Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take
no responsibility for the contents of this announcement, make no representation as to its accuracy or
completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from
or in reliance upon the whole or any part of the contents of this announcement.
Lanzhou Zhuangyuan Pasture Co., Ltd.*
(a joint stock limited liability company incorporated in the People’s Republic of China)
(Stock Code: 1533)
ANNOUNCEMENT OF UNAUDITED ANNUAL RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2019
FINANCIAL HIGHLIGHTS
Years ended 31 December
2019 2018
RMB’000 RMB’000
(unaudited)
Operating income 813,554 657,732
Gross profit 261,846 212,337
Profit for the year attributable to equity shareholders
of the Company 51,321 63,533
Earnings per share (RMB)(1) 0.27 0.34
Operating income increased by 23.69% as compared to the year ended 31 December 2018.
Gross profit increased by 23.32% as compared to the year ended 31 December 2018.
Profit for the year attributable to equity shareholders of the Company decreased by 19.22%
as compared to the year ended 31 December 2018.
(1)
The calculation of earnings per share is based on the profit attributable to ordinary equity shareholders of the
Company and the weighted average of ordinary shares in issue during the year.
–1–
For the reasons explained below under “Review of Unaudited Annual Results”, the auditing process
for the annual results of the Lanzhou Zhuangyuan Pasture Co., Ltd.* ( )
(the “Company”) has not been completed. In the meantime, the board (the “Board”) of directors
(the “Directors”) of the Company is pleased to announce the unaudited consolidated annual results
of the the Company and its subsidiaries (collectively, the “Group”) for the year ended 31 December
2019 (the “Reporting Year”) together with the comparative figures for the year ended 31 December
2018.
CONSOLIDATED BALANCE SHEET
31 December 1 January 31 December
2019 2019 2018
RMB’000 RMB’000 RMB’000
(unaudited)
Assets
Current assets:
Monetary funds 413,742 403,091 403,091
Trading financial assets 20,412
Bills receivable 200 200
Trade receivables 29,649 36,474 36,474
Prepayments 16,185 13,352 13,352
Other receivables 17,694 12,860 12,860
Inventories 94,832 88,921 88,921
Other current assets 17,595 2,732 2,732
Total current assets 610,110 557,630 557,630
Non-current assets:
Other equity instrument investments 44 44 44
Fixed assets 1,247,639 924,350 939,221
Construction in progress 59,188 37,670 37,670
Bearer biological assets 360,095 270,304 270,304
Right-of-use assets 43,437 53,238
Intangible assets 90,609 74,720 74,720
Goodwill 9,971 58,691 58,691
Long-term deferred expenses 7,138 5,832 8,122
Deferred income tax assets 6,644 7,437 7,437
Other non-current assets 57,852 94,270 94,270
Total non-current assets 1,882,617 1,526,557 1,490,480
Total assets 2,492,727 2,084,186 2,048,109
–2–
31 December 1 January 31 December
2019 2019 2018
RMB’000 RMB’000 RMB’000
(unaudited)
Liabilities and shareholders’ equity
Current liabilities:
Short-term borrowings 315,184 437,359 437,359
Bills payable 283,014 30,545 30,545
Accounts payable 228,221 164,947 164,947
Contract liabilities 16,470 26,619 26,619
Employee remuneration payable 2,621 3,137 3,137
Taxes payable 7,504 43,115 43,115
Other payables 50,725 41,232 41,232
Non-current liabilities due within one year 56,249 28,382 28,382
Total current liabilities 959,987 775,336 775,336
Non-current liabilities:
Long-term borrowings 227,327 39,568 39,568
Lease liabilities 30,946 38,078
Long-term payables 2,361
Estimated liabilities 515 371 11
Deferred income 39,518 40,129 40,129
Deferred income tax liabilities 9,027 6,298 6,298
Total non-current liabilities 307,332 124,443 88,366
Total liabilities 1,267,320 899,779 863,702
Shareholders’ equity:
Share capital 190,681 187,340 187,340
Capital reserve 531,119 508,791 508,791
Less: Treasury stocks 23,251
Surplus reserve 43,387 37,194 37,194
Undistributed profits 483,471 451,082 451,082
Total equity attributable to shareholders of the
parent company 1,225,407 1,184,407 1,184,407
Total Shareholders’ equity 1,225,407 1,184,407 1,184,407
Total liabilities and/or Shareholders’ equity 2,492,727 2,084,186 2,048,109
–3–
CONSOLIDATED INCOME STATEMENT
2019 2018
RMB’000 RMB’000
I. Operating income 813,554 657,732
II. Operating cost 551,709 445,395
Taxes and surcharges 6,267 5,009
Selling expenses 89,531 83,983
Administrative expenses 77,390 48,711
Research and development expenses 9,462 4,372
Financial expenses 22,201 21,201
Including: Interest expenses 20,996 24,136
Interest income 2,553 3,541
Add: Other income 7,372 13,437
Investment income (8,823) —
Gain on derecognition of financial assets
measured at amortized cost (8,823) —
Gains from changes in fair value 47,252 175
Impairment losses on credit (992) (205)
Impairment loss on assets (57,958) (436)
Gains from asset disposal (2) 2,637
III. Operating profit 43,843 64,670
Add: Non-operating income 24,828 3,059
Less: Non-operating expenses 3,693 2,545
IV. Total profit 64,979 65,185
Less: Income tax expenses 13,657 1,652
V. Net profit 51,321 63,533
–4–
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in RMB unless otherwise specifically indicated)
I. BASIS OF PREPARATION
The annual results set out in this announcement do not constitute the Group ’ s financial
statements for the year ended 31 December 2019 but are extracted from those financial
statements.
The financial statements of the Company have been prepared on the going concern basis.
II. SIGNIFICANT ACCOUNTING POLICIES OF THE COMPANY AND
ACCOUNTING ESTIMATES
1. Statement of compliance
These financial statements have been prepared in accordance with the requirements
of Accounting Standards for Business Enterprises issued by the Ministry of Finance
(“MOF”). These financial statements present truly and completely the consolidated
financial position and financial position of the Company as at 31 December 2019, and
the consolidated financial performance and financial performance and the consolidated
cash flows and cash flows for 2019.
These financial statements also comply with the disclosure requirements of “Regulation
on the Preparation of Information Disclosures by Companies Issuing Securities, No.
15: General Requirements for Financial Reports ” as revised by the China Securities
Regulatory Commission (“CSRC”) in 2019. These financial statements also comply
with the applicable requirements of the Companies Ordinance (Chapter 622 of the Laws
of Hong Kong) and the applicable disclosure provisions of the Rules Covering the
Listing of Securities on The Stock Exchange of Hong Kong Limited.
2. Significant accounting estimates and judgements
The preparation of the financial statements requires management of the Group to make
estimates and assumptions that affect the application of accounting policies and the
reported amounts of assets, liabilities, income and expenses. Actual results may differ
from these estimates. Judgment on key assumptions and uncertainties involved in
estimates are reviewed on an ongoing basis. Effects of changes in accounting estimates
are recognised in the period in which the estimate is revised and in any future periods
affected.
Except for accounting estimates relating to depreciation and amortisation of assets such
as fixed assets, intangible assets, right-of-use assets and long-term deferred expenses,
fair value estimates of biological assets and contingent consideration, impairment of
various types of assets and recognition of deferred income tax assets, there are no other
significant accounting estimates in the Company.
