Anhui Gujing Distillery Company Limited Annual Report 2021 April 2022 Annual Report 2021 Part I Important Notes, Table of Contents and Definitions The Board of Directors (or the “Board”), the Supervisory Committee as well as the directors, supervisors and senior management of Anhui Gujing Distillery Company Limited (hereinafter referred to as the “Company”) hereby guarantee the factuality, accuracy and completeness of the contents of this Report and its summary, and shall be jointly and severally liable for any misrepresentations, misleading statements or material omissions therein. Liang Jinhui, the legal representative, and Zhu Jiafeng, the Deputy Chief Accountant and Board Secretary, hereby guarantee that the financial statements carried in this Report are factual, accurate and complete. All the Company’s directors have attended the Board meeting for the review of this Report and its summary. Any plans for the future and other forward-looking statements mentioned in this Report shall NOT be considered as absolute promises of the Company to investors. Investors, among others, shall be sufficiently aware of the risk and shall differentiate between plans/forecasts and promises. Again, investors are kindly reminded to pay attention to possible investment risks. Investors’ attention is kindly directed to the detailed description of possible risks in the Company’s operations in “XI Prospects” under “Part III Management Discussion and Analysis”. The Board has approved a final dividend plan as follows: based on the Company’s total share capital of 528,600,000 shares, a cash dividend of RMB22.00 (tax inclusive) per 10 shares is to be distributed to the shareholders, with no bonus issue from either profit or capital reserves. This Report and its summary have been prepared in both Chinese and English. Should there be any discrepancies or misunderstandings between the two versions, the Chinese versions shall prevail. ~ 2 ~ Annual Report 2021 Table of Contents Part I Important Notes, Table of Contents and Definitions 2 Part II Corporate Information and Key Financial Information 6 Part III Management Discussion and Analysis 11 Part IV Corporate Governance 38 Part V Environmental and Social Responsibility 59 Part VI Significant Events 64 Part VII Share Changes and Shareholder Information 71 Part VIII Preferred Shares 81 Part IX Corporate Bonds 82 Part X Financial Statements 83 ~ 3 ~ Annual Report 2021 Documents Available for Reference (I) Financial statements signed and sealed by the Company’s legal representative, the Company’s Chief Accountant and the head of the Company’s financial department (equivalent to financial manager); (II) The original copy of the Independent Auditor's Report stamped by the CPA firm as well as signed and stamped by the engagement certified public accountants; (III) All originals of the Company’s documents and announcements that have been publicly disclosed in the Reporting Period on the media designated by the China Securities Regulatory Commission; and (IV) This Report disclosed in other securities markets. ~ 4 ~ Annual Report 2021 Definitions Term Definition Anhui Gujing Distillery Company Limited inclusive of its consolidated The “Company”, “ Gu Jing” or “we” subsidiaries, except where the context otherwise requires Gujing Sales Bozhou Gujing Sales Co., Ltd. Anhui Gujing Distillery Company Limited exclusive of subsidiaries, The Company as the parent except where the context otherwise requires Gujing Group Anhui Gujing Group Co., Ltd. Yellow Crane Tower Yellow Crane Tower Distillery Co., Ltd. Mingguang Anhui Mingguang Distillery Co., Ltd. ~ 5 ~ Annual Report 2021 Part II Corporate Information and Key Financial Information I Corporate Information Stock name Gujing Distillery, Gujing Distillery-B Stock code 000596, 200596 Changed stock name (if any) Stock exchange for stock Shenzhen Stock Exchange listing Company name in Chinese 安徽古井贡酒股份有限公司 Abbr. 