Important:
The board of directors (the “Board”), the supervisory committee (the “Supervisory Committee”) and the directors (the “Directors”), supervisors (the “Supervisors”) and senior management (the “Senior Management”) of Shandong Chenming Paper Holdings Limited (the “Company”, “us”, and “we”) hereby warrant that there are no false representations, misleading statements or material omissions contained in this report (the “Report”), and jointly and severally accept full responsibility for the truthfulness, accuracy and completeness of its contents. This Report has been prepared in both Chinese and English. For any discrepancies, the Chinese version shall prevail.
Chen Hongguo, the chairman of the Company, Wang Chunfang, the financial controller of the Company, and Li Dong, the head of the financial department, declare that they guarantee the truthfulness and completeness of the financial statements for the six months ended 30 June 2010.
This interim report was considered and approved by the third meeting of the sixth session of the Board of the Company with all directors present.
The interim financial statements for the six months ended 30 June 2010 of the Company and its subsidiaries (collectively referred to as the “Group”) prepared in accordance with Accounting Standards for Business Enterprises and International Financial Reporting Standards have not been audited.2
Contents
I. Company Information 3
II. Summary of Financial and Operating Results 4
III. Changes in Share Capital and Shareholders 7
IV. Directors, Supervisors and Senior Management 10
V. Directors’ Report 11
VI. Material Matters 23
VII. Unaudited Financial Statements and Notes thereto
Prepared in Accordance with Accounting
Standards for Business Enterprises 32
VIII. Documents Available for Inspection 1513
I. Company Information
1. Legal Chinese name of the Company: 山東晨鳴紙業集團股份有限公司
Legal English name of the Company: SHANDONG CHENMING PAPER HOLDINGS LIMITED
Abbreviation of the English name: SCPH
2. Legal Representative of the Company: Chen Hongguo
3. Secretary to the Board of the Company: Hao Yun
Company Secretary (Hong Kong): Poon Shiu Cheong
Securities Affairs Representatives: Fan Yingjie, Sun Wenke
Correspondence Address: No. 595 Shengcheng Road, Shouguang City,
Shandong Province, People’s Republic of China
Telephone: (86)-0536-2158011, (86)-0536-2156488
Facsimile: (86)-0536-2158640
Email address: chenmmingpaper@163.com
4. Registered Address and Office No. 595 Shengcheng Road, Shouguang City,
Address of the Company: Shandong Province, People’s Republic of China
Postal Code: 262700
International Website of the Company: http://www.chenmingpaper.com
5. Designated Local Newspapers for China Securities Journal and Hong Kong
Information Disclosure: Commercial Daily
Designated Website for http://www.cninfo.com.cn
Publication of Interim Report: http://www.hkex.com.hk
Places for Inspection of
the Company’s Interim Report: Capital operation department of the Company
6. Stock Information: A shares
Shenzhen Stock Exchange
Stock Abbreviation: 晨鳴紙業
Stock Code: 000488
B shares
Shenzhen Stock Exchange
Stock Abbreviation: 晨鳴B
Stock Code: 200488
H shares
The Stock Exchange of Hong Kong Limited
Stock Abbreviation: Chenming Paper
Stock Code: 1812
7. Other Relevant Information:
Date of Change in Registration of
the Company: 27 September 2008
Registered Address: No. 595 Shengcheng Road, Shouguang City,
Shandong Province
Legal Person Business License
Registration Number: 370000400001170
Taxation Registration Number: 3707836135889864
II. Summary of Financial and Operating Results
I. MAJOR FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES
Unit: RMB’000
Increase / decrease
as at the end of
the reporting
period compared
As at the end of As at the end with the end
Items the reporting period of last year of last year (%)
Total assets 29,031,656 28,213,085 2.90%
Equity attributable to equity
holders of the Company 12,981,045 12,991,904 -0.08%
Net assets per share (RMB/share) 6.295 6.30 -0.08%
Increase/decrease
for the
reporting period
The compared with
corresponding the corresponding
The reporting period period of period of
(January to June) last year last year (%)
Operating profit 777,353 175,177 343.75%
Total profit 838,558 238,240 251.98%
Net profit attributable to
equity holders of the Company 607,869 157,487 285.98%
Net profits after extraordinary gains
or losses attributable to the
equity holders of the Company 571,505 112,231 409.22%
Basic earnings per share (RMB) 0.29 0.076 281.58%
Diluted earnings per share (RMB) N/A N/A N/A
Weighted average return on net assets 4.57% 1.28% Increased by 3.29
percentage points
Net cash flows from operating activities 1,189,723 -526,102 326.14%
Net cash flows per share from operating activities (RMB) 0.58 -0.26 323.08%5
I. MAJOR FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES (continued)
NOTE: EXTRAORDINARY GAINS OR LOSSES ITEMS
Unit: RMB’000
Extraordinary gains or losses items Amount
Net gains or losses from
disposal of non-current assets -1,431
Government grants received 49,350
Net gains or losses attributable to debt restructuring -545
Gains or losses arising from acquisition of subsidiaries 0
Gains or losses arising from financial instruments held for trading -3,130
Non-operating net gains or
losses other than the above 4,267
Effect of extraordinary gains or
losses on minority shareholders -5,771
Effect of extraordinary gains or losses on income tax -6,375
Total 36,3646
II. RECONCILIATIONS OF ACCOUNTS PREPARED IN ACCORDANCE WITH ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES AND INTERNATIONAL FINANCIAL REPORTING STANDARDS
Unit: RMB’000
Accounting International
Standards Financial
For Business Accounting
Items Enterprises Standards
Net profit 696,079 713,808
Net assets 14,692,282 14,380,664
Reason for difference In years prior to 2006, according to the principles of the PRC Accounting Standards for Business Enterprises,the Group will receive special fund for treasury bond received and special accounts payable related to construction of relevant fixed assets which are included in capital reserve. However, according to IAS, the Group will account for special fund for treasury bond received and special accounts payable under deferred income and be amortized by installments over the useful lives of fixed assets.7
III. Changes in Share Capital and Shareholders
I. CHANGES IN SHARE CAPITAL AT THE END OF THE REPORTING PERIOD
(Unit: shares)
Increase/decrease (+/-) resulting
Opening balance from changes in the reporting period Closing balance
Increase in Release of
Number lock-up restricted Number
of shares Percentage shares Shares Sub-total of shares Percentage
I. Restricted shares 303,298,805 14.71% 368,123 — 368,123 303,666,928 14.73%
1. State-owned legal
person shares 293,003,657 14.21% — — — 293,003,657 14.21%
2. Shares held by Senior
Management 10,295,148 0.5% 368,123 — 368,123 10,663,271 0.52%
II. Non-restricted shares 1,758,747,136 85.29% -368,123 — -368,123 1,758,379,013 85.27%
1. Renminbi ordinary shares 809,979,651 39.28% -368,123 — -368,123 809,611,528 39.26%
2. Domestic listed
foreign shares 557,497,485 27.04% — — — 557,497,485 27.04%
3. Overseas listed
foreign shares 391,270,000 18.97% — — — 391,270,000 18.97%
III. Total number of shares 2,062,045,941 100.00% — — — 2,062,045,941 100.00%
Note: During the reporting period, the restricted shares held by Senior Management changed by 368,123 shares from 10,295,148 shares to 10,663,271 shares. The reasons for such change were as follows:
(1) During the reporting period, the shares held by three resigned Senior Management members of the Company remained restricted. As a result, 25% of the non-restricted RMB ordinary shares (A shares) held by the resigned Senior Management changed to restricted shares and amounted to 182,938 shares;
(2) During the reporting period, the nature of 185,185 shares held by two new Senior changed from non-restricted RMB ordinary shares (A shares) to restricted shares held by Senior Management.
As a result, the restricted shares held by Senior Management increased by a total of 368,123 shares as compared with the end of last year.8
II. SHAREHOLDERS’ PROFILE AS AT THE END OF THE REPORTING PERIOD
1. The top ten shareholders and the top ten shareholders of non-restricted shares
Total number of shareholders The total number of shareholders was 157,638, of which 126,799 were holders of A shares, 30,171 were holders of B shares and 668 were holders of H shares
Shareholdings of the top ten shareholders
Total Number of Number of
number of restricted shares
Name of Type of Percentage of shares held shares held pledged or
shareholders shareholder shareholding (shares) (shares) locked-up
HKSCC NOMINEES LIMITED Overseas 18.91% 389,895,000 0 Unknown
non-state-owned
legal person
(foreign shareholder)
SHOUGUANG CHENMING HOLDINGS State-owned legal person 14.21% 293,003,657 293,003,657 0
COMPANY LIMITED
PLATINUM ASIA FUND Overseas legal person 2.10% 43,328,636 0 Unknown
CHINA CONSTRUCTION BANK Domestic 1.62% 33,500,000 0 Unknown
－鵬華價值優勢股票型 non-state-owned
證券投資基金 legal person
MANULIFE GLOBAL FUND Overseas legal person 0.99% 20,324,321 0 Unknown
HTHK-MANULIFE Overseas legal person 0.96% 19,807,483 0 Unknown
CHINA VALUE FUND
BILL & MELINDA GATES Domestic 0.95% 19,495,444 0 Unknown
FOUNDATION TRUST non-state-owned
legal person
BBH BOS S/A FIDELITY FD Overseas legal person 0.88% 18,138,126 0 Unknown
- CHINA FOCUS FD
BANK OF CHINA Domestic 0.77% 15,932,254 0 Unknown
－易方達深證100交易型 non-state-owned
開放式指數證券投資基金 legal person
INDUSTRIAL AND COMMERCIAL Domestic 0.74% 15,259,170 0 Unknown
BANK OF CHINA－諾安股票證券 non-state-owned
投資基金 legal person9
II. SHAREHOLDERS’ PROFILE AS AT THE END OF THE REPORTING PERIOD (continued)
1. The top ten shareholders and the top ten shareholders of non-restricted shares (continued)
Shareholding of the top ten shareholders of non-restricted shares
Number of
non-restricted
Name of shares held Classes
shareholders (shares) of shares
HKSCC NOMINEES LIMITED 389,895,000 H shares
PLATINUM ASIA FUND 43,328,636 B shares
CHINA CONSTRUCTION BANK 33,500,000 A shares
－鵬華價值優勢股票型證券投資基金
MANULIFE GLOBAL FUND 20,324,321 B shares
HTHK-MANULIFE CHINA VALUE FUND 19,807,483 B shares
BILL & MELINDA GATES FOUNDATION TRUST 19,495,444 A shares
BBH BOS S/A FIDELITY FD - CHINA FOCUS FD 18,138,126 B shares
BANK OF CHINA－易方達深證100交易型 15,932,254 A shares
開放式指數證投資基金
INDUSTRIAL AND COMMERCIAL 15,259,170 A shares
BANK OF CHINA－諾安股票證券投資基金
DRAGON BILLION CHINA MASTER FUND 13,853,877 B shares
Connected relationship or Among the top ten shareholders of the Company, Shouguang Chenming
concert-party relationship Holdings Company Limited, a state-owned legal person shareholder,
among the above is not connected with any of the other shareholders. Save for the above,
shareholders the Company is not aware of any other shareholders of outstanding shares as aforesaid are connected with each other.
2. Changes in the Company’s controlling shareholders and beneficial controllers during the reporting period
The Company’s controlling shareholders and beneficial controllers remained unchanged during the reporting period.10
IV. Directors, Supervisors and Senior Management
I. CHANGES IN SHAREHOLDINGS OF THE DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
During the reporting period, the shareholdings of the Directors, Supervisors and Senior Management of the Company remain unchanged.
II. CHANGES IN DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
1. On 12 April 2010, the Board of the Company held an election of directors. After the consideration of the first extraordinary general meeting of the Company in 2010, Chen Hongguo, Yin Tongyuan, Li Feng, Geng Guanglin, Tan Daocheng, Hou Huancai, Zhou Shaohua, Cui Youping, Wang Fengrong and Wang Xiaoqun were appointed as non-independent Directors of the sixth session of the Board of the Company for three years; and Wang Aiguo, Zhang Zhiyuan, Wang Xiangfei, Wang Yumei and Zhang Hong were appointed as independent non-executive Directors of the sixth session of the Board of the Company for three years.
For specific details, please refer to the relevant announcements published in China Securities Journal, Hong Kong Commercial Daily and on the website of CNINF (http://www.cninfo.com.cn) on 13 April 2010, and the website of The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”) (www.hkex.com.hk) on 12 April 2010.
2. On 12 April 2010, the Supervisory Committee of the Company held an election of Supervisors. After the consideration of the first extraordinary general meeting of the Company in 2010, Gao Junjie, Guo Guangyao and Yin Qixiang were appointed as Supervisors representing shareholders of the sixth session of the Supervisory Committee for three years, and Wang Ju and Yang Hongqin were appointed as Supervisors representing the employees of the sixth session of the Supervisory Committee for three years.
For specific details, please refer to the relevant announcements published in China Securities Journal, Hong Kong Commercial Daily and on the website of CNINF (http://www.cninfo.com.cn) on 13 April 2010, and the website of the Hong Kong Stock Exchange (www.hkex.com.hk) on 12 April 2010.
3. On 12 April 2010, after the consideration of the first meeting of the sixth session of the Board, Mr. Chen Chunfu was appointed as the general manager of the Company, Mr. Hao Yun as the secretary to the Board of the Company, Mr. Poon Shiu Cheong as the qualified accountant and company secretary (Hong Kong), Mr. Li Feng as the standing deputy general manager and sales controller of the Company, Mr. Hu Changqing, Mr. Wang Baoliang, Mr. Geng Guanglin, Ms. Li Xueqin, Mr. Hao Yun, Mr. Wang Zaiguo, Mr. Zhang Chunlin, Mr. Hong Zhuxiong, and Mr. Wang Shihong as deputy general managers of the Company, and Mr. Wang Chunfang as the financial controller of the Company.
For specific details, please refer to the relevant announcements published in China Securities Journal, Hong Kong Commercial Daily and on the website of CNINF (http://www.cninfo.com.cn) on 13 April 2010, and the website of the Hong Kong Stock Exchange (www.hkex.com.hk) on 12 April 2010.11
V. Directors’ Report
I. Discussion and analysis under Accounting Standards for Business Enterprises:
The following financial data are extracted from the unaudited financial statements prepared by the Company in accordance with Accounting Standards for Business Enterprises. The following discussion and analysis shall be read in conjunction with the financial statements of the Company set out in this report and the notes thereto.
1. Operations of the Company during the reporting period
The paper making industry turned around due to the greater economic recovery. Product prices rose with greater gross profit margin as the pulp and paper prices went up. The rising tendency extended in the first and second quarters of 2010. During the reporting period, the capacity of the pulp production lines of the Company was fully utilised against the backdrop of a continuous soaring rise in the pulp market price, highlighting the competitive advantage of the Company in the time of rising costs. Compared with the corresponding period of last year, the profitability of the principal operations became higher during the reporting period and the gross profit margin of the paper products was relatively stable. During the reporting period, various works of the Company were orderly implemented in accordance with the operating plan formulated at the beginning of the year with continuous improvement in various operating indicators under the leadership of the Board.
During the reporting period, the Company achieved machine-made paper production and sales of 1.6838 million tonnes and 1.55 million tonnes respectively, representing a growth of 16% and 2.02% respectively compared with the corresponding period of last year. Revenue realised increased by RMB1,501 million or 22.49% compared with the corresponding period of last year. Operating profit increased by RMB602 million or 343.75% compared with the corresponding period of last year. Profit attributable to equity holders of the Company increased by RMB450 million or 285.98% compared with the corresponding period of last year. These were primarily due to a significant improvement of the results, which benefited from a rise in the sales price of the products of the Company with higher gross profit margins as a result of a turnaround in the paper making industry in the first half of 2010, as compared with the corresponding period of last year being affected by the financial crisis.
Unit: RMB’000
Increase
compared
with the
corresponding
January to January to period of
Item June 2010 June 2009 last year (%)
Revenue from operations 8,176,642 6,675,367 22.49
Operating profit 777,353 175,177 343.75
Net profit attributable to equity holders of
the Company 607,869 157,487 285.98
The Company operates in the paper making industry, which is a light industry, and its principal activities are the production and sale of machine made paper and paperboard, paper making raw materials and machinery; and generation and sale of electricity and steam. During the reporting period, machine made paper realised operating revenue of RMB7,753 million, accounting for 94.81% of the total operating revenue of the Company.12
FINANCIAL RESULTS (continued)
I. Discussion and analysis under Accounting Standards for Business Enterprises: (continued)
2. Revenue from operations by industry and product
Unit: RMB’000
Revenue from operations by industry
Increase/
Increase/ decrease in
decrease in Increase/ gross profit
revenue from decrease in margin
operations cost of sale compared
compared compared with the
with the with the corresponding
corresponding corresponding period of
Revenue period of period of last year
from Gross profit last year last year (percentage
By industry or by product operations Cost of sale margin (%) (%) points)
Sales of machine-made paper 7,752,519 6,074,850 21.64 21.64 12.20 6.59
Sales of electricity and steam 175,867 143,026 18.67 61.73 92.65 -13.05
Sales of construction materials 173,872 144,211 17.06 21.14 22.90 -1.19
Sales of chemical products 32,447 21,361 34.17 774.82 1049.68 -15.74
Others 41,937 12,952 69.12 -8.88 -39.74 15.81
Total 8,176,642 6,396,400 21.77 22.49 13.63 6.10
Principal activities by product
Light weight coated paper 686,620 573,899 16.42 -13.26 -15.67 2.39
Duplex press paper 974,927 790,918 18.87 1.48 -1.35 2.32
Writing paper 285,119 237,342 16.76 67.62 61.93 2.93
Copperplate paper 2,082,892 1,566,974 24.77 59.91 42.78 9.02
News press paper 728,507 630,522 13.45 -17.41 -15.49 -1.97
Paperboard 408,825 359,162 12.15 57.47 57.17 0.17
White paper board 1,054,039 746,770 29.15 15.56 -6.96 17.1513
FINANCIAL RESULTS (continued)
I. Discussion and analysis under Accounting Standards for Business Enterprises: (continued)
3. Breakdown of revenue from operations by geographical segment
Unit: RMB’000
Increase/
decrease
in revenue from
operations
compared
with the
corresponding
Revenue from period of
Geographical segment operations last year (%)
PRC 7,137,698 19.94
United States 43,638 -18.95
Hong Kong 102,065 43.18
Japan 112,422 -38.60
South Africa 44,048 13.82
Other overseas areas 736,771 95.18
Total 8,176,642 22.4914
FINANCIAL RESULTS (continued)
I. Discussion and analysis under Accounting Standards for Business Enterprises: (continued)
4. Problems emerged in operations and measures to resolve them
During the reporting period, the market demand saw a rapid growth with the economic recovery after the global financial crisis. The prices of major raw materials and products rapidly increased in the first and second quarter of this year. However, the pickup was so rapid in a short period that the industrial demand began to fall as at the end of the second quarter. The raw material prices went down but their level was limited. In the long run, raw material prices would come under pressure to rise again. Meanwhile, the demand in the paper product market began to go down. The purchasing intention in the downstream market tended to be cautious after a sharp price rise in the first half of year. As the raw material prices went down, the prices of paper products decreased correspondingly. The new capacity brought forth by the new projects in the industry upon operation may also affect the market in the second half of the year.
The above changes made things difficult for the management to make decision for product sale strategy, purchasing strategy and inventory management of the Company. The corresponding measures adopted by the Company include:
(1) Taking full advantage of the own low pulp production cost of the Company by effectively controlling the production cost with flexible corresponding measures in response to the change in pulp market price;
(2) Timely adjusting its product mix and actively developing the new products with marketability in response to the change in market demand and seeking to keep the inventory level low;
(3) Enhancing the survey and studies of the market for the new projects which were going to commence operation; formulating the marketing plan of the products in detail, thus putting the marketing of the new products in place;
(4) Strengthening the marketing management: strengthening the management of the sales system, including risk management, delivery management and contract management, etc.; and monitoring the customers financed by foreign investment, joint investment, private investment and individuals’ investment with greater efforts and requiring pledge or guarantee from such types of customers with a view to reducing business risk; reinforcing personnel training and building of sales teams, establishing a comprehensive appraisal system for sales personnel to bring out the proactive work attitude of business personnel, and enhancing the efforts in market development.15
FINANCIAL RESULTS (continued)
II. Investments during the reporting period
1. Use of proceeds during the reporting period
The Company issued 355.70 million H shares on 18 June 2008. The total proceeds from the issue were translated into approximately RMB 2,831 million. The net proceeds less the expenses of RMB 103 million were RMB 2,728 million. As of the end of the reporting period, the proceeds of RMB 2.182 billion were utilised, in which approximately RMB245 million was used as a supplement to working capital and approximately RMB1.937 billion was used for the Zhanjiang project, and the remaining proceeds were deposited at special deposit bank accounts. The status of the projects relating to the proceeds during the reporting period is as follows:
Unit: RMB in ten thousands
Use of total proceeds
Total proceeds 272,825 during the reporting period 74,733.37
Accumulated use of total proceeds 218,176.74
Whether
Whether progressing
Proposed Project Actual Benefits progressing with estimated
Project undertaken investment changes investment realised as scheduled benefits
Zhanjiang 700,000-tonne per
annum pulp project 248,271 No 193,666.74 — — Net yet in
production
Supplement to working capital 24,554 No 24,510 — — —
Total 272,825 — 218,176.74 — — —
Explanation on failure to progress as
scheduled and realise benefits
(by specific projects) Nil
Explanation on reason of change and
change procedure (by specific projects) Nil
Use of unused proceeds The unused remaining proceeds
and their status were deposited at special deposit bank accounts.
As of the date of this report, the majority of the equipment purchased for the Zhanjiang Pulp Project was delivered. The equipment installation of the power plant and the plant was approximately 60% completed on the whole. The civil works was 70% completed on the whole. The project was expected to commence production by April 2011.16
FINANCIAL RESULTS (continued)
II. Investments during the reporting period (continued)
2. Highlights of the other major investments during the reporting period
During the reporting period, the Company and its controlling subsidiaries injected a total of RMB443.83 million mainly for the following five projects:
(1) The high-end low weight coated paper project of an annual production capacity of 800,000 tonnes
The high-end low weight coated paper project of an annual production capacity of 800,000 tonnes in Shouguang City was considered and approved by the 2009 First Extraordinary General Meeting of the Company. The planned total investment amount for this project was approximately RMB5.2 billion. The construction of the project will last for 18 months. Upon completion, the project will realise an annual production capacity of 800,000 tonnes high-end low weight coated paper and a profit of approximately RMB850 million. Upon operation, the project will surely increase the percentage of high-end paper products and enhance the comprehensive competitiveness of the Company.
Currently, the advance payment for main equipment of the project had been paid and the civil works of the project was 80% completed. RMB186 million was invested during the reporting period. It is expected that the project will commence operation by April 2011.
(2) The high-end culture paper project of an annual production capacity of 450,000 tonnes
The high-end culture paper project of an annual production capacity of 450,000 tonnes in Zhanjiang, Guangdong was considered and approved by the 2008 Annual General Meeting of the Company. The planned total investment amount for this project was approximately RMB1.668 billion. The construction of the project will last for 18 months. Upon completion, the project will realise an annual production capacity of 450,000 tonnes high-end culture paper and a profit of approximately RMB189 million. Upon operation, the project will surely increase the percentage of high-end paper products and enhance the comprehensive competitiveness of the Company.
Currently, the advance payment for main equipment had been paid and the civil works of the project was 70% completed. RMB36 million was invested during the reporting period. It is expected that the project will commence operation by April 2011.
(3) The high-end white coated linerboard project of an annual production capacity of 600,000 tonnes
The high-end white coated linerboard project of an annual production capacity of 600,000 tonnes in Shouguang City was considered and approved by the 2009 First Extraordinary General Meeting of the Company. The planned total investment amount for this project was approximately RMB2.6 billion. The Company had entered into the main equipment purchase contract in respect to this project. The construction of the project will last for 18 months. Upon completion, the project will realise an annual production capacity of 600,000 tonnes high-end white coated linerboard paper and a profit of approximately RMB430 million. Upon operation, the project will increase the percentage of high-end paper products and enhance the comprehensive competitiveness of the Company.
Currently, the project was holding equipment tenders and equipment purchase was around 50% completed. RMB152 million was invested during the reporting period. It is expected that the project will commence operation by May 2012.17
FINANCIAL RESULTS (continued)
II. Investments during the reporting period (continued)
2. Highlights of the other major investments during the reporting period (continued)
(4) The high-end tissue paper project of an annual production capacity of 60,000 tonnes
The high-end tissue paper project of an annual production capacity of 60,000 tonnes was considered and approved by the twelveth meeting of the fifth session of the Board. The planned total investment amount for this project was approximately RMB618 million. The construction of the project will last for one year. Upon completion, the project will realise a profit of approximately RMB78 million. Upon completion and operation, the project will diversify the paper product mix of the Company by expanding into a brand new category of paper product.
Currently, the civil works of the project was 80% completed and the equipment was being installed. RMB50 million was invested during the reporting period. It is expected that the project will commence operation by November 2010.
(5) Research and development centre project
The construction project of a research and development centre was approved by the Thirteenth Meeting of the Fifth Session of the Board of Directors. The project’s planned investment amounted to approximately RMB120 million and it will be completed in 17 months. Upon completion, the centre will be mainly used for development of new projects and includes technical research institutes, technical laboratories, product testing rooms, workstations for post-doctoral technicians, offices, etc.
The main structure of the centre has been topped out and the secondary structure is under construction while interior installation has also commenced. RMB19.83 million was injected during the reporting period and it is estimated that the whole project will complete and commence operation by end of December 2010.18
FINANCIAL RESULTS (continued)
III. 1. Analysis of the assets and liabilities of the Company
Unit: RMB’000
As at As at
30 June31 December Reason for
Item 2010 2009 Change change
(%)
Monetary funds 2,082,977 2,892,923 -28.00 (1)
Held-for-trading financial assets 7,900 14,900 -46.98 (2)
Bills receivable 2,062,185 2,704,799 -23.76 (3)
Accounts receivable 1,809,492 1,528,991 18.35 (4)
Other receivables 101,213 81,211 24.63 (5)
Inventory 3,137,539 2,226,579 40.91 (6)
Other current assets 150,067 90,756 65.35 (7)
Construction in progress 3,229,907 1,997,961 61.66 (8)
Other non-current assets 581,642 496,725 17.10 (9)
Short-term borrowings 1,577,824 3,103,154 -49.15 (10)
Held-for-trading financial liabilities 2,580 6,450 -60.00 (11)
Bills payable 349,608 544,533 -35.80 (12)
Accounts payable 2,783,532 2,122,861 31.12 (13)
Advance receipts 167,354 233,124 -28.21 (14)
Staff remuneration payables 183,493 245,501 -25.26 (15)
Taxes payable 95,468 137,491 -30.56 (16)
Interest payable 50,104 5,050 892.17 (17)
Other payables 459,242 321,221 42.97 (18)
Non-current liabilities
due within one year 498,174 345,354 44.25 (19)
Deferred income tax liabilities 15,265 12,409 23.02 (20)
Other non-current liabilities 2,282,198 1,189,484 91.86 (21)
Explanation on the main reasons leading to the changes:
(1) Monetary funds decreased by 28% as compared with the beginning of the year, mainly due to repayment of a portion of borrowings by the Company during the period.
(2) Held-for-trading financial assets decreased by 46.98% due to the future polling foreign exchange of Chenming (HK) Limited, a subsidiary of the Company.
(3) Bills receivable decreased by 23.76%, mainly due to the decrease in discounted bills not yet due of the Company.
(4) Accounts receivable increased by 18.35%, mainly due to the increase in revenue resulting from the increases in sales prices of the Company.
(5) Other receivables increased by 24.63%, mainly due to the increase in security deposits for equipment.
(6) Inventories increased by 40.91%, mainly due to the increase in inventory balance under the market conditions.
(7) Other current assets increased by 65.35%, mainly due to the increase in the input tax of non-credited value-added tax.
(8) Construction in progress increased by 61.66%, mainly due to the increase in investments in construction projects during the current period.19
FINANCIAL RESULTS (continued)
III. 1. Analysis of the assets and liabilities of the Company (continued)
(9) Other non-current assets increased by 17.1%, mainly due to purchase and growing of timber assets and change in their fair value.
(10) Short-term borrowings decreased by 49.15%, mainly due to the decrease in discounted bills not yet due of the Company and repayment of a portion of borrowings.
(11) Held-for-trading financial liabilities decreased by 60%, mainly due to the future polling foreign exchange of the Company.
(12) Bills payable decreased by 35.8%, mainly due to the effect of a decrease in the bills issued by the Company during the current period.
(13) Accounts payable increased by 31.12%, mainly due to the increase in accounts payables in respect of raw materials of the Company during the period.
(14) Advance receipts decreased by 28.21%, mainly because less customers adopted the prepayment method due to market changes, resulting in a decrease in our balance of advances from customers.
(15) Staff remuneration payables decreased by 25.26%, mainly due to the payment of prior year’s annual salary by the Company during the period.
(16) Taxes payables decreased by 30.56%, mainly due to the decrease in value-added tax and income tax payables of the Company.
(17) Interest payable increased by 892.17%, mainly due to the appropriation of the interests of the medium-term notes by the Company.
(18) Other payables increased by 42.97%, mainly due to the increase in security deposits of the Company during the current period.
(19) Non-current liabilities due within one year increased by 44.25%, mainly because a portion of borrowings were transferred from long-term borrowings to borrowings due within one year during the current period.
(20) Deferred income tax liabilities increased by 23.02%, mainly due to provision for deferred income tax liabilities on surplus of revaluation of timer assets.
(21) Other non-current liabilities increased by 91.86%, mainly due to issuance of medium term notes during the current period.20
FINANCIAL RESULTS (continued)
III. 2. Significant change and analysis of income statement compared with the corresponding period of last year
Unit: RMB’000
For the For the
six months six months
ended ended
30 June 30 June Reason for
Items 2010 2009 Change change
(%)
Operating revenue 8,176,642 6,675,367 22.49 (1)
Operating costs 6,396,400 5,629,255 13.63 (2)
Business taxes and surcharges 10,398 7,109 46.26 (3)
Selling and distribution expenses 441,502 339,929 29.88 (4)
General and administrative expenses 417,135 335,899 24.18 (5)
Finance expenses 125,740 176,847 -28.9 (6)
Loss on impairment of assets 20,796 10,603 96.14 (7)
Investment income 4,324 -9,532 145.37 (8)
Income tax expenses 142,479 52,125 173.34 (9)
Explanation on the main reasons leading to the changes:
(1) Operating revenue increased by 22.49% as compared to the corresponding period of last year, mainly due to the substantial increase in sales prices as compared to the corresponding period of last year.
(2) Operating costs increased by 13.63% as compared to the corresponding period of last year, mainly due to the increase in sales costs of products as compared to the corresponding period of last year.
(3) Business taxes and surcharges increased by 46.26% as compared to the corresponding period of last year, mainly due to significant increase in value-added tax recorded in the current period as compared to the corresponding period last year.
(4) Selling and distribution expenses increased by 29.88% as compared to the corresponding period of last year, mainly because of rise in fuel prices and transportation cost per tonne kilometre as compared to the corresponding period of last year.
(5) General and administrative expenses increased by 24.18% as compared to the corresponding period of last year, mainly due to the increase in the research and development costs as we put more efforts in research and development, and the increase in wages as compared to the corresponding period last year.
(6) Finance expenses decreased by 28.9% as compared to the corresponding period of last year, mainly due to the adoption of active financing methods by the Company such as issuance of medium-term notes and short-term debentures.
(7) Loss on impairment of assets increased by 96.14% as compared to the corresponding period of last year, mainly due to reversal of the allowance for inventories in 2008 during the corresponding period of last year.
(8) Investment income increased by 145.37% as compared to the corresponding period of last year, mainly due to the higher profits of associated corporations for the period as compared to the corresponding period of last year.
(9) Income tax expenses increased by 173.34% as compared to the corresponding period of last year, mainly because gross profit margin and profit increased during the current period, resulting in an increase in the income tax expenses as compared to the corresponding period of last year.21
FINANCIAL RESULTS (continued)
III. 3. Cash flows from operating activities of the Company during the reporting period
Unit: RMB’000
The
corresponding
Items The reporting period of
period last year Change (%)
Net cash flows from operating activities 1,189,723 -526,102 326.14%
Net cash flows from investment activities -1,502,481 -352,023 -326.81%
Net cash flows from financing activities -170,160 679,032 -125.06%
Explanation on the main reasons leading to the changes:
(1) The increase in the cash flows from operating activities as compared to the corresponding period of last year was mainly due to higher revenue resulting from significantly higher sale prices in the current period as compared to the corresponding period of last year under the impact of the financial crisis.
(2) The decrease in the cash flows from investment activities as compared to the corresponding period of last year was mainly due to the decrease in net cash flows from investment activities resulting from the investments on the Company’s projects of copperplate paper of production capacity of 800,000 tonnes, tissue paper of production capacity of 60,000 tonnes, high-end white coated linerboard of production capacity of 600,000 tonnes and the Zhanjiang pulp project.
(3) The decrease in the cash flows from financing activities as compared to the corresponding period of last year was mainly due to the higher dividend of the current period than the same period of last year as well as less bank borrowings (including medium-term notes) of the period than the same period of last year mainly attributable to less discounted notes not yet due of the current period
IV. Warnings on forecast of significant changes in accumulated net profit compared with the corresponding period of last year for the period the beginning of the year to the end of the next reporting period, with explanations.
Due to a turnaround in the market landscape, the Company recorded higher average product price in the first three quarters of 2010 as compared with that of last year, which led to higher gross profit margin of the paper products of the Company and improved results of the Company. It is expected that the Company’s accumulated net profit will increase by 50%-100% in January-September 2010 as compared with the corresponding period of last year.22
FINANCIAL RESULTS (continued)
V. Focus of work for the second half of 2010
In the second half, the Company will be committed to achieving the goals as set at the beginning of the year. With a view to improving economic efficiency, the Company will continue to focus on new project construction, strengthened efforts in market exploration and greater energy saving and emission reduction:
(1) Project construction: To ensure the construction of the Zhanjiang Pulp Project, and the high-end low weight coated paper project and the tissue paper project to be implemented as planned, guarantee the construction quality and progress and be prepared for the staff deployment and training and operation of new production lines;
(2) To accelerate the construction of raw material bases on the basis of the forestry bases in Zhanjiang, Huizhou and Huanggang as the planned objective;
(3) Strengthened efforts in market exploration for greater and further development: To actively implement reasonable marketing measures with a view to optimizing its international marketing network and excel its project sale planning to increase sales channel;
(4) To strengthen internal control and system establishment and improve corporate governance with a view to enhancing its management strength;
(5) To continuously take resources saving and environmental protection as strategic objectives in the course of corporate development with a view to strengthening energy saving and emission reduction for the purpose of sustainable development.23
VI. Material Matters
I. PERSEONNEL INFORMATION
1. Change of personnel
Please refer to “IV. Directors, Supervisors and Senior Management”.