–5–
3 Changes in significant accounting policies
(1) Changes and impacts of accounting policies incurred in the application of
New Lease Standards
Changes in policies and its basis
The Ministry of Finance issued the Accounting Standards for Business
Enterprises No. 21 — Lease (Revised in 2018) (CK [2018] No. 35)
(hereinafter referred to as the “New Lease Standards”) on 7 December 2018,
and required the enterprises that are listed in both domestic and overseas
markets and the enterprises that are listed overseas and use International
Financial Reporting Standards or Accounting Standards for Business
Enterprises to prepare financial statements to implement such new standards
from 1 January 2019.
After the 24th meeting of the third session of the Board of the Company
passed the resolution on 15 August 2019, the Company adopted the above-
mentioned New Lease Standards from 1 January 2019 (hereinafter referred
to as the “First Application Date ” herein) as required by the Ministry of
Finance, and made changes to relevant accounting policies in accordance
with the requirements of New Lease Standards.
In accordance with the requirements of New Lease Standards, as for the
contracts which have been existed before the First Application Date, the
Company selects not to revaluate whether they are leases or include leases
on the First Application Date. As for the lease contracts of which the
Company acts as the lessee, the Company elects to only make adjustments
to the accumulative impact amount from the lease contracts which have
not been completed as of 1 January 2019. We have adjusted the amounts
of retained earnings and other relevant items of the financial statements at
the beginning of the first application period (i.e. 1 January 2019) for the
accumulative impact amount of the first application, and the information for
the comparative period has not been adjusted. The details are as follows:
A. As for the finance lease as at the First Application Date, the Company
measures the right-of-use assets and lease liabilities at the original
carrying amounts of the assets under finance lease and the finance
lease payable, respectively.
B. As for the operating lease as at the First Application Date, the
Company measures the lease liabilities at the present value discounted
at the incremental borrowing rate as at the First Application Date
based on the amount of the remaining lease payment. The unpaid
rents payable accrued based on the accrual system under the original
lease standards shall be included in the amount of the remaining lease
payment.
–6–
The Company measures the right-of-use assets at the amount equal to
the lease liabilities and makes necessary adjustments based on prepaid
rents.
C. As at the First Application Date, the Company made impairment
testing on the right-of-use assets and made corresponding accounting
treatments in accordance with the requirements of Accounting
Standards for Business Enterprises No. 8 — Assets Impairment.
The impacts of policy changes on the consolidation and financial statements
of the Company are as follows:
The lease term of the land assets and other land assets leased by the
Company from the villagers ’ committees where the pastures of Gansu,
Qinghai and Shaanxi are located is 5-30 years, which were originally
accounted as operating leases, and according to the New Lease Standards,
the right-of-use assets of RMB38,367,000 (including the prepaid rents
of RMB2,290,000 and the reclamation fee of RMB360,000) and lease
liabilities of RMB35,717,000 were recognized on 1 January 2019.
The lease term of the machinery and equipment assets of other companies
leased by the Company is 3-5 years, which were originally accounted as
financial leases, and according to the New Lease Standards, RMB14,871,000
originally presented in the fixed assets was reclassified to the right-of-use
assets and the “financing lease payables” of RMB2,361,000 presented in
the long-term payables was reclassified to the lease liabilities on 1 January
2019.
A Consolidated Balance Sheet:
Amounts as at Amounts as at
Contents of the Items in the 1 January 2019 31 December 2018
changes statement (after the changes) (before the changes)
RMB’000 RMB’000
Fixed assets Fixed assets 924,350 939,221
Right-of-use assets Right-of-use assets 53,238 —
Long-term deferred Long-term deferred
expenses expenses 5,832 8,122
Lease liabilities Lease liabilities 38,078 —
Long-term payables Long-term payables — 2,361
Estimated liabilities Estimated liabilities 371 11
–7–
B Balance Sheet of the Parent Company:
Amounts as at 1 Amounts as at 31
Contents of the Items in the January 2019 (after December 2018
changes statement the changes) (before the changes)
RMB’000 RMB’000
Fixed assets Fixed assets 199,544 205,199
Right-of-use assets Right-of-use assets 11,058 —
Lease liabilities Lease liabilities 5,402 —
C The impacts on the consolidated profit statement and the profit
statement of the Company for the Year 2019 are as follows:
Impacts on Impacts
consolidated on profit
profit statement of
Items of profit statement statement the Company
RMB’000 RMB’000
Operating cost (283) (9)
Finance expense 795 117
Total 512 108
The present value discounted at 4.35%, 4.90%, 6.09% (the incremental
borrowing rate as at the First Application Date) of the outstanding
amount of minimum lease payment of the major operating lease of the
Company at the end of 2018 amounts to RMB35,717,000 and the sum
of the discounted amount and the long-term payables (finance lease) of
RMB2,361,000 amounts to RMB38,078,000. And its difference from
the lease liabilities as at the First Application Date is RMB0.
–8–
(2) Changes in accounting policies arising from and impact of adopting
the Circular on the Amendment to the Formats of Corporate Financial
Statements for the Year of 2019 (Cai Kuai [2019] No. 06) issued by the
Ministry of Finance
Changes in accounting policies and its basis
The Ministry of Finance issued the Circular on the Amendment to the
Formats of Corporate Financial Statements for the Year of 2019 (Cai Kuai
[2019] No. 06) on 30 April 2019:
A The portion of “Deferred income” with an amortisation period of one
year or less or expected to be amortised within a period of one year
(inclusive) shall not be classified as current liabilities, which should
still be included in this item instead of being categorized as “ non-
current liabilities due within one year”;
B In the balance sheet, the previous “ Bills receivable and trade
receivables”shall be segregated into “Bills receivable” and “Trade
receivables”; and the previous “Bills payable and trade payables” was
segregated into “Bills payable” and “Trade payables”;
C The reporting contents of the “other payables”, should be reported
according to the closing balance of “interest payable”and “dividends
payable” and “other payables”, of which the “interest payable”only
reflects the interests for relevant financial instruments which are due
and payable but are not paid on the balance sheet date. The interest
of financial instruments calculated based on the effective interest rate
method should be included in the carrying amounts of corresponding
financial instruments.
D In the income statement, “Less: Asset impairment loss” is adjusted to
“Add: Asset impairment loss (loss presented as “-”); and “Less: Credit
impairment loss” is adjusted to “Add: Credit impairment loss (loss
presented as “-”), and both of which are the items after “Gains from
fair value change”.
According to the requirements above, the Company will make adjustmet to
the relevant data.