古井 Company name in English (if ANHUI GUJING DISTILLERY COMPANY LIMITED any) Abbr. (if any) GU JING Legal representative Liang Jinhui Registered address Gujing Town, Bozhou City, Anhui Province, P.R.China Zip code 236820 Change of registered address N/A Office address Gujing Industrial Park, Gujing Town, Bozhou City, Anhui Province, P.R.China Zip code 236820 Company website http://www.gujing.com Email address gjzqb@gujing.com.cn II Contact Information Board Secretary Securities Representative Name Zhu Jiafeng Mei Jia Gujing Town, Bozhou City, Anhui Gujing Town, Bozhou City, Anhui Address Province, P.R.China Province, P.R.China Tel. (0558)5712231 (0558)5710057 Fax (0558)5710099 (0558)5710099 Email address gjzqb@gujing.com.cn gjzqb@gujing.com.cn III Media for Information Disclosure and Place where this Report Is Lodged Newspapers designated by the Company for China Securities Journal, Shanghai Securities News, Ta Kung Pao (HK) ~ 6 ~ Annual Report 2021 information disclosure Website designated by CSRC for publication of this http://www.cninfo.com.cn Report Place where this Report is lodged The Board Secretary’s Office IV Change to Company Registered Information Unified social credit code 913400001519400083 Change to principal activity of the Company No change since going public (if any) Every change of controlling shareholder since No change incorporation (if any) V Other Information The independent audit firm hired by the Company: Name RSM China Suite 901-22 to 901-26, Wai Jing Mao Building (Tower 1), No. 22 Fuchengmen Wai Street, Office address Xicheng District, Beijing, China Accountants writing signatures Zhang Liping, and Han Songliang The independent sponsor hired by the Company to exercise constant supervision over the Company in the Reporting Period: √ Applicable □ Not applicable Sponsor Office address Representatives Supervision period 27-28/F, China World Office 2, China International Capital No. 1 Jianguomenwai Avenue, Fang Lei, and Chen Jingjing 2021.7.22-2022.12.31 Corporation Limited Chaoyang District, Beijing The independent financial advisor hired by the Company to exercise constant supervision over the Company in the Reporting Period: √ Applicable □ Not applicable Financial Advisor Office address Representatives Supervision period 27-28/F, China World Office 2, China International Capital No. 1 Jianguomenwai Avenue, Fang Lei, and Chen Jingjing 2021.7.22-2022.12.31 Corporation Limited Chaoyang District, Beijing VI Key Financial Information Indicate by tick mark whether there is any retrospectively restated datum in the table below. □ Yes √ No 2021 2020 2021-over-2020 2019 ~ 7 ~ Annual Report 2021 change (%) Operating revenue (RMB) 13,269,826,266.04 10,292,064,534.41 28.93% 10,416,961,584.23 Net profit attributable to the listed 2,297,894,413.25 1,854,576,249.29 23.90% 2,097,527,739.86 company’s shareholders (RMB) Net profit attributable to the listed company’s shareholders before 2,186,239,468.68 1,773,011,307.05 23.31% 1,891,097,157.37 exceptional gains and losses (RMB) Net cash generated from/used in 5,254,308,127.79 3,624,543,525.53 44.96% 192,447,063.45 operating activities (RMB) Basic earnings per share 4.45 3.68 20.92% 4.17 (RMB/share) Diluted earnings per share 4.45 3.68 20.92% 4.17 (RMB/share) Weighted average return on equity 21.25% 19.53% 1.72% 25.55% (%) Change of 31 31 December 2021 31 December 2020 December 2021 over 31 December 2019 31 December 2020 (%) Total assets (RMB) 25,418,086,447.80 15,186,625,708.79 67.37% 13,871,297,363.16 Equity attributable to the listed 16,537,389,443.64 10,043,288,013.73 64.66% 8,944,111,764.44 company’s shareholders (RMB) Indicate by tick mark whether the lower of the net profit attributable to the listed company’s shareholders before and after exceptional gains and losses was negative for the last three accounting years, and the latest independent auditor’s report indicated that there was uncertainty about the Company’s ability to continue as a going concern. □ Yes √ No Indicate by tick mark whether the lower of the net profit attributable to the listed company’s shareholders before and after exceptional gains and losses was negative. □ Yes √ No VII Accounting Data Differences under China’s Accounting Standards for Business Enterprises (CAS) and International Financial Reporting Standards (IFRS) and Foreign Accounting Standards 1. Net Profit and Equity under CAS and IFRS □ Applicable √ Not applicable No difference for the Reporting Period. ~ 8 ~ Annual Report 2021 2. Net Profit and Equity under CAS and Foreign Accounting Standards □ Applicable √ Not applicable No difference for the Reporting Period. 