2. Personnel of the Company
As at 30 June 2010, the Group had 16,504 employees in aggregate, including 10,463 production staff, 495 sales staff, 1,920 technical staff, 68 Computer staff, 274 financial staff, 2,115 administrative staff and 1,169 other staff. The remuneration of the employees of the Company includes their salaries, bonuses and other fringe benefits. The Company determines different rates of remuneration for different employees based on their performance, qualifications, duties and other factors in compliance with the relevant PRC laws and regulations.
II. CORPORATE GOVERNANCE STRUCTURE DURING THE REPORTING PERIOD
1. The Company’s corporate governance is generally in compliance with the relevant requirements of China Securities Regulatory Commission (CSRC)
Strictly in compliance with the requirements of the relevant laws and regulations of Company Law (《公司法》), Securities Law (《證券法》), Code of Corporate Governance for Listed Companies (《上市公司治理準則》), listing rules of Shenzhen Stock Exchange (《深圳證券交易所股票上市規則》) and the Articles of Association, the Company continued to optimise its legal person governance structure, and established an modern enterprise policy to regulate the operations of the Company.
The state of governance of the Company is currently in compliance with the requirements under the relevant documents of CSRC.
2. Audit committee
The Audit Committee of the Company had discussed with the management the accounting standards and practices adopted by the Company, and had also discussed and reviewed this report, including the financial statements of the Company as at 30 June 2010 prepared in accordance with Accounting Standards for Business Enterprises and International Financial Reporting Standards respectively.24
III. 2009 PROFIT DISTRIBUTION PLAN AND 2010 INTERIM PROFIT DISTRIBUTION PLAN
1. The 2009 profit distribution plan of the Company was considered and approved by the 2009 Annual General Meeting. Based on 2,062,045,941 shares in the total share capital of the Company, cash bonus of RMB 3.0 was to be paid to all shareholders for every 10 shares held (tax included, RMB 2.70 for every 10 shares held to be actually paid to individual shareholders, investment funds and Qualified Foreign Institutional Investors holding A shares, as well as non-resident enterprises holding B shares after tax deduction, and in respect of other B Share shareholders, no income tax to be deducted for tax payment). Distribution of cash bonuses under such distribution amounted to RMB 0.619 billion (RMB618,613,782.30) (tax included).
For A Shares, the record date was 18 June 2010. For B Shares, the record date was 23 June 2010. The ex-rights date was 21 June 2010.
2. The 2010 interim profit distribution plan: no profit distribution was proposed to be implemented for the interim period of 2010, also, no share capital increase by way of transfer from capital reserves will be carried out.
IV. MATERIAL ACQUISITION AND DISPOSAL OF ASSETS, ABSORPTIONS AND MERGERS OF THE COMPANY DURING THE REPORTING PERIOD
The Company had no material acquisition and disposal of assets, absorptions and mergers during the reporting period.
V. MATERIAL LITIGATION AND ARBITRATION
The Company was not subject to any material litigation or arbitration during the reporting period.
VI. UNDERTAKINGS BY HOLDERS OF NON-TRADABLE SHARES DERIVED FROM THE REFORM OF CONVERSION
1. Undertakings made during the reform of conversion and performance of such undertakings
It was undertaken that shares held by Shouguang Chenming Holdings Co., Ltd., the controlling shareholder of the Company, shall not be listed and traded within 48 months from the date of implementation of the reform of conversion. During the reporting period, Shouguang Chenming Holdings Co., Ltd. had strictly adhered to such undertakings. The undertakings of the controlling shareholder expired on 29 March 2010. The undertakings of the holders of non-tradable shares were fully fulfilled.
2. During the reporting period, no shareholders holding 5% (including 5%) or above shares in the Company had made any additional undertakings on shares subject to trading moratorium.
VII. MATERIAL CONTRACTS AND THEIR PERFORMANCE
On 17 May 2010, Shouguang Meilun Paper, a wholly owned subsidiary of the Company, entered into equipment purchase contracts with Voith Paper Gmbh, Voith Paper (China) Co. Ltd, Metso Paper Inc and Metso Paper Technology (Shanghai) Co. Ltd, respectively for the White Coated Linerboard Project with an annual production capacity of 600,000 tonnes. The advance payment in respect of the contracts had been paid and the subsequent work will be strictly implemented. For the details, please refer to the relevant announcements published on China Securities Journal, Hong Kong Commercial Daily and the website of CHINF (http://www.cninfo.com.cn) on 18 May 2010, and the website of the Hong Kong Stock Exchange (www.hkex.com.hk) on 17 May 2010.25
VIII. EXTERNAL GUARANTEES
During the reporting period, the Company did not provide any external guarantees or illegal guarantees, except for the guarantees for its controlling subsidiaries.
As at 30 June 2010, the balance of guarantee provided by the Company for its controlling subsidiaries amounted to RMB 1,780.35 million, representing 13.71% of the net assets of the Company attributable to the shareholders of the parent company.
Unit: RMB’0000
External guarantees provided by the Company (excluding guarantees provided for subsidiaries)
Date and
number of the
related
announcement Guarantee Guarantee
disclosing the date to related
guarantee Amount of (agreement Guarantee Type of Fulfilled parties or
Name of obligor amount guarantee date) provided guarantee Term or not? not
Total amount of external guarantee approved Total amount of external guarantee
during the reporting period (A1) 0.00 provided during the reporting period (A2) 0.00
Total balance of external guarantee
Total amount of external guarantee approved as at provided as at the end of the reporting
the end of the reporting period (A3) 0.00 period (A4) 0.00
Guarantees provided by the Company for subsidiaries
Date and
number of the
related
announcement Guarantee Guarantee
disclosing the date to related
guarantee Amount of (agreement Guarantee Type of Fulfilled parties or
Name of obligor amount guarantee date) provided guarantee Term or not? not
Zhanjiang Chenming
Paper Pulp Co., 2006-07-27 25 March 15
Ltd. (2006-042) 564,020.00 2008 109,035.00 Credit years No No
Jiangxi Chenming 2009-12-16 10 December
Paper Co., Ltd. (2009-034) 45,000.00 2009 45,000.00 Credit 3 years No No
Jiangxi Chenming 2003-03-17 11 December
Paper Co., Ltd. (2003-002) 103,600.00 2003 5,000.00 Credit 9 years No No
Huanggang Chenming
Arboriculture Co., 2010-02-25 20 April
Ltd. (2010-003) 16,000.00 2010 2,000.00 Credit 1 years No No
Wuhan Chenming
Hanyang Paper 2009-05-27 1 September
Holdings Co. Ltd. (2009-012) 30,000.00 2009 4,000.00 Credit 1 year No No
Huanggang Chenming
Arboriculture Co., 2009-05-27 2 June
Ltd. (2009-012) 10,000.00 2009 5,000.00 Credit 3 years No No
Shouguang Meilun 2009-06-09 1 January
Paper Co., Ltd. (2009-015) 8,000.00 2010 8,000.00 Credit 6 years No No
Shandong Chenming
Paper Group Qihe 21
Paperboard Co., 2009-05-27 September
Ltd. (2009-012) 28,000.00 2009 0.00 Credit 1 year No No
Shouguang
Chenming Art 2009-05-27
Paper Co., Ltd. (2009-012) 10,000.00 6 May 2009 0.00 Credit 1 year No No
Jilin Chenming 2009-05-27 19 May
Paper Co., Ltd. (2009-012) 70,000.00 2009 0.00 Credit 1 year No No
Heze Chenming 2009-05-27 non-
Panels Co., Ltd. (2009-012) 10,000.00 — — Credit — performing No
Chenming (HK) 2009-05-27 non-
Limited (2009-012) 47,915.00 — — Credit — performing No26
IX. EXTERNAL GUARANTEES (continued)
Unit: RMB’0000
External guarantees provided by the Company (excluding guarantees provided for subsidiaries)
Date and
number of the
related
announcement Guarantee Guarantee
disclosing the date to related
guarantee Amount of (agreement Guarantee Type of Fulfilled parties or
Name of obligor amount guarantee date) provided guarantee Term or not? not
Wuhan Chenming
Hanyang Paper 2010-02-25
Holdings Co., Ltd. (2010-003) 30,000.00 6 April 2010 0.00 Credit 1 year No No
Shouguang
Chenming Art 2010-02-25
Paper Co., Ltd. (2010-003) 10,000.00 5 May 2010 0.00 Credit 1 year No No
Jilin Chenming 2010-02-25 18 May
Paper Co., Ltd. (2010-003) 30,000.00 2010 0.00 Credit 1 year No No
Shandong Chenming
Paper Group Qihe Contract
Paperboard Co., 2010-02-25 has not
Ltd. (2010-003) 20,000.00 — — Credit — been signed No
Contract
Chenming (HK) 2010-02-25 has not
Limited (2010-003) 102,423.00 — — Credit — been signed No
Xianning Chenming Contract
Arboriculture Co., 2010-02-25 has not
Ltd. (2010-003) 10,000.00 — — Credit — been signed No
Total amount of guarantee provided for Total amount of guarantee provided for
subsidiaries approved during the reporting period subsidiaries during the reporting period
(B1) 218,423.00 (B2) 30,629.00
Total amount of guarantee provided for Total balance of guarantee provided for
subsidiaries approved as at the end of the subsidiaries as at the end of the reporting
reporting period (B3) 1,144,958.00 period (B4) 178,035.00
Total amount of guarantee provided by the Company (the sum of the above two main categories)
Total amount of guarantee approved during the Total amount of guarantee provided during
reporting period (A1+B1) 218,423.00 the reporting period (A2+B2) 30,629.00
Total amount of guarantee approved as at the end Total balance of guarantee provided as at
of the reporting period (A3+B3) 1,144,958.00 the end of the reporting period (A4+B4) 178,035.00
Total amount of guarantee provided (A4+B4) as a percentage of the net assets of the Company 13.71%
Of which:
Amount of guarantee provided for shareholders, beneficial controllers and its related parties (C) 0.00
Amount of guarantee directly or indirectly provided for obligors with gearing ratio over 70% (D) 124,035.00
Total amount of guarantee provided in excess of 50% of net assets (E) 0.00
Sum of the above three amount of guarantee (C+D+E) 124,035.00
Explanation on possible joint obligation on outstanding guarantees provided Nil27
X. OTHER SIGNIFICANT MATTERS AND EXPLANATION AND ANALYSIS ON THEIR IMPACTS AND SOLUTIONS
1. During the reporting period, the Company did not invest in any securities, and the Company did not hold any equity interests in other listed companies, unlisted financial institutions or prospective listed companies.
2. During the reporting period, except for provision of entrusted loans to subsidiaries of the Company (for details, please refer to Note 8 in the financial statements and notes prepared in accordance with Accounting Standards for Business Enterprises), the Company did not appoint any person to manage the Company’s funds during the reporting period or in the preceding reporting period which had been carried over to this reporting period. Also, there was no significant custody, subcontracting or lease of the assets between the Company and other companies during the reporting period or in the preceding reporting period which had been carried over to this reporting period.
3. Independent opinion from Independent Directors of the Company concerning utilisation of funds by related parties and external guarantees.
After inspection, there existed no utilisation of funds of the Company by controlling shareholders and other related parties during the reporting period, except for connected transactions with subordinate controlling subsidiaries and participating companies (for details, please refer to Note 8 in the financial statements and notes prepared in accordance with Accounting Standards for Business Enterprises). The connected transactions are true and accurate to represent the routine connected transactions of the Company, which complied with the principle of fair and reasonable, and related requirements of the Company Law and the Articles of Associations. The prices of the transactions are true and fair and do not impair the interests of the Company and other shareholders, especially the interest of medium and minority shareholders, and non-associated shareholders.
After inspection, the external guarantees of the Company during the current period in the first half year of 2010 and accumulated amount are both nil, except for the guarantees provided to subsidiaries during the reporting period (for details, please refer to Note 8 in the financial statements and notes prepared in accordance with Accounting Standards for Business Enterprises). The Company strictly complied with the related requirements of “Notice on Regulating External Guarantees made by Listed Companies” (Zheng Jian Fa [2005] No. 120) and the Articles of Associations, the Company has been in strict compliance with the obligation of disclose of the information about external guarantees, and truly provide the information of all the external guarantees to the qualified accountant according to the rule. During the reporting period, the guarantees provided to subsidiaries by the Company conformed to the requirements of the normal production and operation and reasonable utilisation of the funds of the Company, its decision-making procedure was legitimate, and did not impair the interests of the Company and other shareholders, especially the interests of medium and minority shareholders.28
X. RECEPTION OF RESEARCH INVESTIGATIONS, COMMUNICATIONS AND INTERVIEWS DURING THE REPORTING PERIOD
Date of Place of Manner of Main topics of discussion
reception reception reception Parties accommodated and information provided
2010.1.19 Shouguang, On-site research CSC Securities Matters including recent development of the
Shandong and investigation industry and development trend in the future,
production and operation of the Company,
as well asstrategic development
2010.1.25 Shouguang, On-site research GF Securities
Shandong and investigation
2010.1.27 Shouguang, On-site research Penghua Fund, Galaxy Securities
Shandong and investigation
2010.2.2 Shouguang, On-site research Sinolink Securities
Shandong and investigation
2010.3.3 Shouguang, On-site research Value Partners Limited
Shandong and investigation
2010.3.8 Shouguang, On-site research Macquarie Securities
Shandong and investigation
2010.3.9 Shouguang, On-site research 西班牙貝斯因特
Shandong and investigation 股份有限公司
2010.3.16 Shouguang, On-site research CITIC Securities
Shandong and investigation
2010.3.17 Shouguang, On-site research Daiwa Securities, Japan
Shandong and investigation and 貝利林紙
2010.3.26 Shouguang, On-site research Industrial Securities
Shandong and investigation
2010.3.31 Shouguang, On-site research Morgan Stanley
Shandong and investigation
2010.5.12 Shouguang, On-site research BOCI Research Limited,
Shandong and investigation Morgan Stanley
2010.5.18 Shouguang, On-site research Nomura Securities
Shandong and investigation
2010.6.1 Shouguang, On-site research Zeal Asset Management Limited
Shandong and investigation29
XI. INDEX OF INFORMATION DISCLOSURE IN THE FIRST HALF YEAR OF 2010
Medium of publication
Date of announcement Subject matter and website address
2010-02-25 Notice of 2010 First extraordinary general meeting C08 of China Securities Journal, A14 of Hong Kong
Commercial Daily, http://www.cninfo.com.cn
2010-02-25 Announcement in respect of C08 of China Securities Journal, A14 of Hong Kong
resolutions of the seventeenth meeting Commercial Daily,
of the fifth session of the board of directors http://www.cninfo.com.cn
2010-02-25 Declaration by the candidates http://www.cninfo.com.cn
for independent directors
2010-02-25 Internal management policy for future http://www.cninfo.com.cn
pooling foreign exchange portfolio products
2010-02-25 Declaration by the nominator http://www.cninfo.com.cn
of independent directors
2010-02-25 Announcement in respect of provision of C08 of China Securities Journal,
guarantee for the banking facilities A14 of Hong Kong Commercial Daily,
being applied by controlling subsidiaries http://www.cninfo.com.cn
2010-02-25 Independent opinion on the related http://www.cninfo.com.cn
matters by independent directors
2010-02-25 Announcement in respect of resolution C08 of China Securities Journal,
of the thirteenth meeting of the fifth A14 of Hong Kong Commercial Daily,
session of the Supervisory Committee http://www.cninfo.com.cn
2010-3-25 Indicative announcement in respect of D004 of China Securities Journal,
2010 first extraordinary general meeting A15 of Hong Kong Commercial Daily,
http://www.cninfo.com.cn
2010-3-27 Notice of Board meeting C005 of China Securities Journal,
A5 of Hong Kong Commercial Daily,
http://www.cninfo.com.cn
2010-04-13 Announcement on resolution of D023 of China Securities Journal,
2010 first extraordinary general meeting A20 of Hong Kong Commercial Daily,
http://www.cninfo.com.cn
2010-04-13 Legal opinions as witnessed by lawyers http://www.cninfo.com.cn
on the announcement on resolution of
the 2010 first extraordinary general meeting30
XI. INDEX OF INFORMATION DISCLOSURE IN THE FIRST HALF YEAR OF 2010 (continued)
Medium of publication
Date of announcement Subject matter and website address
2010-04-13 Announcement in respect of the resolutions D023 of China Securities Journal,
passed at the first meeting of A20 of Hong Kong Commercial Daily,
the sixth session of the Board http://www.cninfo.com.cn
2010-04-13 Announcement in respect of the resolutions D023 of China Securities Journal,
passed at the first meeting of the A20 of Hong Kong Commercial Daily,
sixth session of the Supervisory Committee http://www.cninfo.com.cn
2010-04-13 Announcement in respect of the resolutions D023 of China Securities Journal,
passed at the fourteenth meeting of the A20 of Hong Kong Commercial Daily,
fifth session of the Supervisory Committee http://www.cninfo.com.cn
2010-04-13 Announcement in respect of the resolutions D023 of China Securities Journal,
passed at the eighteenth meeting of A19 of Hong Kong Commercial Daily,
the fifth session of the Board http://www.cninfo.com.cn
2010-04-13 Notice of 2009 annual general meeting D023 of China Securities Journal,
A20 of Hong Kong Commercial Daily,
http://www.cninfo.com.cn
2010-04-13 2009 annual report summary D024 of China Securities Journal,
A18 of Hong Kong Commercial Daily,
http://www.cninfo.com.cn
2010-04-13 Special explanation on utilization of funds by http://www.cninfo.com.cn
substantial shareholders and other related parties
2010-04-13 2009 social responsibility report http://www.cninfo.com.cn
2010-04-13 Self-evaluation report on internal control http://www.cninfo.com.cn
2010-04-13 Registration policy on personnel http://www.cninfo.com.cn
with insider information
2010-04-13 Management policy on external information users http://www.cninfo.com.cn
2010-04-13 Accountability system for major errors http://www.cninfo.com.cn
in information disclosure in annual reports
2010-04-13 Independent directors’ report for 2009 http://www.cninfo.com.cn
2010-04-13 2009 auditors’ report http://www.cninfo.com.cn31
XI. INDEX OF INFORMATION DISCLOSURE IN THE FIRST HALF YEAR OF 2010 (continued)
Medium of publication
Date of announcement Subject matter and website address
2010-04-13 Announcement in respect of provision of D023 of China Securities Journal,
entrusted loans to relevant A20 of Hong Kong Commercial Daily,
controlling subsidiaries http://www.cninfo.com.cn
2010-04-13 Independent opinion of independent directors http://www.cninfo.com.cn
on the self-evaluation report of
internal control of the Company
2010-04-13 Special explanation on provision of http://www.cninfo.com.cn
external guarantee by the Company by
independent directors and their independent opinion
2010-04-13 2009 annual report http://www.cninfo.com.cn
2010-04-23 The main body of 2010 first quarterly report D008 of China Securities Journal,
A23 of Hong Kong Commercial
Daily, http://www.cninfo.com.cn
2010-04-23 The full text of 2010 first quarterly report http://www.cninfo.com.cn
2010-05-14 Indicative announcement in respect of 2009 B008 of China Securities Journal, A20 of Hong Kong
annual general meeting Commercial Daily, http://www.cninfo.com.cn
2010-05-18 Indicative announcement in respect of A44 of China Securities Journal, A3 of Hong Kong
entering on an agreement to purchase equipment Commercial Daily, http://www.cninfo.com.cn
2010-05-28 Indicative announcement in respect of the B004 of China Securities Journal, A5 of Hong Kong
inspection report on environmental protection Commercial Daily, http://www.cninfo.com.cn
review of a controlling subsidiary
2010-06-01 2009 annual general meeting B005 of China Securities Journal, A8 of Hong Kong
resolutions announcement Commercial Daily, http://www.cninfo.com.cn
2010-06-01 Legal opinions as witnessed by lawyers http://www.cninfo.com.cn
on the announcement on resolution
of the 2009 annual general meeting
2010-06-09 Announcement of dividend payment B005 of China Securities Journal, A18 of Hong Kong
for H shares for 2009 Commercial Daily, http://www.cninfo.com.cn
Note: A total of 38 announcements were issued by the Company in the first half year of 2010.32
VII. Unaudited Financial Statements and Notes thereto Prepared in Accordance with Accounting Standards for Business Enterprises
Consolidated Balance Sheet
As at 30 June 2010
Prepared by: Shandong Chenming Paper Holdings Limited Unit: RMB
Items Notes Closing Balance Opening balance
CURRENT ASSETS:
Monetary funds 2,082,976,768.06 2,892,923,245.93
Balances with clearing companies — —
Loans to banks and other financial institutions — —
Held-for-trading financial assets 7,900,000.00 14,900,000.00
Bills receivable 2,062,185,271.00 2,704,799,074.02
Accounts receivable 1,809,491,956.21 1,528,991,497.69
Prepayments 954,805,038.46 1,000,772,875.85
Premium receivable — —
Receivables from reinsurers — —
Reinsurance contract reserves receivable — —
Interest receivable — —
Dividend receivable — —
Other receivables 101,213,190.67 81,210,643.94
Financial assets purchased under agreements to resell — —
Inventory 3,137,538,934.48 2,226,579,492.59
Entrusted loans due within one year — —
Other current assets 150,066,661.76 90,756,205.60
Total current assets 10,306,177,820.64 10,540,933,035.62
NON-CURRENT ASSETS: — —
Loans and advances to customers — —
Available-for-sale financial assets — —
Entrusted loans — —
Long-term receivables — —
Long-term equity investments 86,309,182.27 80,984,687.49
Investment properties 25,557,340.09 26,426,468.11
Fixed assets 13,235,502,615.92 13,529,590,915.63
Construction in progress 3,229,907,083.26 1,997,961,262.18
Construction materials 51,003,888.06 42,912,962.27
Disposal of fixed assets 8,758,079.00 —
Productive biological assets — —
Oil and gas assets — —
Intangible assets 1,328,345,385.05 1,313,428,867.12
Development expenditure — —
Goodwill 20,283,787.17 20,283,787.17
Long-term prepaid expenses 26,469,006.19 32,411,932.85
Deferred income tax assets 131,699,991.10 131,425,981.64
Other non-current assets 581,641,690.16 496,724,974.94
Total non-current assets 18,725,478,048.27 17,672,151,839.40
TOTAL ASSETS 29,031,655,868.91 28,213,084,875.0233
Items Notes Closing Balance Opening balance
CURRENT LIABILITIES:
Short-term borrowings 1,577,823,931.10 3,103,153,828.18
Borrowings from the central bank — —
Customer bank deposits and due to banks and
other financial institutions — —
Placements from banks and other financial institutions — —
Held-for-trading financial liabilities 2,580,000.00 6,450,000.00
Bills payable 349,608,052.57 544,532,508.19
Accounts payable 2,783,532,440.84 2,122,860,892.58
Advance receipts 167,353,774.37 233,123,691.11
Assets sold under agreements to repurchase — —
Handling charges and commission payable — —
Staff remuneration payables 183,493,227.22 245,501,281.04
Taxes payable 95,468,160.29 137,491,104.68
Interest payable 50,104,333.32 5,050,000.00
Dividend payable — 78,807.70
Other payables 459,241,706.51 321,220,579.61
Due to reinsurers — —
Insurance contract reserves — —
Customer brokerage deposits — —
Securities underwriting brokerage deposits — —
Non-current liabilities due within one year 498,173,562.18 345,353,527.87
Other current liabilities 1,515,722,500.00 —
Total current liabilities 7,683,101,688.40 7,064,816,220.96
NON-CURRENT LIABILITIES: — —
Long-term borrowings 4,222,357,666.73 5,087,424,182.26
Bonds payable — —
Long-term payables — —
Deferred income 136,451,749.82 121,890,615.92
Estimated liabilities — —
Deferred income tax liabilities 15,265,236.10 12,408,618.13
Other non-current liabilities 2,282,197,764.60 1,189,484,415.60
Total non-current liabilities 6,656,272,417.25 6,411,207,831.91
TOTAL LIABILITIES 14,339,374,105.65 13,476,024,052.87
OWNERS’ EQUITY (OR SHAREHOLDERS’ EQUITY): — —
Paid-up capital(or share capital) 2,062,045,941.00 2,062,045,941.00
Capital reserves 6,093,493,004.70 6,093,483,801.92
Less: Treasury shares — —
Special reserves — —
Surplus reserves 906,929,047.49 906,929,047.49
General risk provisions — —
Retained profit 3,917,841,485.49 3,928,586,297.55
Foreign currency translation differences 735,166.40 859,233.72
Total equity attributable to equity holders of the company 12,981,044,645.08 12,991,904,321.68
Minority interests 1,711,237,118.18 1,745,156,500.47
Total owners’ equity 14,692,281,763.26 14,737,060,822.15
TOTAL LIABILITIES AND OWNERS’ EQUITY 29,031,655,868.91 28,213,084,875.0234
VII. Unaudited Financial Statements and Notes thereto Prepared in Accordance with Accounting Standards for Business Enterprises
Balance Sheet Of The Company
As at 30 June 2010
Prepared by: Shandong Chenming Paper Holdings Limited Unit: RMB
Items Notes Closing Balance Opening balance
CURRENT ASSETS:
Monetary funds 1,190,871,289.62 2,037,930,262.40
Held-for-trading financial assets — —
Bills receivable 1,184,326,420.86 1,915,645,987.88
Accounts receivable 1,730,911,969.11 1,387,208,451.92
Prepayments 532,966,310.47 826,816,984.44
Interest receivable — —
Dividend receivable 132,003,072.86 188,362,997.10
Other receivables 3,549,673,808.12 2,045,123,389.13
Inventory 1,418,037,174.32 901,471,663.46
Entrusted loans due within one year 1,822,000,000.00 1,688,000,000.00
Other current assets 81,565,385.69 35,927,902.98
Total current assets 11,642,355,431.05 11,026,487,639.31
NON-CURRENT ASSETS: — —
Available-for-sale financial assets — —
Entrusted loans 500,000,000.00 395,000,000.00
Long-term receivables — —
Long-term equity investments 4,096,994,990.15 4,091,670,495.37
Investment properties 25,557,340.09 26,426,468.11
Fixed assets 5,473,150,396.30 5,741,048,494.95
Construction in progress 218,937,781.81 139,440,285.68
Construction materials 8,495,390.04 6,592,106.05
Disposal of fixed assets — —
Productive biological assets — —
Oil and gas assets — —
Intangible assets 357,605,127.40 349,130,281.02
Development expenditure — —
Goodwill — —
Long-term prepaid expenses — —
Deferred income tax assets 76,827,209.22 73,479,449.99
Other non-current assets — —
Total non-current assets 10,757,568,235.01 10,822,787,581.17
TOTAL ASSETS 22,399,923,666.06 21,849,275,220.4835
Items Notes Closing Balance Opening balance
CURRENT LIABILITIES:
Short-term loans 1,031,761,488.03 2,637,914,967.54
Held-for-trading financial liabilities 2,580,000.00 6,450,000.00
Bills payable 263,411,052.57 456,914,277.59
Accounts payable 1,873,121,355.14 1,349,629,055.79
Advance receipt 222,565,080.32 168,878,896.38
Staff remuneration payables 114,303,299.73 133,530,934.62
Taxes payable 33,975,492.81 70,066,082.73
Interest payable 50,104,333.32 5,050,000.00
Dividend payable — 78,807.71
Other payables 299,731,850.90 225,959,345.59
Non-current liabilities due within one year 407,454,000.00 252,423,000.00
Other current liabilities 1,515,722,500.00 —
Total current liabilities 5,814,730,452.82 5,306,895,367.95
NON-CURRENT LIABILITIES: — —
Long-term borrowings 2,302,390,935.94 3,418,358,035.94
Bonds payable — —
Long-term payables — —
Deferred income 12,708,763.54 11,222,282.74
Estimated liabilities — —
Deferred income tax liabilities — —
Other non-current liabilities 2,282,197,764.60 1,189,484,415.60
Total non-current liabilities 4,597,297,464.08 4,619,064,734.28
TOTAL LIABILITIES 10,412,027,916.90 9,925,960,102.23
OWNERS’ EQUITY (OR SHAREHOLDERS’ EQUITY): — —
Paid-up capital(or share capital) 2,062,045,941.00 2,062,045,941.00
Capital reserves 6,184,215,988.77 6,184,215,988.77
Less: Treasury shares — —
Special reserves — —
Surplus reserves 894,739,465.58 894,739,465.58
General risk provisions — —
Retained profit 2,846,894,353.81 2,782,313,722.90
Total owners’ equity (shareholders’ equity) 11,987,895,749.16 11,923,315,118.25
TOTAL LIABILITIES AND OWNERS’ EQUITY (SHAREHOLDERS’ EQUITY) 22,399,923,666.06 21,849,275,220.4836
VII. Unaudited Financial Statements and Notes thereto Prepared in Accordance with Accounting Standards for Business Enterprises
Consolidated Income Statement
January to June 2010
Prepared by: Shandong Chenming Paper Holdings Limited Unit: RMB
Amounts for the Amounts for the
Items Notes current period prior period
I. Total operating revenue 8,176,641,676.99 6,675,366,559.73
Including: Operating revenue 8,176,641,676.99 6,675,366,559.73
Interest income — —
Earned premium — —
Handling charges and commission income — —
II. Total operating costs 7,411,971,191.83 6,499,643,053.93
Including: Operating costs 6,396,400,180.14 5,629,255,046.18
Interest expenses — —
Handling charges and commission expenses — —
Surrenders — —
Net claims paid — —
Net change in insurance contract reserves — —
Policyholder dividend expenses — —
Expenses for reinsurance accepted — —
Business taxes and surcharges 10,397,727.74 7,109,033.53
Selling and distribution expenses 441,501,879.97 339,929,245.25
General and administrative expenses 417,135,260.86 335,899,354.53
Finance expenses 125,739,655.86 176,847,315.84
Loss on impairment of assets 20,796,487.26 10,603,058.60
Add: Gain on change in fair value (“-” denotes loss) 8,358,094.03 8,985,659.76
Investment income (“-” denotes loss) 4,324,494.78 -9,531,720.12
Including: Investment income from associates and joint ventures 4,324,494.78 -9,531,720.12
Foreign exchange gains (“-” denotes loss) — —
III. Operating profit (“-” denotes loss) 777,353,073.97 175,177,445.44
Add: Non-operating income 67,413,802.58 68,384,829.29
Less: Non-operating expenses 6,208,466.79 5,322,631.80
Including: Loss on disposal of non-current assets 3,130,585.22 4,653,149.89
IV. Total profit (“-” denotes total loss) 838,558,409.76 238,239,642.93
Less: Income tax expenses 142,479,322.30 52,124,816.31
V. Net profit (“-” denotes net loss) 696,079,087.46 186,114,826.62
Net profit attributable to equity holders of the Company 607,868,970.24 157,487,312.97
Minority interests 88,210,117.22 28,627,513.65
VI. Earnings per share: — —
(I) Basic earnings per share 0.29 0.076
(II) Diluted earnings per share N/A N/A
VII. Other comprehensive income -124,067.32 -10,210.57
VIII. Total comprehensive income 695,955,020.14 186,104,616.05
Total comprehensive income attributable to
equity holders of the Company 607,744,902.92 157,477,102.40
Total comprehensive income attributable to minority interests 88,210,117.22 28,627,513.6537
VII. Unaudited Financial Statements and Notes thereto Prepared in Accordance with Accounting Standards for Business Enterprises
Income Statement Of The Company
January to June 2010
Prepared by: Shandong Chenming Paper Holdings Limited Unit: RMB
Amounts for the Amounts for the
Items Notes current period prior period
I. Operating revenue 7,103,442,044.05 6,181,612,312.77
Less: Cost of operations 6,017,146,134.97 5,578,614,295.07
Business tax and surcharges 1,746,468.34 154,785.75
Selling and distribution expenses 229,508,020.80 214,720,116.93
General and administrative expenses 210,426,747.56 114,469,006.05
Finance expenses 111,970,947.81 155,142,424.33
Loss on impairment of assets 34,949,608.75 12,791,869.13
Add: Gain on change in fair value (“-” denotes loss) 3,870,000.00 -5,200,000.00
Investment income (“-” denotes loss) 249,697,380.90 36,407,598.41
Including: Investment income from
associates and joint ventures 4,324,494.78 -9,531,720.12
II. Operating profit (“-” denotes loss) 751,261,496.72 136,927,413.92
Add: Non-operating income 32,258,682.65 32,808,385.47
Less: Non-operating expenses 3,993,753.67 4,666,580.20
Including: Loss on disposal of non-current assets 1,904,148.67 4,449,274.39
III. Total profit (“-” denotes total loss) 779,526,425.70 165,069,219.19
Less: Income tax expenses 96,332,012.49 49,719,019.10
IV. Net profit (“-” denotes net loss) 683,194,413.21 115,350,200.09
V. Earnings per share: — —
(I) Basic earnings per share 0.33 0.056
(II) Diluted earnings per share N/A N/A
VI. Other comprehensive income — —
VII. Total comprehensive income 683,194,413.21 115,350,200.0938
VII. Unaudited Financial Statements and Notes thereto Prepared in Accordance with Accounting Standards for Business Enterprises
Consolidated Cash Flow Statements
January to June 2010
Prepared by: Shandong Chenming Paper Holdings Limited Unit: RMB
Amounts for the Amounts for the
Items Notes current period prior period
I. Cash flows from operating activities:
Cash received from sales of goods
and rendering of services 8,396,743,627.10 5,072,568,207.01
Net increase in customer bank deposits
and due to banks and other financial institutions — —
Net increase in borrowings from the central bank — —
Net increase in placements from other financial institutions — —
Cash received from premiums under
original insurance contracts — —
Net cash received from reinsurance business — —
Net increase in deposits from policyholders — —
Net increase from disposal of
held-for-trading financial assets — —
Cash received from interest,
handling charges and commissions — —
Net increase in placements from
banks and other financial institutions — —
Net capital increase of repurchase business — —
Tax rebates received 9,564,967.88 7,596,994.38
Cash received relating to other operating activities 149,110,831.59 101,170,561.40
Subtotal of cash inflows from operating activities 8,555,419,426.57 5,181,335,762.79
Cash paid for goods and services 5,928,577,889.61 4,710,646,865.64
Net increase in loans and advances to customers — —
Net increase in deposits with the central
bank and other financial institutions — —
Cash paid for claims under original insurance contracts — —
Cash paid for interest, handling charges and commission — —
Cash paid for policyholder dividend — —
Cash paid to and for employees 398,614,872.25 253,887,714.94
Payments of taxes and surcharges 704,611,703.50 343,299,580.44
Cash paid relating to other operating activities 333,891,884.81 399,603,409.25
Subtotal of cash outflows from operating activities 7,365,696,350.17 5,707,437,570.27
Net cash flows from operating activities 1,189,723,076.40 -526,101,807.4839
Amounts for the Amounts for the
Items Notes current period prior period
II. Cash flows from investing activities:
Cash received from investments — —
Cash received from investment income — —
Net cash received from disposal of fixed assets,
intangible assets and other long-term assets 20,129,176.66 19,421,000.00
Net cash received from disposal of
subsidiaries and other business units — —
Cash received relating to other investing activities — 47,990,000.00
Subtotal of cash inflows from investing activities 20,129,176.66 67,411,000.00
Cash paid for purchase of fixed assets,
intangible assets and other long-term assets 1,521,600,542.26 407,727,921.18
Cash paid on investments 1,010,000.00 6,000,000.00
Net increase in pledged loans — —
Net cash paid for acquisition of
subsidiaries and other business units — 5,706,000.00
Cash paid relating to other investing activities — —
Subtotal of cash outflows from investing activities 1,522,610,542.26 419,433,921.18
Net cash flows from investing activities -1,502,481,365.60 -352,022,921.18
III. Cash flows from financing activities:
Cash received from capital contribution — —
Including: Cash received from minority
interest contribution to subsidiaries — —
Cash received from borrowings 2,475,825,316.09 6,483,130,711.58
Cash received from bond issue — —
Cash received relating to other financing activities 2,899,268,303.74 —
Subtotal of cash inflows from financing activities 5,375,093,619.83 6,483,130,711.58
Cash repayments of amounts borrowed 4,713,400,265.77 3,546,592,000.00
Cash paid for dividend and profit
distribution or interest payment 831,853,799.22 217,493,000.00
Cash paid relating to other financing activities — 2,040,013,989.64
Subtotal of cash outflows from financing activities 5,545,254,064.99 5,804,098,989.64
Net cash flows from financing activities -170,160,445.16 679,031,721.94
IV. Effect of foreign exchange rate
changes on cash and cash equivalents -11,859,439.78 -1,378,763.33
V. Net increase in cash and cash equivalents -494,778,174.14 -200,471,770.05
Add: Balance of cash and cash equivalents
as at the beginning of the period 2,367,334,202.50 2,687,579,159.85
VI. Balance of cash and cash equivalents
as at the end of the period 1,872,556,028.36 2,487,107,389.8040
VII. Unaudited Financial Statements and Notes thereto Prepared in Accordance with Accounting Standards for Business Enterprises
Cash Flow Statements of the Company
January to June 2010
Prepared by: Shandong Chenming Paper Holdings Limited Unit: RMB
Amounts for the Amounts for the
Items Notes current period prior period
I. Cash flows from operating activities:
Cash received from sales of goods and
rendering of services 6,528,632,656.16 4,131,278,897.79
Tax rebates received — —
Cash received relating to other operating activities 46,562,110.75 52,407,526.45
Subtotal of cash inflows from operating activities 6,575,194,766.91 4,183,686,424.24
Cash paid for goods and services 4,554,172,766.62 4,391,742,107.99
Cash paid to and for employees 130,147,836.04 94,149,841.11
Payments of taxes and surcharges 446,152,782.46 181,207,781.34
Cash paid relating to other operating activities 1,480,177,671.73 571,437,104.56
Subtotal of cash outflows from operating activities 6,610,651,056.85 5,238,536,835.00
Net cash flows from operating activities -35,456,289.94 -1,054,850,410.76
II. Cash flows from investing activities: — —
Cash received from investments 296,000,000.00 580,900,000.00
Cash received from investment income 182,607,069.44 50,939,318.53
Net cash received from disposal of fixed assets,
intangible assets and other long-term assets 18,977,755.80 19,099,922.08
Net cash received from disposal of subsidiaries
and other business units — —
Cash received relating to other investing activities — 4,850,000.00
Subtotal of cash inflows from investing activities 497,584,825.24 655,789,240.61
Cash paid for purchase of fixed assets,
intangible assets and other long-term assets 30,295,440.54 21,564,955.31
Cash paid on investments 535,000,000.00 406,000,000.00
Net cash paid for acquisition of subsidiaries
and other business units — —
Cash paid relating to other investing activities — —
Subtotal of cash outflows from investing activities 565,295,440.54 427,564,955.31
Net cash flows from investing activities -67,710,615.30 228,224,285.3041
Amounts for the Amounts for the
Items Notes current period prior period
III. Cash flows from financing activities: — —
Cash received from capital contribution — —
Cash received from borrowings 1,447,618,522.84 5,798,764,711.64
Cash received relating to other financing activities 2,875,273,211.00 —
Subtotal of cash inflows from financing activities 4,322,891,733.84 5,798,764,711.64
Cash repayments of amounts borrowed 4,068,972,362.27 2,757,800,070.71
Cash paid for dividend and profit distribution
or interest payment 696,143,228.07 160,011,987.42
Cash paid relating to other financing activities — 2,015,594,417.01
Subtotal of cash outflows from financing activities 4,765,115,590.34 4,933,406,475.14
Net cash flows from financing activities -442,223,856.50 865,358,236.50