–9–
The impact of implementing the new statements format due to policy
changes on the consolidated and corporate statements is as follows:
A Consolidated balance sheet:
Amounts as at 31 Amounts as at 31
December 2018 December 2018
Contents of the changes Items in the statement (after the change) (before the change)
RMB’000 RMB’000
Deferred income due within one Non-current liabilities due within
year one year 28,382 33,752
Deferred income Deferred income 40,129 34,759
Bills receivable and accounts Bills receivable and accounts
receivable receivable — 36,674
Including: Bills receivable Including: Bills receivable — 200
Accounts receivable Accounts receivable — 36,474
Bills receivable Bills receivable 200 —
Accounts receivable Accounts receivable 36,474 —
Bills payable and accounts Bills payable and accounts
payable payable — 195,492
Bills payable Bills payable 30,545 —
Accounts payable Accounts payable 164,947 —
Other payables Other payables 41,232 41,599
Including: Interests payable Including: Interests payable — 368
Short-term Short-term
borrowings borrowings 437,359 437,000
Long-term Long-term
borrowings borrowings 39,568 39,559
B Balance sheet of the parent company:
Amounts as at 31 Amounts as at 31
December 2018 December 2018
Contents of the changes Items in the statement (after the change) (before the change)
RMB’000 RMB’000
Deferred income due within one Non-current liabilities due within
year one year 3,782 5,308
Deferred income Deferred income 14,787 13,260
Bills receivable and accounts Bills receivable and accounts
receivable receivable — 23,421
Including: Bills receivable Including: Bills receivable — 200
Accounts receivable Accounts receivable — 23,221
Bills receivable Bills receivable 200 —
Accounts receivable Accounts receivable 23,221 —
Bills payable and accounts Bills payable and accounts
payable payable — 76,861
Bills payable Bills payable 27,600 —
Accounts payable Accounts payable 49,261 —
Other payables Other payables 57,188 57,547
Including: Interests payable Including: Interests payable — 359
Short-term borrowings Short-term borrowings 420,359 420,000
– 10 –
3. NOTES TO THE ITEMS OF CONSOLIDATED FINANCIAL STATEMENTS
1. Accounts receivable
(1) The analysis on accounts receivable classified by type of customers is as follows:
31 December 31 December
2019 2018
Type RMB’000 RMB’000
Accounts receivable from affiliates
Accounts receivable from non-affiliated companies 30,527 37,287
Sub-total 30,527 37,287
Less: Provision for bad debts (878) (813)
Total 29,649 36,474
(2) The analysis on accounts receivable by ageing is as follows:
31 December 31 December
Ageing 2019 2018
RMB’000 RMB’000
Within 1 year 29,261 36,031
Including 0-6 months 29,261 35,939
7-12 months — 93
Over 1 year but within 2 years 237 493
Over 2 years but within 3 years 397 106
Over 3 years 632 555
Sub-total 30,527 37,287
Less: Provision for bad debts (878) (813)
Total 29,649 36,474
Aging is calculated from the date of confirmation of accounts receivables.
– 11 –
(3) Provision for bad debts made, recovered or reversed during this year:
At 31 At 31
December December
2019 2018
RMB’000 RMB’000
Balance at the beginning of the year 813 98
Provision made during this year 210 715
Provision recovered or reversed during this year (44) —
Written off during this year (101) —
Balance at the end of the year 878 813
2 Bearer biological assets
(1) Nature of the Group’s agricultural activities
Bearer biological assets of the Group are dairy cows held to produce raw milk.
The Group’s dairy cows are milkable cows held for milk production and heifers
and calves that have not reached the age to produce raw milk.
The number of cows owned by the Group as at 31 December is as follows:
2019 2018
Heads Heads
Calves 1,380 2,069
Heifers 6,472 2,839
Milkable cows 5,560 5,196
Total 13,412 10,104
In general, the heifers are inseminated when they reach approximately 14 months
old. After a gestation period of approximately 10 months, a calf is born and the
heifers begin to produce raw milk and the lactation periods begin. The heifers,
at this time, will be transferred to the group of milkable cows. A milkable cow is
typically milked for approximately 300 days in each lactation period. The male
calves newly born are sold while the female calves are bred for 6 months and then
transferred to the group of heifers for preparation of insemination.
– 12 –
(2) Value of the Group’s bearer biological assets
Milkable
Calves Heifers cows Total
RMB’000 RMB’000 RMB’000 RMB’000
Closing balance of 2019 15,712 155,117 189,266 360,095
3 Accounts payable
(1) The analysis on accounts payable by ageing is as follows:
31 December 31 December
2019 2018
RMB’000 RMB’000
Within 1 year (inclusive) 213,499 158,659
Over 1 year but within 2 years (inclusive) 12,618 3,149
2-3 years (inclusive) 1,106 2,589
Over 3 years 997 551
Total 228,221 164,947
4 Operating income and costs
2019 2018
Item Income Costs Income Costs
RMB’000 RMB’000 RMB’000 RMB’000
Principal business 792,315 539,143 631,744 428,573
Other business 21,240 12,566 25,988 16,822
Total 813,554 551,709 657,732 445,395
– 13 –
5 Selling expenses
2019 2018
RMB’000 RMB’000
Staff cost 19,160 16,954
Freight and miscellaneous charges 31,305 23,936
Low cost and short-lived consumable items 11,875 10,963
Travel expenses 2,646 3,135
Promotional fees 12,734 6,746
Rents and property management fees 597 2,622
Depreciation and amortization 2,843 2,371
Others 8,372 17,256
Total 89,531 83,983
6 Administrative expenses
2019 2018
RMB’000 RMB’000
Staff cost 24,575 14,727
Maintenance fees 11,162 11,187
Professional service fees 7,678 6,839
Travel expenses 2,019 2,155
Depreciation and amortization 9,267 4,866
Administrative expenses 4,683 3,391
Afforestation and sewage fees 3,941 1,439
Business entertainment expenses 732 519
Utilities expenses 2,459 1,711
Inspection fee 1,375 204
Premium for property insurance 1,477 61
Freight and miscellaneous charges 1,258 1,097
Share-based incentive expenses 2,418 0
Others 4,347 515
Total 77,390 48,711
– 14 –
7 Financial expenses
Item 2019 2018
RMB’000 RMB’000
Interest expenses from loans and payables 30,738 23,556
Including: interest expenses 32,738 24,136
Interest subsidies for policy-related
preferential loans (2,000) (581)
Less: capitalized interest expenses 9,742 —
Interest income from deposits 2,553 (3,541)
Net exchange losses/(gains) 57 (264)
Others 3,702 1,450
Total 22,201 21,201
8 Other income
Amount
included in
non-recurring
profit or loss
2019 2018 for 2019
RMB’000 RMB’000 RMB’000
Amortization of deferred income 4,210 7,168 4,210
Government grants received during
the year 3,162 6,269 3,162
Total 7,372 13,437 7,372
– 15 –
9 Gains from changes in fair value
Source of gains from changes in fair value 2019 2018
RMB’000 RMB’000
1. Bearer biological assets 26,840 175
Including: gains in fair value less costs
to disposal of bearer biological assets 10,721 (9,037)
Gain arising on initial recognition of agricultural
produce at fair value less costs to sell at the point
of harvest 16,119 9,212
2. Trading financial assets 20,412 —
Including: profits and losses arising from
the changes in fair value due to contingent
considerations 20,412 —
Total 47,252 175
10 Government grants
(1) General information of governmental grants
Amount
included
in profit or loss
of the period
2019 Presented item in 2019
RMB’000 RMB’000
Dairy farming project 200 Deferred income 18
I&I specific integration fund
subsidies 400 Deferred income 23
Special funds for provincial
industrial transformation and
upgrading & information industry
development 3,000 Deferred income 25
Food to feed conversion subsidies 1,889 Other income 1,889
Discount for civil trade and products
loans 2,000 Financial expenses 2,000
Cooperation fees of Xining Animal
Disease Prevention and Control Non-operating
Center 112 income 112
Emergency cash from Xi’an Industry Non-operating
and Commerce Association 400 income 400
Others 1,273 Other income 1,273
Total 9,274 5,740
– 16 –
(2) projects involving government grants in deferred income
Amount
included in
Increase profit or Related to
31 December of grants for loss for Other 31 December assets/
2018 the period the period changes 2019 revenue
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Dairy farming project 22,819 200 1,087 — 21,932 Related to assets
Diary product production project 6,876 1,671 — 5,205 Related to assets
Biogas products 4,574 447 — 4,127 Related to assets
Others 5,860 3,400 1,005 — 8,254 Related to assets
Total 40,129 3,600 4,210 — 39,518
11 Income tax expense
2019 2018
RMB’000 RMB’000
Income tax expenses for the current period calculated
based on tax law and relevant regulations 10,312 (872)
Deferred income tax expenses 3,346 2,523
Total 13,657 1,652
12 Basic earnings per share
(1) Basic earnings per share is calculated by dividing the net profit attributable to the
shareholders of the Company by the weighted average number of ordinary shares
outstanding:
2019 2018
RMB’000 RMB’000
Net profit attributable to the Company's ordinary
shareholders 51,321 63,533
Weighted average number of ordinary shares in
issue by the Company 188,509 187,340
Basic earnings per share (RMB per share) 0.27 0.34
– 17 –
(2) Calculation of weighted average number of ordinary shares is as follows
Note 2019 2018
RMB’000 RMB’000
Numbers of ordinary shares in
issue at beginning of year 187,340 187,340
The Group
granted
Restricted Shares
to 84 share
incentive targets
Effect of new shares issued in 2019 2,338
Weighted average number of
ordinary shares at end of year 188,509 187,340
13 Segment reporting
Considering the framework of internal organisation, requirements of management and
the system of internal reporting, the Group has presented two reportable segments,
which are Dairy Farming and Dairy Products Production. Each reportable segment is
a separate business unit which offers different products and services, and is managed
separately because they require different technology and market strategies. The financial
statements of the different segments is regularly reviewed by the Group’s management
to make decisions about resources to be allocated to each segment and assess its
performance.