3. Reasons for Accounting Data Differences Above □ Applicable √ Not applicable VIII Key Financial Information by Quarter Unit: RMB Q1 Q2 Q3 Q4 Operating revenue 4,130,015,502.32 2,877,480,965.42 3,094,775,914.80 3,167,553,883.50 Net profit attributable to the listed 814,470,363.67 564,333,464.79 590,128,559.28 328,962,025.51 company’s shareholders Net profit attributable to the listed company’s shareholders before 801,677,741.93 536,607,519.06 563,373,758.33 284,580,449.36 exceptional gains and losses Net cash generated from/used in -1,373,645,850.02 1,637,612,982.28 3,688,705,129.87 1,301,635,865.66 operating activities Indicate by tick mark whether any of the quarterly financial data in the table above or their summations differs materially from what have been disclosed in the Company’s quarterly or interim reports. □ Yes √ No IX Exceptional Gains and Losses √ Applicable □ Not applicable Unit: RMB Item 2021 2020 2019 Note Gain or loss on disposal of non-current assets (inclusive of impairment allowance -5,976,856.98 -3,692,640.09 -7,615,741.56 write-offs) Government subsidies charged to current profit or loss (exclusive of government subsidies consistently given in the 55,274,502.42 48,617,479.37 98,293,177.32 Company’s ordinary course of business at fixed quotas or amounts as per governmental policies or standards) Gain or loss on fair-value changes in trading 34,792,433.45 21,490,043.05 144,234,319.52 ~ 9 ~ Annual Report 2021 financial assets and liabilities & investment income from disposal of trading financial assets and liabilities and available-for-sale financial assets (exclusive of effective portion of hedges that arise in the Company’s ordinary course of business) Reversed portion of impairment allowance for receivables which are tested individually 1,949,809.53 43,554.94 0.00 for impairment Non-operating income and expense other 77,025,619.76 44,100,616.61 57,215,092.96 than the above Less: Income tax effects 40,243,159.73 27,033,395.22 71,418,613.38 Non-controlling interests effects (net 11,167,403.88 1,960,716.42 14,277,652.37 of tax) Total 111,654,944.57 81,564,942.24 206,430,582.49 -- Particulars about other items that meet the definition of exceptional gain/loss: □ Applicable √ Not applicable No such cases for the Reporting Period. Explanation of why the Company reclassifies as recurrent an exceptional gain/loss item listed in the Explanatory Announcement No. 1 on Information Disclosure for Companies Offering Their Securities to the Public—Exceptional Gain/Loss Items: □ Applicable √ Not applicable No such cases for the Reporting Period. ~ 10 ~ Annual Report 2021 Part III Management Discussion and Analysis I Industry Overview for the Reporting Period (I) Principal Activity of the Company The Company primarily produces and markets liquor and spirits. According to the Industry Categorization Guide for Listed Companies (Revised in 2012) issued by the CSRC, liquor and spirits making belongs to the “liquor, beverage and refined tea making industry" (C15). The Company’s principal operations remained unchanged in the Reporting Period. (II) Status of the Industry and Position of the Company in the Industry 1. Status of the Liquor and Spirits Industry Since the beginning of the 21st century, China's liquor and spirits industry has experienced three development stages. Before 2012, with rapid economic growth, the income of urban and rural residents rose fast, and the demand for liquor and spirits continued to increase, while production and sales of liquor and spirits continuously expanded at a fast pace. As a result, the liquor and spirits industry witnessed booming supply and demand. During that period, national liquor and spirits brands and local regional renowned liquor enterprises achieved rapid development. In the context of the rise in both the demand and price of liquor and spirits, the sales income and total profits of liquor enterprises increased quickly. From the second half of 2012 to 2016, China's economy once again entered a period of adjustment, as the Chinese government introduced a string of policies to restrict the spending on official overseas visits, official vehicles and official hospitality, such as the "Eight-point Decision" and "Six Prohibitions", which include restrictions on the consumption of high-end alcohol with public funds. Consumption scenarios such as commercial consumption and government consumption were limited, leading to a drop in consumer demand in a short time. Moreover, liquor prices were under huge pressure. China's liquor and spirits industry entered a period of profound adjustment. After 2012, both the output growth and income growth of China's liquor and spirits industry slowed down. The liquor and spirits industry began to recover in the second half of 2016, with a rise in consumption demand by end-users, propelling the growth of the overall income and profits of the industry. Since 2017, the overall demand and price of liquor and spirits have increased, and the recovery of mid- and high-end liquor and spirits has picked up. In the future, benefiting from the consumption upgrade and the change of consumption concept, the growth of sub-high-end liquor and spirits will be the key driver