IV. Effect of foreign exchange rate changes
on cash and cash equivalents -10,495,000.04 -70,524.91
V. Net increase in cash and cash equivalents -555,885,761.78 38,661,586.13
Add: Balance of cash and cash equivalents
as at the beginning of the period 1,586,045,998.83 2,080,005,634.40
VI. Cash and cash equivalents as at the end of the period 1,030,160,237.05 2,118,667,220.53VII. Unaudited Financial Statements and Notes thereto Prepared in Accordance with Accounting Standards for Business Enterprises
Consolidated Statement of Changes in Owners’ Equity
January to June 2010
Prepared by:
Shandong Chenming
Paper Holdings Limited
Unit: RMB
Amounts for the current period Amounts for the prior year
Equity attributable to equity holders of the Company Equity attributable to equity holders of the Company
Paid-up capital Less: General risk Total Paid-up capital Less: General risk Total
Items (or share capital) Capital reserves Treasury Shares Special reserves Surplus reserves provisions Retained profit Others Minority interests owners’ equity (or share capital) Capital reserves Treasury Shares Special reserves Surplus reserves provisions Retained profit Others Minority interests owners’ equity
I. Balance as at the
end of the prior year 2,062,045,941.00 6,093,483,801.92 — — 906,929,047.49 — 3,928,586,297.55 859,233.72 1,745,156,500.47 14,737,060,822.15 2,062,045,941.00 6,093,483,801.92 — — 825,476,850.53 — 3,277,192,810.40 879,498.14 1,762,695,762.97 14,021,774,664.96
Add: Accounting policy change — — — — — — — — — — — — — — — — — — — —
Corrections of prior period errors — — — — — — — — — — — — — — — — — — — —
Others — — — — — — — — — — — — — — — — — — — —
II. Balance as at the beginning of the year 2,062,045,941.00 6,093,483,801.92 — — 906,929,047.49 — 3,928,586,297.55 859,233.72 1,745,156,500.47 14,737,060,822.15 2,062,045,941.00 6,093,483,801.92 — — 825,476,850.53 — 3,277,192,810.40 879,498.14 1,762,695,762.97 14,021,774,664.96
III. Changes in the year
(“-” denotes decrease) — 9,202.78 — — — — -10,744,812.06 -124,067.32 -33,919,382.29 -44,779,058.89 — — — — 81,452,196.96 — 651,393,487.15 -20,264.42 -17,539,262.50 715,286,157.19
(I) Net profit — — — — — — 607,868,970.24 — 88,210,117.22 696,079,087.46 — — — — — 835,947,981.16 — 117,963,449.06 953,911,430.22
(II) Other comprehensive income — — — — — — — -124,067.32 — -124,067.32 — — — — — — — -20,264.42 — -20,264.42
Sub-total of (I) and (II) above — — — — — — 607,868,970.24 -124,067.32 88,210,117.22 695,955,020.14 — — — — — — 835,947,981.16 -20,264.42 117,963,449.06 953,891,165.80
(III) Capital paid in and reduced by owners — 9,202.78 — — — — — — — 9,202.78 — — — — — — — — — —
1. Capital paid in by owners — — — — — — — — — — — — — — — — — — — —
2. Amounts of share-based payments
recognised in owners’ equity — — — — — — — — — — — — — — — — — — — —
3. Others — 9,202.78 — — — — — — — 9,202.78 — — — — — — — — — —
(IV) Profit distribution — — — — — — -618,613,782.30 — -122,110,296.73 -740,724,079.03 — — — — 81,452,196.96 — -184,554,494.01 — -141,001,534.16 -244,103,831.21
1. Transfer to surplus reserves — — — — — — — — — — — — — — 81,452,196.96 — -81,452,196.96 — — —
2. Transfer to general risk provision — — — — — — — — — — — — — — — — — — — —
3. Distribution to owners (shareholders) — — — — — — -618,613,782.30 — -122,110,296.73 -740,724,079.03 — — — — — — -103,102,297.05 — -141,001,534.16 -244,103,831.21
4. Others — — — — — — — — — — — — — — — — — — — —
(V) Transfer within owners’ equity — — — — — — — — — — — — — — — — — — — —
1. Transfer from capital reserves to capital (or share capital) — — — — — — — — — — — — — — — — — — — —
2. Transfer from surplus reserves to capital (or share capital) — — — — — — — — — — — — — — — — — — — —
3. Transfer from surplus reserves to make up for losses — — — — — — — — — — — — — — — — — — — —
4. Others — — — — — — — — — — — — — — — — — — — —
(V) Others — — — — — — — — -19,202.78 -19,202.78 — — — — — — — — 5,498,822.60 5,498,822.60
1. Others — — — — — — — — -19,202.78 -19,202.78 — — — — — — — — 5,498,822.60 5,498,822.60
IV. Balance as at the end
of the period 2,062,045,941.00 6,093,493,004.70 — — 906,929,047.49 — 3,917,841,485.49 735,166.40 1,711,237,118.18 14,692,281,763.26 2,062,045,941.00 6,093,483,801.92 — — 906,929,047.49 — 3,928,586,297.55 859,233.72 1,745,156,500.47 14,737,060,822.15
4243
VII. Unaudited Financial Statements and Notes thereto Prepared in Accordance with Accounting Standards for Business Enterprises
Statement of Changes in Equity of Equity Holders of the Company
January to June 2010
Prepared by: Shandong Chenming Paper Holdings Limited
Unit: RMB
Amounts for the current period Amounts for the prior year
Items Paid-up Paid-up
capital (or Less: General risk Total capital (or Less: General risk Total
share capital) Capital reserves Treasury shares Special reserves Surplus reserves provisions Retained profit owners’ equity share capital) Capital reserves Treasury shares Special reserves Surplus reserves provision Retained profit owners’ equity
I. Balance as
at the beginning of the prior year 2,062,045,941.00 6,184,215,988.77 — — 894,739,465.58 — 2,782,313,722.90 11,923,315,118.25 2,062,045,941.00 6,184,215,988.77 — — 813,287,268.62 — 2,152,346,247.34 11,211,895,445.73
Add: Accounting policy changes — — — — — — — — — — — — — — — —
Corrections of prior period errors — — — — — — — — — — — — — — — —
Others — — — — — — — — — — — — — — — —
II. Balance as at
the beginning of the year 2,062,045,941.00 6,184,215,988.77 — — 894,739,465.58 — 2,782,313,722.90 11,923,315,118.25 2,062,045,941.00 6,184,215,988.77 — — 813,287,268.62 — 2,152,346,247.34 11,211,895,445.73
III. Changes in the year
(“-” denotes decrease) — — — — — — 64,580,630.91 64,580,630.91 — — — — 81,452,196.96 — 629,967,475.56 711,419,672.52
(I) Net profit — — — — — — 683,194,413.21 683,194,413.21 — — — — — — 814,521,969.57 814,521,969.57
(II) Other
comprehensive income — — — — — — — — — — — — — — — —
Sub-total of (I) and (II) — — — — — — 683,194,413.21 683,194,413.21 — — — — — — 814,521,969.57 814,521,969.57
(III) Capital paid in and reduced by owners — — — — — — — — — — — — — — — —
1. Capital paid in by owners — — — — — — — — — — — — — — — —
2. Amounts of share-based payments
recognised in owners’ equity — — — — — — — — — — — — — — — —
3. Others — — — — — — — — — — — — — — — —
(IV) Profit distribution — — — — — — -618,613,782.30 -618,613,782.30 — — — — 81,452,196.96 — -184,554,494.01 -103,102,297.05
1. Transfer to surplus reserves — — — — — — — — — — — — 81,452,196.96 — -81,452,196.96 —
2. Transfer to general risk provision — — — — — — — — — — — — — — — —
3. Distribution to owners (shareholders) — — — — — — -618,613,782.30 -618,613,782.30 — — — — — — 103,102,297.05 -103,102,297.05
4, Others — — — — — — — — — — — — — — — —
(V) Transfer with owners’ equity — — — — — — — — — — — — — — — —
1. Transfer from capital reserves to
capital (or share capital) — — — — — — — — — — — — — — — —
2. Transfer from surplus reserves
to capital (or share capital) — — — — — — — — — — — — — — — —
3. Transfer from surplus reserves to
make up for losses — — — — — — — — — — — — — — — —
4. Others — — — — — — — — — — — — — — — —
(VI) Special reserves — — — — — — — — — — — — — — — —
1. Appropriated in the period — — — — — — — — — — — — — — — —
2. Used in the period — — — — — — — — — — — — — — — —
IV. Balance as at
the end of the period 2,062,045,941.00 6,184,215,988.77 — — 894,739,465.58 — 2,846,894,353.81 11,987,895,749.16 2,062,045,941.00 6,184,215,988.77 — — 894,739,465.58 — 2,782,313,722.90 11,923,315,118.2544
VII. Unaudited Financial Statements and Notes thereto Prepared in Accordance with Accounting Standards for Business Enterprises
Notes to the financial statements
2010 Interim Report
(All amounts in RMB unless otherwise specified)
I. General Information of the Company
Shandong Chenming Paper Holdings Limited (hereinafter referred as the “Company”), whose predecessor was Shandong Shouguang Paper Mill Corporation, was reorganised to become a joint stock limited company by way of private placement in May 1993. In December 1996, with the approval issued by the Shandong Provincial Government (Lu Gai Zi [1996] Document No. 270) and by the Securities Committee of the State Council (Zheng Wei [1996] Document No.59), the Company was reorganised to become a joint stock limited company by way of public subscription.
In May 1997, with the approval issued by the Securities Committee of the State Council ( [1997] Document No. 26), the Company issued 115 million B Shares in connection with its international offering. B-shares from this issuance were listed on the Shenzhen Stock Exchange since 26 May 1997.
In September 2008, with the approval issued by China Securities Regulatory Committee (hereinafter referred as the “CSRC”) (Zheng Jian Gong Si Zi [2000] Document No. 151), the Company issued 70 million A Shares. A-shares from this issuance were listed on the Shenzhen Stock Exchange on 20 November 2000.
In June 2008, with the approval issued by the Stock Exchange of Hong Kong Limited (hereinafter referred as the “Stock Exchange”), the Company issued 355,700,000 H shares. Meanwhile, the relevant state shareholders of the Company performed the reduction of state-owned shares, by way of transferring to the Social Security Fund Council (the “NSSF Council”) such number of shares held by it, representing 35,570,000 shares, which were to be converted into overseas listed foreign shares (H shares). H-shares under the new issue were listed on the Hong Kong Stock Exchange on 18 June 2008.
As at 31 December 2009, the Company has a total of 2,062,045,941 shares.
The business scope of the Company and its subsidiaries covers: processing and sale of paper products (including machine made paper and paper board), paper making raw materials and machinery; generation and sale of electric power and thermal power; forestry, saplings growing, processing and sale of timber; manufacturing, processing and sale of wood products; and manufacturing and sale of laminated boards and fortified wooden floorboards.
Shouguang Chenming Holdings Co., Ltd is the largest shareholder of the Company.
The Company’s financial statements were approved by the Board on 24 August 2010.
II. Basis of Preparation of the Financial Statements
The Company’s financial statements have been prepared based on the going concern assumption. Except for consumable biological assets and certain financial instruments that are measured at fair value, the financial statements have been prepared based on actual transactions and events, in accordance with the accounting standards for business enterprises promulgated by the Ministry of Finance of PRC in February 2006 and 38 specific accounting standards, the subsequently promulgated application guidelines, interpretations and other related rules (“Accounting Standards for Business Enterprises”).
III. Statement of Compliance with the Accounting Standards for Business Enterprises (“ASBEs”)
The financial statements for the period form January to June of 2010 have been prepared in conformity with the ASBEs, which truly and fully reflect the financial positions of the Company as at 30 June 2010 and relevant information such as the operating results and cash flows of the Company from January to June of 2010. In addition, the financial statements of the Company also comply with, in all material respects, the disclosure requirements of the “Regulation on the Preparation of Information Disclosures of Companies Issuing Public Shares, No. 15: General Requirements for Financial Reports” revised by the China Securities Regulatory Commission (“CSRC”) in 2009 and the notes thereto.45
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations
1. Accounting period
Accounting periods of the Company are divided into annual periods and interim periods. Interim periods refer to reporting periods that are shorter than a full fiscal year. The fiscal year of the Company is from 1 January to 31 December of each calendar year.
2. Reporting currency
The reporting currency of the Company and its domestic subsidiaries is Renminbi (“RMB”). Overseas subsidiaries of the Company recognise U.S. dollar as their reporting currency according to the primary economic environment in which these subsidiaries operate. Amounts are converted into RMB when preparing the financial statements.
3. Accounting treatment of business combination
Business combination is classified into business combination under common control and business combination not under common control.
(1) Business combination under common control
Assets and liabilities obtained by the absorbing party in a business combination are measured at their carrying amount at the combination date as recorded by the party being merged. The difference between the carrying amount of the net assets obtained and the carrying amount of the consideration paid for the combination (or the aggregate nominal value of shares issued as consideration) is charged to the share capital premium account in capital reserve. If the capital reserve is not sufficient to absorb the difference, any excess shall be adjusted against retained earnings. Cost incurred by the absorbing party that is directly attributable to the business combination shall be charged to profit or loss in the period in which they are incurred.
(2) Business combination not under common control
For business combination involving entities not under common control, the cost of a business combination is the aggregate of the fair values, on the date of acquisition, of assets given, liabilities incurred or assumed, and equity instruments issued by the acquirer to be paid by the acquirer, in exchange for control of the acquiree plus any costs directly attributable to the business combination. When the business combination is achieved in stages through a number of exchange transactions, the cost of the combination is the aggregate cost of individual transactions. When a business combination agreement provides for an adjustment to the cost of the combination contingent on future events, the acquirer shall include the amount of that adjustment in the cost of the combination on the date of acquisition if the adjustment is probable and can be measured reliably. The acquiree’s identifiable assets, liabilities and contingent liabilities acquired from business combination involving entities not under common control are recognised at their fair values on the acquisition date.
Where the cost of a business combination exceeds the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference is recognised as goodwill. Where the cost of a business combination is less than the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the acquirer shall first reassess the measurement of the fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities and the measurement of the cost of combination. If after such reassessment the cost of combination is still less than the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference is charged to profit or loss for the period.46
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
4. Basis for preparation of consolidated financial statements
(1) Principle of determining the scope of consolidated financial statements
The scope of consolidation of the consolidated financial statements is determined on the basis of control. The term “control” means that the Company has the power to decide an investee’s financial and operating policy, pursuant to which, the Company can get the power to obtain benefits from the investee’s operating activities. Where the Company accounts for more than 50% (excluding 50%) of total capital carrying voting rights of the investee or accounts for less than 50% of total capital carrying voting rights of the investee but has effective control, such investees shall be within the consolidation scope.
(2) Basis for preparation of the consolidated financial statements
Based on the financial statements of the parent and subsidiaries included in the consolidation and in accordance with other relevant information, consolidated financial statements are prepared by making adjustment to the long-term equity investment in subsidiaries using the equity method, after offsetting the parent’s equity capital investment and its share in owners’ equity of subsidiaries, material transactions within the Company and transactions between home office and branches. Minority interests shall be presented as “minority interests” under owners’ equity in the consolidated balance sheets. Profit or loss attributable to minority interests shall be presented as “minority interests” under net profits in the consolidated income statements. In preparation of consolidated financial statements, the financial statements of subsidiaries are subject to adjustment where there is a difference in their accounting policies or accounting periods with those of the Company or are required to be separately prepared in accordance with the latter.
For acquisition of subsidiaries by the Company due to merger of entities under common control during the reporting period, the opening balance of the Company’s consolidated balance sheets shall be adjusted in its preparation. For acquisition of subsidiaries arising from merger of entities not under common control, the opening balance of the consolidated balance sheets is not adjusted in its preparation. For disposal of subsidiaries during the reporting period, the opening balance of consolidated balance sheets is not adjusted in its preparation.
For acquisition of subsidiaries by the Company due to merger of entities under common control during the reporting period, the revenue, expense and profit of such subsidiaries from the beginning to the end of the reporting period when the merger occurs are included the consolidated income statements. For acquisition of subsidiaries arising from merger of entities not under common control, the revenue, expense and profit of such subsidiaries from the date of acquisition to the end of the reporting period are included in the consolidated income statements. For disposal of subsidiaries by the Company during the reporting period, the revenue, expense and profit of such subsidiaries from the beginning of the period to the date of disposal are included in the consolidated income statements.
For acquisition of subsidiaries by the Company due to merger of entities under common control during the reporting period, the cash flows of such subsidiaries from the beginning to the end of the reporting period when the merger occurs are included in the consolidated cash flow statements. For acquisition of subsidiaries arising from merger of entities not under same control, the cash flows of such subsidiaries from the date of acquisition to the end of the reporting period are included in the consolidated cash flow statements. For disposal of subsidiaries by the Company during the reporting period, the cash flows of such subsidiaries from the beginning of the period to the date of disposal are included in the consolidated cash flow statements.47
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
5. Standards for recognizing cash and cash equivalents
Cash and cash equivalents of the Company include cash on hand, deposits readily available for payment purpose and short-term (normally fall due within three months from the date of acquisition) and highly liquid investments held the Company which are readily convertible into known amounts of cash and which are subject to insignificant risk of value change.
6. Foreign currency operations and translation of statements denominated in foreign currency
(1) Basis for translation of foreign currency transactions
The foreign currency transactions of the Company, when initially recognised, are translated into RMB at the prevailing spot exchange rate on the date of exchange (usually refers to the middle rate of the exchange rate for the day as quoted by the People’s Bank of China, the same below) while the Company’s foreign currency exchange operations and transactions in connection with foreign currency exchange shall be translated into RMB at the exchange rate actually adopted.
(2) Basis for translation of foreign currency monetary items and foreign currency non-monetary items
On the balance sheet date, foreign currency monetary items shall be translated at the spot exchange rate on the balance sheet date. The translation difference arising from the gap between the spot exchange rate on the balance sheet date and the spot exchange rate at the time of initial recognition or on the last balance sheet date shall be recognised in the profit or loss for the period, except that the translation difference arising from foreign currency borrowings related to construction or production of assets eligible for capitalization shall be capitalised in accordance with the Accounting Standards for Business Enterprises No. 17 - Borrowing Costs. The foreign currency non-monetary items measured at historical cost shall still be translated at the spot exchange rate on the date of the transaction, with the reporting currency of which remained unchanged.
Foreign currency non-monetary items measured at fair value are translated at the spot exchange rate on the date of determination of the fair value. The difference between the amounts of reporting currency before and after the translation will be treated as changes in fair value (including changes in foreign exchange rates) and recognised in profit or loss for the period.
(3) Basis for translation of foreign currency financial statements
According to the following requirements, the Company will translate the foreign currency dominated financial statements into RMB dominated financial statements.
The asset and liability items in the balance sheets shall be translated at the spot exchange rate on the balance sheet date. All items under owners’ equity other than the “undistributed profits” shall be translated at the spot exchange rate when they are incurred.
The income and expense items in the income statements shall be translated at the spot exchange rate on the date of transaction. On disposal of foreign operations, translation differences arising from the translation of financial statements denominated in foreign currencies related to the disposed foreign operations will be transferred to profit or loss for the period, while disposal in part shall be calculated based on the proportion of disposal.
The translation difference arising from the translation of foreign currency financial statements based on the aforesaid method shall be presented separately under owners’ equity in the balance sheets.
Cash flows statements denominated in foreign currency shall be translated at the spot exchange rate on the date when the cash flows are incurred. The effect of changes in exchange rate on cash should be regarded as a reconciling item and presented separately in the cash flow statements.48
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
7. Financial instruments
(1) Basis for recognising financial instruments
A financial instrument is recognised in the balance sheet when the Company becomes a party to the contract of a financial instrument.
(2) Classification of financial instruments
Financial assets of the Company shall be classified into four categories according to their investment purposes and business substance: 1 financial assets that are measured at fair value with any change in fair value recorded into profit or loss for the period, including transactional financial assets and financial assets that are designated to be measured at fair value with any change in fair value recorded into profit or loss for the period; 2 investments which will be held to their maturity; 3 loans and accounts receivable; 4 financial assets available for sale.
Financial liabilities are classified into two categories according to their business substance: 1 financial liabilities that are measured at fair value with any change in fair value recorded into profit or loss for the period, including transactional financial liabilities and financial liabilities that are designated to be measured at fair value with any change in fair value recorded into profit or loss for the period; 2 other financial liabilities.
(3) Measurement of financial instruments
1 Financial assets or financial liabilities measured at fair value with any change in fair value recorded into profit or loss for the period
When obtained, the financial assets or financial liabilities shall be initially measured at their fair value (except for cash dividends which are declared but not distributed or interests on bonds of which the maturity interest is not drawn), and relevant transaction costs are charged to profit or loss for the period. The interests or cash dividends to be obtained during the period are recognised as investment gain. By the end of the period, any change in fair value will be recorded into profit or loss for the period.
On disposal of such financial assets or financial liabilities, the difference between the fair value and the amount of initial recognition shall be recognised as investment gain; meanwhile, profit or loss arising from the change in fair value will be adjusted.
2 Held-to-maturity investments
Held-to-maturity investments are initially measured at fair value when obtained (except for interests on bonds of which the maturity interest is not drawn) plus relevant transaction expenses.
Interest income is calculated according to the amortised cost and effective interest rate (if the difference between effective interest rate and coupon rate is minor, interest income will be measured at coupon rate) and recorded into investment income. The effective interest rate, ascertained when initially obtained, shall remain unchanged within the predicted term of existence or within a shorter applicable term. When disposed, the difference between the consideration obtained and the carrying amount of the investment shall be recorded into investment income.49
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
7. Financial instruments (continued)
(3) Measurement of financial instruments (continued)
3 Accounts receivable
The creditor’s rights receivable that are formed when selling goods or providing services to external parties, and creditor’s rights on debt instruments of other enterprises held by the Company that are not quoted in an active market, including accounts receivable, bills receivable, other receivables, long-term receivables, etc., shall be initially measured in accordance with the consideration of the contract or agreement to be received from the acquirer. Accounts receivable that are of a financing nature are initially recognised at the current value. Upon recovery or disposal of accounts receivable, the difference between the consideration obtained and the carrying amount is charged to profit or loss for the period.
4 Available-for-sale financial assets
Available-for-sale financial assets are initially measured at fair value when obtained (except for cash dividends which are declared but not distributed or interests on bonds of which the maturity interest is not drawn) plus relevant transaction expenses. The interests or cash dividends to be obtained during the period the available-for-sale financial assets are held shall be recorded into investment income. By the end of the reporting period, financial assets are measured at fair value, and the change in fair value shall be recorded into capital reserves (other capital reserves). When disposed of, the difference between the consideration obtained and the carrying amount of the financial assets shall be recorded into investment income; meanwhile, the corresponding portion of accumulated change in fair value previously recorded into owners’ equity shall be transferred to profit or loss for the period.
5 Other financial liabilities
Other financial liabilities are initially measured at fair value plus relevant transaction expenses, and subsequently measured at amortised cost.
Except the following circumstances:
A. Derivative financial liabilities which are linked to equity instruments that are not quoted in an active market and the fair value of which cannot be measured reliably measured, and which shall be settled by delivery of equity instruments are measured at cost.
B. Financial guarantee contracts which are not designated as a financial liability measured at fair value and the change in fair value is recorded into profit or loss for the period, and commitments on loans which are not designated to be measured at fair value and the change in fair value is recorded into profit or loss for the period and which is incorporated with preferential interest rate, are subsequently measured at the higher of the following two amounts after initial measurement:
a. The amount ascertained according to the Accounting Standards for Business Enterprises No. 13 － Contingencies;
b. The surplus of initially recognised amount from which the accumulative amortization ascertained according to the principles of the Accounting Standards for Business Enterprises No.14 － Income is subtracted.50
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
7. Financial instruments (continued)
(4) Recognition and measurement of transfer of financial instruments
A financial asset shall be derecognised while the Company has transferred nearly all the risks and rewards related to the ownership of the financial asset to the transferee, and it shall not be derecognised if the Company has retained nearly all the risks and rewards related to the ownerships of the financial asset.
The substance-over-form principle shall be adopted while making a judgment on whether the transfer of financial assets satisfies the above conditions for termination of recognition. The transfer of financial assets could be classified into entire transfer and partial transfer.
If the transfer of an entire financial asset satisfies the conditions for termination of recognition, the difference between the two amounts below shall be recorded into profit or loss for the period:
1 The carrying amount of the transferred financial asset;
2 The consideration received as a result of the transfer, plus the accumulative amount of the change in fair value previously recorded into the owners’ equities (in cases where the transferred financial asset is available-for-sale financial asset).
If the partial transfer of financial assets satisfies the conditions for termination of recognition, the overall carrying amount of the transferred financial asset shall be apportioned according to their respective relative fair value between the portion of derecognised part and the remaining part (in such cases, the service assets retained shall be deemed as part of the financial assets the recognition of which is not terminated), and the difference between the two amounts below shall be recorded into profit or loss for the period:
1 The carrying amount of the derecognised part;
2 The sum of consideration of the derecognised portion and the corresponding portion of accumulated change in fair value previously recorded into owners’ equity (in cases where the transferred financial assets are available-for-sale financial assets). Financial assets will still be recognised if they fail to satisfy the conditions for termination of recognition, with the consideration received recognised as a financial liability.
(5) Determination of fair value of financial instruments
1 Where there is an active market of financial assets of financial liabilities, the price quoted in an active market shall be used to determine the fair value. The quoted price is ascertained in accordance with the following principles:
A. In an active market, the quoted price of the financial assets the Company holds or the financial liabilities the Company intends to assume shall be the bid price currently available in the market, while the quoted price of the financial assets the Company intends to acquire or the financial liabilities the Company assumed shall be the ask price currently available in the market.
B. Where there is no bid price or ask price currently available for a financial asset or financial liability, the Company shall adopt the market quoted price of the latest transaction or adjusted market quoted price of the latest transaction, except that there are obvious evidence indicating that such a market quoted price is not fair.
2 If no active market exists for a financial asset or financial liability, a valuation technique will be adopted by the Company to establish the fair value.51
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
7. Financial instruments (continued)
(6) Impairment of financial assets
An impairment test shall be made on the carrying amount of financial assets on the balance sheet date. Provision for impairment will be made if there is objective evidence indicating that the financial asset is impaired. The objective evidence indicating that the financial asset has been impaired refers to the events that actually occur after the initial recognition, which materially affect the estimated future cash flows generated by the financial asset and such influence could be reliably measured.
1 Held-to-maturity investments
Held-to-maturity investments measured at amortised cost shall be written down when impaired, with its carrying amount written down to the present value (discounted at the original effective interest rate) of the estimated future cash flows (excluding future credit losses not yet incurred), and the amount written-down shall be recognised an impairment loss of the asset through profit or loss for the period. When a provision for impairment is made, an independent impairment test will be conducted for single item with significant held-to-maturity investments. With regard to single item without significant held-to-maturity investments, an independent impairment test can be carried out separately, or they may be tested for impairment in a group sharing similar credit risk features. Held-to-maturity investments which are not impaired upon an independent test shall be put into a group sharing similar credit risk features and tested again. Held-to-maturity investments the impairment loss of which has been individually recognised will no longer be tested for impairment within a group sharing similar credit risk features.
2 Accounts receivable
Please refer to “note 4: accounts receivable” for the way in which bad debt provision for accounts receivable is made.
3 Available-for-sale financial assets
If the fair value of available-for-sale financial asset falls relatively significantly, or it is expected that the descending trend is not temporary after taking into account all relevant factors, the difference between the fair value and the carrying amount shall be recognised as impairment loss. When an impairment loss is recognised, the accumulated loss arising from the decrease in fair value previously recorded into owners’ equity shall be transferred out and recorded into impairment loss.
4 Others
When an equity investment that is not quoted in an active market and the fair value of which can not be measured reliably, or a derivative financial asset linked to the equity instrument that shall be settled by delivery of that equity instrument is impaired, the difference between the carrying amount of the equity investment or derivative financial asset and the discounted present value of the future cash flows using the then market yield rate of similar financial assets is recognised as an impairment loss through profit or loss for the period. Equity investments that are not quoted in an active market and the fair value of which can not be measured reliably will cease to be reversed after provision for impairment is made.52
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
8. Accounts receivable
(1) Recognition of bad debt provision
The Company carries out an overall inspection on the carrying amount of accounts receivable on the balance sheet date. Where there arises any of the following objective evidences indicating that accounts receivable have been impaired, an impairment provision will be made: 1 a serious financial difficulty occurs to the debtor; 2 the debtor breaches any of the contractual stipulations (such as he fails to pay or delays the payment of interests or the principal); 3 the debtor will probably go bankrupt or carry out other financial reorganizations; 4 other objective evidences show that the accounts receivable are impaired. Bad debt provision will not be made for accounts receivable falling within the scope of consolidation.
(2) Measurement of provision for bad debts
1 Basis for recognition and measurement of bad debt provision for single item with significant accounts receivable
A. Recognition of bad debt provision for single item with significant accounts receivable: the Company recognises accounts receivable amounting to over RMB1 million as a single item with significant accounts receivable.
B. Measurement of bad debt provision for single item with significant accounts receivable: the Company conducts an independent impairment test on each single item with significant accounts receivable to separately test financial assets that have never been impaired, including impairment tests conducted within a group of financial assets sharing similar credit risk features. Accounts receivable the impairment loss of which has been recognised are separately tested, excluding impairment tests conducted for a group of accounts receivable sharing similar credit risk features.
2 Basis for recognition and measurement of bad debt provision for single item without significant accounts receivable but considered to be greater risks after arrival at by credit risk features
A. Basis for determining portfolio of credit risk features: in respect of accounts receivable that are individually insignificant and those that are significant but are not impaired upon individual testing, the Company classifies financial assets based on the similarity and relevancy of credit risk features. These credit risks usually reflect debtors’ ability to settle all amounts that fall due based on the contracted terms of the assets, and are relevant to the estimated future cash flows of the inspected assets.
B. Measurement of provision based on credit risk feature portfolio: when an impairment test is performed by means of a group, bad debt provision will be assessed and ascertained according to the structure of the group of accounts receivable and similar credit risk features (debtors’ ability to settle outstanding amounts based on contracted terms), taking into account historical experience and the prevailing economic situations as well as losses that are expected to have been incurred in the group of accounts receivable.53
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
8. Accounts receivable (continued)
(2) Measurement of provision for bad debts (continued)
3 Analysis by age
Age Proportion of Proportion of
provision for provision for
accounts other accounts
receivable receivable
(%) (%)
Within 1 year (including 1 year, the same below) 5 5
1-2 years 10 10
2-3 years 20 20
Over 3 years 100 100
(3) Reversal of provision
If there are evidences indicating that the value of the account receivable is recovered and that recovery is connected to the event subsequent to the recognition of the loss, the impairment loss previously recognised will be revered and recorded into profit or loss for the period. However, the carrying amount so reversed shall not exceed the amortised cost of the account receivable on the date of reversal on the assumption that no impairment loss has been made.