Segment Principal activities of segments
Dairy farming Breeding dairy cows to produce and sell raw milk
Dairy products production Producing and selling Pasteurised Milk, Ultra High
Temperature Milk, Modified Milk, Yogurt and Other
Dairy Products
(1) Segment results, assets and liabilities of reportable segments
For the purposes of assessing segment performance and allocating resources
between segments, the Group ’ s management regularly reviews the assets,
liabilities, revenue, expenses and financial performance, attributable to each
reportable segment on the following bases:
Segment assets include all tangible, intangible, other non-current and current
assets, such as receivable, with the exception of deferred tax assets and other
unallocated corporate assets (if any). Segment liabilities include current and non-
current liabilities, such as payables, bank borrowings, attributable to the individual
segments, but exclude deferred tax liabilities (if any).
– 18 –
Financial performance is operating income (including operating income from
external customers and inter-segment operating income) after deducting
operating costs, taxes and surcharges, selling and distribution expenses, general
and administrative expenses, financial expenses and non-operating income and
expenses attributable to the individual segments but exclude unallocated corporate
expenses (if any). Transfer pricing of income among reportable segments is in
accordance with the similar terms of transaction with external parties.
Information regarding the Group ’ s reportable segments set out below is the
measure of segment profit or loss and segment assets and liabilities reviewed by
the chief operating decision maker or is otherwise regularly provided to the chief
operating decision maker, even if not included in the measure of segment profit or
loss and segment assets and liabilities:
Dairy Products Production
Dairy farming Segment Segment Elimination among Segments Total
2019 2018 2019 2018 2019 2018 2019 2018
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Operating income from
external customers 40,936 21,997 772,619 635,735 — — 813,554 657,732
Inter-segment operating
income 216,971 143,147 — 9,289 (216,971) (152,435) — —
Depreciation and
amortization 24,501 15,029 52,542 27,848 — — 77,043 42,877
Interests income 187 477 2,366 3,064 — — 2,553 3,541
Interests expense 3,158 121 17,838 23,435 — — 20,996 23,556
Total amount of profit/
(losses) (10,452) 26,125 75,430 39,059 — — 64,979 65,185
Income tax expense — — 13,657 1,652 — — 13,657 1,652
Net profit/(losses) (10,452) 26,125 61,773 37,408 — — 51,321 63,533
Total assets 970,763 732,379 2,189,997 1,866,161 (668,033) (550,431) 2,492,727 2,048,109
Total liabilities 775,821 757,550 1,159,532 656,584 (668,033) (550,431) 1,267,320 863,702
Additions on non-current
assets 57,489 324,822 334,649 234,031 — — 392,138 558,853
– 19 –
MANAGEMENT DISCUSSION AND ANALYSIS
Industry Review
Vigorously developing animal husbandry, adjusting the structure of animal husbandry, focusing
on the development of dairy products, actively promoting the industrialization of dairy industry,
and increasing the proportion of milk in the national diet are the general ideas and guidance for
agricultural development in China during the 13th Five-Year Plan and beyond. Since 2017, the
General Office of the State Council, the Ministry of Agriculture, the National Development and
Reform Commission and other departments have promulgated and issued the National Dairy
Industry Development Plan (2016-2020), the National Nutrition Plan (2017-2030), the Opinions on
Revitalizing Diary Industry and Ensuring Diary Product Quality and Safety, the Several Opinions on
Further Promoting the Revitalization of Dairy Industry, Several Opinions of the Central Committee
of the Communist Party of China and the State Council on Adhering to the Priority of Agriculture
and Rural Development and Accomplishing Works on Agriculture, Countryside and Farmers (Central
Document No. 1 in 2019). These documents define the status of the dairy industry in the national
economy and the direction and goals for future development of dairy products.
In recent years, the domestic economy has shown a stable and good development trend. Per capita
disposable income of residents across the country has grown faster than GDP, and the contribution
of consumer spending to economic growth has increased year by year. Due to rising income among
urban and rural residents, the current low consumption of dairy products per capita in China, the
acceleration of urbanization and the milk drinking plan for students, and the implementation of
universal two-child policy, the dairy market in China will continue to grow steadily in the future.
In addition, the rapid development of convenience stores, e-commerce platforms, and mother and
baby stores has fueled the growth of dairy market both online and offline. With improving living
standards and accelerating food consumption upgrade, combined with the implementation of
national strategies such as “Healthy China” and “Village Revitalization”, the scale of domestic dairy
consumption will continue to expand in the future with a steady growth of the industry.
Business Review
We are one of the leading dairy companies in Gansu, Qinghai and Shaanxi where our operations
and sales are primarily located and we operate a vertically integrated business model. Our vertically
integrated business model covers the critical stages of the dairy industry value chain, from dairy
farming, to manufacturing, and then to marketing and sales of dairy products. Our dairy farming
operations aim to ensure stable supply of high quality raw milk for our dairy product manufacturing.
We owned and operated five dairy farms and collectively operated two dairy farms through
cooperation with local dairy farmers as at 31 December 2019. Our strategy is to expand the herd
size of dairy cows in our self-operated dairy farms and existing collectively-operated dairy farms so
as to maintain approximately 64% of our raw milk requirement that could be sourced internally in
the near future, which will enable us to achieve balanced, complementary yet diverse sources of raw
milk supply to satisfy our dairy product manufacturing need. We believe our vertically integrated
business model allows stringent control over each important process of dairy production and thereby
guarantees the high quality and safety of our dairy products.