for the development of the liquor and spirits industry. The consumption upgrade is the major driving force for the development of the liquor and spirits industry. Liquor enterprises need to fully grasp the great opportunities from the extensive consumption upgrade and strive to better meet the consumption needs of the market through quality improvement, market segmentation and product innovation and other means, so as to advance the transformation and upgrade of the product structure. From January to December 2021, in China, the total output of alcoholic beverage made and brewed by the enterprises above the designated size in the alcoholic beverages industry was 54,068,500 kiloliter, increased by 3.95% year on year, of which, the output of liquor and spirits was 7,156,300 kiloliter, decreased by 0.59% year on year. With the acceleration of consumption upgrading, among Chinese residents, it gradually shows such a trend of consumption upgrading that "you should drink less liquor, but you should drink better liquor". During the period of the 14th Five-year Plan, the consumption growth of sub-high-end liquor and spirits will bring more fierce competition in the sector of high-end liquor and spirits. 2. Position of the Company in the Industry China has a long history of liquor. There are a large number of liquor production enterprises in the country, but the regional distribution of liquor consumers is particularly evident. The liquor and spirits industry is characterized by full competition, with a high degree of marketization. The market competition is fierce, and the industry adjustments are constantly deepening. In the national market, the competitive edges of the enterprises come from their brand influence, product style and marketing & operation models. In ~ 11 ~ Annual Report 2021 a single regional market, the competitive strengths of the enterprises depend on their brand influence in the region, the recognition of the companies by regional consumers and comprehensive marketing capacity. As one of China’s traditional top eight liquor brands, the Company is the first listed liquor and spirits company with both A and B stocks. It is located in Bozhou City, Anhui Province in China, the hometown of historic figures Cao Cao and Hua Tuo, as well as one of the world’s top 10 liquor-producing areas. No changes have occurred to the main business of the Company in the Reporting Period. As the main product of the Company, the Gujing spirit originated as a “JiuYunChun Spirit”, together with its making secrets, being presented as a hometown specialty by Cao Cao, a famous warlord in China’s history, to Emperor Han Xiandi (name: Liu Xie) in A.D. 196, and was continually presented to the royal house since then. With crystalline liquid, rich aroma, a fine flavor and a lingering aftertaste, the Gujing spirit has helped the Company win four national distilled spirit golden awards, a golden award at the 13th SIAL Paris, the title of China’s “Geographical Indication Product”, the recognition as a “Key Cultural Relics Site under the State Protection”, the recognition with a “National Intangible Cultural Heritage Protection Project”, a Quality Award from the Anhui provincial government, a title of “National Quality Benchmark”, among other honors. In 2021, Gujing Distillery ranked fourth in China's liquor and spirits industry with a brand value of RMB200.672 billion in the 13 th "Hua Liquor Cup" (list of Chinese liquor brands by value). In April 2016, Gujing Distillery signed a strategic cooperation agreement with Huanghelou Liquor Co., Ltd., opening a new era of cooperation in China's famous liquor industry. Yellow Crane Tower Baijiu is the only famous Chinese liquor in Hubei. Its unique style is "soft, mellow, elegant and cool, and has a long lingering fragrance". It won the two China gold medal in liquor appreciation in 1984 and 1989. At present, Huanghelou liquor industry has three bases: Wuhan, Xianning and Suizhou. Among them, Huanghelou Liquor Culture Expo Park in Wuhan base has been approved as national AAA scenic spot, and Huanghelou forest wine town in Xianning base has been approved as national AAA scenic spot. In January 2021, Gujing Distillery and Mingguang signed a strategic cooperation agreement. The unique mung bean flavor adds to the famous liquor family of Gujing. Anhui Mingguang Distillery Co., Ltd. has such representative products as Mingguang Jianiang, Mingguang Daqu, Mingguang Youye, Mingguang Tequ, and 53% alcohol Minglueye. In December, the ancient Mingguang liquor-making technique was selected into the six batch of