9. Inventory
(1) Classification of inventory
The inventory of the Company mainly comprises raw materials, work in progress, and finished goods etc..
(2) Pricing of inventory received and dispatched
Inventories are measured at their actual cost when obtained. Cost of an inventory consists of purchase costs, processing costs and other costs. When used and dispatched, inventories will be calculated based on the planned cost first, and deviations in cost will be apportioned by month end, so that the planned cost will be adjusted to become the actual cost.54
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
9. Inventory (continued)
(3) Recognition and measurement of provision for decline in value of inventories
On balance sheet date, inventories of the Company are measured at the lower of the cost and the net realizable value.
The net realizable value is the amount after deducting the estimated cost of completion, estimated selling expenses and relevant taxes from the estimated selling price of inventories. Amongst others: 1 the net realizable value of inventories directly held for sale, such as finished goods, products and materials held for sale, is the amount after deducting the estimated selling expenses and relevant taxes from the estimated selling price of the inventories; 2 the net realizable value of material inventories, which need to be processed, during the normal course of production and operation refers to the amount after deducting the estimated cost of completion, estimated selling expenses and relevant taxes from the estimated selling price of finished goods; 3 the net realizable value of inventories held for execution of sales contracts or labor contracts shall be calculated on the ground of the contracted price. If an enterprise holds more inventories than the quantity stipulated in the sales contract, the net realizable value of the exceeding part shall be calculated on the ground of general selling price.
The provision for decline in value of inventories is made by the Company on the basis of a single inventory item.
On the balance sheet date, if the cost of inventories is higher than their net realizable value, provision for decline in value of inventories will be made and recorded into profit or loss for the period. If factors previously causing any write-down of the inventories disappeared, the amount of write-down shall be recovered and reversed from the provision to the extent provision for decline in value of inventories are previously made. The reversed amount is recorded into profit or loss for the period.
(4) The Company’s inventory system is a perpetual inventory system
(5) Amortisation of low-value consumables and packaging materials
Low-value consumables are amortised by lump-sum when taken for use. Also, packaging materials are amortised by lump-sum when taken for use.55
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
10. Long-term equity investments
(1) Recognition of the initial cost of long-term equity investments
For long-term equity investments obtained by the Company through business combination of entities under common control, the Company’s share of the carrying amount of all owners’ equity of the parties being merged shall be taken as the initial cost of investment. For long-term equity investments obtained through business combination of entities not under common control, the combination cost ascertained will be used for initial measurement. As regards long-term equity investments obtained by other means, the initial cost of investment shall be ascertained based on the actual cash payment, the fair value of the equity securities issued, the value stipulated in the investment contract or agreement, etc. The initial cost of investment shall comprise all costs, taxes and other necessary expenses that are directly attributable to the acquisition of the long-term equity investments.
For long-term equity investments obtained by the Company through business combination of entities under common control, the Company’s share of the carrying amount of all owners’ equity of the parties being merged on the date of combination shall be taken as the initial cost of investment of the long-term equity investments. The difference between the initial cost of the long-term equity investment and the carrying amount of consideration paid for the combination (or the aggregate par value of shares issued) shall be offset against capital reserve. If the capital reserve is not sufficient to offset the same, the retained earnings shall be adjusted. All costs directly attributable to the business combination on the side of the acquirer are recorded through profit or loss for the period. Handling charges, commissions and other expenses in respect of bonds issued or other liabilities assumed for the purpose of business combination are recorded into the initial amount of the bonds issued and other liabilities. Handling fees, commissions and other expenses incurred from the equity securities issued for a business combination are offset against the premium income of the equity securities. If the premium income is not sufficient for this purpose, the retained earnings will be written down.
For long-term equity investments obtained by the Company through business combination of entities not under common control, the cost of the combination ascertained on the date of acquisition shall be taken as the initial cost of investment of the long-term equity investments. The cost of the combination is the aggregate of the fair values, on the date of acquisition, of assets given, liabilities incurred or assumed, and equity instruments issued to be paid by the Company, in exchange for control of the acquiree plus any cost directly attributable to the business combination. When the business combination is achieved in stages through a number of exchange transactions, the cost of the combination is the aggregate cost of individual transactions. When a business combination agreement provides for an adjustment to the cost of the combination contingent on future events, the Company shall include the amount of that adjustment in the cost of the combination on the date of acquisition if the adjustment is probable and can be measured reliably. Handling charges, commissions and other expenses in respect of bonds issued or other liabilities assumed for the purpose of business combination are recorded into the initial amount of the bonds issued and other liabilities. Handling fees, commissions and other expenses incurred from the equity securities issued during a business combination are offset against the premium income of the equity securities. If the premium is not sufficient for this purpose, the retained earnings will be written down.
The initial cost of investment of a long-term equity investment obtained by the Company by cash payment shall be the purchase cost which is actually paid. The initial cost of investment shall comprise all costs, taxes and other necessary expenses that are directly attributable to the acquisition of the long-term equity investments.
The initial cost of investment of a long-term equity investment obtained by the Company by means of issuance of equity securities shall be the fair value of the equity securities issued.
The initial cost of investment of a long-term equity investment contributed by the Company’s investors shall be the value stipulated in the investment contract or agreement except for cases where the value stipulated in the contract or agreement is not fair.56
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
10. Long-term equity investments (continued)
(1) Recognition of the initial cost of long-term equity investments (continued)
The initial cost of investment a long-term equity investment obtained by the Company through the exchange of non-monetary assets shall be ascertained in accordance with the Accounting Standards for Business Enterprises No. 7 - Exchange of Non-monetary Assets.
The initial cost of investment of a long-term equity investment obtained by the Company through debt restructurings shall be ascertained in accordance with Accounting Standards for Business Enterprises No. 12 - Debt Restructurings.
The initial cost of investment of a long-term equity investment shall be recognised based on its appraised value if the carrying amount of assets and liabilities are adjusted in light of their appraised value during the Company’s reformation of institutions.
Except for the costs directly attributable to business combination, the initial cost of investment of long-term equity investments acquired by the Company in other ways shall comprise all costs, taxes and other necessary expenses that are directly attributable to the acquisition of the long-term equity investments.
When acquiring the investments, the cash dividends and profits declared but are yet to be distributed, which are included in the consideration to be paid, shall not be recognised as the initial cost of investment of the long-term equity investments.
(2) Subsequent measurement of long-term equity investments and recognition of profit or loss
1 A long-term equity investment of the Company, which is able to control the investees, does not involve joint control or significant influences over the investees, has no quoted price in an active market and the fair value of which cannot be measured reliably, are measured by employing the cost method.
The long-term equity investments measured by employing the cost method shall be measured at the initial cost of investment. The cost of the long-term equity investment shall be adjusted on subsequent increase or recovery of the investment. Cash dividends or profits declared by the investees are recognised as investment gain for the period.
2 A long-term equity investment of the Company which involves joint control or significant influences over the investees is measured by employing the equity method. If the initial cost of investment of a long-term equity investment is greater than the Company’s attributable share of the fair value of the investees’ identifiable net assets as a result of the investment, the initial cost of investment of the long-term equity investment shall not be adjusted. If the initial cost of investment of a long-term equity investment is less than the Company’s attributable share of the fair value of the investees’ identifiable net assets as a result of the investment, the difference shall be recorded through profit or loss for the period, and the cost of the long-term equity investment shall be adjusted as well.
A long-term equity investment shall, in accordance with the Company’s share of the net profits or losses realised by the investees, recognise the investment profits or losses and adjust the carrying amount of the long-term equity investment. The Company shall reduce the carrying amount of the long-term equity investment in accordance with the share of the profits or cash dividends declared by the investees.
The Company shall recognise the net losses of the investees to the extent that the carrying amount of the long-term equity investment and other long-term rights which substantially form the net investment made to the investees are reduced to zero, unless the Company has the extra obligation to undertake extra losses. If the investees realise any net profits subsequently, the Company shall resume recognising its attributable share of profits after its attributable share of profits offsets against its attributable share of the unrecognised losses.57
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
10. Long-term equity investments (continued)
(2) Subsequent measurement of long-term equity investments and recognition of profit or loss (continued)
The Company shall ascertain its attributable share of the investees’ net profits or losses on the ground of the fair value of all identifiable assets of the investees when it obtains the investment and adjust the net profits of the investees in accordance with the accounting policies and accounting periods adopted by the investees, after offsetting the Company’s attributable share of the inter-transaction profits or losses incurred with associates and joint ventures based on the percentage of shareholdings (all inter-transaction losses due to impairment are recognised in full). If there is debit variation in relation to the long-term equity investments in associates and joint venture held prior to first adoption of the Accounting Standards for Business Enterprises, an investment loss or gain shall be ascertained after deducting the debit variation of the equity investment amortised over the original residual term using the straight-line method.
Changes in owners’ equity other than the Company’s share of the investees’ net profits and losses are accounted for with an adjustment made to the carrying amount of the long-term equity investment and included into owners’ equity, and the portion previously included in the owners’ equity (refer only to portion recorded into the capital reserves) shall be transferred to the profit or loss for the period according to a certain proportion.
(3) Basis for determination of joint control and significant influences over the investees
1 Basis for determination of joint control: No party to the joint venture could solely control the production and operations of the joint venture. Any decision concerning the basic operations of the joint venture shall require the unanimous consent of all party to the joint venture.
2 Basis for determination of significant influences: When the Company directly or indirectly owns, or by subsidiaries owns, 20% (including 20%) or above but less than 50% of the voting shares of investees, unless there is obvious evidence indicating that there will not be any significant impact if the Company does not participate in the decision-making process of the production and operations of the investees under certain circumstances, the Company will be regarded as having significant influence on investees. If the Company owns less than 20% (excluding 20%) of the voting shares of the investees, in general the Company will not be considered to be having significant influences on the investees.
However, under the following conditions, the Company will be regarded as having significant influences over the investees: A. the Company has representative(s) in board of directors of the investees or similar authority organisations; B. the Company gets involved in policy making of the investees; C. there are significant transactions with the investees. D. management staff is dispatched to the investees. E. key technology and information is provided to the investees.
(4) Method for impairment testing and measurement of impairment provision
On the balance sheet date, the Company shall, based on the following information, make a judgment on whether there is any sign of possible impairment of the long-term equity investments. If there are signs of impairment, the Company will estimate the recoverable amount of the long-term equity investments and conduct an impairment test.
1 The current market price of the long-term equity investments falls significantly, beyond the expectation based on the advance of time or normal use;
2 Significant changes have taken place or will take place in the near future in the economic, technological or legal environment in which the Company operates or in the market in which the long-term equity investments are located, thus exerting an adverse effect on the Company;58
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
10. Long-term equity investments (continued)
(4) Method for impairment testing and measurement of impairment provision (continued)
3 Market interest rates or any other investment return rate have increased significantly during the period, thus affecting the discount rate used in calculating the discount rate of the present value of expected future cash flows of the long-term equity investments and resulting in a material decrease in the recoverable amount of the long-term equity investments;
4 The long-term equity investments have been or will be left unused, or terminated for use, or disposed ahead of schedule;
5 Any evidence in the internal report of the Company shows that the economic performance of the long-term equity investments have been or will be lower than expected, for example, the net cash flow created by the long-term equity investments or the operating profits (or losses) realised are much lower (higher) than the excepted amount, etc.;
6 Other circumstances indicate that the long-term equity investments may have been impaired.
The recoverable amount shall be ascertained in light of the higher of the net amount of the fair value of the long-term equity investments minus the disposal expenses and the present value of the expected future cash flows of the long-term equity investments. The Company shall, on the basis of an individual long-term equity investment, estimate the recoverable amount of long-term equity investments. Where it is difficult to do so, it shall determine the recoverable amount of the asset group on the basis of the asset group to which the long-term equity investment belongs. The recognition of an asset group shall be based on whether the main cash inflows generated by the asset group are independent of those generated by other assets or other asset groups. The carrying amount of an individual long-term equity investment or the asset group to which the long-term equity investment belongs shall be written down to the recoverable amount if the recoverable amount of the long-term equity investment or the asset group is lower than its carrying amount. The amount written down shall be recorded into profit or loss for the period and corresponding impairment provision shall be made for the long-term equity investment.
Once any impairment loss of the long-term equity investment is recognised, it shall not be reversed in subsequent accounting periods.
11. Investment Property
The company’s investment properties include buildings that have been leased out.
The Group adopts the cost method for subsequent measurement of investment properties, which are depreciated or amortised using the same policy as that adopted for the same or similar fixed assets and intangible assets.
On the balance sheet date, the Company shall, based on the following information, make a judgment on whether there is any sign of possible impairment of the investment properties. If there are signs of impairment, the Company will estimate the recoverable amount of the investment properties and conduct an impairment test.
1 The current market price of the investment properties falls significantly, beyond the expectation based on the advance of time or normal use;
2 Significant changes have taken place or will take place in the near future in the economic, technological or legal environment in which the Company operates or in the market in which the investment properties are located, thus exerting an adverse effect on the Company;59
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
11. Investment Property (continued)
3 Market interest rates or any other investment return rate have increased significantly during the period, thus affecting the discount rate used in calculating the discount rate of the present value of expected future cash flows of the investment properties and resulting in a material decrease in the recoverable amount of the investment properties;
4 There is evidence indicating that the investment properties have become obsolete or physical damage to the investment properties have occurred;
5 The investment properties have been or will be left unused, or terminated for use, or disposed ahead of schedule;
6 Any evidence in the internal report of the Company shows that the economic performance of the investment properties have been or will be lower than expected, for example, the net cash flow created by the investment properties or the operating profits (or losses) realised are much lower (higher) than the excepted amount, etc.;
7 Other circumstances indicate that the investment properties may have been impaired.
The recoverable amount shall be ascertained in light of the higher of the net amount of the fair value of the investment properties minus the disposal expenses and the present value of the expected future cash flows of the investment properties. The Company shall, on the basis of an individual investment property, estimate the recoverable amount of investment properties. Where it is difficult to do so, it shall determine the recoverable amount of the asset group on the basis of the asset group to which the investment property belongs. The recognition of an asset group shall be based on whether the main cash inflows generated by the asset group are independent of those generated by other assets or other asset groups. The carrying amount of an individual investment property or the asset group to which the investment property belongs shall be written down to the recoverable amount if the recoverable amount of the investment property or the asset group is lower than its carrying amount. The amount written down shall be recorded into profit or loss for the period and corresponding impairment provision shall be made for the investment property. Once any impairment loss of the investment property is recognised, it shall not be reversed in subsequent accounting periods.
12. Fixed Assets
(1) Criteria for recognition of fixed assets
The Company’s fixed assets are tangible assets that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and have a useful life of more than one accounting year. Fixed assets will be recognised only when the following conditions are simultaneously satisfied: 1 it is probable that the economic benefits relating to the fixed assets will flow into the enterprise; and 2 the costs of the fixed assets can be measured reliably.60
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
12. Fixed Assets (continued)
(2) Depreciation method of fixed assets
The fixed assets are depreciated on straight-line basis over their estimated useful lives. The useful lives, estimated residual value rates and depreciation rates per annum are as follows:
Category of Depreciation life Estimated residual Depreciation
fixed assets (in years) value rate (%) rate p.a. (%)
Buildings and structures 20-40 5-10 2.25-4.75
Machinery and equipment 8-20 5-10 4.5-11.88
Transportation equipment 5-8 5-10 11.25-19.00
Electronic equipment and others 5 5-10 18.00-19.00
Any fixed assets that have been provided for impairment are depreciated over their residual useful life of the amount after the original price net of estimated net residual value, depreciation charged and after impairment provisions. If a fixed asset has reached the working condition for its intended use but the final project accounts have not been completed and approved, its costs should be determined based on its estimated value and provided for appreciation. Upon completion of the project accounts, the estimated value will be adjusted in accordance with the actual cost. However, the recognised depreciation will not be adjusted.
The Company reviews the useful life, estimated net residual value and depreciation method of a fixed asset at least at each year end. Adjustments will be made if necessary.
(3) Impairment test method and impairment provision method
At each balance date, the Company determines whether there is any sign showing that fixed assets are impaired based on the following information. Where there is sign of impairment, the Company will estimate their recoverable amount and carry out impairment test.
1 the current market value of fixed assets has declined significantly to the extent more than would be expected as a result of the passage of time or normal use;
2 significant changes with an adverse effect on the Company have taken place or will take place in the near future in the technological, market, economic or legal environment in which the Company operates, or in the market in which the fixed assets are located;
3 market interest rates or rates of return in other markets have increased significantly in the period and the increases are likely to affect the discount rate used in calculating fixed assets’ recoverable amount and therefore decrease the fixed assets’ recoverable amount materially;
4 there is evidence indicating that fixed assets have become obsolete or physical damage to the assets have occurred;
5 fixed assets have been or will be left idle, terminated for use or planned to be disposed of before their original expiration dates;
6 economic performance of fixed assets is or will be lower than expected as indicated in any evidence shown in the Company’s internal report such as the net cash flow created or operating profit (or loss) realised by the fixed assets is significantly lower (or higher) than the originally estimated amount;61
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
12. Fixed Assets (continued)
(3) Impairment test method and impairment provision method (continued)
7 other signs indicate that fixed assets may be impaired.
The recoverable amount will be determined based on the fair value of a fixed asset less the remaining net amount after cost of disposal or the present value of the projected future cash flow of the asset, whichever is higher. The recoverable amount of a fixed asset will be assessed by the Company on an individual basis. If assessment of the recoverable amount for individual assets is difficult, the recoverable amount of an asset group will be determined based on the asset group to which the asset belongs. The recognition of an asset group will be based on whether the main cash inflow generated by the asset group is independent of that generated by other assets or asset groups.
Where the recoverable amount of an individual fixed asset or an asset group to which a fixed asset belongs is lower than its carrying amount, the Company will be written down to the recoverable amount. The written-down amount will be included in profit and loss for the period and the corresponding impairment loss on fixed assets will be provided for. The impairment loss on fixed assets recognised shall not be reversed in subsequent accounting periods.
(4) Fixed assets under finance lease
The recognition basis, measurement and depreciation methods of fixed assets under finance lease are set out in “Note 4 Leases”.
13. Construction in progress
Construction in progress includes preparation works before commencement of construction, and construction works, installations, technical retrofits, overhaul in progress, etc. The cost of construction-in-progress is determined according to expenditures actually incurred.
A construction in progress is transferred to fixed assets when it has reached the working condition for its intended use.
At each balance date, the Company determines whether there is any sign showing that a construction in progress is impaired based on the following information. Where there is sign of impairment, the Company will estimate their recoverable amount and carry out impairment test.
1 the current market value of construction in progress has declined significantly to the extent more than would be expected as a result of the passage of time or normal use;
2 significant changes with an adverse effect on the Company have taken place or will take place in the near future in the technological, market, economic or legal environment in which the Company operates, or in the market in which the construction in progress is located;
3 market interest rates or rates of return in other markets have increased significantly in the period and the increases are likely to affect the discount rate used in calculating construction in progress’ recoverable amount and therefore decrease the construction in progress’ recoverable amount materially;
4 there is evidence indicating that construction in progress has become obsolete or physical damage to the assets have occurred;
5 construction in progress has been or will be left idle, terminated for use or planned to be disposed of before its original expiration dates;62
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
13. Construction in progress (continued)
6 economic performance of construction in progress is or will be lower than expected as indicated in any evidence shown in the Company’s internal report such as the net cash flow created or operating profit (or loss) realised by the construction in progress is significantly lower (or higher) than the originally estimated amount;
7 other signs indicate that construction in progress may be impaired.
The recoverable amount will be determined based on the fair value of a construction in progress less the remaining net amount after cost of disposal or the present value of the projected future cash flow of the construction in progress, whichever is higher. The recoverable amount of a construction in progress will be assessed by the Company on an individual basis. If assessment of the recoverable amount for individual construction in progress is difficult, the recoverable amount of a construction in progress group will be determined based on the asset group to which the construction in progress belongs. The recognition of an asset group will be based on whether the main cash inflow generated by the asset group is independent of that generated by other assets or asset groups.
Where the recoverable amount of an individual construction in progress or an asset group to which a construction in progress belongs is lower than its carrying amount, the Company will be written down to the recoverable amount. The written-down amount will be included in profit and loss for the period and the corresponding impairment loss on construction in progress will be provided for. The impairment loss on construction in progress recognised shall not be reversed in subsequent accounting periods.
14. Borrowing costs
Borrowing costs refers to the interests incurred on borrowings and other related costs such as borrowing interests, amortisation of discounts or premiums, ancillary costs and exchange differences arising from foreign currency borrowings. For borrowing costs incurred by the Company that are directly attributable to the acquisition, construction or production qualified for capitalisation, the costs will be capitalised and included in the costs of the related assets. Other borrowing costs shall be recognised as expense in the period in which they are incurred and included in profit or loss for the current period.
(1) Criteria for recognition of capitalised borrowing costs
Capitalisation of borrowing costs begins when the following three conditions are fully satisfied:
1 expenditures for the assets have been incurred.
2 borrowing costs have been incurred.
3 acquisition, construction or production that are necessary to enable the asset reach its intended usable or saleable condition have commenced.63
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
14. Borrowing costs (continued)
(2) Capitalisation period of borrowing costs
The capitalisation period shall refer to the period between the commencement and the cessation of capitalisation of borrowing costs, excluding the period in which capitalisation of borrowing costs is temporarily suspended.
Capitalisation of borrowing costs shall be suspended during periods in which the acquisition, construction or production of a qualifying asset is interrupted abnormally, when the interruption is for a continuous period of more than 3 months. The borrowing costs incurred during such period shall be recognised as expenses, and shall be recorded into the profits and losses of the current period, until the acquisition and construction or production of the asset resumes. If the interruption is a necessary step for making the qualifying asset under acquisition and construction or production ready for the intended use or sale, the capitalisation of the borrowing costs shall continue.
Capitalisation of borrowing costs shall be discontinued when qualifying assets under the construction, acquisition or production reach their intended usable or saleable condition. Borrowing costs incurred after qualifying assets reach their intended usable or saleable condition shall be included in the profit and loss of the period in which they arise.
(3) Calculation of capitalisation of borrowing costs
During the period of capitalisation, the to-be-capitalised amount of interests (including the amortisation of discounts or premiums) in each accounting period shall be determined according to the following provisions:
1 As for specifically borrowed loans for the acquisition and construction or production of qualifying assets for capitalisation, the to-be-capitalised amount of interests shall be determined in light of the actual cost incurred of the specially borrowed loan at the current period minus the interest income earned on the unused borrowing loans as a deposit in the bank or as a temporary investment.
2 Where a general borrowing is used for the acquisition and construction or production of qualifying assets for capitalisation, the Company shall calculate and determine the to-be-capitalised amount of interests on the general borrowing by multiplying the weighted average asset disbursement of the part of the accumulative asset disbursements minus the specifically borrowed loans by the capitalisation rate of the general borrowing used. The capitalisation rate shall be calculated and determined according to the weighted average interest rate of the general borrowing.
15. Biological assets
Consumable biological assets refer to biological assets held for sale or to be harvested as agricultural produce in the future, which includes growing commercial forests. Consumable biological assets are stated at cost at initial recognition. The cost of self-planting, self-cultivating consumable biological assets is the necessary expenses directly attributable to such assets prior to canopy closure, including borrowing costs eligible for capitalisation. Subsequent expenses incurred after canopy closure shall be included in profit or loss for the current period.
The cost of consumable biological assets shall, at the time of harvest or disposal, be carried forward at carrying value using the rotation age method.
All the consumable biological assets of the Company are subsequently measured at fair value as they are quoted in an active market where the Company can obtain a quoted market price and other information of the same or similar consumable biological assets and thus their fair values can be reliably estimated. Changes in fair values shall be recognised as profit or loss in the current period.64
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
16. Intangible assets
(1) Initial measurement of intangible assets
Intangible assets are initially measured at cost and the actual costs shall be determined based on the following principles:
1 The costs of an externally purchased fixed asset include the purchase price, relevant taxes and expenses paid, and other expenditures directly attributable to putting the asset into condition for its intended use. If the payment for a fixed asset is delayed beyond the normal credit conditions and it is of financing nature in effect, the cost of the fixed asset shall be ascertained based on the current value of the purchase price. For any difference between the actual amount paid and the present value of the purchase price, it shall be capitalised according to “Enterprise Accounting Standards No. 17 － Borrowing costs” and also included into the profit and loss of the current period during the credit period.
2 The cost invested into an intangible asset by the investor shall be ascertained in accordance with the value stipulated in the investment contract or agreement, except in cases where the value stipulated in the contract or agreement is unfair.
3 Self-developed intangible assets
The cost of self-developed intangible assets shall include the total expenditure incurred from the time when it meets the provisions for recognition of intangible assets to the time when the assets are ready for their intended use. However, expenditure which has already been treated in prior periods shall not be adjusted.
4 The cost of intangible assets acquired through exchange of non-monetary assets, debt restructurings, government subsidies and business combination shall be determined respectively according to the Accounting Standards for Business Enterprises No. 7 - Exchange of Non-monetary assets, Accounting Standards for Business Enterprises No. 12 - Debt Restructurings, Accounting Standards for Business Enterprises No. 16 - Government Grants and Accounting Standards for Business Enterprises No. 20 - Merge of Enterprises.
(2) Subsequent measurement of intangible assets
The Company shall analyse and judge the useful life of intangible assets upon acquisition. The useful life of an intangible asset is determined by the term in which economic benefits are brought to the Company by the intangible asset. If the term in which economic benefits are brought to the Company by an intangible asset can not be estimated, the intangible asset shall be taken as an intangible asset with indefinite useful life.
With regard to intangible assets with finite useful life, its amortisation amount shall be amortised within its useful life systematically and reasonably. The Company adopted straight-line method for amortisation.
The reasonable amortisation amount of an intangible asset shall be its cost minus the expected residual value. For intangible assets with an impairment provision, the accumulative amount of impairment provision for the intangible asset shall be deducted from the cost as well. Amortised amount of intangible assets shall be included into profit or loss for the period. Intangible assets with indefinite life are not amortised.
The Company reviews the useful life and amortisation method of intangible assets with finite useful life at each year end and makes adjustment where necessary.
The useful life of intangible assets with indefinite useful life will be reviewed during each accounting period. If there are evidences indicating that the life is finite, the policy applicable to intangible assets with finite useful life as stated above shall be adopted for accounting purpose.65
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
16. Intangible assets (continued)
(3) Expenditure on research and development
Expenditure for internal research and development projects of the Company is divided into expenditure in the research phase and expenditure in the development phase. Expenditure in the research stage is recorded through profit or loss for the period in which such expenditure is incurred. Expenditure in the development stage shall be capitalised only when it satisfies the following conditions simultaneously:
A. It is technically feasible to complete such intangible assets for use or sale;
B. It is intended to complete, use or sell the intangible assets;
C. The methods for intangible assets to generate economic benefits include the ability to prove that there is a potential market for the products manufactured by applying the intangible assets or there is a potential market for the intangible assets themselves. Should the intangible assets be used internally, its usefulness shall be evidenced.
D. There are sufficient technologies, financial resources and other resources supporting the development of the intangible assets. And the Company is able to use or sell such intangible assets;
E. The expenditure incurred in the development phase of the intangible assets can be measured reliably.
(4) Method for impairment testing and measurement of impairment provision
On the balance sheet date, the Company shall, based on the following information, make a judgment on whether there is any sign of possible impairment of the intangible assets with finite useful life. If there are signs of impairment, the Company will estimate the recoverable amount of the intangible assets and conduct an impairment test. Intangible assets with indefinite useful life will be tested for impairment every year, regardless of whether there are signs of impairment.
1 The current market price of intangible assets falls significantly, beyond the expectation based on the advance of time or normal use;
2 Significant changes have taken place or will take place in the near future in the economic, technological or legal environment in which the Company operates or in the market in which the intangible assets are located, thus exerting an adverse effect on the Company;
3 Market interest rates or any other investment return rate have increased significantly during the period, thus affecting the discount rate used in calculating the discount rate of the present value of expected future cash flows of the intangible assets and resulting in a material decrease in the recoverable amount of the intangible assets;
4 Any evidence shows that the intangible assets have become obsolete or physical damage occurred;
5 The intangible assets have been or will be left unused, or terminated for use, or disposed ahead of schedule;
6 Any evidence in the internal report of the Company shows that the economic performance of the intangible assets have been or will be lower than expected, for example, the net cash flow created by the intangible assets or the operating profits (or losses) realised are much lower (higher) than the excepted amount, etc.;66
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
16. Intangible assets (continued)
(4) Method for impairment testing and measurement of impairment provision (continued)
7 Other circumstances indicate that the intangible asset may have been impaired.
The recoverable amount shall be ascertained in light of the higher of the net amount of the fair value of the intangible assets minus the disposal expenses and the present value of the expected future cash flows of the intangible assets. The Company shall, on the basis of a single intangible asset, estimate the recoverable amount of intangible assets. Where it is difficult to do so, it shall determine the recoverable amount of the asset group on the basis of the asset group to which the intangible asset belongs. The recognition of an asset group shall be based on whether the main cash inflows generated by the asset group are independent of those generated by other assets or other asset groups.
The carrying amount of a single intangible asset or the asset group to which the intangible asset belongs shall be written down to the recoverable amount if the recoverable amount of the asset or the asset group is lower than its carrying amount. The amount written down shall be recorded into profit or loss for the period and corresponding impairment provision shall be made for the intangible asset. Once any impairment loss of the intangible asset is recognised, it shall not be reversed in subsequent accounting periods.
17. Long-term deferred expenses
Long-term deferred expenses refer to expenses occurred but shall be amortised over the current period and subsequent periods with an amortisation period of over 1 year (excluding 1 year). Long-term deferred expenses is accounted for at actual expenses, and amortised evenly over the benefit period.
18. Accrued liabilities
(1) Basis for recognition of accrued liabilities
Businesses regarding external guaranties, pending litigations or arbitrations, product quality assurance, layoff plan, onerous contracts, restructuring obligations, and disposal obligations of fixed assets which satisfy the following conditions are recognised as liabilities:
1 The obligation is a current obligation borne by the Company.
2 It is likely that an outflow of economic benefits will be resulted from the performance of the obligation.
3 The amount of the obligation can be measured reliably.
(2) Measurement of accrued liabilities
Accrued liabilities shall be initially measured at the best estimate of the necessary expenses required for the performance of existing obligations, after taking into account relevant risks, uncertainties, time value of money and other factors pertinent to the contingencies. If the time value of money is of great significance, the best estimate shall be ascertained after discounting the relevant future outflows of cash. The carrying amount of projected liabilities shall be checked upon on each balance sheet date. If there are concrete evidences indicating that the carrying amount cannot reflect the present best estimate, the carrying amount shall be adjusted against the present best estimate.67
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
19. Revenue
(1) Principles for recognition of revenue from selling goods
Revenue from selling goods shall be recognised only when all of the following conditions are met:
1 The major risks and rewards attached to the ownership of the goods have been transferred to the purchasers by the Company.
2 The Company retains neither continuous management right that are usually related to the ownership nor effective control over the sold goods.
3 The amount of the revenue can be measured reliably.
4 The relevant economic benefits are likely to flow into the Company.
5 The relevant costs incurred or to be incurred can be measured reliably.
Sales of electricity are recognised when electricity is generated and transmitted to the power grid operated by the local electric power company.
Sales of steam are recorded based upon output delivered and capacity provided at rates specified under contract terms.
(2) Recognition of the rendering of service
If the Company can, on the balance sheet date, estimate reliably the outcome of a transaction concerning the rendering of services, it shall recognise the revenue from the rendering of services employing the percentage-of-completion method. The Company shall ascertain the completion schedule of transaction concerning the rendering of services according to the proportion of services already rendered.
Cases where the Company can not, on the balance sheet date, estimate reliably the outcome of a transaction concerning the rendering of services shall be treated as follows:
1 If the cost of the services rendered is expected to be compensated, the revenue from the rendering of services shall be recognised in accordance with the cost of the services rendered, and the cost of the services shall be carried forward at the same amount.
2 If it is expected that the cost of the services rendered cannot be compensated, the cost of the services rendered should be recorded through profit or loss for the period, and no revenue from the rendering of services will be recognised.
(3) Recognition of revenue from abalienating assets’ use rights
1 Principles for recognition of revenue from abalienating assets’ use rights
Revenue from abalienating assets’ use rights consists of interest revenue and royalty revenue. Revenue will be recognised only when all of the following conditions are met:
A. Economic benefits associated with the transaction can flow into the Company;
B. The amount of the revenue can be measured reliably.68
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
19. Revenue (continued)
(3) Recognition of revenue from abalienating assets’ use rights (continued)
2 Specific recognition method
A. Interest revenue are measured and recognised in accordance with the length of time for which the Company’s monetary capital is used by other parties and the actual interest rate.
B. When the outcome of a transaction involving the rendering of services can be estimated reliably and such services may be commenced and completed in the same fiscal year, hotel income realised from the rendering of services is recognised upon completion of services.
20. Government Grants
Government grants of the Company include government grants related to assets and government grants related to revenue.
(1) Recognition of government grants
No government grants may be recognised unless all the following conditions have been met: 1 the Company can meet the conditions attached to such government grants; 2 the Company can obtain such government grants.
(2) Measurement of government grants
1 If government grant is in the form of a transfer of a monetary asset, it is measured at the amount that is received or receivable. If a government grant is in the form of a transfer of a non-monetary asset, it is measured at its fair value; where fair value cannot be obtained reliably, it shall be measured at its nominal amount ($1).
2 Government grant related to an asset is recognised initially as deferred income and amortised to profit or loss for the period on a straight-line basis over the useful life of the asset. But government grant measured at its nominal amount is directly credited to the profit or loss for the period. Government grant related to revenue shall be treated in accordance with the circumstances: a grant that compensates the Company for expenses or losses to be incurred in the subsequent periods is recognised as deferred income and recognised in profit or loss in the same periods in which such expenses are recognised; a grant that compensates the Company for expenses or losses already incurred is recognised in profit or loss for the period.
3 If it is necessary to refund any government grant which has been recognised, it shall be treated in accordance with the circumstances: if it is related to deferred income, the book balance of the deferred income shall be offset by such refund, and the amount in excess shall be accounted for in the profit or loss for the period; if it is not related to deferred income, it shall be accounted for directly in the profit or loss for the period.69
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
21. Deferred Income Tax Assets / Deferred Income Tax Liabilities
On the balance sheet date, where there is temporary difference between the carrying amounts of the assets or liabilities and the tax base, or temporary difference of arising from the difference between the carrying amounts and the tax base of items not recognised as assets or liabilities but the tax base can be ascertained according to tax law, the deferred income tax shall be ascertained using balance sheet liability method.