– 20 –
We offer a broad range of dairy products tailored to the needs and taste preferences of different
consumer groups. Our principal products sold to retail consumers, mainly through distributors and
sales agents, include (i) liquid milk products, which comprise pasteurised milk (i.e. fresh milk),
UHT milk, modified milk and yogurt; and (ii) milk beverages. We place strong emphasis on our
product development to continuously develop new products that meet the evolving tastes and
preference of our consumers, which enables us to maintain our leading position in the region.
We are a major player in the sales of “Cold Chain Liquid Milk Products” (i.e. liquid milk product(s)
that has a short shelf life between 3 days to 21 days and need to be stored at low temperature of
2°C – 6°C, which include pasteurised milk and yogurt products) in the Gansu, Qinghai and Shaanxi
regional market. We believe that we are well positioned to compete in the Cold Chain Liquid Milk
Product market in Gansu, Qinghai and Shaanxi due to our close proximity to the local market and
our established local distribution network. We plan to continue to expand our cold chain production
capacity and distribution network to increase the sales of Cold Chain Liquid Milk Products in the
Gansu, Qinghai and Shaanxi regional market and then further expand into other provinces in the
northwestern China market.
While focusing on the Cold Chain Liquid Milk Product market, we also leveraged on our strong
brand recognition in the regional market to continue to strengthen the sales of our popular UHT
milk products, thereby maintaining our diversified product offerings. Going forward, we intend
to continue our efforts in the sales of our UHT milk products and modified milk products that are
popular among local customers to maintain our diversified product offerings.
Key Financial Ratios
The table below sets out our key financial ratios as at the dates indicated:
2019 2018
Current ratio(1) 0.64 0.72
Quick ratio(2) 0.54 0.60
Return on equity(3) 4.26% 5.50%
Return on assets(4) 2.24% 3.30%
Gearing ratio(5) 50.84% 42.17%
Notes:
(1) Current assets/current liabilities.
(2) (Current assets — inventory)/current liabilities.
(3) Net profit for the year/(total equity attributable to equity shareholders of the Company as at the beginning of the
year + total equity attributable to equity shareholders of the Company as at the end of the year)/2 x 100%.
(4) Net profit for the year/(total assets as at the beginning of the year + total assets as at the end of the year)/2 x
100%.
(5) Total liabilities/total assets.
– 21 –
Biological Assets
During the Reporting Year, our biological assets comprised dairy cows. Dairy cows are further
categorised into calves, heifers and milkable cows. The following table sets out the value of our
biological assets as at 31 December of 2019 and 2018:
At 31 December
2019 2018
RMB’000 RMB’000
Dairy cows
Milkable cows 189,266 180,621
Heifers 155,117 68,662
Calves 15,712 21,021
Total 360,095 270,304
The numbers of dairy cows in our self-owned dairy farms are summarised as follows:
2019 2018
(Heads) (Heads)
Dairy cows
Milkable cows 5,560 5,196
Heifers 6,472 2,839
Calves 1,380 2,069
Total 13,412 10,104
Diary Farming
Milk Production
Our raw milk production was approximately 49,675 tons (2018: approximately 27,927 tons), an
increase of approximately 77.87% year-on-year, mainly due to the increase in the number of adult
cows.
During the Reporting Year, the average annual milk production per adult cow decreased from 5.6 to
10.9 tons in 2018 to 5.04 to 10.21 tons in 2019, which was basically the same as the previous year.
– 22 –
Dairy Products Production
In 2019, the domestic market of dairy products, especially liquid dairy products, was highly
competitive. With household income on the rise, dairy companies began to focus on developing
their marketing channels. Consumption upgrades led to demand for diversified and high-end dairy
products and prompted diary companies to focus on milk source development. Dairy companies
have entered a period of competition in the entire industry chain of milk sources, products and
channels. In view of the vast market for dairy products and increasing income levels, a balanced
development of the entire industry chain will lead the dairy industry into a new round of rapid
growth.
Development of milk source
We started the “Recycling Industrial Park Project of a Dairy Farm for 10,000 Dairy Cows
in Jinchuan District ” during the Reporting Period. This project is conducive to further
strengthening quality control from the source, ensuring the Company's product quality from
the source, and realizing the Company's long-term sustainable development.
Development of production base
In order to meet the growing demand for product diversification in the dairy consumer market,
by leveraging on the improvement of advanced dairy production processes, such as filling
technology, we implemented the “reconstruction and expansion project with daily processing
600 tons of liquid milk” in and around the original factory area of Sanjiaocheng Village,
Sanjiaocheng, Yuzhong County, Lanzhou. The project reached the expected usable status
during the Reporting Period. Upon completion, the production base is beneficial to optimizing
production process and enriching product structure, which will help further consolidate and
expand the market share of our products.
Development of distribution channels
After 20 years of development, the Company has established a stable distribution network.
The effectiveness and geographical coverage of the distribution network and sales team
directly affect our sales. We have established a distribution network consisting of various sales
channels, covering most markets in Gansu, Shaanxi and Qinghai.
As of 31 December 2019, we had entered into cooperation agreements with 765 re-sellers
and distributors (2018: 1,039). During the Reporting Period, we integrated and optimized
our distribution network and are committed to improving the effectiveness of our regional
distribution network and sales team.
– 23 –
Quality Control
Product safety management and quality control are our core values and of paramount importance to
our business. We implement stringent quality control and production safety management measures
throughout our production process from the procurement of feeds, dairy farming, raw milk sourcing
and processing to production, packaging, storage and delivery of our products.
Our quality control system is designed based on the Good Manufacturing Practices (GMPs), the
Hazard Analysis and Critical Control Points (HACCPs) and the Sanitation Standard Operating
Procedures (SSOPs).
GMPs are the foundation for our milk safety and milk quality programme. GMPs are implemented
in four main areas of our dairy processing, specifying control measures in respect of (i) personnel
hygiene; (ii) building and facilities; (iii) equipment and utensils; and (iv) production and process
control.
In addition, we have also applied the principles of HACCP in the management of our milk
safety. Our HACCP plan focuses on areas where problems potentially may occur and requires
that production facilities be prepared to deal with problems immediately if they occur. Under
our HACCP plan, we conducted a hazard analysis in order to identify any hazardous biological,
chemical or physical properties in raw materials and processing steps. Based on the analysis, we
identified the critical control points and established monitoring procedures and use the monitoring
results to streamline processes on a continuous basis. As a testament of our efforts in complying
with HACCP, our production plants in Gansu and Qinghai received the HACCP Certification issued
by the China Quality Certification Centre and Beijing Continental Hengtong Certification Co. Ltd.,
respectively.
Furthermore, we have also implemented the SSOPs specifying step-by-step procedures needed for
processes related to sanitation. Following the SSOPs, we focus on key sanitation conditions and
requirements, such as the safety of water that comes into contact with dairy products, condition
and cleanliness of contact surfaces, prevention of cross-contamination from insanitary objects to
dairy product, protection of dairy products and packaging materials, labelling, storage, and use of
cleaning solutions and pesticides, control of employee health conditions, and exclusion of pests
from the production plant.
– 24 –
Our quality control system is divided into six stages: (i) control over the quality of feeds; (ii) control
over the quality of dairy cows; (iii) control over sourcing and processing of raw milk; (iv) control
over raw materials and suppliers; (v) control over production process; and (vi) control over storage
and delivery of finished products.