provincial intangible cultural heritage list. II Principal Activity of the Company in the Reporting Period The Company is subject to the Guideline No. 14 of the Shenzhen Stock Exchange on Information Disclosure by Industry—for Listed Companies Engaging in Food and Liquor & Wine Production. Main sales model The Company's key sales model is dealer model. Under the dealer model, the Company will select one or more dealers for sales of a product brand (or product sub-brand) according to the market capacity. Distribution model: √ Applicable □ Not applicable 1. Operating Performance by Distribution Channel and Product Category Unit: RMB YoY YoY YoY change in change in change in gross By Operating revenue Cost of sales Gross profit margin operating cost of profit revenue sales (%) margin (%) (%) Channel ~ 12 ~ Annual Report 2021 Online 531,343,420.84 121,945,000.89 77.05% 41.43% 32.58% 1.53% Offline 12,738,482,845.20 3,182,132,011.03 75.02% 28.46% 29.47% -0.19% Total 13,269,826,266.04 3,304,077,011.92 75.10% 28.93% 29.58% -0.13% YoY YoY YoY change in change in change in gross By Operating revenue Cost of sales Gross profit margin operating cost of profit revenue sales (%) margin (%) (%) Product series Aged Original Liquor 9,307,819,185.05 1,563,365,943.45 83.20% 18.81% 7.86% 1.70% Gujinggong Liquor 1,609,244,106.16 666,012,511.39 58.61% 16.62% 21.39% -1.63% Yellow Crane Tower 1,133,924,525.09 282,351,666.86 75.10% 168.69% 112.94% 6.52% Total 12,050,987,816.30 2,511,730,121.70 79.16% 25.06% 17.88% 1.27% 2. Number of Distributors by Geographical Segment Segment Increase Decrease Ending number North China 307 148 1,005 South China 163 91 452 Central China 799 418 2,538 International 4 0 12 Total 1,273 657 4,007 Proportion of store sales terminal exceeds 10% □ Applicable √ Not applicable Online direct sales √ Applicable □ Not applicable The major product varieties sold online are Aged Original Liquor Series, and Gujinggong Liquor Series, among others. The main online sales platforms are Gujing Distillery platform, Tmall, JD.com, and Suning.com. Any over 30% YoY movements in the selling price of main products contributing over 10% of current total operating revenue □ Applicable √ Not applicable Model and contents of purchase The Company primarily adopts the bidding and strategic cooperation models. It also adopts the base planting model in order to ensure the quality of some raw materials. Major suppliers: Purchase contents Purchase contents Purchase model Amount (RMB’0,000) Strategic purchasing 62,982.75 1 Raw materials Tendering purchasing 89,722.26 ~ 13 ~ Annual Report 2021 2 Packing materials Tendering purchasing 215,928.61 Total 368,633.62 The proportion of raw materials purchased from cooperations or farmers to total purchase amount exceeds 30% □ Applicable √ Not applicable Any over 30% YoY movements in prices of main purchased raw materials □ Applicable √ Not applicable Main production model The Company's existing production model is sales-based production. Specifically, the Logistics Control Center is responsible for coordinating the implementation of production plans, release of material production plans, and delivery and tracking of products, and prepares balanced production plans on a quarterly basis according to the product inventory. The logistics distribution system is coordinated according to the production schedule and inventory with a view to ensuring timely delivery of products. Commissioned production □ Applicable √ Not applicable Breakdown of cost of sales 2021 2020 Change Item As % of total cost of As % of total cost of Cost of sales (RMB) Cost of sales (RMB) (%) sales sales Direct 2,321,320,105.47 70.26% 1,857,491,476.93 72.85% 24.97% materials Direct labor 285,205,229.63 8.63% 261,553,817.02 10.26% 9.04% cost Manufacturing 210,507,603.20 6.37% 201,171,173.25 7.89% 4.64% expenses Fuels 91,709,296.08 2.78% 89,428,707.39 3.51% 2.55% Total 2,908,742,234.38 88.04% 2,409,645,174.59 94.51% 20.71% Output and inventory 1. Output, sales volume and inventory of main products for the Reporting Period and respective YoY changes thereof Unit: ton YoY changes YoY changes YoY changes Main product Output Sales volume inventory of sales of output of inventory volume Aged Original Liquor Series 50,488.82 43,216.05 13,809.65 26.84% 1.40% 111.26% Gujinggong Liquor Series 29,066.16 28,269.08 2,875.28 30.19% 24.93% 38.35% Yellow Crane Tower Liquor 8,350.52 9,183.42 782.04 52.89% 100.52% -51.57% Series Other series 22,042.26 20,386.15 2,151.69 37.11% 19.21% 334.18% 2. Ending inventory of finished liquor and semi-product ~ 14 ~ Annual