(1) Basis of recognition of deferred income tax assets
For any deductible loss or tax deduction that can be used to offset temporary difference or carried forward to the subsequent years, the corresponding deferred income tax assets shall be recognised to the extent of the amount of future taxable income likely to be used to offset such temporary difference, deductible loss or tax deduction, except:
1 deductible temporary difference arising from the following transaction: the transaction itself is not a business combination, and the occurrence of the transaction will not affect accounting profits and taxable amount or deductible loss;
2 where deductible temporary difference related to the investments of the subsidiaries, joint ventures and associated corporations can meet all of the following requirements, the corresponding deferred income tax assets shall be recognised: such temporary differences are likely to be reversed in the foreseeable future, and it is likely to obtain the taxable income tax that is used to offset the deductible temporary differences.
(2) Basis of recognition of deferred income tax liabilities
All taxable temporary differences shall be recognised as deferred income tax liabilities, except:
1 taxable temporary differences arising from the following transactions:
A. initiation recognition of goodwill;
B. initial recognition of assets or liabilities incurred from transactions showing all of the following characteristics: the transaction itself is not a business combination, and the occurrence of the transaction will not affect accounting profits and taxable amount or deductible loss.
2 for taxable temporary differences related to the investments of subsidiaries, joint ventures and associated corporations, the timing for the reversal of such temporary differences can be controlled and such temporary differences are not likely to be reversed in the foreseeable future.70
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
22. Leases
(1) Basis of determination of finance leases and operating leases
Where a lease satisfies one or more of the following criteria, it shall be determined as a finance lease: 1 the ownership of the leased asset is transferred to the lessee upon expiration of lease term; 2 the lessee has the option to buy the leased asset at a price which is expected to be far lower than the fair value of the leased asset at the date when the option becomes exercisable; thus, on the lease beginning date, it can be reasonably determined that the option will be exercised by the Company; 3 even if the ownership of the asset is not transferred, the lease term covers the major part of the useful life of the leased asset (generally 75% or above); 4 in the case of the lessee, the present value of the minimum lease payments on the lease beginning date amounts to substantially (generally 90% or above) the fair value of the leased asset on the lease beginning date; in the case of the lessor, the present value of the minimum lease receipts on the lease beginning date amounts to substantially (generally 90% or above) the fair value of the leased asset on the lease beginning date; 5 the leased assets are of a specialised nature that only the Company (or the lessee) can use them without making significant modifications.
Lease that does not fall into the category of finance lease is regarded as operating lease.
(2) Significant accounting treatments for finance leases
1 Accounting treatments for the lessee
On the lease beginning date, a lessee shall recognise the lower of the fair value of the leased asset on the lease beginning date and the present value of the minimum lease payments as the recorded value, and recognise the minimum lease payments as the recorded value of long-term accounts payable, and the difference between such amounts shall be determined as unrecognised finance charge. The initial direct costs (e.g. handling fees, etc.) directly attributable to the leased item incurred during the process of lease negotiation and execution of the leasing agreement (same below) shall be accounted for as the value of the leased asset. The unrecognised financing charge shall be accounted for during the lease period using the effective interest method and recognised as financing charge for the period. Contingent rent payments are recognised in the profit and loss for the period when actually incurred.
In calculating the depreciation of a leased asset, the Company uses a depreciation policy consistent with that of proprietary fixed assets. If it can be reasonably determined that the ownership of the leased asset can be obtained upon expiration of the lease term, the leased asset shall be depreciated over its useful life. If it cannot be reasonably determined that the ownership of the leased asset can be obtained at the expiration of the lease term, the leased asset shall be depreciated over the shorter of the lease term or its useful life.
2 Accounting treatments for the lessor
On the beginning date of the lease term, the lessor shall recognise the minimum lease receipts on the lease beginning date and the initial direct costs as the recorded value for the financing lease receivable, and recognise the unguaranteed residual value at the same time. The difference between the sum of minimum lease receipts, initial direct costs and unguaranteed residual value, and the sum of their present values shall be recognised as unrealised financing income. The unrealised financing income shall be accounted for during the lease period using the effective interest method and recognised as financing income for the period. Contingent rent receipts are recognised in the profit and loss for the period when actually incurred.71
IV. Significant Accounting Policies and Estimates of the Company and Prior Period Derivations (continued)
22. Leases (continued)
(3) Significant accounting treatments for operating leases
The rents from operating leases shall be recorded by the lessor and lessee in the profits and losses for the period using the straight-line method over each period of the lease term. The initial direct costs incurred to a lessor and lessee shall be recorded into the profits and losses for the period. The contingent rents shall be recorded into the profits and losses for the period when actually incurred.
23. Changes in Significant Accounting Policies and Estimates
(1) Changes in accounting policies
Nil
(2) Changes in accounting estimates
Nil
24. Corrections on accounting errors in prior periods
Nil
V. Taxation
1. Main tax types and tax rates
Tax type Basis of taxing Tax rate
Value added tax
Of which: Product sold Sales volume 17%
in the domestic market
Paper core sales, printing Sales volume 17%
Purchase of barley grass, Procurement volume 13%
pampas grass
Purchase of steam power Procurement volume 13%
for production use
Purchase of electric power Procurement volume 17%
for production use
Purchase of sodium silicate, Procurement volume 17%
paperboard for production use
Purchase of waste paper in the PRC Procurement volume 10%
Coal Procurement volume 17%
Business tax
Of which: Repair services Revenue from repair fees 5%
Entrusted loans Interests income 5%
Transportation services Revenue from transportation fees 3%
Urban maintenance and Amount of value added 5-7%
construction tax tax and business tax paid
Education surtax Amount of value added tax 3%
and business tax paid
Enterprise income tax Taxable income Corresponding
tax rate72
V. Taxation (continued)
2. Tax incentives and approvals
Enterprise income tax
Pursuant to the requirements of Law of the People’s Republic of China on Enterprise Income Tax （《中華人民共和國企業所得稅法》） dated 16 March 2007, the Company is recognised as a high or new technology enterprise which needs the major support of the state as approved by State Taxation Administration of Shouguang, Shandong. An enterprise income tax rate of 15% is applicable to the Company since 1 January 2009 for three years. The sales branches of the Company were still subject to an enterprise income tax rate of 25%.
Hailaer Chenming Paper Co., Ltd.（海拉爾晨鳴紙業有限責任公司）, a subsidiary of the Company established in the Inner Mongolia Autonomous Region and covered by the preferential tax policy for industries encouraged by the State Government, enjoyed the preferential income tax rate of 15% from 2001 to 2010 pursuant to Guo Shui Fa (2002) Document No.47 issued by the State Administration of Taxation.
Pursuant to the Guo Xi Ban Zong [2001] Document No. 10 “Written Reply concerning the Application of the Preferential Tax Policies on Development of the Western Region in Yanbian Korean Autonomous Prefecture” issued by the Office of the Leading Group for Western Region Development of the State Council （《國務院西部開發辦關於延邊朝鮮族自治州參照報行國家西部大開發優惠政策的復函》） and Yanzhou local tax notice [2001] Document No. 99 “Letter confirming the entitlement ofto preferential tax policy” issued by the local tax bureau of Yanbian Korean Autonomous Prefecture （《延邊州地方稅務局關於吉林晨鳴亞松漿紙有限公司享受稅收優惠政策承諾的函》）, Yanbian Chenming Paper Co., Ltd. （延邊晨鳴紙業有限公司）, a subsidiary of the Company, is covered by the preferential tax policies on development of the Western Region and thus enjoys preferential tax rate of 15% from 2001 to 2010.
Shandong Chenming Xinli Power Co., Ltd. （山東晨鳴新力熱電有限公司）, a subsidiary of the Company, was established in 2001 as a Sino-foreign joint venture and engaged in the business of electric power and thermal power generation. Pursuant to Rule No. 73 of “Detailed Rules on the Implementation of the Income Tax Law of The People’s Republic of China for Enterprises with Foreign Investment and Foreign Enterprises” （《中華人民共和國外商投資企業和外國企業所得稅法實施細則》） and rules under the State Council’s Circular on Expanding Application Scope of Income Tax Preferential Treatment on Enterprises with Foreign Investment Engaged in Energy or Traffic Infrastructure Projects （《國務院關於擴大外商投資企業從事能源交通基礎設施項目稅收優惠規定使用範圍的通知》） (Guo Fa [1999] No. 13), and Guo Shui Han [2002] Document No. 1032 “Written Reply on issues regarding the application of preferential enterprise income tax rate to Shandong Chenming Xinli Power Co., Ltd.” from the State Council （《國家稅務總局關於山東晨鳴新力熱電有限公司適用企業所得稅稅率問題的批復》）, Shandong Chenming Xinli Power Co., Ltd. is subject to income tax rate of 15%. Pursuant to Guo Fa [2007] Document No. 39 “Circular on Transitional Preferential Enterprise Income Tax Policy” issued by the State Council （《國務院關於實施企業所得稅過渡優惠政策的通知》）, the subsidiary was subject to the income tax rate of 22% in 2010.
Wuhan Chenming Hanyang Paper Holdings Co., Ltd. （武漢晨鳴漢陽紙業股份有限公司）, a subsidiary of the Company, was transformed into an EFI in April 2005. Pursuant to the Income Tax Law of The People’s Republic of China for Enterprises with Foreign Investment and Foreign Enterprises and its implementation rules, and as approved by State Taxation Administration of Economic and Technological Development Zone of Wuhan City, the income tax for 2007 was reduced in half. Pursuant to Guo Fa [2007] Document No. 39 “Circular on Transitional Preferential Enterprise Income Tax Policy” issued by the State Council （《國務院關於實施企業所得稅過渡優惠政策的通知》）, the subsidiary was subject to the income tax rate of 22% in 2010.73
V. Taxation (continued)
2. Tax incentives and approvals (continued)
Enterprise income tax (continued)
Jiangxi Chenming Paper Co., Ltd.（江西晨鳴紙業有限責任公司）, a subsidiary of the Company, was transformed into an EFI in 2004. It engaged in production with a period of operation of more than 10 years as a foreign-investment enterprise. 2009 was the third year since it started to make profits. Pursuant to Guo Fa [2007] Document No. 39 “Circular on Transitional Preferential Enterprise Income Tax Policy” issued by the State Council （《國務院關於實施企業所得稅過渡優惠政策的通知》）, the subsidiary was subject to the income tax of 12.5% in 2010.
Pursuant to the “Revenue Bill 2008” passed by The Legislative Council of the Hong Kong Special Administrative Region on 26 June 2008, Chenming (HK) Limited, a subsidiary of the Company, has been subject to a corporate income tax rate of 16.5% commencing 2008, and the applicable tax rate for 2010 was 16.5%.
Except for the above preferential policies, the Company and its remaining subsidiaries are subject to enterprise income tax rate of 25%.
Income tax credits in respect of investments in domestic-manufactured equipment
Pursuant to the Circular on Several Issues concerning Crediting Payment on Purchase of Domestically-Made Equipment as Investments against Enterprise Income Tax by Foreign-invested Enterprises and Foreign Enterprises （《關於外商投資企業和外國企業購買國產設備投資抵免企業所得稅有關問題的通知》） issued by the Ministry of Finance and the State Administration of Taxation (Cai Shui [2000] No. 49) and the Provisional Measures concerning Crediting Payment on Purchase of Technologically Improved Domestically-Made Equipment as Investments against Enterprise Income Tax （《技術改造國產設備投資抵免企業所得稅暫行辦法》） (Cai Shui Zi [1999] No. 290), the 40 percent of the Group’s payments on domestically-made equipment is creditable against the increased amount in its enterprise income taxes in the year of purchase over that of the year before. The allowable tax credit of an enterprise shall not exceed its newly increased enterprise income tax for the year of purchase over that of the year before. If the amount of newly increased enterprise income tax is not sufficient for tax credit, the remaining part of the investment which exceeds the tax credit shall be refundable against the newly increased tax of the next year over that of the year before the year of purchase. However, the period for continuous tax credit shall not exceed five years.
Pursuant to Guo Shui Fa [2008] Document No. 52 “Circular on Policy Question about Postponement to Implement to Set Off Enterprise Income Tax with Investment To Acquire Domestic Equipment by Enterprise” issued by State General Tax Bureau （《關於停止執行企業購買國產設備投資抵免企業所得稅政策問題的通知》）, postponement to implement to the policy to set off enterprise income tax with investment to acquire domestic equipment by an enterprise has been carried out since 1 January 2008. Income tax credits in respect of investments in domestic-manufactured equipment as approved in prior years will continue to be credited within the extended period.74
V. Taxation (continued)
2. Tax incentives and approvals (continued)
Value-added Tax (“VAT”)
Pursuant to the requirements of the “Provisional Regulations on Value-added Tax of the People’s Republic of China” （《中華人民共和國增值稅暫行條例》） and “Detailed Rules for the Implementation of the Provisional Regulations on Value-added Tax of the People’s Republic of China” （《中華人民共和國增值稅暫行條例實施細則》）, with effect from 1 January 2009, general payers of VAT may have the input amount incurred from acquiring (including acceptance of donation and investment in kind) or manufacturing (including rebuilding, expansion of building and installation) fixed assets deducted from the output amount upon the proof of the VAT-specific invoice, special bill of payment of import VAT obtained from the customs and freight settlement voucher.
Pursuant to Cai Shui [1995] No. 44 “Circular on VAT Exemption for Certain Products Applying Integrated Use of Resources” issued by the State Administration of Taxation （《國家稅務總局對部分資源綜合利用產品免徵增值稅的通知》）, enterprises engaged in utilisation of raw materials containing not less than 30% of coal gangue, stone coal, coal ash, bottom ash of coal boiler (excluding blast furnace water quenching residue) in the production of building material products shall be exempted from VAT. Wuhan Chenjian New-style Wall Materials Co., Ltd. （武漢晨建新型牆體材料有限公司）, a subsidiary of the Company, utilises raw materials containing above 30% of coal ash in its production. It is thus qualified as an enterprise engaged in the utilisation of waste in production and is exempted from VAT in 2009.
Pursuant to Cai Shui [2001] No. 78 “Circular on the VAT Policy concerning Waste Collection Business” issued by the State Administration of Taxation （《國家稅務總局關於廢舊物資回收經營業務有關增值稅政策的通知》）, since 2001, general taxpayers engaging in the sale of waste materials business will be exempted from VAT. Accordingly, Qihe Chenming Waste Collection Co., Ltd. （齊河晨鳴廢舊物資收購有限公司）, Jilin Chenming Waste Collection Co., Ltd. （吉林晨鳴廢舊物資回收有限公司） and Shouguang City Run Sheng Wasted Paper Recycle Co., Ltd. （壽光市潤生廢紙回收有限責任公司）, subsidiaries of the Company, are covered by the preferential policy of VAT exemption.
Pursuant to Cai Shui Zi [1995] No. 44 “Circular on VAT Exemption for Certain Products Applying Integrated Use of Resources issued by the Ministry of Finance and the State Administration of Taxation” （《財政部、國家稅務總局關於對部分資源綜合利用產品免徵增值稅問題的通知》） and the relevant requirements of Cai Shui [2001] Document No. 72, Shandong Chenming Panels Co., Ltd.（山東晨鳴板材有限責任公司）, Qihe Chenming Panels Co., Ltd. （齊河晨鳴板材有限公司）, Juancheng Chenming Panels Co., Ltd （鄄城晨鳴板材有限公司） and Heze Chenming Panels Co., Ltd., （菏澤晨鳴板材有限責任公司） all being subsidiaries of the Company and produce products that applied integrated use of resources, are subject to an immediate VAT refund policy.VI. BUSINESS COMBINATION AND CONSOLIDATED FINANCIAL STATEMENTS
1. Subsidiaries
(1) Subsidiaries acquired through establishment or investment
Unit: RMB ’0000
Setting off of the loss
Set off the attributable to the minority
Balance of profit or loss shareholders of the subsidiaries
other projects of the minority in the current period from the
The actual that interests from owner’s equity of the Company
investment constitutes net the equity of exceeds the minority shareholders’
Full name Subsidiary Place of Business Registered at the end investment in Shareholding Voting rights Whether Minority the minority portion of the opening balance
of subsidiary type Incorporation Nature capital Business activity of period the subsidiary (%) (%) consolidated interests interests of owners’ equity of the subsidiary
Wuhan Chenming Sino-foreign Wuhan City Manufacture 21,136 Manufacture and sales of paper 20,283.00 — 50.93 50.93 Yes 43,278.18 — —
Hanyang Paper joint venture of paper products,the materials of
Holdings Co., Ltd. manufacture of paper
and machinery
Shandong Chenming Limited Qihe, Manufacture 37,620 Manufacture, processing 37,620.00 — 100.00 100.00 Yes — — —
Paper Group Qihe liability Shandong of paper and sales of paperboard
Paperboard company and packaging paper
Co., Ltd.
Shandong Chenming Joint stock Shouguang, Electricity 9,955 Manufacture and supply of 15,781.00 — 86.71 86.71 Yes 8,847.88 — —
Power Supply company Shandong electricity and heat
Holdings Co., Ltd.
Yanbian Chenming Limited liability Yanji, Manufacture 8,163.30 Mucilage glue fiber pulp, pulp 4,009.00 — 76.73 76.73 Yes 7,144.23 — —
Paper Co., Ltd. company Jilin of paper and machine-made paper
75VI. BUSINESS COMBINATION AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Subsidiaries (continued)
(1) Subsidiaries acquired through establishment or investment (continued)
Unit: RMB ’0000
Setting off of the loss
Set off the attributable to the minority
Balance of profit or loss shareholders of the subsidiaries
other projects of the minority in the current period from the
The actual that interests from owner’s equity of the Company
investment constitutes net the equity of exceeds the minority shareholders’
Full name Subsidiary Place of Business Registered at the end investment in Shareholding Voting rights Whether Minority the minority portion of the opening balance
of subsidiary type Incorporation Nature capital Business activity of period the subsidiary (%) (%) consolidated interests interests of owners’ equity of the subsidiary
Jiangxi Chenming Sino-foreign Nanchang city Manufacture USD172.00 Production and processing, etc. 69,755.00 — 51.00 51.00 Yes 87,900.46 — —
Paper Co., Ltd. joint venture of paper million of machine-made paper, paperboard,
paper panel, paper products and
paper-making raw materials
Shouguang Chenming Limited liability Shouguang, Arboriculture 1,059 Development, nurture of fast growth 720.00 — 68.00 68.00 Yes — — -77.75
Tianyuan Arboriculture company Shandong poplar, forest, vegetable and fruit
Co., Ltd.
Hailaer Chenming Limited liability Hailaer City Manufacture 1,600 Sales and processing; sales of machine- 1,200.00 — 75.00 75.00 Yes 3,144.88 — —
Paper Co., Ltd. company of paper made paper and pulp paper
Chibi Chenming Limited liability Chibi, Hubei Manufacture 17,742 Production, processing and sales 3,548.00 — 51.00 51.00 Yes 15,143.80 — —
Paper Co., Ltd. company of paper of pulp and paper products;
land transport
Wuhan Chenming Limited liability Wuhan City Electricity 8,824 Generation and sales 4,500.00 — 51.00 51.00 Yes 5,670.20 — —
Qianneng Electric company of electricity and heat
Power Co., Ltd.
76VI. BUSINESS COMBINATION AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Subsidiaries (continued)
(1) Subsidiaries acquired through establishment or investment (continued)
Unit: RMB ’0000
Setting off of the loss
Set off the attributable to the minority
Balance of profit or loss shareholders of the subsidiaries
other projects of the minority in the current period from the
The actual that interests from owner’s equity of the Company
investment constitutes net the equity of exceeds the minority shareholders’
Full name Subsidiary Place of Business Registered at the end investment in Shareholding Voting rights Whether Minority the minority portion of the opening balance
of subsidiary type Incorporation Nature capital Business activity of period the subsidiary (%) (%) consolidated interests interests of owners’ equity of the subsidiary
Wuhan Chenjian Limited liability Wuhan City Wall materials 1,000 Production, operation and sales 510.00 — 51.00 51.00 Yes 1,605.77 — —
New-style Wall company of aerated fly ash concrete blocks
Materials Co., ltd.
Shandong Chenming Sino-foreign Shouguang, Electricity USD11.80 million Generation and sales of 4,982.00 — 51.00 51.00 Yes 6,585.15 — —
Xinli Power joint venture Shandong electricity and heat
Co., Ltd.
Shouguang Chenming Limited liability Shouguang, Cement 700 Utilization of ash in the production of 700.00 — 100.00 100.00 Yes — — —
Cement Co., Ltd. company Shandong cement and sales of cement
Shandong Chenming Limited liability Shouguang, Panels 3,000 Production, processing and sales of the 3,000.00 — 100.00 100.00 Yes — — —
Panels Co., Ltd. company Shandong decorative board of the layer of
laminated board, wooden products,
laminated board, fortified wooden
floorboard and impregnated paper
77VI. BUSINESS COMBINATION AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Subsidiaries (continued)
(1) Subsidiaries acquired through establishment or investment (continued)
Unit: RMB ’0000
Setting off of the loss
Set off the attributable to the minority
Balance of profit or loss shareholders of the subsidiaries
other projects of the minority in the current period from the
The actual that interests from owner’s equity of the Company
investment constitutes net the equity of exceeds the minority shareholders’
Full name Subsidiary Place of Business Registered at the end investment in Shareholding Voting rights Whether Minority the minority portion of the opening balance
of subsidiary type Incorporation Nature capital Business activity of period the subsidiary (%) (%) consolidated interests interests of owners’ equity of the subsidiary
Shouguang Chenming Limited liability Shouguang, Floor board 50 Production, processing and sales of 50.00 — 100.00 100.00 Yes — — —
Floor Board Co., Ltd. company Shandong fortified wooden floorboard and
impregnated paper
Qihe Chenming Limited liability Qihe, Panels 4,082 Production, processing and sales 4,082.00 — 100.00 100.00 Yes — — —
Panels Co., Ltd. company Shandong of high-density (medium-density)
fiberboard, decorative panel,
melamine impregnated paper
and composite floor
Heze Chenming Limited liability Heze, Panels 3,000 Production and sales 2,010.00 — 67.00 67.00 Yes — — -465.60
Panels Co., Ltd. company Shandong of high-density (medium-density)
fiberboard, decorative panel,
melamine impregnated paper
and composite floor
Yangjiang Chenming Limited liability Yangjiang, Arboriculture 100 Plantation and development of forest, 100.00 — 100.00 100.00 Yes — — —
Arboriculture company Guangdong and technology consultation
Co., Ltd. of forestry
78VI. BUSINESS COMBINATION AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Subsidiaries (continued)
(1) Subsidiaries acquired through establishment or investment (continued)
Unit: RMB ’0000
Setting off of the loss
Set off the attributable to the minority
Balance of profit or loss shareholders of the subsidiaries
other projects of the minority in the current period from the
The actual that interests from owner’s equity of the Company
investment constitutes net the equity of exceeds the minority shareholders’
Full name Subsidiary Place of Business Registered at the end investment in Shareholding Voting rights Whether Minority the minority portion of the opening balance
of subsidiary type Incorporation Nature capital Business activity of period the subsidiary (%) (%) consolidated interests interests of owners’ equity of the subsidiary
Zhanjiang Chenming Limited liability Zhanjiang, Arboriculture 100 Plantation of forest, nutrition and sales 100.00 — 100.00 100.00 Yes — — —
Arboriculture Co., Ltd. company Guandong of seedling, processing and sales of
timber and processing and sales
of by-products of timber
Jilin Chenming Limited liability Jilin City Manufacture of 150,000 Processing and sales of machine-made 150,135.00 — 100.00 100.00 Yes — — —
Paper Co., Ltd. company paper paper, paperboard, paper product,
paper pulp, machinery and
equipment of manufacture of paper
Juancheng Limited liability Juancheng, Panels 1,500 Production and sales of particle board, 1,500.00 — 100.00 100.00 Yes — — —
Chenming Panels company Shandong decorative particle board and
Co., Ltd. melamine impregnated paper
Shandong Grand Sino-foreign Shouguang, Beverage USD13.91 Restaurant and beverage services 8,050.00 — 70.00 70.00 Yes 717.77 — —
View Hotel Co., Ltd. joint venture Shandong million
79VI. BUSINESS COMBINATION AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Subsidiaries (continued)
(1) Subsidiaries acquired through establishment or investment (continued)
Unit: RMB ’0000
Setting off of the loss
Set off the attributable to the minority
Balance of profit or loss shareholders of the subsidiaries
other projects of the minority in the current period from the
The actual that interests from owner’s equity of the Company
investment constitutes net the equity of exceeds the minority shareholders’
Full name Subsidiary Place of Business Registered at the end investment in Shareholding Voting rights Whether Minority the minority portion of the opening balance
of subsidiary type Incorporation Nature capital Business activity of period the subsidiary (%) (%) consolidated interests interests of owners’ equity of the subsidiary
Zhanjiang Chenming Limited liability Zhanjiang, Arboriculture 50,000 Research on breeding and forest 50,000.00 — 100.00 100.00 Yes
Paper Pulp Co., Ltd. company Guangdong breeding; manufacture,
production, processing
and sales of paper pulp
Chenming (HK) Limited liability Hong Kong Trade of USD0.10 Export and import trade of paper 78.00 — 100.00 100.00 Yes
Limited company paper million products and market research
Shouguang Chenming Limited liability Shouguang, Transportation 1,000 Transportation of goods 1,000.00 — 100.00 100.00 Yes
Modern Logistic company Shandong
Co., Ltd.
Shouguang Chenming Sino-foreign Shouguang, Manufacture USD20.00 Production and sales of 11,362.00 — 75.00 75.00 Yes 4,943.61
Art Paper Co., Ltd. joint venture Shandong of paper million machine-made paper
Qihe Chenming Limited liability Qihe, Waste 50 Purchase and sales of wastes and 50.00 — 100.00 100.00 Yes
Waste Collection company Shandong Collection old materials
Co., Ltd.
80VI. BUSINESS COMBINATION AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Subsidiaries (continued)
(1) Subsidiaries acquired through establishment or investment (continued)
Unit: RMB ’0000
Setting off of the loss
Set off the attributable to the minority
Balance of profit or loss shareholders of the subsidiaries
other projects of the minority in the current period from the
The actual that interests from owner’s equity of the Company
investment constitutes net the equity of exceeds the minority shareholders’
Full name Subsidiary Place of Business Registered at the end investment in Shareholding Voting rights Whether Minority the minority portion of the opening balance
of subsidiary type Incorporation Nature capital Business activity of period the subsidiary (%) (%) consolidated interests interests of owners’ equity of the subsidiary
Jilin Chenming Limited liability Jilin City Waste Collection 100 Purchase and sales of wastes and old 100.00 — 100.00 100.00 Yes
Waste Collection company materials
Co., Ltd.
Jilin Chenming Limited liability Jilin City Processing of 60 Processing of machinery, manufacture, 60.00 — 100.00 100.00 Yes
Machinery company machinery installation and repair of the
Manufacturing equipment of machinery
Co., Ltd.
Nanchang Chenming Limited liability Nanchang, Panels 1,000 Processing and sales of wooden 1,000.00 — 100.00 100.00 Yes
Arboriculture Co., Ltd. company Jiangxi finished products, semi- finished
products and by-products of timber
Fuyu Chenming Limited liability Fuyu, Manufacture of 20,800 Production and sales of machine-made 20,800.00 — 100.00 100.00 Yes
Paper Co., Ltd. company Heilongjiang paper paper and paperboard
Huanggang Chenming Limited liability Huanggang Arboriculture 1,000 Plantation, processing and 1,000.00 — 100.00 100.00 Yes
Arboriculture Co., Ltd. company Hubei sales of forests
81VI. BUSINESS COMBINATION AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Subsidiaries (continued)
(1) Subsidiaries acquired through establishment or investment (continued)
Unit: RMB ’0000
Setting off of the loss
Set off the attributable to the minority
Balance of profit or loss shareholders of the subsidiaries
other projects of the minority in the current period from the
The actual that interests from owner’s equity of the Company
investment constitutes net the equity of exceeds the minority shareholders’
Full name Subsidiary Place of Business Registered at the end investment in Shareholding Voting rights Whether Minority the minority portion of the opening balance
of subsidiary type Incorporation Nature capital Business activity of period the subsidiary (%) (%) consolidated interests interests of owners’ equity of the subsidiary
Huanggang Chenming Limited liability Huanggang, Arboriculture 2,000 Operation and acquisition of forest; 2,000.00 — 100.00 100.00 Yes
Paper Co., Ltd. company Hubei establishment of paper pulp projects
Xianning Chenming Limited liability Xianning, Arboriculture 1,000 Plantation, processing and 1000.00 — 100.00 100.00 Yes
Arboriculture Co., Ltd. company Hubei sales of forests
Shouguang Meilun Limited liability Shouguang, Manufacture of 2,000 Production and sales of machine-made 2,000.00 — 100.00 100.00 Yes
Paper Co. Ltd. company Shandong paper paper and paperboard
Shouguang Shun Limited liability Shouguang, Customs 150 Business agency of professional 150.00 — 100.00 100.00 Yes
Da Customs company Shandong declaration, customs declaration and
Declaration Co, inspection inspection declaration
Ltd. declaration
Wuhan Chenming Limited liability Wuhan, Real estate 2,000 Development of real estate and sales of 2,000.00 — 100.00 100.00 Yes
Wan Xing company Hubei commodity house
Real Estate Co., Ltd.
8283
VI. BUSINESS COMBINATION AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Subsidiaries (continued)
(2) Subsidiaries acquired through business combination under non-common control (continued)
Unit: RMB ’0000
Setting off of the loss
Set off the attributable to the minority
Balance of profit or loss shareholders of the subsidiaries
other projects of the minority in the current period from the
The actual that interests from owner’s equity of the Company
investment constitutes net the equity of exceeds the minority shareholders’
Full name Subsidiary Place of Business Registered at the end investment in Shareholding Voting rights Whether Minority the minority portion of the opening balance
of subsidiary type Incorporation Nature capital Business activity of period the subsidiary (%) (%) consolidated interests interests of owners’ equity of the subsidiary
Shouguang City Limited liability Shouguang, Waste 100 Purchase and sales of waste and 100 100 100 Yes
Run Sheng Wasted company Shandong Collection obsolete materials
Paper Recycle
Co., Ltd.
Wuxie Song Ling Limited liability Wuxi Manufacture 501 Sales, cutting and processing of paper — 100 100 Yes
Paper Co., Ltd. company of paper
Shouguang Hongyi Limited liability Shouguang, Packaging 155 Processing and sales of packaging 170 100 100 Yes
Decorative Packaging company Shandong Products, indoor and
Co., Ltd. outdoor decorations
Shouguang Wei Yuan Limited liability Shouguang, Transportation 393 Transportation of goods, maintenance 400 100 100 Yes
Logistics Company company Shandong of vehicles, storage and loading
Limited of goods, international freight
agency service
Shouguang Xinyuan Limited liability Shouguang, Coal 200 Retail of coal, gasoline, construction 200 100 100 Yes
Coal Co., Ltd. company Shandong materials and plumbing parts
Shandong Lin Dun Limited liability Shouguang, Panels 138 Production and sales of panels 370 67 67 Yes 640.68
Wood Industry company Shandong
Co., Ltd.84
VI. BUSINESS COMBINATION AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. The exchange rate of translation of the major statement items of the overseas operating entities
The reporting currency of the consolidated financial statements of exchange rate of translation translated from Chenming (HK) Limited, an overseas controlling subsidiary of the Company as follows: all asset and liability items of the balance sheet is translated according to the spot exchange rate (i.e. translated according to RMB6.7909 : USD1) prevailing at the reporting date; all the owner’s equity items are translated according to the spot exchange rate when occurrence, except the “Undistributed profits” item.
VII. Notes to the Consolidated Financial Statements
Unless specified otherwise in the following notes (including the notes to the financial statements of the Company), the terms “closing balance” and “opening balance” refer to the balances as of 30 June 2010 and 1 January 2010 respectively, and the terms “the period” and “prior period” refer to January to June 2010 and January to June 2009 respectively.
1. Monetary funds
Closing balance Opening balance
Foreign Foreign
currency Exchange Amount in currency Exchange Amount in
Items amount Rate RMB amount Rate RMB
Cash: — — 3,003,685.99 — — 1,905,043.24
－ RMB — — 3,003,685.99 — — 1,734,099.25
－ USD — — — 25,035.00 6.8282 170,943.99
Cash in Bank: — — 1,755,586,626.84 — — 2,365,429,159.26
－ RMB — 864,199,579.77 — — 1,922,160,187.63
－ HKD 8,545,802.97 0.8724 7,455,273.06 750.18 0.8805 660.53
－ USD 129,260,147.75 6.7909 877,792,729.57 63,601,348.40 6.8282 434,282,727.15
－ EURO 742,237.27 8.2710 6,139,044.45 917,167.73 9.7971 8,985,583.95
Other monetary funds: — — 324,386,455.22 — — 525,589,043.43
－ RMB — — 317,240,942.18 — — 524,368,583.55
－ USD 1,052,204.44 6.7909 7,145,415.10 177,901.64 6.8282 1,214,747.97
－ EURO 11.84 8.2710 97.94 583.02 9.7971 5,711.91
Total 2,082,976,768.06 2,892,923,245.93
note: As at the end of the period, other monetary funds contained bank acceptance deposit of RMB278,375,559.00, letter of credit deposit of RMB46,010,896.22.
2. Held-for-trading financial assets
Fair value Fair value
Items as at the end as at the beginning
of the period of the period
Held-for-trading financial assets － foreign
currency forward contracts 7,900,000.00 14,900,000.00
Total 7,900,000.00 14,900,000.0085
VII. Notes to the Consolidated Financial Statements (continued)
3. Bills receivable
(1) Classification of bills receivable
Closing Opening
Category balance balance
Bank acceptance 2,057,485,271.00 2,704,799,074.02
Commercial acceptance 4,700,000.00 —
Total 2,062,185,271.00 2,704,799,074.02
(2) As at 30 June 2010, the bank acceptance discounted with recourse of the Company amounted to RMB1,127,344,799.16.