Brand Building
The liquid milk product industry in China, including Gansu, Qinghai and Shaanxi, our major
markets, is highly concentrated. The competitive landscape of the dairy product industry in China
can be split into three categories: (1) national brands; (2) regional brands; and (3) foreign brands. As
a regional brand, we are located near to the market with shorter transportation time that guarantees
better freshness. Our products are also more tailored to the taste and spending habits of end
consumers. Compared with our competitors, we benefited from a stable supply of raw milk from
our suppliers with whom we have developed good relationship over the years.
We believe the demand for premium Cold Chain Liquid Milk Products will continue to rise along
with the increased awareness of the importance of nutritional products to the health and well-being
of consumers. To capture the increasing demand for Cold Chain Liquid Milk Products, we plan to
continue to expand our cold chain distribution network in Gansu, Qinghai and Shaanxi and further
in northwestern China. We believe that one of the key factors to a successful cold chain distribution
network is the strategic location of cold warehouses outside of our production plants as it allows
our products to reach local markets within 300 kilometers radius of our cold warehouses and also
allows us to have better control over the quality of the Cold Chain Liquid Milk Products during the
distribution process.
We also seek to expand our third party distributors to deepen our regional sales and distribution
network and solidify our established position in Gansu, Qinghai and Shaanxi, our primary markets.
We will also continue to develop the e-commerce sales channels and satisfy the demands and
preferences of different consumer groups through the internet direct sales portal to reach a wider
customer base and to adapt to consumers’ purchase preference.
– 25 –
Financial Overview
Operating Income
Principal Activities
The following table sets out the breakdown of sales amount, sales volume and average selling price
by product types for the years ended 31 December 2019 and 2018:
2019 2018
Sales Sales Average Sales Sales Average
Amount Volume Selling Price Amount Volume Selling Price
RMB’000 Tonne RMB/Tonne RMB’000 Tonne RMB/Tonne
Liquid Milk Products
Pasteurised Milk 49,609 6,136 8,085 27,459 3,922 7,001
Yogurt 193,179 28,368 6,810 229,944 32,052 7,174
UHT Milk 279,751 30,399 9,203 170,149 19,488 8,731
Modified Milk 255,975 22,416 11,419 199,739 16,551 12,068
Subtotal 778,514 87,319 8,916 627,291 72,013 8,711
Milk Beverage 10,114 2,051 4,932 1,347 410 3,285
Other Dairy Products 3,687 158 23,309 3,106 137 22,672
Total 792,315 89,528 8,850 631,744 72,560 8,707
Our income from principal activities increased by 25.42% from RMB631.7 million for the year
ended 31 December 2018 to RMB792.3 million for the year ended 31 December 2019, mainly due
to the contribution of Xi’an Dongfang Dairy acquired by the Group.
– 26 –
Gross profit and gross profit margin
The following table sets forth the breakdown of our cost of sales and gross profit by our product
types, as well as their respective gross profit margin after biological asset fair value adjustments, for
the years indicated:
2019 2018
Gross profit Gross profit
Cost of sales Gross profit margin Cost of sales Gross profit margin
RMB’000 RMB’000 % RMB’000 RMB’000 %
Liquid milk products
Pasteurized milk 29,057 20,551 41.43% 17,536 9,923 36.14%
Sterilized milk 155,188 37,991 19.67% 170,949 58,995 25.66%
Modified milk 176,771 102,979 36.81% 106,383 63,766 37.48%
Fermented milk 167,603 88,373 34.52% 130,727 69,012 34.55%
Sub-total 528,619 249,895 32.10% 425,595 201,696 32.15%
Milk beverage 7,411 2,703 26.72% 1,096 251 18.63%
Other diary products 3,112 575 15.58% 1,882 1,224 39.41%
Total 539,143 253,172 31.95% 428,573 203,171 32.16%
.
– 27 –
Operating expenses
2019 2018
RMB’000 RMB’000
Selling expenses 89,531 83,983
Administration expenses 77,390 48,711
Total operating expenses 166,921 132,694
Operating expenses increased from RMB132.7 million for the year ended 31 December 2018 to
RMB166.9 million for the year ended 31 December 2019. This was mainly because we invested
more in promotion and branding in order to further strengthen our sales channels and product sales
during the Reporting Year. The acquisition of Xi’an Dongfang Dairy Co., Ltd. also contributed to
the increase in selling expenses as compared with the previous period.
The increase in administration expenses was mainly due to the acquisition of Xi’an Dongfang Dairy
Co., Ltd.
Financial expenses
Our net finance costs increased by 4.72% from RMB21.2 million for the year ended 31 December
2018 to RMB22.2 million for the year ended 31 December 2019, primarily because of the increase
in long-term loans.
Current ratio
As at 31 December 2019, our current ratio (current assets/current liabilities) was approximately 0.64
compared to 0.72 as at 31 December 2018.
Indebtedness
During the Reporting Year, our borrowings were denominated in RMB. As at 31 December 2019,
our outstanding short-term bank loans, including long-term loans due within one year, amounted
to RMB366 million at interest rates ranging from 4.35% to 6.09% per annum. As at 31 December
2019, our outstanding long-term bank loans, net of amount due within one year, amounted to
RMB227.3 million at interest rates ranging from 4.75% to 5.7% per annum.
The management believes that the existing financing resources will be sufficient to meet current
operations, current and future expansion plans and, if necessary, we will be able to obtain additional
financing with favorable terms. There is no material effect of seasonality on our borrowing
requirements.
– 28 –
Asset-liability ratio
As at 31 December 2019, our asset-liability ratio was 50.84% (the ratio of total liability to asset)
compared to 42.17% as at 31 December 2018.
Foreign exchange risk
The Group operates in the PRC with most of its transactions denominated and settled in RMB. The
Group’s assets and liabilities, and transactions arising from its operations do not expose the Group
to material foreign exchange risk as the Group’s assets and liabilities as at 31 December 2018 were
denominated in the respective Group companies’ functional currencies.
For the year ended 31 December 2019, we were not subject to significant exposure to interest rate
risk. Hence, no financial instrument for hedging was employed. The management will continue to
monitor foreign currency risk and adopt prudent measures as and when appropriate.
Asset impairment
(1) Goodwill from the acquisition of 82% equity in Xi’an Dongfang Diary Co., Ltd
The Company convened the sixth meeting of the third session of the Board of Directors on 26
July 2018 to consider and approve the Resolution on the Acquisition of Equity in Subsidiary
Xi’an Dongfang Dairy Co., Ltd., in relation to acquiring a total of 82% equity in Xi’an Dongfang
Dairy Co., Ltd. (hereinafter referred to as “Dongfang Dairy”) with RMB249,000,000 in cash. The
Company convened the second Extraordinary General Meeting and class shareholders' meeting of
2018 on 26 September 2018 to consider and approve the Resolution on the Acquisition of Equity
in Subsidiary Xi’an Dongfang Dairy Co., Ltd. Dongfang Dairy completed the change to industrial
and commercial registration on 1 November 2018, and obtained the Business License issued by the
Xi’an Administration for Industry and Commerce. Following the change, the Company became the
sole shareholder of Dongfang Dairy and owns 100% of Dongfang Dairy. The acquisition resulted in
goodwill of RMB58,691,000.
