and complied with the HKICPA's Code of Ethics, deeming the audit evidence obtained sufficient to support their opinion - The audit was conducted in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants[503] - The auditor is independent of the Group and has fulfilled other ethical responsibilities in accordance with the Code of Ethics for Professional Accountants[503] - The audit evidence obtained is sufficient and appropriate to provide a basis for the audit opinion[503] Key Audit Matters Key audit matters include the impairment assessment of non-current assets, which involves highly subjective management assumptions regarding cash flow forecasts, future growth rates, and discount rates - One of the key audit matters is the impairment assessment of non-current assets[508] - As of December 31, 2020, the carrying amount of property, plant and equipment, right-of-use assets, and other intangible assets was RMB 1,127 million, accounting for 43% of the Group's total assets[512] - The impairment assessment requires management to make key assumptions, such as five-year cash flow forecasts, future growth rates, and discount rates, which are highly subjective[512] Other Information in the Annual Report The company's directors are responsible for other information in the annual report; the auditor's opinion does not cover this information but they review it for material inconsistencies with the consolidated financial statements - The company's directors are responsible for other information in the annual report, including the Chairman's Statement, Management Discussion and Analysis, Report of the Directors, and Corporate Governance Report[515] - The auditor's opinion on the consolidated financial statements does not cover other information, and they do not express any form of assurance conclusion thereon[517] - The auditor reviews other information to consider whether it is materially inconsistent with the consolidated financial statements or the knowledge obtained in the audit, or otherwise appears to be materially misstated[518](index=518&t