4. Accounts receivable
(1) The breakdown of accounts receivable according to classification is as follows
Closing balance Opening balance
Book balance Bad debt provision Book balance Bad debt provision
Category Amount Ratio(%) Amount Ratio(%) Amount Ratio(%) Amount Ratio(%)
Single item with
significant
accounts
receivable 1,555,520,853.41 77.39 159,614,832.10 79.65 1,462,971,676.02 85.08 132,882,322.49 69.69
Single item
without
significant
accounts
receivable but
considered to be
greater risks after
arrival at by
credit risk
characteristics 34,992,936.89 1.74 31,563,035.96 15.75 35,161,196.35 2.04 31,038,532.32 16.28
Other items
without
significant
accounts
receivable 419,380,276.38 20.87 9,224,242.41 4.60 221,537,740.06 12.88 26,758,259.93 14.03
Total 2,009,894,066.68 100.00 200,402,110.47 100.00 1,719,670,612.43 100.00 190,679,114.74 100.0086
VII. Notes to the Consolidated Financial Statements (continued)
4. Accounts receivable (continued)
(2) Bad debt provision accrued at the end of the period
(1) Provision for accounts receivable bad debt according to the aging analysis
Closing balance Opening balance
Book balance Bad debt Book balance Bad debt
Aging Amount Ratio (%) provision Amount Ratio (%) provision
Within 1 year 1,830,636,348.34 91.08 86,182,937.29 1,507,264,155.22 87.65 72,733,231.12
1 to 2 years 27,026,867.78 1.34 9,036,100.33 152,953,443.62 8.89 65,319,432.65
2 to 3 years 103,035,277.48 5.13 55,987,499.77 8,758,784.64 0.51 1,932,222.02
Over 3 years 49,195,573.08 2.45 49,195,573.08 50,694,228.95 2.95 50,694,228.95
Total 2,009,894,066.68 100.00 200,402,110.47 1,719,670,612.43 100.00 190,679,114.74
(2) Single item without significant accounts receivable but considered to be greater risks after arrival at by credit risk characteristics
Closing balance Opening balance
Book balance Bad debt Book balance Bad debt
Aging Amount Ratio(%) provision Amount Ratio(%) provision
Within 1 year — — — — — —
1 to 2years — — — — — —
2 to 3years 4,287,376.16 12.25 857,475.23 5,154,237.01 14.66 1,031,572.98
3 to 4years 4,245,720.09 12.13 4,245,720.09 5,886,668.98 16.74 5,886,668.98
4 to 5years 8,511,687.28 24.33 8,511,687.28 4,968,557.81 14.13 4,968,557.81
Over 5years 17,948,153.36 51.29 17,948,153.36 19,151,732.55 54.47 19,151,732.55
Total 34,992,936.89 100.00 31,563,035.96 35,161,196.35 100.00 31,038,532.32
(3) The Group and the Company did not have other receivables from shareholder units and other related party holding 5% (including 5%) or more shares in the Company.87
VII. Notes to the Consolidated Financial Statements (continued)
4. Accounts receivable (continued)
(4) Top 5 accounts receivable are set out as follows
Percentage of the
total balance of
accounts
Relationship receivable
Name with the Company Amount Aging (%)
Customer I Non-related party 47,706,660.23 2 to 3 years 2.37
Customer II Non-related party 42,297,295.18 Within 1year 2.10
Customer III Non-related party 32,155,597.59 Within 1year 1.60
Customer IV Non-related party 30,304,044.19 Within 1year 1.51
Customer V Non-related party 27,980,163.44 Within 1year 1.39
Total 180,443,760.63 8.98
(5) Single item with significant accounts receivable or single item without significant accounts receivable but provided the bad debts after assess the asset individually for impairment at the end of the reporting period
Bad debt Provision
Name Book balance amount ratio (%) Reason
佛山市順德區星晨紙業有限公司 47,706,660.23 47,706,660.23 100.00 Due to poor management of the
counterparties; therefore, it could
be provided as bad debts after
considering its collectability.
上海青年傳媒有限公司 7,093,218.90 7,093,218.90 100.00 Due to poor management of the
counterparties; therefore, it could
be provided as bad debts after
considering its collectability.
蘇州騰駿紙業有限公司 7,037,126.17 7,037,126.17 100.00 Due to poor management of the
counterparties; therefore, it could
be provided as bad debts after
considering its collectability.
Total 61,837,005.30 61,837,005.3088
VII. Notes to the Consolidated Financial Statements (continued)
5. Prepayments
(1) Prepayments stated according to aging
Closing balance Opening balance
Aging Amount Ratio (%) Amount Ratio (%)
Within 1 year 803,766,605.80 84.18 869,002,788.87 86.83
1 to 2 years 151,038,432.66 15.82 131,770,086.98 13.17
Total 954,805,038.46 100.00 1,000,772,875.85 100.00
Note: At the end of the current period, prepayments of the Group with age over 1 year and in significant amount were advance for timber, advance for raw materials and auxiliary items and par ts as stipulated in contract.
(2) Top 5 prepayments are set out as follows
Relationship
Name with the Company Amount Year Reason of outstanding
Supplier I Non-related party 145,832,506.08 Within 1 year Prepaid the good
payments according
to the agreed contract
Supplier II Non-related party 43,435,777.10 Within 1 year Prepaid the good
payments according
to the agreed contract
Supplier III Non-related party 38,015,220.04 Within 1 year Prepaid the good
payments according
to the agreed contract
Supplier IV Non-related party 31,595,744.89 Within 1 year Prepaid the good
payments according
to the agreed contract
Supplier V Non-related party 23,021,563.93 Within 1 year Prepaid the good
payments according
to the agreed contract
Total 281,900,812.04
(3) There is no outstanding amount within the prepayments due from shareholders and other related party holding 5% or more (including 5%) in the shares of the Company at the end of the period.89
VII. Notes to the Consolidated Financial Statements (continued)
(6) Other receivables
(1) The breakdown of other receivables according to classification is as follows
Closing balance Opening balance
Book balance Bad debt provision Book balance Bad debt provision
Category Amount Ratio(%) Amount Ratio(%) Amount Ratio(%) Amount Ratio(%)
Single item with
significant other
receivables 111,485,382.59 63.98 42,037,621.49 57.56 72,104,024.34 49.63 24,837,434.15 38.76
Single item without
significant other
receivables but
considered to be
greater risks after
arrived at by credit
risk characteristics 16,060,450.71 9.22 14,465,769.72 19.81 19,169,593.80 13.19 16,542,105.20 25.82
Other items without
significant other
receivables 46,695,015.68 26.80 16,524,267.10 22.63 54,015,300.33 37.18 22,698,735.18 35.42
Total 174,240,848.98 100.00 73,027,658.31 100.00 145,288,918.47 100.00 64,078,274.53 100.00
(2) Bad debt provisions as at the end of the period
(1) Bad debt provisions for other receivables bad tests according to the aging analysis is as follows
Closing balance Opening balance
Book balance Bad debt Book balance Bad debt
Aging Amount Ratio (%) provision Amount Ratio (%) provision
Within 1 year 90,556,891.64 51.97 29,775,853.13 88,229,738.28 60.73 28,833,141.06
1 to 2 years 26,414,929.46 15.16 2,676,364.15 17,862,033.95 12.29 770,390.47
2 to 3 years 20,844,883.51 11.96 4,151,296.66 5,542,592.58 3.82 820,189.34
Over 3 years 36,424,144.37 20.90 36,424,144.37 33,654,553.66 23.16 33,654,553.66
Total 174,240,848.98 100.00 73,027,658.31 145,288,918.47 100.00 64,078,274.5390
VII. Notes to the Consolidated Financial Statements (continued)
(6) Other receivables
(2) Bad debt provisions as at the end of the period (continued)
(2) Single item without significant other receivables but considered to be greater risks after arrival at by credit risk characteristics
Closing balance Opening balance
Book balance Bad debt Book balance Bad debt
Aging Amount Ratio(%) provision Amount Ratio(%) provision
Within 1year — — — — — —
1 to 2 years — — — — — —
2 to 3 years 1,983,976.24 12.35 389,295.25 3,022,880.10 15.77 395,391.50
3 to 4 years 2,153,437.18 13.41 2,153,437.18 1,353,315.89 7.06 1,353,315.89
4 to 5 years 1,820,865.02 11.34 1,820,865.02 1,636,677.56 8.54 1,636,677.56
Over 5 years 10,102,172.27 62.90 10,102,172.27 13,156,720.20 68.63 13,156,720.25
Total 16,060,450.71 100.00 14,465,769.72 19,169,593.75 100.00 16,542,105.20
(3) At the end of the period, the Company did not have other receivables from shareholder units and other related party holding 5% (including 5%) or more shares in the Company.
(4) Top five other receivables are set out as follows
Percentage of the
total balance of
Relationship other receivables
Name with the Company Amount Aging (%)
Unit I Non-related party 13,389,926.07 Within 1 year 4.94
Unit II Non-related party 7,439,337.06 Within 1 year 2.74
Unit III Non-related party 7,094,166.45 2 to 3 years 2.62
Unit IV Non-related party 6,752,428.41 Within 1 year 2.49
Unit V Non-related party 5,016,000.00 2 to 3 years 1.85
Total 39,691,857.99 14.6391
VII. Notes to the Consolidated Financial Statements (continued)
7. Inventory
(1) Inventory categories:
Closing balance Opening balance
Book Allowance for Book Allowance for
Items balance inventories Carrying amount balance inventories Carrying amount
Raw materials 1,801,920,577.70 3,036,964.89 1,798,883,612.81 1,469,188,916.71 4,175,527.37 1,465,013,389.34
Goods-in stock 77,692,836.33 1,443,111.46 76,249,724.87 58,174,106.14 3,743,111.46 54,430,994.68
Work-in-progress 1,266,840,056.57 4,434,459.77 1,262,405,596.80 712,296,442.78 5,161,334.21 707,135,108.57
Total 3,146,453,470.60 8,914,536.12 3,137,538,934.48 2,239,659,465.63 13,079,973.04 2,226,579,492.59
(2) Allowance for inventories
Provision for
Opening the current Decrease for the current period
Items balance period Reversals Write-offs Closing balance
Raw materials 4,175,527.37 — — 1,138,562.48 3,036,964.89
Goods-in stock 5,161,334.21 — 726,874.44 — 4,434,459.77
Work-in-progress 3,743,111.46 — 2,300,000.00 — 1,443,111.46
Total 13,079,973.04 — 3,026,874.44 1,138,562.48 8,914,536.12
(3) The provided impairment of inventories of panel of the previous period was reversed as the market price of the panel improved; the provided impairment of inventories was written off as inventories for which allowance was provided in the previous period were sold in the current period.
8. Other current assets
Items Closing balance Opening balance
Non-credited VAT proceeds 122,416,480.36 64,332,041.62
Prepaid enterprise income tax 27,650,181.40 26,424,163.98
Total 150,066,661.76 90,756,205.60VII. Notes to the Consolidated Financial Statements (continued)
9. Investments in joint ventures and associates
(1) Investments in associates
Percentage Percentage
of the of the
shareholding voting right in Total Total Total net Operating Net profit
of the the investee assets at liabilities at asset value revenue for for the
Legal Registered investee entity entity the end the end for the current the current current
Name of investee entity Enterprise type Registration place Representative Business nature capital (%) (%) of period of period period period period
Arjo Wiggins Chenming Sino-foreign Shandong Tong Chong Manufacture 267,368,330.00 30.00 30.00 373,175,314.68 247,383,985.20 125,791,329.48 1,764,555.01 16,720,241.06
Specialty Paper Co., Ltd. joint venture of paper
Shouguang Liben Paper Sino-foreign Shandong Cang Tiantai Manufacture 74,070,000.00 26.40 26.40 79,362,483.52 11,181,177.02 68,181,306.50 47,543,725.28 -2,093,506.28
Making Co., Ltd. joint venture of paper
Jiangxi Jiangbao Media Limited liability Jiangxi Ou Yang Printing 23,140,000.00 21.15 21.15 33,073,378.84 12,001,408.08 21,071,970.76 5,215,811.16 -656,699.18
Colour Printing Co. Ltd. company
Qingzhou Chenming Limited liability Shandong Fang Shiming Deep 3,000,000.00 30.00 30.00 Allowance for impairment provided in full
Denaturation Amylum company processing
Co., Ltd. of starch
10. Long-term equity investments
(1) Classification of Long-term equity investments
Increase Decrease
for the for the Closing
Items Opening balance current period current period balance
Investments in subsidiaries — — — —
Investments in joint ventures — — — —
Investments in associates 58,033,225.56 4,324,494.78 — 62,357,720.34
Other equity investments 24,950,000.00 1,000,000.00 — 25,950,000.00
Less: Provision for impairment of
long equity investments 1,998,538.07 — — 1,998,538.07
Total 80,984,687.49 5,324,494.78 — 86,309,182.27
9293
VII. Notes to the Consolidated Financial Statements (continued)
10. Long-term equity investments (continued)
(2) The details of long-term equity investments
Explanation
of the
inconsistent
of shareholding
Percentage of Percentage of percentage Provision of Cash
shareholding voting right and voting impairment bonuses for
Accounting Initial Opening Additions Closing in the investee in the investee right in the Impairment for the the current
Name of investee entity method investment balance /deduction balance entity (%) entity (%) investee entity provision current period period
Arjo Wiggins Chenming Equity method 80,100,000.00 32,610,827.22 5,016,072.32 37,626,899.54 30.00 30.00 — — —
Specialty Paper Co., Ltd.
Shouguang Liben Paper Equity method 19,550,000.00 18,826,749.91 -552,685.66 18,274,064.25 26.40 26.40 — — —
Making Co., Ltd.
Jiangxi Jiangbao Equity method 6,000,000.00 5,695,648.43 -138,891.88 5,556,756.55 21.15 21.15 — — —
Media Colour Printing Co. Ltd.
Qingzhou Chenming Equity method 900,000.00 900,000.00 900,000.00 30.00 30.00 900,000.00 — —
Denaturation Amylum Co., Ltd
Weifang Venture Capital Co., Ltd. Cost method 1,000,000.00 1,000,000.00 1,000,000.00 1.95 1.95 80,385.84 — —
Shandong Paper Making & Printing Cost method 200,000.00 200,000.00 200,000.00 2.00 2.00 200,000.00 — —
Enterprises Corporation
Zhejiang Province Guangyu Cost method 2,000,000.00 2,000,000.00 2,000,000.00 9.96 9.96 — — —
Media Printing Company Limited
Jinan Shangyou Commercial Cost method 350,000.00 350,000.00 350,000.00 5.00 5.00 350,000.00 — —
Company Limited
Shouguang Mihe Water Cost method 20,000,000.00 20,000,000.00 20,000,000.00 19.46 19.46 — — —
Company Limited
Shanghai Forest & Paper Cost method 1,400,000.00 1,400,000.00 — 1,400,000.00 14.00 14.00 468,152.23 — —
E-Commerce Co., Ltd
安徽時代物資股份有限公司 Cost method 1,000,000.00 — 1,000,000.00 1,000,000.00 10.00 10.00 — — —
Total 132,500,000.00 82,983,225.56 5,324,494.78 88,307,720.34 1,998,538.07 — —94
VII. Notes to the Consolidated Financial Statements (continued)
11. Investment Properties
(1) The details of investment properties
Opening Increase for the Decrease for the Closing
Items balance current period current period balance
Investment property
adopting cost
method for subsequent
measurement 38,291,395.70 — — 38,291,395.70
Investment property
adopting fair value
method for subsequent
measurement — — — —
Less: Provision for
impairment of long
investment property — — — —
Total 38,291,395.70 — — 38,291,395.70
(2) Investment properties measured at cost
Opening Increase for the Decrease for the Closing
Items balance current period current period balance
I. Total original value 38,291,395.70 — — 38,291,395.70
Buildings 38,291,395.70 — — 38,291,395.70
Land use rights — — — —
II. Accumulated
depreciation and
accumulated
amortization
in total 11,864,927.59 869,128.02 — 12,734,055.61
Buildings 11,864,927.59 869,128.02 — 12,734,055.61
Land use rights — — — —
III. Impairment provision
in total — — — —
Buildings — — — —
Land use rights — — — —
IV. Total carrying
amount 26,426,468.11 25,557,340.09
Buildings 26,426,468.11 25,557,340.09
Land use rights — —
Note: Depreciation and amortization for the current period amounted to RMB869,128.02.95
VII. Notes to the Consolidated Financial Statements (continued)
12. Fixed Assets
(1) Overview of fixed assets
Additions Deductions
for the for the
Items Opening balance current period current period Closing balance
I. Total original carrying amount: 19,994,415,603.39 319,613,001.28 80,466,142.35 20,233,562,462.32
Of which: Buildings 3,406,027,308.96 66,556,822.11 1,043,213.00 3,471,540,918.07
Machinery and
equipment 15,904,536,297.54 223,427,568.78 62,531,834.76 16,065,432,031.56
Vehicles 155,994,939.46 7,965,083.73 3,282,143.56 160,677,879.63
Electronic equipment
and others 527,857,057.43 21,663,526.66 13,608,951.03 535,911,633.06
II. Total accumulated
depreciation: 6,458,522,672.77 579,241,343.41 46,006,184.77 6,991,757,831.41
Of which: Buildings 671,663,469.93 58,451,618.57 545,606.32 729,569,482.18
Machinery and
equipment 5,443,371,103.92 487,735,426.85 42,041,128.28 5,889,065,402.49
Vehicles 68,142,883.41 7,391,778.59 2,316,721.84 73,217,940.16
Electronic equipment
and others 275,345,215.51 25,662,519.40 1,102,728.33 299,905,006.58
III.Net carrying amount 13,535,892,930.62 13,241,804,630.91
Of which: Buildings 2,734,363,839.03 2,741,971,435.89
Machinery and
equipment 10,461,165,193.62 10,176,366,629.07
Vehicles 87,852,056.05 87,459,939.47
Electronic equipment
and others 252,511,841.92 236,006,626.48
IV. Total impairment provision 6,302,014.99 — — 6,302,014.99
Of which: Buildings — — — —
Machinery and
equipment 6,302,014.99 — — 6,302,014.99
Vehicles — — — —
Electronic equipment
and others — — — —
V. Net carrying amount 13,529,590,915.63 13,235,502,615.92
Of which: Buildings 2,734,363,839.03 2,741,971,435.89
Machinery and
equipment 10,454,863,178.63 10,170,064,614.08
Vehicles 87,852,056.05 87,459,939.47
Electronic equipment
and others 252,511,841.92 236,006,626.48
Note: Depreciation for the current period amounted to RMB 579,241,343.41. RMB 264,563,196.03 was transferred from construction in progress to the original value of fixed assets for the current period.96
VII. Notes to the Consolidated Financial Statements (continued)
12. Fixed Assets
(2) Fixed assets without property right certificates
Companies Items certificates carrying amount
Parent Company Buildings Being applied 1,171,331.84
Fuyu Chenming Paper Co., Ltd. Buildings Being applied 48,195,052.29
Wuhan Chenming Qianneng Buildings Being applied 31,289,695.27
Electric Power Co., Ltd.
Jilin Chenming Paper Co., Ltd. Buildings Being applied 196,335,833.19
Wuhan Chenming Hanyang Buildings Being applied 43,571,196.38
Paper Holdings Co., Ltd.
Shangdong Grand View Hotel Co., Ltd. Buildings Being applied 124,298,047.38
Total 444,861,156.35
(3) Fixed assets - the carrying amount of machinery and equipment of RMB 1,052,966,876.50 and intangible assets - the carrying amount of land use rights of RMB 72,249,726.02 were used as collateral for borrowings. The secured borrowings amounted to USD37,294,118.00.97
VII. Notes to the Consolidated Financial Statements (continued)
13 Construction in progress
(1) The general information of constructions in progress
Closing balance Opening balance
Impairment Carrying Impairment Carrying
Items Book balance provision amount Book balance provision amount
Mihe River view wetland 21,625,297.60 — 21,625,297.60 15,967,509.04 — 15,967,509.04
(Grand View Hotel)
Power plant (Jilin) 18,098,029.01 18,098,029.01 18,009,496.91 18,009,496.91
Technological 41,792,171.34 41,792,171.34 12,944,711.67 12,944,711.67
improvement in fixed
assets (Jilin)
Pulp machine 778,437.74 778,437.74 89,860,144.48 89,860,144.48
engineering (Jixiang)
Intermediate water — — 45,552,578.47 45,552,578.47
advance treatment in
drainage workshops
(Qihe)
Improvement in power 4,264,075.45 4,264,075.45 30,295,414.25 30,295,414.25
workshops
(Chibi)
700,000 tonne pulp 1,810,360,820.42 1,810,360,820.42 959,976,410.72 959,976,410.72
project (Chenming
Paper Pulp)
Paper machine 52,690,574.08 52,690,574.08 46,132,143.40 46,132,143.40
technological
improvement (Qihe)
Sheet machine ultra — — 13,869,977.50 13,869,977.50
pressure improvement
(Jiangxi)
Intermediate water — — 15,033,614.37 15,033,614.37
advance treatment
(Jiangxi)
800,000-tonne 605,072,727.57 605,072,727.57 413,790,949.09 413,790,949.09
Copperplate paper
(Meilun)
98,000-tonne toilet 108,507,986.67 108,507,986.67 61,564,178.12 61,564,178.12
paper (Meilun)
40,000 intermediate 1,402,931.01 1,402,931.01 18,728,695.87 18,728,695.87
water improvement
Power plant phase III 132,494,001.88 132,494,001.88 77,591,734.87 77,591,734.87
expansion and
improvement
Group R & D centre 35,671,127.11 35,671,127.11 22,369,788.81 22,369,788.81
Small technological 49,369,721.81 49,369,721.81 20,750,066.13 20,750,066.13
improvement projects
Thermoelectrical pipes 23,753,870.22 23,753,870.22 22,232,122.98 22,232,122.98
of eastern cities
project (Xinli)
Others 324,025,311.35 324,025,311.35 113,291,725.50 113,291,725.50
Total 3,229,907,083.26 — 3,229,907,083.26 1,997,961,262.18 — 1,997,961,262.1898
VII. Notes to the Consolidated Financial Statements (continued)
13 Construction in progress (continued)
(2) Change in material constructions in progress projects
Of which: Capitalisation
Transfer to capitalised rate of the
fixed assest Accumulated interest interest amount Investment to
(RMB in Opening Additions for for the Other Closing capitalised amount for the for the current budgeted Sources
Project name 100 million) balance the current period current period deductions balance interest amount current period period (%) costs (%) of Fund
Mihe River view wetland 0.60 15,967,509.04 5,657,788.56 — — 21,625,297.60 850,132.62 545,382.63 5.31 36.00 Self-raised
(Grand View Hotel) and borrowings
Power plant (Jilin) 1.70 18,009,496.91 88,532.10 — — 18,098,029.01 — — — 11.00 Self-raised
Technological 0.18 12,944,711.67 28,847,459.67 — — 41,792,171.34 — — — Self-raised
improvement in
fixed assets (Jilin)
Pulp machine 0.96 89,860,144.48 84,825,307.58 4,256,399.16 778,437.74 — — 1.00 Self-raised
engineering (Jixiang) and borrowings
Intermediate water
advance treatment in 0.49 45,552,578.47 2,537,637.31 48,090,215.78 — — — — — — Self-raised
drainage workshops (Qihe)
Improvement in power 0.43 30,295,414.25 4,461,147.01 30,492,485.81 — 4,264,075.45 — — — 10.00 Self-raised
workshops (Chibi)
700,000 tonne pulp 94.32 959,976,410.72 850,384,409.70 1,810,360,820.42 19.00 Borrowings
project (Chenming
Paper Pulp)
Paper machine
technological improvement 0.60 46,132,143.40 6,558,430.68 — — 52,690,574.08 — — — 88.00 Self-raised
(Qihe)
Sheet machine ultra 0.16 13,869,977.50 2,971,062.21 16,841,039.71 — — — — — — Self-raised
pressure improvement
(Jiangxi)
Intermediate water 0.18 15,033,614.37 1,522,661.12 16,556,275.49 — — — — — — Self-raised
advance treatment
(Jiangxi)99
VII. Notes to the Consolidated Financial Statements (continued)
13 Construction in progress (continued)
(2) Change in material constructions in progress projects (continued)
Of which: Capitalisation
Transfer to capitalised rate of the
fixed assest Accumulated interest interest amount Investment to
(RMB in Opening Additions for for the Other Closing capitalised amount for the for the current budgeted Sources
Project name 100 million) balance the current period current period deductions balance interest amount current period period (%) costs (%) of Fund
800,000-tonne 35.00 413,790,949.09 191,366,997.91 85,219.43 — 605,072,727.57 19,008,452.33 18,253,503.29 5.35 Self-raised
Copperplate and borrowing
paper (Meilun)
98,000-tonne toilet 5.00 61,564,178.12 46,967,865.39 24,056.84 — 108,507,986.67 3,153,863.77 3,042,250.55 5.35 Self-raised
paper (Meilun) and borrowings
40,000 intermediate 18,728,695.87 5,771,186.76 23,096,951.62 1,402,931.01 Self-raised
water improvement
Power plant phase III expansion 4.50 77,591,734.87 54,902,267.01 132,494,001.88 29.00 Self-raised
and improvement
Group R & D centre 1.60 22,369,788.81 13,301,338.30 35,671,127.11 22.00 Self-raised
Small technological 20,750,066.13 28,619,655.68 49,369,721.81 Self-raised
improvement projects
Thermoelectrical pipes of 0.30 22,232,122.98 1,521,747.24 23,753,870.22 1,133,781.49 — Self-raised
eastern cities project (Xinli)
Others 113,291,725.50 256,395,928.90 44,551,643.77 1,110,699.28 324,025,311.35 109,748.06 109,748.06 5.31 Self-raised
and borrowings
Total 1,997,961,262.18 1,501,876,115.55 264,563,196.03 5,367,098.44 3,229,907,083.26 24,255,978.27 21,950,884.531 00
VII. Notes to the Consolidated Financial Statements (continued)
14. Project materials
Opening Additions for the Deduction for the
Items balance current period current period Closing balance
Special equipment 14,967,992.76 11,356,299.21 9,914,252.03 16,410,039.94
Special materials 27,944,969.51 122,202,675.71 115,553,797.10 34,593,848.12
Total 42,912,962.27 133,558,974.92 125,468,049.13 51,003,888.06
15. Disposal of fixed assets
Opening Closing
carrying carrying
Items amount amount ...Reason of disposal
Small generation units — 8,758,079.00 ...Closed in accordance with policies
Total — 8,758,079.00
16. Intangible assets
(1) The details of intangible assets
Opening Additions for Deductions for Closing
Items book balance the current period the current period book balance
I. Total original 1,440,628,963.95 41,715,674.99 — 1,482,344,638.94
carrying amount:
Land use rights 1,425,343,340.90 41,715,674.99 — 1,467,059,015.89
Software 15,285,623.05 — — 15,285,623.05
II. Total accumulated
amortization 127,200,096.83 26,799,157.06 — 153,999,253.89
Land use rights 120,017,377.03 26,012,809.76 — 146,030,186.79
Software 7,182,719.80 786,347.30 — 7,969,067.10
III. Total net carrying
amount 1,313,428,867.12 1,328,345,385.05
Land use rights 1,305,325,963.87 1,321,028,829.10
Software 8,102,903.25 7,316,555.95
IV. Total impairment — — — —
provision
Land use rights — — — —
Software — — — —
V. Total carrying amount 1,313,428,867.12 1,328,345,385.05
Land use rights 1,305,325,963.87 1,321,028,829.10
Software 8,102,903.25 7,316,555.95
(2) The amortisation amount was RMB 26,799,157.06 during the current period.
(3) Intangible assets － land use rights used as collateral are detailed in Note VII. 12 (3).1 01
VII. Notes to the Consolidated Financial Statements (continued)
17. Goodwill
Breakdown of the goodwill
Additions Deductions Impairment
Name of investee for the for the provision
units or matters Opening current current Closing at the end
generating goodwill balance period period balance of the period
Jilin Chenming Paper Co., Ltd. 14,314,160.60 — — 14,314,160.60 —
Shandong Chenming decorating materials
Panels Co., Ltd. 5,969,626.57 — — 5,969,626.57 —
Total 20,283,787.17 — — 20,283,787.17 —
18. Long-term prepaid expenses
Additions Amortisation
for the for the
Opening current current Other Closing
Items balance period period deductions balance
Transforming expense
on fixed assets held
under operation lease 23,250,993.55 33,835.04 2,923,115.28 — 20,361,713.31
Others 9,160,939.30 3,053,646.42 — 6,107,292.88
Total 32,411,932.85 33,835.04 5,976,761.70 — 26,469,006.191 02
VII. Notes to the Consolidated Financial Statements (continued)
19. Deferred income tax assets / deferred income tax liabilities
Recognised deferred income tax assets and deferred income tax liabilities
Items Closing balance Opening balance
Deferred income tax assets:
Provision for impairment of assets 60,790,867.12 53,878,364.07
Prepaid salaries of senior management 16,768,924.86 27,168,742.57
Deductible tax loss 11,923,059.88 10,123,548.35
Unpaid payables 1,346,413.76 6,054,842.19
Preliminary expenses 216,994.05 433,988.10
Unrealised profit arising from intra-group transactions 22,715,312.54 14,994,641.01
Deferred income 17,551,418.89 15,567,479.30
Decrease in fair value of consumable biological assets — 2,236,876.05
Change of fair value 387,000.00 967,500.00
Sub-total 131,699,991.10 131,425,981.64
Deferred income tax liablilities:
Increase in fair value of consumable
biological assets 13,909,548.90 11,037,525.39
Valuation gain on acquisition of subsidiaries 1,386,498.28 1,386,498.28
Amortisation of valuation gain on acquisition of subsidiaries -30,811.08 -15,405.54
Sub-total 15,265,236.10 12,408,618.131 03
VII. Notes to the Consolidated Financial Statements (continued)
20. Provision for impairment of assets
Provision
for the Decrease for the current period
Items Opening balance current period Reversals Write-offs Closing balance
I. Provisions for bad debts 254,757,389.27 23,823,361.70 — 5,150,982.19 273,429,768.78
II. Provisions for inventory
impairment 13,079,973.04 — 3,026,874.44 1,138,562.48 8,914,536.12
III. Impairment provisions for
available-for-sale
financial assets — — — — —
IV. Impairment provisions
for held-to-maturity
investments — — — — —
V. Impairment provisions
for long-term equity
investments 1,998,538.07 — — — 1,998,538.07
VI. Impairment provisions for
investment properties — — — — —
VII. Impairment provisions
for fixed assets 6,302,014.99 — — — 6,302,014.99
VIII. Impairment provisions
for project materials — — — — —
IX. Impairment provisions for
construction in progress — — — — —1 04
VII. Notes to the Consolidated Financial Statements (continued)
20. Provision for impairment of assets (continued)
Provision
for the Decrease for the current period
Items Opening balance current period Reversals Write-offs Closing balance
X. Impairment provisions for
productive biological assets — — — — —
Of which: impairment provisions
for mature productive
biological assets — — — — —
XI. Impairment provisions for oil
and gas assets — — — — —
XII. Impairment provisions for
intangible assets — — — — —
XIII. Impairment provisions for
goodwill — — — — —
XIV. Others 142,210.00 142,210.00
Total 276,280,125.37 23,823,361.70 3,026,874.44 6,289,544.67 290,787,067.96
21. Other non-current assets
Items Details Closing balance Opening balance
Other non-current assets Consumable biological assets 581,641,690.16 496,724,974.94
Total 581,641,690.16 496,724,974.94
22. Short-term borrowings
Items Closing balance Opening balance
Secured borrowings 9,443,877.65 39,093,574.20
Guarantee loans (Note) 40,000,000.00 40,000,000.00
Credit loans 401,035,254.29 932,992,447.39
Discounted bills 1,127,344,799.16 2,091,067,806.59
Total 1,577,823,931.10 3,103,153,828.18
Note: Guarantee loans were mainly guarantees provided by the Company to its subsidiaries for their long-term and short-term borrowings. For details please see Note VIII.(5).1 05
VII. Notes to the Consolidated Financial Statements (continued)
23. Held-for-trading financial liabilities
Fair value Fair value as at
as at the end the beginning
Items of the period of the period
Held-for-trading financial liabilities
－ foreign currency forward contracts 2,580,000.00 6,450,000.00
Total 2,580,000.00 6,450,000.00
24. Bills payable
Type Closing balance Opening balance
Bank acceptance 344,908,052.57 544,532,508.19
Commercial acceptance 4,700,000.00 —
Total 349,608,052.57 544,532,508.19
Amount to be due in the next accounting period amounted to RMB349,608,052.57.
25. Accounts payable
(1) Breakdown of accounts payable:
Items Closing balance Opening balance
Within 1 year 2,545,129,603.26 1,885,379,043.87
1-2 years 137,622,066.64 155,633,581.77
2-3 years 48,815,810.88 52,665,733.96
Over 3 years 51,964,960.06 29,182,532.98
Total 2,783,532,440.84 2,122,860,892.58
(2) During the current period, the accounts payable was not due to any shareholders holding over 5% (5% inclusive) of the Company’s shares.
(3) During the current period, the accounts payable aged over three years were insignificant.1 06
VII. Notes to the Consolidated Financial Statements (continued)
26. Advance receipts
(1) Breakdown of advance receipts
Items Closing balance Opening balance
Within 1 year 160,190,597.95 226,597,505.20
Over 1 year 7,163,176.42 6,526,185.91
Total 167,353,774.37 233,123,691.11
(2) During the current period, the advance receipts were not received from any shareholders holding over 5% (5% inclusive) of the Company’s shares.
(3) During the current period, the advance receipts aged over one year were insignificant. There were no significant advance receipts aged over one year.
27. Staff remuneration payables
Opening Increase for Decrease for Closing
Items balance the period the period balance
I. Salaries, bonuses allowance and
subsidies 173,292,799.49 313,897,680.86 381,904,244.60 105,286,235.75
II. Staff welfare 2,062,876.48 22,804,950.81 21,854,271.21 3,013,556.08
III. Social insurance premiums 19,007,627.96 65,148,380.64 60,821,929.44 23,334,079.16
Pension insurance 4,813,758.04 49,157,343.71 44,591,193.39 9,379,908.36
Medical insurance 11,588,304.58 9,603,160.55 10,126,678.31 11,064,786.82
Work-related injury insurance 48,535.03 1,242,980.65 1,246,181.69 45,333.99
Unemployment insurance 331,610.39 4,643,420.41 4,148,547.93 826,482.87
Maternity insurance 2,225,419.92 501,475.32 709,328.12 2,017,567.12
IV. Housing provident funds 9,172,595.01 19,359,712.26 21,281,050.18 7,251,257.09
V. Lay-off welfare — — — —
VI. Others 19,719,411.71 603,827.18 592,715.19 19,730,523.70
Of which: housing subsidies 18,722,869.49
for Chinese employees
VII. Union operation costs and
employee education costs 22,245,970.39 6,798,528.91 4,166,923.86 24,877,575.44
Total 245,501,281.04 428,613,080.66 490,621,134.48 183,493,227.221 07
VII. Notes to the Consolidated Financial Statements (continued)
28. Taxes payables
Items Closing balance Opening balance
Value added tax 15,021,279.13 66,671,372.07
Business tax 2,643,376.01 7,355,951.33
Enterprise income tax 15,298,816.21 39,908,712.66
Individual income tax 38,971,704.24 1,386,280.36
Urban maintenance and construction tax 437,849.01 1,142,128.84
Property tax 6,728,583.50 6,765,846.63
Land use tax 11,407,126.26 9,183,246.64
Stamp duty 1,998,583.66 4,011,290.96
Educational surcharges and others 2,960,842.27 1,066,275.19
Total 95,468,160.29 137,491,104.68
29. Interest Payable
Items Closing balance Opening balance
Interest of the medium-term notes 50,104,333.32 5,050,000.00
Total 50,104,333.32 5,050,000.00
30. Dividend payable
Name Closing balance Opening balance
Legel person shares — 78,807.70
Total — 78,807.701 08
VII. Notes to the Consolidated Financial Statements (continued)
31. Other payables
(1) Breakdown of other payables
Items Closing balance Opening balance
Within 1 year 338,787,574.91 122,415,639.41
1-2 years 28,756,875.46 114,863,418.12
2-3 years 36,589,335.84 25,071,672.83
Over 3 years 55,107,920.30 58,869,849.25
Total 459,241,706.51 321,220,579.61
(2) The other payables at the end of the period were not due to any shareholders who holding over 5% (5% inclusive) of the Company’s shares.