The Company made a provision for goodwill impairment amounting to RMB48,719,000 for
the goodwill resulting from the acquisition of 82% equity in Xi’ an Dongfang Dairy Co., Ltd.,
which was included in the Company's profits and losses for 2019. According to the performance
compensation agreement in respect of the acquisition, the Company recognized a compensation of
RMB22,333,000 due from the original shareholders of Xi’an Dongfang Dairy, which was included
in the non-operating income for the Period. The Company also recognized closing trading financial
assets and the gains and losses from changes in fair value for the Period totaling RMB20,412,000
by calculating the compensation receivable based on result forecast of Xi’an Dongfang Dairy for
2020, discounted at 4.75%, being the Company’s latest financing cost. The two items mentioned
above totaling RMB42,745,000 related to performance compensation were included in the profits
and losses for 2019.
– 29 –
(2) Fixed assets of wholly-owned subsidiaries Ningxia Zhuangyuan Pasture Co., Ltd. and Qinghai
Shengyuan Pasture Co., Ltd.
The sites of the Company's wholly-owned subsidiaries Ningxia Zhuangyuan Pasture Co., Ltd.
And Qinghai Shengyuan Pasture Co., Ltd. were classified as closed areas for livestock and
poultry breeding and were included in the scope of closure and relocation. The Company actively
responded to the government arrangements by carrying out the relocation and shutdown work, while
actively negotiating with local governments on compensation. The Company made a provision for
impairment of RMB9,239,000 for the fixed assets of the above two wholly-owned subsidiaries that
may be terminated or disposed of in advance due to the relocation.
Contingent liabilities
As at 31 December 2018 and 31 December 2019, we did not have significant contingent liabilities.
Capital Structure
There has been no change in the capital structure of the Group during the Reporting Year. The
capital of the Group only comprises ordinary shares.
Significant investments
The Company was established in April 2000. Its production base located in Sanjiaocheng, Yuzhong
County, Lanzhou City, Gansu Province was built according to the then market size, consumer
demand and industry characteristics, and was complete and put into production in 2003. After nearly
20 years, some workshops look outdated with some equipment getting obsolete. Due to limited
plant area and fixed plant layout, the Company's dairy processing base in Yuzhong County is now
unable to fully meet the growing demand for product diversification in the dairy consumer market
and introduction of advanced dairy production processes such as filling technology.
In view of its future long-term planning and sustainable development, the Company started the
“reconstruction and expansion project with daily processing 600 tons of liquid milk ” in 2018.
This “reconstruction and expansion project with daily processing 600 tons of liquid milk ” will be
built on the land where the existing production and processing base is locate with a site area of
35.70 acres and 113.82 acres of newly purchased land in 2018, that is, a total of 149.52 acres of
land. An experienced and qualified engineering design institute was engaged to provide a rational
and modern plan for overall layout for investment and construction. Existing obsolete production
equipment with low utilization rate, long service life and outdated production technology will
be demised. At the same time, new production lines will be purchased and built to increase the
Company's production capacity. The capacity and output realized after the project is completed and
put into operation will include the existing capacity and output of the Yuzhong processing base with
some enhancement.
– 30 –
The Company invested RMB14.5 million in 2018 and RMB317.1 million in 2019, together
accounting for 12.72% of its total assets of RMB2,493.1 million in 2019. As of the end of 2019,
the cumulative investment was RMB331.6 million, accounting for 13.30% of its total assets of
RMB2,493.1 million in 2019.
It is expected that the completion of the “reconstruction and expansion project with daily processing
600 tons of liquid milk” will help optimize the production process and enrich the product structure;
improve production efficiency and reduce labor costs; improve production standards and strengthen
product quality control; and integrate the Group’s production resources for long-term development.
Material acquisitions and disposals of subsidiaries, associates and joint ventures
Save as disclosed herein, the Group had no material acquisitions and disposals of subsidiaries,
associates and joint ventures during the year ended 31 December 2019.
Human Resources
We had 922 employees in PRC and Hong Kong as at 31 December 2019 (31 December 2018: 907
employees).
During the Reporting Year, total staff costs were RMB69.55 million (the corresponding period in
2018: RMB49.6 million).
Our remuneration policies aim to attract, retain and incentivize talents to ensure competency of our
team in implementing our business strategies and to maximize shareholder value. We will regularly
review our remuneration policies and employee benefits with reference to market practices and
performance of individual employees.
For its employees in the PRC, the Group has participated in defined contribution benefit plans and
social insurance plans organised by the relevant local governmental authorities.
The Restricted Shares Incentive Scheme for 2019 (draft) was considered and approved at the
meeting of the board held by the Company on 11 March 2019; the general meeting was held on
23 May 2019 to consider and approve the Restricted Shares Incentive Scheme for 2019 (draft);
the meeting of the board was held on 21 June 2019 to consider and approve “ first granting
3,340,600 restricted shares to the 84 incentive targets after adjustments”; the Company completed
the registration procedures of restricted shares grant of Lanzhou Zhuangyuan Pasture Co., Ltd.
2019 Restricted Share Incentive Scheme (Draft) with China Securities Depository and Clearing
Corporation Limited Shenzhen Branch on 9 July 2019. The listing date of restricted shares granted
firstly was 12 July 2019.
– 31 –
Corporate Social Responsibility
We believe that social responsibility is the foundation for the development of an enterprise. We
will take part in social welfare activities is an important method for an enterprise to give back to
the society, as well as a key way for an enterprise to achieve mutual development and advancement
with the society.
OUTLOOK
1. The Company will continue to take the production of quality dairy products as the goal on the
basis of a complete set of production facilities and processes such as large-scale concentrated
farming, concentrated unified milking, specialized storage, transportation and processing of
fresh milk and further improve the level of dairy farming through production demonstration
and technology radiation; we will strengthen the cooperation with external professional
dairy farming institutions with large farming scale, rich farming experience and high product
quality to form balanced, complementary and diversified supply sources of fresh and raw milk
while strengthening the construction of our own milk source base. We will continue to ensure
the effective connection of safe and reliable milk source with dairy product processing link to
achieve the security and controllability of product quality during the whole process.
2. We will continue to strengthen the study on the consumption behaviors of dairy products
consumers within the region, perfect the formula of products and optimization configuration
of processes and equipments on a consumer-oriented basis, make the products to own targeted
and characteristic advantages, and establish a system of consumption analysis triggering
research and development, research and development satisfying consumption demands under
different scenarios and maintaining the loyalty of consumers to the brand with upgrading
products.
3. We will further deepen and penetrate sales channels, increase the sinking efforts of sales
channels, actively expand the markets of third-tier cities and rural areas and vigorously
promote the in-depth development of channels, so as to consolidate and increase market share
and enhance market occupancy rate.
4. The Company will continue to conduct various forms of on-the-job trainings, improve work
skills, enhance work efficiency and tamp the construction of the middle-level team. The
Company will strengthen the recruitment of professional talents with market qualifications or
excellent skills and give full development space and positive incentive policies to ensure the
stability of the talent team and the echelon construction of the talent reserve and enhance the
core competitiveness of the Company.
– 32 –
IMPORTANT EVENTS THAT HAVE OCCURRED SINCE THE END OF 2019
Since the outbreak of pneumonia caused by the new coronavirus (the “COVID-19 Outbreak”) in
January 2020, the prevention and control of the pneumonia epidemic have been continuously carried
out nationwide in the PRC.
The COVID-19 Outbreak in some provinces and cities, as well as the overall economy, caused
certain influence, to some extent, which could affect the business of the Group. The extent of
influence will depend on the situation of the epidemic prevention and control, duration and the
implementation of the regulation policies.
The Group will continue to pay close attention to the development of the COVID-19 Outbreak, and
evaluate and actively respond to its impact on the Company’s financial position, operating results
and other aspects. As of the date of this announcement, this assessment was still in progress.
Save as disclosed herein, subsequent to 31 December 2019, there had been no significant change in
our business environment, principal business, pricing policy and costs structure.
CORPORATE GOVERNANCE
We are committed to ensuring high standards of corporate governance at all times and in all aspects
of our operations. The Board believes that good corporate governance is an essential element in
enhancing the confidence of current and potential shareholders, investors, employees, business
partners and the community as a whole. The Board strives to adhere to the principles of corporate
governance and has further strengthened and improved its internal controls in order to undertake
sound corporate governance code provisions and practices to meet the relevant statutory and
commercial standards by focusing on internal control, fair disclosure and accountability to all
Shareholders.
The Company has complied with all applicable Code Provisions of the Corporate Governance
Code and Corporate Governance Report as set out in Appendix 14 to the Rules Governing the
Listing of Securities on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock
Exchange”) (the “Listing Rules”) for the year ended 31 December 2019.
Following the appointment of Mr. Ma Hongfu (“Mr. Ma”) as the general manager of the Company,
a position equivalent to a chief executive officer in the PRC, on 10 March 2020 after the resignation
of Mr. Chen Yuhai, Mr. Ma will concurrently hold the position of the chairman of the Board and
the general manager of the Company. This deviates from code provision A.2.1 of the Corporate
Governance Code as set out in Appendix 14 of the Listing Rules which requires that the roles of
chairman and chief executive officer should be separated and should not be performed by the same
individual.
– 33 –
Mr. Ma is the founder of the Group and has over 20 years of experience of the dairy industry. His
positions in the industry associates can also keep the Group updated with the latest development
of the industry. The Board has set up four committees under the Board (including the strategy
committee, the nomination committee, the remuneration committee and the audit committee) and
includes three independent non-executive Directors. The members of the Board committees and
the independent non-executive Directors have important role and functions in the decision making
process of the Board and the daily operations of the Company, which has the effect of checks and
balances of the power of the chairman of the Board and the general manager. After evaluation of the
current situation of the Company and taking into account of the experience and past performance of
Mr. Ma, the Board is of the opinion that it is appropriate and in the best interests of the Company at
the present stage for Mr. Ma to hold both positions as the chairman and the general manager of the
Company as it helps to maintain the continuity of the policies and the stability of the operations of
the Company. The Board will continue to review and consider splitting the roles of the chairman of
the Board and the general manager of the Company at a time when it is appropriate and suitable by
taking into account the circumstances of the Group as a whole.
SECURITIES TRANSACTIONS BY DIRECTORS AND SUPERVISORS
The Company has adopted the Model Code for Securities Transactions by Directors of Listed
Issuers (the “Model Code”) as set out in Appendix 10 to the Listing Rules regarding directors ’
securities transactions. Having made specific enquiry of all Directors and the supervisors of the
Company (the “Supervisors”), all the Directors and Supervisors confirm that they have complied
with the required standards of the Model Code during the year ended 31 December 2019.
PURCHASE, REDEMPTION OR SALE OF LISTED SECURITIES OF THE
COMPANY
3,340,600 A Shares were granted to 84 participants under the Restricted Share Incentive Scheme
for 2019 on 21 June 2019 with the granting price of RMB6.96 per A Share and the listing was
completed on 12 July 2019.
Save as disclosed herein, during the year ended 31 December 2019, there was no purchase,
redemption or sale by the Company, or any of its subsidiaries, of any listed securities of the
Company during the Reporting Year.
MATERIAL LITIGATION AND ARBITRATION PROCEEDINGS
The Group has no material litigation or arbitration matters during the year ended 31 December
2019.
SHARE OPTION SCHEME
There is no share option scheme adopted for the Company during the Reporting Year.
– 34 –
AUDIT COMMITTEE
The Company has established the audit committee (the “ Audit Committee ” ) with written
terms of reference in compliance with the Listing Rules. The Audit Committee comprises three
independent non-executive Directors, namely Ms. Liu Zhijun, Mr. Zhao Xinmin and Mr. Wong Cho
Hang Stanley. Ms. Liu Zhijun is the chairman of the Audit Committee. The Audit Committee is
responsible for, amongst other matters, reviewing and supervising the Group’s financial reporting
process, risk management and internal control systems and providing advice and recommendations
to the Board. The Audit Committee has amongst others, reviewed and discussed with the
management the accounting principles and practices adopted by the Group and the Group’s internal
controls and financial reporting matters, including the review of the audited final results of the
Group for the year ended 31 December 2019.
DIVIDEND
Since the auditing process for the annual results for the year ended 31 December 2019 has not been
completed, the Board has yet to determine if the payment of final dividend is recommended.
REVIEW OF UNAUDITED ANNUAL RESULTS
The auditing process for the annual results for the year ended 31 December 2019 has not been
completed due to restrictions in force in parts of China to combat the novel coronavirus (COVID-19)
outbreak. In so far as the Board is aware, the delay in the completion of the audit procedures is
mainly attributable to the delay in obtaining certain confirmations from banks, customers and
suppliers within different parts of China. The unaudited annual results contained herein have not
been agreed with the external auditor of the Company (the “Auditor ”) as required under Rule
13.49(2) of the Rules Governing the Listing of Securities on the Stock Exchange. An announcement
relating to the audited results will be made when the auditing process has been completed.
The Board and the Audit Committee have reviewed the unaudited annual results of the Group for
the year ended 31 December 2019.
PUBLICATION OF UNAUDITED ANNUAL RESULTS ANNOUNCEMENT AND
ANNUAL REPORT
This unaudited annual results announcement is published on the Company’s website (http://www.
lzzhuangyuan.com) and the Stock Exchange’s website (http://www.hkexnews.hk). The annual report
of the Company for the year ended 31 December 2019 will be despatched to the Shareholders and
will be made available on the websites of the Company and the Stock Exchange in due course.
– 35 –
FURTHER ANNOUNCEMENT(S)
Following the completion of the auditing process, the Company will issue further announcement(s)
in relation to the audited results for the year ended 31 December 2019 as agreed by the Auditor and
the material differences (if any) as compared with the unaudited annual results contained herein, the
proposed final dividend for the year ended 31 December 2019 (if any) and the payment date of such
proposed final dividend (if any). In addition, the Company will issue further announcement as and
when necessary if there are other material development in the completion of the auditing process.
The Company expects the auditing process will be completed on or before 30 April 2020.
The financial information contained herein in respect of the annual results of the Group have
not been audited and have not been agreed with the Auditor. Shareholders and potential
investors of the Company are advised to exercise caution when dealing in the securities of the
Company.
By order of the Board
Lanzhou Zhuangyuan Pasture Co., Ltd.*
Ma Hongfu
Chairman
Lanzhou, the PRC, 30 March 2020
As at the date of this announcement, the executive Directors are Mr. Ma Hongfu, Mr. Wang Guofu
and Ms. Zhang Qianyu; the non-executive Directors are Mr. Yap Kean Chong and Mr. Song
Xiaopeng; and the independent non-executive Directors are Ms. Liu Zhijun, Mr. Zhao Xinmin and
Mr. Wong Cho Hang Stanley.
* For identification purpose only
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