32. Non-current liabilities due within one year
(1) Breakdown of long-term liabilities due within one year
Items Closing balance Opening balance
Long-term liabilities due within one year 498,173,562.18 345,353,527.87
Total 498,173,562.18 345,353,527.87
(2) Long-term borrowings due within one year
(1) Breakdown of long-term borrowings due within one year
Items Closing balance Opening balance
Secured borrowings 90,719,562.18 91,223,477.87
Guarantee loans — 1,707,050.00
Credit loans 407,454,000.00 252,423,000.00
Total 498,173,562.18 345,353,527.871 09
VII. Notes to the Consolidated Financial Statements (continued)
32. Non-current liabilities due within one year (continued)
(2) Long-term borrowings due within one year (continued)
(2) Top five long-term borrowings due within one year:
Closing balance Opening balance
Borrowing Starting Expiry Interest Foreign Functional Foreign Functional
units date date rate(%) Currency currency currency currency currency
Bank I 2009-5-20 2011-5-19 1.3291 USD 25,000,000.00 169,772,500.00 25,000,000.00 170,705,000.00
Bank II 2009-5-12 5011-5-11 1.2013 USD 20,000,000.00 135,818,000.00 20,000,000.00 136,564,000.00
Bank III 2099-5-11 2010-11-10 3.4500 USD 10,000,000.00 67,909,000.00 10,000,000.00 68,282,000.00
Bank IV 2006-12-22 2011-6-15 LIBOR+1% USD 7,000,000.00 47,536,300.00 7,000,000.00 47,797,400.00
Bank V 2005-2-28 2011-6-15 LIBOR+1.75% USD 5,333,334.00 36,218,137.86 5,333,334.00 36,417,071.22
Total 457,253,937.86 459,765,471.22
33. Other current liabilities
Items Closing balance Opening balance
Short-term debeutures 1,515,722,500.00 —
Total 1,515,722,500.00 —
Notes: The Company issued short-term debentures of a term of 365 days with aggregated par values of RMB1,500,000,000.00 on 8 March 2010. The debentures are unsecured, bearing interest at 3.31% per annum. The redemption date and maturity date are 9 March 2011.
34. Long-term borrowings
(1) Types of long-term borrowings
Items Closing balance Opening balance
Guarantee loans (Note 1) 158,843,061.31 205,341,955.16
Secured borrowings (Note 2) 1,760,353,300.00 1,452,357,300.00
Credit loans 2,303,161,305.42 3,429,724,927.10
Total 4,222,357,666.73 5,087,424,182.26
Note 1: For the category and amount of secured assets under secured borrowings, please see Note VII.12.
Note 2: Guarantee loans were guarantees provided by the Company to its subsidiaries. For specific amounts please see Note VIII.5.1 10
VII. Notes to the Consolidated Financial Statements (continued)
34. Long-term borrowings
(2) Top five long-term borrowings
Closing balance Opening balance
Borrowing Starting Expiry Interest Foreign Functional Foreign Functional
units date date rate(%) Currency currency currency currency currency
Bank I 25 March 2008 24 March 2023 2.96 USD 137,000,000.00 930,353,300.00 76,500,000.00 522,357,300.00
Bank II 10 December 2009 10 December 2012 3.81 RMB — 450,000,000.00 — 450,000,000.00
Bank III 23 December 2008 22 December 2011 4.86 RMB — 400,000,000.00 — 400,000,000.00
Bank IV 23 December 2008 22 November 2011 4.86 RMB — 100,000,000.00 — 300,000,000.00
Bank V 28 September 2009 27 September 2012 3.51 RMB — 280,000,000.00 — 280,000,000.00
Total 2,160,353,300.00 — 1,952,357,300.00
35. Deferred income
Opening Increase for Decrease for Closing
Items balance the current period the current period balance
Funds for three projects in connection
with technology allocated by the
local financial authority 80,000.00 32,000.00 48,000.00
Special subsidy funds for
environmental protection (1) 38,777,543.10 5,770,000.00 2,345,620.95 42,201,922.15
Project fund for National
technological support scheme (2) 3,196,628.91 82,350.00 3,114,278.91
Special subsidy fund for Songhuajiang
environmental protection project (3) 31,698,333.15 4,000,000.00 1,160,416.72 34,537,916.43
Modification of alkaline
recycling system 1,381,250.00 37,500.00 1,343,750.00
Atmospheric pollution prevention
and treatment subsidy fund 1,000,000.00 — — 1,000,000.00
Sewage treatment and water
conservation reconfiguration project 4,364,285.71 335,714.29 4,028,571.42
Financial grants for technological
modification project 2,332,142.89 155,357.12 2,176,785.77
Zhejiang pulp project and construction
project of eucalyptus forest 37,996,000.00 1,834,800.00 — 39,830,800.00
Others 1,064,432.16 7,124,467.17 19,174.19 8,169,725.14
Total 121,890,615.92 18,729,267.17 4,168,133.27 136,451,749.821 11
VII. Notes to the Consolidated Financial Statements (continued)
36. Other non-current liabilities
Items Details Closing balance Opening balance
Other non-current liabilites medium-term notes 1,191,198,564.06 1,189,484,415.60
Other non-current liabilites medium-term notes 1,090,999,200.54 —
Total 2,282,197,764.60 1,189,484,415.60
Notes: The Company issued medium-term notes with a total face value of RMB1,200,000,000.00 and interest rate at 5.05% per annum for a term of 3 years on 2 December 2009. The notes will pay interest on 2 December once a year and repay the principal at maturity. The Company received net subscription amount of approximately RMB1,189,200,000.00 with effective interest rate of 5.38%. As at 30 June 2010, the interest payable of the medium-term notes mentioned above was RMB35,518,333.32.
The Company issued medium-term notes with a total face value of RMB1,100,000,000.00 and interest rate at 4.59% per annum for a term of 3 years on 18 March 2010. The notes will pay interest on 19 March once a year and repay the principal at maturity. The Company received net subscription amount of approximately RMB1,090,100,000.00 with effective interest rate of 4.92%. As at 30 June 2010, the interest payable of the medium-term notes mentioned above was RMB14,586,000.00.
37. Share capital
Opening balance Change for the period (Increase/decrease)
Shares
transfer Closing
Bonus from balance
Items Amounts Percentage New issue shares reserve Others Sub-total Amounts
I. Restricted shares
State-owned legal person shares 293,003,657.00 14.21% — — — — — 293,003,657.00
Other domestic shares 10,295,148.00 0.50% — — — 368,123.00 368,123.00 10,663,271.00
Total number of restricted shares 303,298,805.00 14.71% — — — 368,123.00 368,123.00 303,666,928.00
II. Non-restricted shares
1. RMB ordinary shares 809,979,651.00 39.28% — — — -368,123.00 -368,123.00 809,611,528.00
2. Domestic listed foreign shares 557,497,485.00 27.04% — — — — — 557,497,485.00
3. Overseas listed foreign shares 391,270,000.00 18.97% — — — — — 391,270,000.00
4. Others — — — — — — — —
Total number of non-restricted shares 1,758,747,136.00 85.29% — — — -368,123.00 -368,123.00 1,758,379,013.00
III. Total shares 2,062,045,941.00 100% — — — — — 2,062,045,941.001 12
VII. Notes to the Consolidated Financial Statements (continued)
38. Capital reserves
Increase Decrease
Opening for the for the Closing
Items balance current period current period balance
Capital premium 5,391,471,967.47 — — 5,391,471,967.47
Other capital reserves — — — —
Of which: Transfer from
capital reserves
under the
original system 463,813,228.85 — — 463,813,228.85
Long-term equity
investments
provision 237,198,605.60 — — 237,198,605.60
Others 1,000,000.00 9,202.78 — 1,009,202.78
Total 6,093,483,801.92 9,202.78 — 6,093,493,004.70
Note : During the current period, Shandong Chenming Paper Group Qihe Paperboard Co., Ltd., a subsidiary of the Company, acquired 2% minority interests of Qihe Chenming Waste Collection Co., Ltd., a subsidiary of the Company, and the actual investment amount was RMB10.000.00, which is less than the share of equity of Qihe Chenming Waste Collection Co., Ltd. of RMB9,202.78; according to the Accounting Standards for Business Enterprises Interpretation No.3, the capital reserves increased by RMB9,202.78 when the Company consolidated the financial statements.
39. Surplus reserve
Increase Decrease
Opening for the for the Closing
Items balance current period current period balance
Statutory surplus reserves 906,929,047.49 — — 906,929,047.49
Total 906,929,047.49 — — 906,929,047.491 13
VII. Notes to the Consolidated Financial Statements (continued)
40. Retained profit
(1) Information on the change of retained profit
Proportion of
appropriation
Items Amounts or allocation
Retained profit of previous year before adjustment 3,928,586,297.55
Adjustment of the aggregate retained profit
at the beginning of the year (increase after adjustment +,
decrease after adjustment -) —
Retained profit at the beginning of the year after adjustment 3,928,586,297.55
Add : Net profit of the current period attributable to
equity holders of the Company 607,868,970.24
Surplus reserves setting off the loss —
Other transfers —
Less : Withdrawn statutory surplus reserves —
Withdrawn discretionary surplus reserves —
Ordinary shares dividend payable 618,613,782.30
Ordinary shares dividend transfer to share capital —
Retained profit at the end of the period 3,917,841,485.49
41. Operating revenue and operating costs
(1) Operating revenue and operating costs
Incurred Incurred
during the during the
Items current period prior period
Operating revenue from principal operations 8,163,269,791.82 6,649,999,886.64
Other operating revenue 13,371,885.17 25,366,673.09
Total operating revenue 8,176,641,676.99 6,675,366,559.73
Operating costs from principal operations 6,394,221,973.32 5,614,304,061.05
Other operating costs 2,178,206.82 14,950,985.13
Total operating costs 6,396,400,180.14 5,629,255,046.181 14
VII. Notes to the Consolidated Financial Statements (continued)
41. Operating revenue and operating costs (continued)
(2) Principal operation (by products)
Incurred during the Incurred during the
current period prior period
Operating Operating Operating Operating
Product name revenue costs revenue costs
Machine-made paper 7,752,518,632.68 6,074,850,432.89 6,373,366,334.34 5,414,319,673.82
Electricity and steam 175,867,123.49 143,026,054.52 108,739,961.97 74,242,679.66
Building materials 173,871,552.11 144,211,194.63 143,529,702.92 117,342,306.89
Paper chemicals 32,447,409.89 21,360,557.82 3,708,505.15 1,858,345.37
Hotel income 22,229,234.27 5,763,863.47 19,158,559.75 5,608,708.61
Others 6,335,839.38 5,009,869.99 1,496,822.51 932,346.70
Sub-total 8,163,269,791.82 6,394,221,973.32 6,649,999,886.64 5,614,304,061.05
(3) The following table sets forth the breakdown of the revenue from principal operations of paper products by geographical segments:
Incurred Incurred
during the during the
current period prior period
Regions Operating revenue Operating revenue
PRC 6,713,574,816.48 5,648,960,748.12
United States 43,637,929.18 53,840,582.65
Hong Kong 102,064,685.86 71,282,360.48
Japan 112,421,707.48 183,108,355.38
South Africa 44,048,245.23 38,699,042.28
Other overseas countries 736,771,248.46 377,475,245.43
Total 7,752,518,632.68 6,373,366,334.34
(4) The following table sets forth the operating revenue of the Company’s Top 5 customers:
Percentage of the
total operating
revenue of the
Name of customer Operating revenue Company (%)
Customer I 178,352,785.52 2.18%
Customer II 98,855,415.06 1.21%
Customer III 59,585,860.56 0.73%
Customer IV 54,960,685.02 0.67%
Customer V 54,873,811.73 0.67%
Total 446,628,557.89 5.46%1 15
VII. Notes to the Consolidated Financial Statements (continued)
42. Business taxes and surcharges
Incurred Incurred
during the during the
Items current period prior period
Business taxes 4,517,393.04 3,431,326.28
Urban maintenances and construction tax 3,660,038.84 2,574,287.06
Educational surcharges 2,204,920.45 1,096,210.51
Others 15,375.41 7,209.68
Total 10,397,727.74 7,109,033.53
43. Gain on changes in fair value
Incurred Incurred
during the during the
Source of gain on changes in fair value current period prior period
Gain on changes in fair value generated from
derivative financial Instruments -3,130,000.00 6,993,100.00
Biological assets measured at fair value 11,488,094.03 1,992,559.76
Total 8,358,094.03 8,985,659.76
44. Investment income
Incurred Incurred
during the during the
Name of investees current period prior period
Gain from long-term equity investments
accounted for using the cost method — —
Gain from long-term equity investments
accounted for using the equity method 4,324,494.78 -9,531,720.12
Investment gain on disposal of
long-term equity investments — —
Investment gain generated during the period of holding the
held-for-trading financial investments — —
Investment gain generated during the period of holding the
held-to-maturity investments — —
Investment gain generated during the period of holding the
available-for-sale financial assets — —
Investment gain generated from disposal of
held-for-trading financial assets — —
Investment gain generated from held-to-maturity investments — —
Investment gain generated from available-for-sale financial assets — —
Others — —
Total 4,324,494.78 -9,531,720.12
Note: There are no significant restrictions on remittance of investment gain back to the Company.1 16
VII. Notes to the Consolidated Financial Statements (continued)
45 Loss on impairment of assets
Incurred Incurred
during the during the
Items current period prior period
Loss on bad debts 23,823,361.70 23,555,474.64
Loss on allowance for inventories -3,026,874.44 -12,952,416.04
Loss on impairment of available-for-sale financial assets — —
Loss on impairment of long term equity investments — —
Loss on impairment of investment properties — —
Loss on impairment of fixed assets — —
Loss on impairment of construction materials — —
Loss on impairment of constructions in progress — —
Loss on impairment of productive biological assets — —
Loss on impairment of oil and gas assets — —
Loss on impairment of intangible assets — —
Loss on impairment of goodwill — —
Others — —
Total 20,796,487.26 10,603,058.60
46. Non-operating income
(1) Breakdown of non-operating income
Incurred Incurred
during the during the
Items current period prior period
Total income on disposal of non-current assets 1,699,483.26 10,445,396.64
Of which: Income on disposal of fixed assets 1,699,483.26 10,445,396.64
Income from debt reconstructing — 248,447.14
Unpaid debts — 7,452,764.59
Profit or loss arising from investment
costs for acquisition of a subsidiary
by the corporation being less than its
share of fair value of identifiable net
assets of the invested entity on acquisition 3,026,165.27
Insurance claims — 2,179,040.12
Government grants 58,914,598.71 42,973,571.38
Others 6,799,720.61 2,059,444.15
Total 67,413,802.58 68,384,829.291 17
VII. Notes to the Consolidated Financial Statements (continued)
46. Non-operating income (continued)
(2) The breakdown of government grants
Incurred Incurred
during the during the
Items current period prior period
Reversal of value-added tax 9,564,967.88 7,596,994.38
Financial support fund 49,349,630.83 35,376,577.00
Total 58,914,598.71 42,973,571.38
47. Non-operating expenses
Incurred Incurred
during the during the
Items current period prior period
Total loss on disposal of non-current assets 3,130,585.22 4,653,149.89
Of which: Loss on disposal of fixed assets 3,130,585.22 4,653,149.89
Loss on debt restructuring 545,247.24 —
Fine payments — 458,420.53
Donation expenses 402,000.00 50,000.00
Others 2,130,634.33 161,061.38
Total 6,208,466.79 5,322,631.80
48. Income tax expenses
Incurred Incurred
during the during the
Items current period prior period
Current income tax calculated according to
tax laws and relevant rules 139,896,713.79 56,621,495.64
Adjustment on deferred income tax 2,582,608.51 -4,496,679.33
Total 142,479,322.30 52,124,816.311 18
VII. Notes to the Consolidated Financial Statements (continued)
49. Basic earnings per share and diluted earnings per share
Profit for the reporting period Current period Prior period
Basic Diluted Basic Diluted
earnings earnings earnings earnings
per share per share per share per share
Net profit attributable to
ordinary shareholders 0.29 N/A 0.076 N/A
Net profit after deducting
extraordinary gains and losses
attributable to ordinary
shareholders of the Company 0.28 N/A 0.054 N/A
50 Notes to the cash flow statement items
(1) Cash received relating to other operating activities
Items Amounts
Finance support fund 49,349,630.83
Interest income 14,026,021.32
Bank balances 69,080,266.80
Income on default penalty and fine 81,528.20
Other income 16,573,384.44
Total 149,110,831.591 19
VII. Notes to the Consolidated Financial Statements (continued)
50 Notes to the cash flow statement items (continued)
(2) Cash paid relating to other operating activities
Items Amounts
Transportation expense 183,707,949.28
Hospitality expense 8,210,460.56
Rental expense 9,408,605.94
Travel expense 11,831,101.89
Office expense 6,470,004.66
Waste disposal expense 16,627,402.05
Insurance premium 8,946,959.52
Water and electricity expense 2,929,069.19
Repair expense 6,990,804.88
Advertising expense 19,200.00
Intermediary service expense 1,960,431.35
Quality compensation 81,670.90
Financial institutions charge 11,055,221.89
Others 65,653,002.70
Total 333,891,884.81
(3) Cash received relating to other financing activities
Items Amounts
Deposits of notes 315,168,303.74
Medium-term notes 1,090,100,000.00
Short-term notes 1,494,000,000.00
Total 2,899,268,303.741 20
VII. Notes to the Consolidated Financial Statements (continued)
51. Supplementary information on cash flow statements
(1) Information on reconciliation of net profit to cash flows from operating activities
Amounts Amounts
during the during the
Items current period prior period
1. Reconciliation of net profit as cash flows from
operating activities:
Net profit 696,079,087.46 186,114,826.62
Add: Provision for impairment of assets 20,796,487.26 10,603,058.60
Depreciation of fixed assets, consumption of oil and gas
assets, depreciation of productive biological assets 580,110,471.43 595,950,099.87
Amortisation of intangible assets
Long-term prepaid expenses 26,799,157.06 10,477,484.50
Loss on disposal of fixed assets, intangible assets
and other long-term assets (“-” denotes gain) 5,976,761.70 7,491,557.58
Loss on retired fixed assets (“-” denotes gain) 1,431,101.96 -5,792,246.75
Loss on change in fair value (“-” denotes gain) — —
Finance expenses (“-” denotes gain) 3,130,000.00 -12,011,825.03
Investment loss (“-” denotes gain) 136,676,921.12 194,786,713.11
Decrease in deferred income tax assets
(“-” denotes increase) -4,324,494.78 9,531,720.12
Increase in deferred income tax
liabilities (“-” denotes decrease) -274,009.46 -4,994,819.27
Decrease in inventory (“-” denotes increase) 2,856,617.97 498,139.94
Decrease in operating receivables (“-” denotes increase) -910,959,441.89 394,297,232.45
Increase in operating payables (“-” denotes decrease) 306,166,511.18
(“-” denotes increase) 410,174,620.61 -154,694,763.32
Others -84,916,715.22 -99,166,606.14
Net cash flows from operating activities 1,189,723,076.40 -526,101,807.48
2. Major investing and financing activities not
involving cash settlements:
Capital converted from debts — —
Convertible bonds of the Company due within one year — —
Finance leases of fixed assets — —
3. Net change in cash and cash equivalents:
Cash balance at the end of the period 1,872,556,028.36 2,487,107,389.80
Less: cash balance at the beginning of the period 2,367,334,202.50 2,687,579,159.85
Add: balance of cash equivalents at the end of the period — —
Less: balance of cash equivalents
at the beginning of the period — —
Net increase in cash and cash equivalents -494,778,174.14 -200,471,770.051 21
VII. Notes to the Consolidated Financial Statements (continued)
51. Supplementary information on cash flow statements (continued)
(2) The compositions of cash and cash equivalents
Items Closing balance Opening balance
1. Cash 1,872,556,028.36 2,367,334,202.50
Of which : Treasury cash 3,003,685.99 1,905,043.24
Bank deposits repayable on demand 1,755,586,626.84 2,365,429,159.26
Other monetary funds repayable on demand 113,965,715.52 —
Amounts deposited at the central bank
available for payment — —
Due to banks — —
Loans to banks and other financial institutions — —
2. Cash equivalents
Of which : bond investments due within 3 months — —
3. Balance of cash and cash equivalents at the end of period 1,872,556,028.36 2,367,334,202.50VIII. Related party relations and transactions
1. The information on the parent company of the Company:
The
parent company’s Voting rights of
shareholding in the largest
Name of the Type of Place of Legal Type of Registered the Company shareholder in the Ultimate controller Organisation
parent company Relationship corporation registration representative business capital (%) Company (%) of the Company code
Shouguang Chenming The largest Limited liability Shouguang Chen Investments in RMB 14.21 14.21 State-owned Assets Supervision 78348518-9
Holdings Co., Ltd shareholder company City Hongguo papermaking, power and 1,685,420,000 and Administration Commission
steam, forestry projects of Shouguang City
2. The subsidiaries of the Company
Name of Type of Place of Legal Registered Shareholding Voting Organization
subsidiary subsidiary incorporation representative Business nature capital (%) rights (%) code
Wuhan Chenming Hanyang Sino-foreign Wuhan City 譚道誠 Manufacture of paper 21,136 50.93 50.93 27189235-4
Paper Holdings Co., Ltd.
Shandong Chenming Limited liability Qihe, Shandong 侯焕才 Manufacture of paper 37,620 100.00 100.00 72074277-4
Paper Group Qihe
Paperboard Co., Ltd.
Shandong Chenming Power Stock company Shouguang, 孫洪吉 Electricity 9,955 86.71 86.71 70620711-8
Supply Holdings Co., Ltd. Shandong
Yanbian Chenming Limited liability Yanji, Jilin 桑景高 Manufacture of paper 8,163.30 76.73 76.73 72958840-0
Paper Co., Ltd. company
Jiangxi Chenming Sino-foreign Nanchang city 譚道誠 Manufacture of paper USD 51.00 51.00 74426460-7
Paper Co., Ltd. 172,000,000
Shouguang Chenming Tianyuan Limited liability Shouguang, 李德江 Forestry 1,059 68.00 68.00 73925671-7
Arboriculture Co., Ltd. company Shandong
Hailaer Chenming Limited liability Hailare City 高子偉 Manufacture of paper 1,600 75.00 75.00 70130836-6
Paper Co., Ltd. company
1 22VIII. Related party relations and transactions (continued)
2. The subsidiaries of the Company (continued)
Name of Type of Place of Legal Registered Shareholding Voting Organisation
subsidiary subsidiary incorporation representative Business nature capital (%) rights (%) code
Chibi Chenming Paper Limited liability Chibi, Hubei 陳建明 Manufacture of paper 17,742 51.00 51.00 42203935-3
Co., Ltd. Company
Wuhan Chenming Qianneng Limited liability Wuhan City 張利平 Electricity 8,824 51.00 51.00 72579372-2
Electric Power Co., Ltd. Company
Wuhan Chenjian New-style Limited liability Wuhan City 呂學峰 Wall materials 1,000 51.00 51.00 74475404-0
Wall Materials Co., ltd. Company
Shandong Chenming Xinli Sino-foreign Shouguang, 孫洪吉 USD 51.00 51.00 72073121-5
Power Co., Ltd. Shandong Electricity 11,800,000
Shouguang Chenming Limited liability Shouguang, 孫洪吉 700 100.00 100.00 73720178-X
Cement Co., Ltd. company Shandong Cement
Shandong Chenming Limited liability Shouguang, 劉樹森 Panels 3,000 100.00 100.00 73816170-8
Panels Co., Ltd. Company Shandong
Shouguang Chenming Limited liability Shouguang, 劉樹森 Floor board 50 100.00 100.00 76366212-5
Floor Board Co., Ltd. Company Shandong
Qihe Chenming Panels Limited liability Qihe, Shandong 劉樹森 Panels 4,082 100.00 100.00 76001404-2
Co., Ltd. Company
Heze Chenming Panels Limited liability Heze, Shandong 劉樹森 Panels 3,000 67.00 67.00 75827615-8
Co., Ltd. Company
Yangjiang Chenming Limited liability Yangjiang, 尹同遠 Forestry 100 100.00 100.00 78487434-6
Arboriculture Co., Ltd. Company Guangdong
Zhanjiang Chenming Limited liability Zhanjiang, 王在國 Forestry 100 100.00 100.00 78298807-5
Arboriculture Co., Ltd. company Guandong
Jilin Chenming Paper Limited liability Jilin City, 王在國 Manufacture of paper 150,000 100.00 100.00 78298556-0
Co., Ltd. Company Jilin province
1 23VIII. Related party relations and transactions (continued)
2. The subsidiaries of the Company (continued)
Name of Type of Place of Legal Registered Shareholding Voting Organisation
subsidiary subsidiary incorporation representative Business nature capital (%) rights (%) code
Juancheng Chenming Limited liability Juancheng, 侯煥才 Panels 1,500 100.00 100.00 77872435-X
Panels Co., Ltd. company Shandong
Shandong Grand View Sino-foreign Shouguang, 劉樹森 Beverage USD 70.00 70.00 97529857-8
Hotel Co., Ltd. Shandong 13,910,000
Zhanjiang Chenming Limited liability Zhanjiang, 馮新泉 Forestry 50,000 100.00 100.00 77527884-1
Paper Pulp Co., Ltd. Company Guangdong
Chenming (HK) Limited Limited liability Hong Kong, 魏克雨 Trade of USD100,000 100.00 100.00 373492730
Company China paper products 0011080
Shouguang Chenming Limited liability Shouguang, 陳洪國 Transportation 1,000 100.00 100.00 66015223-7
Modern Logistic Co., Ltd. Company Shandong
Shouguang Chenming Sino-foreign joint Shouguang, 尹同遠 Manufacture of USD 75.00 75.00 79867677-0
Art Paper Co., Ltd. Shandong art paper 20,000,000
Qihe Chenming Waste Limited liability Qihe, Shandong 李峰 Materials collection 50 100.00 100.00 75825591-2
Collection Co., Ltd. Company
Jilin Chenming Waste Limited liability Jilin 張邦吉 Materials collection 100 100.00 100.00 77872731-5
Collection Co., Ltd. Company
Jilin Chenming Machinery Limited liability Jilin 張春林 Processing of machinery 60 100.00 100.00 66012410-5
Manufacturing Co., Ltd. Company
Nanchang Chenming Limited liability Nanchang, 張國英 Panels 1,000 100.00 100.00 66204306-9
Arboriculture Co., Ltd. Company Jiangxi
Fuyu Chenming Paper Co., Ltd. Limited liability Fuyu County, 劉春山 Manufacture of paper 20,800 100.00 100.00 66389298-6
Company Qiqihar City
Huanggang Chenming Limited liability Huanggang city, 王在國 Forestry 1,000 100.00 100.00 67036898-X
Arboriculture Co., Ltd. Company Hubei
1 241 25
VIII. Related party relations and transactions (continued)
2. The subsidiaries of the Company (continued)
Name of Type of Place of Legal Registered Shareholding Voting Organisation
subsidiary subsidiary incorporation representative Business nature capital (%) rights (%) code
Huanggang Chenming Limited liability Huanggang city, 肖翔 Forestry 2,000 100.00 100.00 67976586-9
Paper Co., Ltd. Company Hubei
Xianning Chenming Limited liability Xianning, Hubei 王在國 Forestry 1,000 100.00 100.00 67975036-8
Arboriculture Company
development Co., Ltd.
Shouguang Meilun Limited liability Shouguang, 尹同遠 Manufacture of paper 2,000 100.00 100.00 69064934-0
Paper Co. Ltd.* company Shandong
Shouguang Shun Da Limited liability Shouguang, 陳洪國 Declaration and inspection 150 100.00 100.00 69689781-2
Customs Declaration company Shandong declaration
Co., Ltd.
Wuhan Chenming Limited liability Wuhan, Hubei 譚道誠 Real estate 2,000 100.00 100.00 69534385-0
Wan Xing Real Estate company
Co., Ltd.
Shouguang City Run Sheng Limited liability Shouguang, 陳洪國 Materials collection 100 100.00 100.00 77316557-9
Wasted Paper Recycle company Shandong
Co., Ltd.
Wuxie Song Ling Paper Limited liability Wuxie 劉春山 Paper industry 501 100.00 100.00 76243145-6
Co., Ltd. company
Shouguang Hongyi Limited liability Shouguang, 于步勳 Decoration 155 100.00 100.00 78077560-7
Decorative Packaging company Shandong
Co., Ltd.
Shouguang Xinyuan Limited liability Shouguang, 鞠洪亮 Coals 200 100.00 100.00 86570424-2
Coal Co., Ltd. company Shandong
Shouguang Wei Yuan Limited liability Shouguang, 郝利民 Logistics 393 100.00 100.00 78079463-X
Logistics Company company Shandong
Limited
Shandong Lin Dun Limited liability Shouguang, 劉樹森 Panels 138 67.00 67.00 16899764-1
Wood Industry Co., Ltd. company Shandong1 26
VIII. Related party relations and transactions (continued)
3. Information on the joint ventures and associates of the Company
Further information on the joint ventures and associates of the Company refer to Note VII.9.
4. Other related parties of the Company
Name of other related parties Relationship with the Company Organisation code
Shouguang Chenming Guangyuan Both are controlled by the parent company 69312142-9
Real Property Company Limited1 27
VIII. Related party relations and transactions (continued)
5. Information on related party transactions
(1) Related party transactions involving purchase and sales of goods and provision and receipt of services
Type of Details of Pricing principle During the During the
related related of related current period prior period
Related party transaction transaction transaction Amount Amount
Subsidiaries of the Company Sale Raw materials, At prices negotiated 536,214,289.98 583,027,020.14
electricity, steam between both parties
Associated corporations Sale Raw materials, At prices negotiated 4,178,835.08 3,994,099.63
of the Company steam and between both parties
transportation
Subsidiaries of the Company Purchase Raw materials At prices negotiated 3,743,575,198.79 2,649,861,106.25
between both parties
(2) Guarantees provided for related parties
Performance of
Amount under Starting date of Expiry date of guarantee is
Guarantor Party being guaranteed guarantee guarantee guarantee completed
Shandong Chenming Paper Holdings Limited Zhanjiang Chenming Paper Pulp Co., Ltd. 1,090,353,300.00 2008-3-25 2023-3-24 No
Shandong Chenming Paper Holdings Limited Jiangxi Chenming Paper Co., Ltd. 50,000,000.00 2009-4-22 2012-4-21 No
Shandong Chenming Paper Holdings Limited Jiangxi Chenming Paper Co., Ltd. 450,000,000.00 2009-12-10 2012-12-10 No
Shandong Chenming Paper Holdings Limited Huanggang Chenming Arboriculture Co., Ltd. 50,000,000.00 2009-6-2 2012-6-2 No
Shandong Chenming Paper Holdings Limited Wuhan Chenming Hanyang Paper Holdings Co., Ltd. 40,000,000.00 2010-3-8 2011-3-4 No
Shandong Chenming Paper Holdings Limited Huanggang Chenming Arboriculture Co., Ltd. 20,000,000.00 2010-4-29 2013-4-29 No
Shandong Chenming Paper Holdings Limited Shouguang Meilun Paper Co. Ltd. 80,000,000.00 2010-4-28 2016-8-18 No1 28
VIII. Related party relations and transactions (continued)
5. Information on related party transactions (continued)
(3) Entrusted loan of related parties
Amount of
entrusted loan
incurred in the
Related party current period Starting date Expiry date Balance
Fuyu Chenming Paper Co., Ltd. 2009-12-16 2010-12-15 100,000,000.00
Heze Chenming Panels Co., Ltd. 2008-9-4 2010-9-3 15,000,000.00
Heze Chenming Panels Co., Ltd. 2009-9-28 2010-9-27 20,000,000.00
Heze Chenming Panels Co., Ltd. 2009-12-14 2010-12-13 31,000,000.00
Heze Chenming Panels Co., Ltd. 15,000,000.00 2010-1-14 2011-1-13 15,000,000.00
Heze Chenming Panels Co., Ltd. 10,000,000.00 2010-4-21 2011-4-20 10,000,000.00
Huanggang Chenming
Arboriculture Co., Ltd. 80,000,000.00 2010-1-6 2011-1-5 80,000,000.00
Jiangxi Chenming Paper Co., Ltd. 2007-5-24 2017-5-24 190,000,000.00
Jiangxi Chenming Paper Co., Ltd. 2007-5-25 2017-5-25 110,000,000.00
Jiangxi Chenming Paper Co., Ltd. 200,000,000.00 2010-4-19 2013-4-18 200,000,000.00
Juancheng Chenming Panels Co., Ltd. 2008-9-24 2010-9-24 20,000,000.00
Juancheng Chenming Panels Co., Ltd. 2009-12-3 2010-12-2 20,000,000.00
Qihe Chenming Paper Co., Ltd. 2009-12-3 2010-12-2 15,000,000.00
Shandong Chenming Panels Co., Ltd. 2009-12-3 2010-12-2 26,000,000.00
Shandong Chenming Qihe
Paperboard Co., Ltd. 2009-12-3 2010-12-2 90,000,000.00
Shouguang Chenming
Art Paper Co., Ltd. 2009-12-3 2010-12-2 600,000,000.00
Wuhan Chenming Hanyang
Paper Holdings Co., Ltd. 2008-9-4 2010-9-3 40,000,000.00
Wuhan Chenming Hanyang
Paper Holdings Co., Ltd. 2009-12-3 2010-12-2 380,000,000.00
Wuhan Chenming Hanyang
Paper Holdings Co., Ltd. 2009-12-14 2010-12-13 130,000,000.00
Wuhan Chenming Hanyang
Paper Holdings Co., Ltd. 20,000,000.00 2010-1-27 2011-1-26 20,000,000.00
Wuhan Chenming Hanyang
Paper Holdings Co., Ltd. 50,000,000.00 2010-4-21 2011-4-20 50,000,000.00
Wuhan Chenming Hanyang
Paper Holdings Co., Ltd. 50,000,000.00 2010-5-7 2011-5-6 50,000,000.00
Wuhan Chenming Hanyang
Paper Holdings Co., Ltd. 55,000,000.00 2010-6-2 2011-6-1 55,000,000.00
Wuhan Chenming Qianneng
Electric Power Co., Ltd. 55,000,000.00 2010-4-21 2011-4-20 55,000,000.00
Total 535,000,000.00 2,322,000,000.001 29
VIII. Related party relations and transactions (continued)
6. Receivables and payables of related parties
Name of items Related party Closing balance Opening balance
Accounts receivable Subsidiaries of the Company 163,149,934.70 189,413,764.27
Associated corporations of the Company — —
Total 163,149,934.70 189,413,764.27
Prepayments Subsidiaries of the Company 92,275,298.67 250,936,854.04
Total 92,275,298.67 250,936,854.04
Other receivables Subsidiaries of the Company 3,503,276,281.31 2,002,356,020.69
Associated corporations of the Company 2,093,099.57 1,290,901.12
Total 3,505,369,380.88 2,003,646,921.81
Accounts payable Subsidiaries of the Company 934,819,053.03 731,664,282.10
Associated corporations of the Company — —
Total 934,819,053.03 731,664,282.10
Bills payable Subsidiaries of the Company 9,147,560.00 50,894,161.72
Total 9,147,560.00 50,894,161.72
Advance receipts Subsidiaries of the Company 126,005,709.51
Total 126,005,709.51 —
Other payables Subsidiaries of the Company 75,604,619.66 92,721,799.72
Total 75,604,619.66 92,721,799.72
Dividend receivable Subsidiaries of the Company 132,003,072.86 188,362,997.10
Total 132,003,072.86 188,362,997.101 30
IX. COMMITMENTS
1. Capital commitments
Name of items Closing balance Opening balance
Contracted but not yet recognised in the financial statements
－ commitments in relation to acquisition
and construction of long-term assets 7,733,879,517.74 5,553,397,880.88
Total 7,733,879,517.74 5,553,397,880.88
2. Operating lease commitments
As at 30 June 2010, the Group entered into irrevocable operating lease contracts with non-group companies as follows:
Name of items Closing balance Opening balance
The first year after balance sheet date 39,490,073.23 43,349,747.30
The second year after balance sheet date 27,816,771.71 31,564,538.27
The third year after balance sheet date 32,925,599.17 30,774,546.27
In the years thereafter 923,285,386.40 1,081,173,531.06
Total 1,023,517,830.51 1,186,862,362.901 31
X. Other important explanations
1. Assets and liabilities measured at fair value
Accumulated
Profit or loss change of fair Provision of
from change value accounted impairment Closing
Items Opening balance of fair value for equity in this period balance
Financial assets — — — — —
Financial liabilities
measured at fair value
and its change
accounted for profit
or loss in the current
period (excluding
derivative financial assets) — — — — —
Derivative financial assets 14,900,000.00 -7,000,000.00 — — 7,900,000.00
Available-for-sale financial assets — — — — —
Sub-total of financial assets 14,900,000.00 -7,000,000.00 — — 7,900,000.00
Investment properties —
Consumable biological assets 496,724,974.94 11,488,094.03 581,641,690.16
Other —
Total amount of above items 511,624,974.94 4,488,094.03 — — 589,541,690.16
Financial liabilities — — — — —
Derivative financial liabilities 6,456,900.00 3,870,000.00 2,586,900.00
Sub-total of financial liabilities 6,456,900.00 3,870,000.00 — — 2,586,900.001 32
X. Other important explanations (continued)
2. Financial assets and financial liabilities denominated in foreign currency
Accumulated Provision
Profit or loss change of fair of impairment
from change value accounted in the Closing
Items Opening balance of fair value for equity current period balance
Financial assets
Financial liabilities
measured at fair value
and its change
accounted for profit
or loss in the current
period (excluding
derivative financial
assets) — — — — —
Cash and cash equivalents 443,439,915.62 891,387,047.07
Derivative financial assets 14,900,000.00 -7,000,000.00 — — 7,900,000.00
Loans and trade receivables 301,347,523.52 — — — 1,424,761,796.68
Other bank balances and cash 1,220,459.88 7,145,513.04
Available-for-sale financial assets — — — —
Held-to-maturity investments — — — —
Sub-total of financial assets 760,907,899.02 -7,000,000.00 — — 2,331,194,356.79
Financial liabilities
Derivative financial liabilities 6,450,000.00 3,870,000.00 2,580,000.00
Accounts payable 676,817,535.78 859,784,343.42
Short-term borrowings 406,862,542.94 229,941,979.18
Long-term loan due within 1 year 195,353,527.87 498,173,562.18
Long-term borrowings 1,615,365,255.16 1,822,849,539.77
Sub-total of financial liabilities 2,900,848,861.75 3,870,000.00 — — 3,413,329,424.551 33
XI. Notes of the major financial statements’ items of the parent company
1. Accounts receivable
(1) Accounts receivable stated according to breakdown
Closing balance Opening balance
Book balance Bad debt provision Book balance Bad debt provision
Breakdown Amount Ratio (%) Amount Ratio (%) Amount Ratio (%) Amount Ratio (%)
Single item with
significant
accounts receivable 1,722,960,842.94 90.94 145,583,093.90 88.86 1,352,159,482.93 88.45 109,505,866.19 77.39
Single item without
significant accounts
receivable but
considered to be
greater risks after
arrived at by credit
risk characteristics 10,323,788.53 0.54 10,117,123.35 6.17 10,228,140.55 0.67 9,358,032.57 6.61
Other items without
significant accounts
receivable 161,468,983.37 8.52 8,141,428.49 4.97 166,321,364.31 10.88 22,636,637.11 16.00
Total 1,894,753,614.84 100.00 163,841,645.73 100.00 1,528,708,987.79 100.00 141,500,535.87 100.001 34
XI. Notes of the major financial statements’ items of the parent company (continued)
1. Accounts receivable (continued)
(2) Information on the provision of bad debts as at the end of period
1 Single item with significant accounts receivable or single item without significant accounts receivable but provided the bad debts after assess the asset individually for impairment
Bad debt Provision
Name of unit Book balance amounts ratio (%) Reason
佛山市順德區星辰紙業 47,706,660.23 47,706,660.23 100.00 Due to poor management of
有限公司 the counterparty, it could be
provided as bad debts after
considering its collectability
上海青年傳媒有限公司 7,093,218.90 7,093,218.90 100.00 Due to poor management of
the counterparty, it could be
provided as bad debts after
considering its collectability
蘇州騰駿紙業有限公司 7,037,126.17 7,037,126.17 100.00 Due to poor management of
the counterparty, it could be
provided as bad debts after
considering its collectability
Total 61,837,005.30 61,837,005.30
á Single item without significant accounts receivable but considered to be greater risks after arrival at by credit risk characteristics
Closing balance Opening balance
Book Book
balance Bad debt balance Bad debt
Aging Amount Ratio (%) provision Amount Ratio (%) provision
Within 1 year — — — — — —
1 to 2 years — — — — — —
2 to 3 years 258,331.48 2.50 51,666.30 1,087,634.97 10.63 217,526.99
3 to 4 years 1,078,499.78 10.45 1,078,499.78 3,656,841.87 35.75 3,656,841.87
4 to 5 years 3,576,327.71 34.64 3,576,327.71 329,884.43 3.23 329,884.43
Over 5 years 5,410,629.56 52.41 5,410,629.56 5,153,779.28 50.39 5,153,779.28
Total 10,323,788.53 100.00 10,117,123.35 10,228,140.55 100.00 9,358,032.571 35
XI. Notes of the major financial statements’ items of the parent company (continued)
1. Accounts receivable (continued)
(3) Top 5 accounts receivable are set out as follows
Percentage
of the
total balance
Relationship of accounts
Name with the Company Amount Aging receivable (%)
Customer I Non-related party 47,706,660.23 2 to 3 years 2.76
Customer II Non-related party 32,155,597.59 within 1 year 1.86
Customer III Non-related party 30,304,044.19 within 1 year 1.76
Customer IV Non-related party 27,980,163.44 within 1 year 1.62
Customer V Non-related party 27,222,765.40 within 1 year 1.58
Total 165,369,230.85 9.58
(4) For details of the accounts receivable of the related parties at the end of the current period, please refer to Note VIII.6.
2. Other receivables
(1) Other receivable stated according to breakdown
Closing balance Opening balance
Book balance Bad debt provision Book balance Bad debt provision
Breakdown Amount Ratio (%) Amount Ratio (%) Amount Ratio (%) Amount Ratio (%)
Single item with
significant
other receivables 3,556,491,309.49 98.90 23,989,903.19 51.88 2,039,880,017.86 98.13 7,993,207.36 23.77
Single item without
significant other
receivables but
considered to be
greater risks after
arrived at by credit
risk characteristics 8,916,315.81 0.25 7,899,777.16 17.08 7,429,754.74 0.36 6,630,034.74 19.71
Other items without
significant other
receivables 30,506,131.37 0.85 14,350,268.21 31.03 31,445,066.20 1.51 19,008,207.57 56.52
Total 3,595,913,756.67 100.00 46,239,948.55 100.00 2,078,754,838.80 100.00 33,631,449.67 100.001 36
XI. Notes of the major financial statements’ items of the parent company (continued)
2. Other receivables (continued)
(2) Information on the provision of bad debts in the end of period
1 Single item without significant other receivables but considered to be greater risks after arrival at by credit risk characteristics:
Closing balance Opening balance
Book Book
balance Bad debt balance Bad debt
Aging Amount Ratio (%) provision Amount Ratio (%) provision
Within 1 year — — — — — —
1 to 2 years — — — — — —
2 to 3 years 1,270,673.31 14.25 254,134.66 999,650.00 13.45 199,930.00
3 to 4 years 1,487,116.38 16.68 1,487,116.38 764,412.11 10.29 764,412.11
4 to 5 years 703,332.60 7.89 703,332.60 173,546.29 2.34 173,546.29
Over 5 years 5,455,193.52 61.18 5,455,193.52 5,492,146.34 73.92 5,492,146.34
Total 8,916,315.81 100.00 7,899,777.16 7,429,754.74 100.00 6,630,034.74
(3) Top 5 other receivables are set out as follows
Percentage
of the
total balance
Relationship of accounts
Name with the Company Amount Aging receivable (%)
Customer I Non-related party 7,094,166.45 2-3年 0.20
Customer II Non-related party 6,752,428.41 1年以內 0.19
Customer III Non-related party 5,016,000.00 2-4年 0.14
Customer IV Non-related party 4,623,857.89 1-2年 0.13
Customer V Non-related party 4,380,000.00 1年以內 0.12
Total 27,866,452.75 0.78
(4) For details of the other receivables of the related parties at the end of the current period, please refer to Note VIII.6.1 37
XI. Notes of the major financial statements’ items of the parent company (continued)
3. Long-term equity investments
(1) Details of subsidiaries
Accounting Initial Opening Additions Closing
Name of investee entity method investment balance /Deduction balance
Wuhan Chenming Hanyang Cost method 202,824,716.34 202,824,716.34 202,824,716.34
Paper Holdings Co., Ltd.
Shandong Chenming Cost method 376,200,000.00 376,200,000.00 376,200,000.00
Paper Group Qihe
Paperboard Co., Ltd.
Shandong Chenming Power Cost method 157,810,117.43 157,810,117.43 157,810,117.43
Supply Holdings Co., Ltd.
Chibi Chenming Paper Cost method 26,270,460.90 26,270,460.90 26,270,460.90
Co., Ltd.
Yanbian Chenming Cost method 40,083,733.01 40,083,733.01 40,083,733.01
Paper Co., Ltd.
Hailaer Chenming Cost method 12,000,000.00 12,000,000.00 12,000,000.00
Paper Co., Ltd.
Jiangxi Chenming Cost method 697,548,406.40 697,548,406.40 697,548,406.40
Paper Co., Ltd.
Shouguang Chenming Cost method 7,199,000.00 7,199,000.00 7,199,000.00
Tianyuan
Arboriculture Co., Ltd.
Jilin Chenming Cost method 1,501,350,000.00 1,501,350,000.00 1,501,350,000.00
Paper Co., Ltd.
Juancheng Chenming Cost method 15,000,000.00 15,000,000.00 15,000,000.00
Panels Co., Ltd.
Shandong Grand View Cost method 80,500,000.00 80,500,000.00 80,500,000.00
Hotel Co., Ltd.
Zhanjiang Chenming Cost method 500,000,000.00 500,000,000.00 500,000,000.00
Paper Pulp Co., Ltd.
Chenming (HK) Limited Cost method 783,310.00 783,310.00 783,310.00
Shouguang Chenming Cost method 10,000,000.00 10,000,000.00 10,000,000.00
Modern Logistic Co., Ltd.
Shouguang Chenming Cost method 113,616,063.80 113,616,063.80 113,616,063.80
Art Paper Co., Ltd.
Fuyu Chenming Cost method 208,000,000.00 208,000,000.00 208,000,000.00
Paper Co., Ltd.
Xianning Chenming Cost method 10,000,000.00 10,000,000.00 10,000,000.00
Arboriculture
Co., Ltd.
Huanggang Chenming Cost method 20,000,000.00 20,000,000.00 20,000,000.00
Paper Co., Ltd.
Huanggang Chenming Cost method 10,000,000.00 10,000,000.00 10,000,000.00
Arboriculture Co., Ltd.1 38
XI. Notes of the major financial statements’ items of the parent company (continued)
3. Long-term equity investments (continued)
(1) details of subsidiaries (continued)
Accounting Initial Opening Additions Closing
Name of investee entity method investment balance /Deduction balance
Shouguang Meilun Cost method 20,000,000.00 20,000,000.00 20,000,000.00
Paper Co. Ltd.
Shouguang Shun Da Cost method 1,500,000.00 1,500,000.00 1,500,000.00
Customs
Declaration Co, Ltd.
Shouguang Liben Paper Equity method 19,550,000.00 18,826,749.91 -552,685.66 18,274,064.25
Making Co., Ltd.
Arjo Wiggins Chenming Equity method 80,100,000.00 32,610,827.22 5,016,072.32 37,626,899.54
Specialty Paper Co., Ltd.
Qingzhou Chenming Equity method 900,000.00 900,000.00 900,000.00
Denaturation Amylum
Co., Ltd.
Jiangxi Jiangbao Equity method 6,000,000.00 5,695,648.43 -138,891.88 5,556,756.55
Media Colour
Printing Co. Ltd.
Weifang Venture Cost method 1,000,000.00 1,000,000.00 1,000,000.00
Capital Co., Ltd.
Shandong Paper Making & Cost method 200,000.00 200,000.00 200,000.00
Printing Enterprises
Corporation
Zhejiang Province Guangyu Cost method 2,000,000.00 2,000,000.00 2,000,000.00
Media Printing Company
Limited
Jinan Shangyou Commercial Cost method 350,000.00 350,000.00 350,000.00
Company Limited
Shouguang Mihe Water Cost method 20,000,000.00 20,000,000.00 — 20,000,000.00
Company Limited
Shanghai Forest & Paper Cost method 1,400,000.00 1,400,000.00 — 1,400,000.00
E-Commerce Co., Ltd
安徽時代物資股份有限公司 Cost method 1,000,000.00 1,000,000.00
Total 4,093,669,033.44 5,324,494.78 4,098,993,528.221 39
XI. Notes of the major financial statements’ items of the parent company (continued)
3. Long-term equity investments (continued)
(1) details of subsidiaries (continued)
Explanation
of the
inconsistent of
Percentage shareholding
Percentage of the percentage Provision of
of shareholding voting right in and voting impairment
in investee the investee right in the Impairment for the
Name of investee entity entity (%) entity (%) investee entity provision current period Cash bonus
Wuhan Chenming Hanyang 50.93 50.93
Paper Holdings Co., Ltd.
Shandong Chenming 100.00 100.00
Paper Group Qihe
Paperboard Co., Ltd.
Shandong Chenming Power 86.71 86.71
Supply Holdings Co., Ltd.
Chibi Chenming Paper 51.00 51.00
Co., Ltd.
Yanbian Chenming 76.73 76.73
Paper Co., Ltd.
Hailaer Chenming 75.00 72.00
Paper Co., Ltd.
Jiangxi Chenming 51.00 51.00
Paper Co., Ltd.
Shouguang Chenming 68.00 68.00
Tianyuan
Arboriculture Co., Ltd.
Jilin Chenming 100.00 100.00
Paper Co., Ltd.
Juancheng Chenming 100.00 100.00
Panels Co., Ltd.
Shandong Grand View 70.00 70.00
Hotel Co., Ltd.
Zhanjiang Chenming 100.00 100.00
Paper Pulp Co., Ltd.
Chenming (HK) Limited 100.00 100.00
Shouguang Chenming 100.00 100.00
Modern Logistic Co., Ltd.
Shouguang Chenming 75.00 75.00
Art Paper Co., Ltd.
Fuyu Chenming 100.00 100.00
Paper Co., Ltd.
Xianning Chenming 100.00 100.00
Arboriculture
Co., Ltd.
Huanggang Chenming 100.00 100.00
Paper Co., Ltd.
Huanggang Chenming 100.00 100.00
Arboriculture Co., Ltd.1 40
XI. Notes of the major financial statements’ items of the parent company (continued)
3. Long-term equity investments (continued)
(1) details of subsidiaries (continued)
Explanation
of the
inconsistent of
Percentage shareholding
Percentage of the percentage Provision of
of shareholding voting right in and voting impairment
in investee the investee right in the Impairment for the
Name of investee entity entity (%) entity (%) investee entity provision current period Cash bonus
Shouguang Meilun 100.00 100.00
Paper Co. Ltd.
Shouguang Shun Da 100.00 100.00
Customs
Declaration Co, Ltd.
Shouguang Liben Paper 26.40 26.40
Making Co., Ltd.
Arjo Wiggins Chenming 30.00 30.00
Specialty Paper Co., Ltd.
Qingzhou Chenming 30.00 30.00 900,000.00
Denaturation Amylum
Co., Ltd.
Jiangxi Jiangbao 21.15 21.15
Media Colour
Printing Co. Ltd.
Weifang Venture 1.95 1.95 80,385.84
Capital Co., Ltd.
Shandong Paper Making & 2.00 2.00 200,000.00
Printing Enterprises
Corporation
Zhejiang Province Guangyu 9.96 9.96 — —
Media Printing Company
Limited
Jinan Shangyou Commercial 5.00 5.00 350,000.00 — —
Company Limited
Shouguang Mihe Water 19.46 19.46 — — —
Company Limited
Shanghai Forest & Paper 14.00 14.00 468,152.23 — —
E-Commerce Co., Ltd
安徽時代物資股份有限公司 10.00 10.00
Total 1,998,538.07 — —1 41
XI. Notes of the major financial statements’ items of the parent company (continued)
4. Operating Revenue and Operating Costs
(1) Operating revenue and operating costs
Incurred during Incurred during
the current period the prior period
Operating revenue from principal operations 7,000,408,065.19 5,933,106,453.45
Revenue from other operations 103,033,978.86 248,505,859.32
Total operating revenue 7,103,442,044.05 6,181,612,312.77
Operating costs from principal operations 5,922,822,786.51 5,333,017,081.39
Costs of other operations 94,323,348.46 245,597,213.68
Total operating costs 6,017,146,134.97 5,578,614,295.07
(2) Principal operations (by products)
Incurred during Incurred during
the current period the prior period
Products Operating revenue Operating costs Operating revenue Operating costs
Machine-made paper 6,835,350,658.16 5,791,160,743.06 5,832,718,789.04 5,274,722,657.52
Electricity and steam supply 165,057,407.03 131,662,043.45 100,387,664.41 58,294,423.87
Total 7,000,408,065.19 5,922,822,786.51 5,933,106,453.45 5,333,017,081.391 42
XI. Notes of the major financial statements’ items of the parent company (continued)
4. Operating Revenue and Operating Costs (continued)
(3) Operating revenue of the 5 largest customers of the Company
Percentage
of the
operating
revenue
Operating of the
Name of customers revenue Company (%)
Customer I 178,352,785.52 2.51
Customer II 98,855,415.06 1.39
Customer III 59,585,860.56 0.84
Customer IV 54,960,685.02 0.77
Customer V 54,873,811.73 0.77
Total 446,628,557.89 6.28
5. Investment Income
(1) Breakdown of investment income
Incurred during Incurred during
Name of investee entity the current period the previous period
Gain from long-term equity investments accounted
for using the cost method 190,257,576.86 —
Gain from long-term equity investments
accounted for using the equity method 4,324,494.78 -9,531,720.12
Investment gain on disposal of long-term equity investments — —
Investment gains during the term of financial assets
held for trading — —
Investment gains during the
form of held-to maturity investments — —
Investment gains during the term of
available-for-sale financial assets — —
Investment gains from disposal of
financial assets held for trading — —
Investment gains from held-to maturity investments — —
Investment gains from available-for-sale financial assets — —
Gain from entrusted loans 55,115,309.26 45,939,318.53
Total 249,697,380.90 36,407,598.41
Note: There are no significant restrictions on remittance of investment gains back to the Company.1 43
XI. Notes of the major financial statements’ items of the parent company (continued)
5. Investment Income (continued)
(2) Gain from long-term equity investments accounted for using the cost method
Reason of change
from the
Incurred during the Incurred during the previous period to
Name of investee entity current period previous period the current period
Shandong Chenming Power Supply
Holdings Co., Ltd. 108,769,576.86 — Dividend allocated by subsidiaries
Wuhan Chenming Hanyang
Paper Holdings Co., Ltd. 81,488,000.00 — Dividend allocated by subsidiaries
Total 190,257,576.86 —1 44
XI. Notes of the major financial statements’ items of the parent company (continued)
6. Supplementary information on cash flow statements
Amounts Amounts
for the for the
Supplementary Information current period prior period
1. Reconciliation of net profits as cash
flows from operating activities:
Net profit 683,194,413.21 115,350,200.09
Add: Provision for impairment of assets 34,949,608.74 12,791,869.13
Depreciation of fixed assets, depreciation
of oil and gas assets, depreciation
of productive biological-assets 295,079,159.66 320,022,281.26
Amortisation of intangible assets 4,531,494.62 4,566,229.68
Long-term prepaid expenses — —
Loss from disposal of fixed assets, intangible assets
and other long-term assets (gain is shown as “-”) 1,806,497.52 -5,375,152.20
Loss from retired fixed assets (gain is shown as “-”) — —
Loss from change in fair
value (gain is shown as “-”) -3,870,000.00 5,200,000.00
Financial expenses (gain is shown as “-”) 113,757,817.65 165,654,403.61
Investment losses (gain is shown as “-”) -249,697,380.90 -36,407,598.14
Decrease in deferred income
tax assets (increase is shown as “-”) -3,347,759.23 3,248,018.27
Increase in deferred income tax
debt (decrease is shown as “-”) — —
Decrease in stock (gain is shown as “-”) -501,388,042.11 397,317,086.04
Decrease in operating receivables
(increase is shown as “-”) -393,745,054.78 -2,023,728,576.95
Increase in operating payables
(decrease is shown as “-”) -16,727,044.32 -13,489,171.55
Others — —
Net cash flows from operating activities -35,456,289.94 -1,054,850,410.76
2. Major investments and financing
activities not involving cash settlements:
Capital converted from debts — —
Convertible bonds of the Company due within one year — —
Finance leases of fixed assets — —
3. Net change in cash and cash equivalents:
Cash balance at the end of the period 1,030,160,237.05 2,118,667,220.53
Less: cash balance at the beginning of the period 1,586,045,998.83 2,080,005,634.40
Add: cash equivalents as at the end of the period — —
Less: cash equivalents as at the beginning of the period — —
Net increase in cash and cash equivalents -555,885,761.78 38,661,586.131 45
XI. Notes of the major financial statements’ items of the parent company (continued)
6. Supplementary information on cash flow statements (continued)
(2) The compositions of cash and cash equivalents
Items Closing balance Opening balance
1. Cash 1,030,160,237.05 1,586,045,998.83
Of which : Treasury cash 84,251.46 247,185.92
Bank deposits repayable on demand 929,773,485.59 1,585,798,812.91
Other monetary funds repayable on demand 100,302,500.00 —
Amounts deposited at the central bank
available for payment — —
Amounts deposited in banks — —
Due to banks — —
2. Cash equivalents — —
Of which : bond investments due within 3 months — —
3. Cash and cash equivalents at the end of period 1,030,160,237.05 1,586,045,998.831 46
XII. Supplementary information
1. Breakdown of extraordinary gains and losses for the current period
Item Amount Remarks
Profit or loss from disposal of non-current assets -1,431,101.96
Tax refund or exemption from unauthorised approval or
non-official approval document —
Government grants accounted for in profit and loss account of the
current period (except for government grants closely related to the
corporate business that were given under at a fixed standard
amount or quantity as stipulated by the State) 49,349,630.83
Fees for usage of funds received from non-financial enterprises
charged to profits and losses for the period —
Profit or loss arising from investment costs for acquisition of subsidiary,
associated corporation and joint-venture by the corporation
being less than its share of fair value of identifiable net assets
of the invested entity on acquisition —
Gains or losses from exchange of non-currency assets —
Gains or losses from discretionary investment or asset management —
Impairment provisions for assets due to force majeure
factors such as natural disasters —
Net gains and losses from debt restructuring -545,247.24
Corporate restructuring fees such as staff resettlement
expenses, consolidation charges, etc. —
Gains or losses arising from transactions at unfair
trading prices over their fair value —
Net gains or losses from the subsidiary formed by merging jointly
controlled enterprises from the beginning of the reporting period
to the date of merger attributable to the current period —
Gains or losses from contingency items unrelated
to the normal business operations of the Company —
Except for effective hedging business conducted over the course
of ordinary operation of the Company, profit or loss arising from
fair value change in financial assets held for trading and financial
liabilities held for trading, as well as investment gains from disposal
of financial assets held for trading and financial liabilities
held for trading and available-for-sale financial assets -3,130,000.00
Reversal of impairment provision on
receivables tested for impairment on individual basis —
Gains or losses from external entrusted loans —
Gains or losses from changes in fair value of investment properties
adopting fair value method for follow-up measurements —
Effect on gains and losses for the current period from one-off adjustment
to gains and losses for the period according to the requirements
of the tax and accounting laws and regulations —
Discretionary fee income received from discretionary operations —
Non-operating gains and losses other than the above items 4,267,086.28
Other gains and losses items conforming with the
definition of non-recurring gains or losses —
Sub-total 48,510,367.911 47
XII. Supplementary information (continued)
1. Breakdown of extraordinary gains and losses for the current period (continued)
Item Amount Remarks
Effect of income tax 6,374,879.69
Effect of minority interests (after tax) 5,771,228.14
Net extraordinary gains and losses attributable
to ordinary shareholders of the Company 36,364,260.08
Note: In respect the figures of extraordinary gains and losses, “+” refer to gains or incomes, “-” refer to losses or expenditures.
2. Differences in accounting data between domestic and overseas accounting standards
The differences between net profit and net assets as disclosed in the financial statements prepared in accordance with IFRS and China Accounting Standards
Net profit Net assets
Amount in Amount in Closing Opening
Items current period previous period balance balance
Per China Accounting
Standards 696,079,087.46 186,114,826.62 14,692,281,763.26 14,737,060,822.15
Special fund for treasury
bond received
and special accounts
payable 16,246,283.53 16,246,283.53 -296,209,395.30 -312,455,678.83
Capitalization of foreign
exchange gains
and losses on project loans 1,483,458.01 1,483,458.01 -15,408,142.81 -16,890,600.82
Per IFRS 713,808,829.00 203,844,568.16 14,380,664,225.15 14,407,714,542.50
The reason of such differences is as follows:
In years prior to 2006, according to the principles of the PRC Accounting Standards of Business Enterprises (ASBEs), the Group will receive special fund for treasury bond received and special accounts payable related to construction of relevant fixed assets which are included in capital reserve. However, according to IAS, the Group will account for special fund for treasury bond received and special accounts payable under deferred income and be amortised by installments over the useful lives of fixed assets.
The above differences were all incurred in years prior to 2006; the management believes such differences in accounting principles will gradually be eliminated in future years.1 48
XII. Supplementary information (continued)
3. Return on net assets and earnings per share
Weighted average return Earnings per share (RMB/share)
Profit during the reporting period on assets Basic Diluted
Net profit attributable to holders 4.57% 0.29 N/A
of ordinary shares of the Company
Net profit attributable to holders of 4.30% 0.28 N/A
ordinary shares of the Company,
after deducting extraordinary
gains and losses
4. Explanation on irregular movements in major items of the accounting statements of the Company
Range of Reason for
Items in balance sheet 2010.6.30 2009.12.31 change (%) the difference
Monetary funds 2,082,976,768.06 2,892,923,245.93 -28.00% (1)
Held-for-trading
financial assets 7,900,000.00 14,900,000.00 -46.98% (2)
Bills receivable 2,062,185,271.00 2,704,799,074.02 -23.76% (3)
Accounts receivable 1,809,491,956.21 1,528,991,497.69 18.35% (4)
Other receivables 101,213,190.67 81,210,643.94 24.63% (5)
Inventory 3,137,538,934.48 2,226,579,492.59 40.91% (6)
Other current assets 150,066,661.76 90,756,205.60 65.35% (7)
Construction in progress 3,229,907,083.26 1,997,961,262.18 61.66% (8)
Other non-current assets 581,641,690.16 496,724,974.94 17.10% (9)
Short-term borrowings 1,577,823,931.10 3,103,153,828.18 -49.15% (10)
Helf-for-trading
financial liabilities 2,580,000.00 6,450,000.00 -60.00% (11)
Bills payable 349,608,052.57 544,532,508.19 -35.80% (12)
Accounts payable 2,783,532,440.84 2,122,860,892.58 31.12% (13)
Advance receipts 167,353,774.37 233,123,691.11 -28.21% (14)
Staff remuneration payables 183,493,227.22 245,501,281.04 -25.26% (15)
Taxes payable 95,468,160.29 137,491,104.68 -30.56% (16)
Interest payable 50,104,333.32 5,050,000.00 892.17% (17)
Other payables 459,241,706.51 321,220,579.61 42.97% (18)
Non-current liabilities
due within one year 498,173,562.18 345,353,527.87 44.25% (19)
Deferred income tax liabilities 15,265,236.10 12,408,618.13 23.02% (20)
Other current liabilities 2,282,197,764.60 1,189,484,415.60 91.86% (21)1 49
XII. Supplementary information (continued)
4. Explanation on lrregular movements in major items of the accounting statements of the Company (continued)
Range of Reason for
Items in income statements 2010.6.30 2009.6.30 change (%) the differences
Operating revenue 8,176,641,676.99 6,675,366,559.73 22.49 (22)
Operating costs 6,396,400,180.14 5,629,255,046.18 13.63 (23)
Tax and and levies
on operations 10,397,727.74 7,109,033.53 46.26 (24)
Selling expenses 441,501,879.97 339,929,245.25 29.88 (25)
Administrative expenses 417,135,260.86 335,899,354.53 24.18 (26)
Finance expenses 125,739,655.86 176,847,315.84 -28.90 (27)
Losses from impairment
of assets 20,796,487.26 10,603,058.60 96.14 (28)
Investment gains 4,324,494.78 -9,531,720.12 145.37 (29)
Income tax expenses
Non-operating income 142,479,322.30 52,124,816.31 173.34 (30)
(1) Monetary funds decreased by 28% as compared with the beginning of the year, mainly due to repayment of a portion of borrowings by the Company.
(2) Held-for-trading financial assets decreased by 46.98% due to the future polling foreign exchange of Chenming (HK) Limited, a subsidiary of the Company.
(3) Bills receivable decreased by 23.76%, mainly due to the decrease in discounted bills not yet due of the Company.
(4) Accounts receivable increased by 18.35%, mainly due to the increase in revenue resulting from the increases in sales prices of the Company.
(5) Other receivable increased by 24.63%, mainly due to the increase in security deposits for equipment.
(6) Inventory increased by 40.91%, mainly due to the increase in inventory balance under the market condition.
(7) Other current assets increased by 65.35%, mainly due to the increase in the input tax of non-credited value-added tax.
(8) Construction in progress increased by 61.66%, mainly due to the increase in investments in construction projects during the current period.
(9) Other non-current assets increased by 17.1%, mainly due to purchase and growing of timber assets and change in their fair value.
(10) Short-term borrowings decreased by 49.15%, mainly due to the decrease in discounted bills not yet due of the Company and repayment of a portion of borrowings.
(11) Held-for-trading financial liabilities decreased by 60%, mainly due to the future polling foreign exchange of the Company.
(12) Bills payable decreased by 35.8%, mainly due to the effect of a decrease in the bills issued by the Company during the current period.
(13) Accounts payable increased by 31.12%, mainly due to the increase in accounts payable in respect of raw materials of the Company during the current period.1 50
XII. Supplementary information (continued)
4. Explanation on lrregular movements in major items of the accounting statements of the Company (continued)
(14) Advance receipts decreased by 28.21%, mainly because less customers adopted the prepayment method due to market changes, resulting in a decrease in our balance of advances from customers.
(15) Staff remuneration payables decreased by 25.26%, mainly due to the payment of prior year’s annual salary by the Company during the current period.
(16) Taxes payable decreased by 30.56%, mainly due to the decrease in value-added tax and income tax payables of the Company.
(17) Interest payable increased by 892.17%, mainly due to the appropriation of the interests of the medium-term notes by the Company.
(18) Other payables increased by 42.97%, mainly due to an increase in security deposits of the Company during the current period.
(19) Non-current liabilities due within one year increased by 44.25%, mainly because a portion of borrowings were transferred from long-term borrowings to borrowings due within one year during the current period.
(20) Deferred income tax liabilities increased by 23.02%, mainly due to provisions for deferred income tax liabilities on surplus of revaluation of timber assets.
(21) Other non-current liabilities increased by 91.86%, mainly due to the issuance of medium-term debentures during the period.
(22) Operating revenue increased by 22.49% as compared to the corresponding period of last year, mainly due to the substantial increase in sales prices as compared to the corresponding period of last year.
(23) Operating costs increased by 13.63% as compared to the corresponding period of last year, mainly due to the increase in sales costs of products as compared to the corresponding period of last year.
(24) Business taxes and surcharges increased by 46.26% as compared to the corresponding period of last year, mainly due to significant increase in value-added tax recorded in the current period as compared to the corresponding period of last year.
(25) Selling and distribution expenses increased by 29.88% as compared to the corresponding period of last year, mainly because of the higher transportation costs resulting from an increase in export revenue and transportation costs as compared to the corresponding period of last year.
(26) General and administrative expenses increased by 24.18% as compared to the corresponding period of last year, mainly due to the increase in the research and development costs as we put more efforts in research and development, and the increase in wages as compared to the corresponding period of last year.
(27) Finance expenses decreased by 28.9% as compared to the corresponding period of last year, mainly due to the adoption of active financing method by the Company such as issuance of medium-term notes and short-term debentures.
(28) Loss on impairment of assets increased by 96.14% as compared to the corresponding period of last year, mainly due to reversal of the allowance for inventories in 2008 during the corresponding period of last year.
(29) Investment income increased by 145.37% as compared to the corresponding period of last year, mainly due to the higher profits of associated corporations for the current period as compared to the corresponding period of last year.
(30) Income tax expenses increased by 173.34% as compared to the corresponding period of last year, mainly because gross profit margin and profits increased during the current period, resulting in an increase in the income tax expenses as compared to the corresponding period of last year.1 51
VIII. Documents Available for Inspection
I. Accounting statements signed and stamped with seal by the legal representative, financial controller and responsible personnel of the accounting institution;
II. copy of the Interim Report signed by the legal representative;
III. originals of corporate documents publicly disclosed in newspapers designated by CSRC during the reporting period and original copies of the relevant announcements;
IV. copy of the Interim Report filed with the Stock Exchange of Hong Kong Limited; and
V. other relevant information.