Report 2021 Category Ending quantity (ton) Finished liquor 19,618.66 Semi-product (including base liquor) 183,264.17 3. Capacity Unit: ton Main product Designed capacity Actual capacity Capacity in progress Finished liquor 115,000 109,948 130,000 III Core Competitiveness Analysis No significant changes occurred to the Company’s core competitiveness in the Reporting Period. IV Analysis of Core Businesses 1. Overview The year 2021 marks the beginning of the "14th Five-Year Plan", and the normalization of the prevention and control of COVID-19. In the face of complex external environment and all the more fierce competition in the industry, the Company continued to follow the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, thoroughly implemented the guiding principle of the 19th CPC National Congress and the various plenary sessions of the 19th CPC Central Committee, the guiding principle of the Central Economic Work Conference, and the guiding principle of the provincial and municipal Party congresses, implemented the new concept for development, centered on the annual objectives of the Company, and adhered to long-term perspective mindset, the concept of excellence, and the awareness of high-quality products, to successfully complete various objectives and tasks throughout the year. For 2021, the Company recorded operating revenue of RMB13.27billion, up 28.93% compared to the prior year; a net profit attributable to the Company as the parent of RMB2.298billion, increasing 23.90% from the year earlier; earnings per share of RMB4.45, 20.92% higher than last year; and net cash generated from operating activities of RMB5.254 billion, going up 44.96% on a year-on-year basis. In the 13th "Hua Zun Cup" Chinese liquor brand valuation, the brand value of "Gujinggong" reached a record high of RMB200.672 billion. The overall operating performance of the Company in the Reporting Period (I) The Company rapidly promoted the “nationwide, sub-high-end” strategy, and reached a new high of brand value The Company adhered to the nationwide, sub-high-end, and "Gu 20+" development strategy, and continuously intensified "Three Ones Project". It continuously intensified efforts for brand building, adhered to the brand orientation of "liquor made in China is favored in the world", and grandly held the activities of the Corporate Day of Gujinggong Liquor in Expo 2020 Dubai. The brand influence of "liquor made in China is favored in the world" was continuously increased. (II) Higher efficiency and higher quality The Company continuously optimized its liquor-making process, comprehensively promoted liquor-making standardized production, and steadily improved the quality of its original liquor. Quality was improved and efficiency was increased for filling production of finished liquor products, and the project of automatic filling was steadily promoted. (III) The Company continuously intensified research and development, and further increased strength for research and development ~ 15 ~ Annual Report 2021 The Company carried out experiments and research for liquor-making, further optimized and improved production process. It was granted three patents of invention, and 55 patents of utility models; it successively and honorably won the "Prize for Outstanding Contribution in Science and Technology of China's Liquor and Spirits industry", and the "Second Prize of Anhui Science and Technology Progress Award", which was a breakthrough in provincial major special projects. Once again, the Company won "Anhui Provincial People's Government Quality Award". (IV) The Company accelerated promotion of digital construction, and new accomplishment was displayed with integration of “information technology and industrialization” The Company intensified efforts to promote and apply systems, comprehensively empowered digital marketing, scenario-based applications, intelligent parks, and informationized procedures, so as to boost comprehensive management efficacy. In 2021, Gujing's digital construction achievements were successfully selected into the industry-level platform of industrial Internet of things. (V) The Company continuously promoted mechanism innovation, and enhanced organizing vitality The Company continuously optimized and vitalized appraisal mechanism, and delegated more power to grassroots level for making self-decisions on appraisal. Besides, it realized the match of remuneration with performance in market-oriented pilot units. It established a normalized exit mechanism of personnel, adhered to the practice that the person ranking the last place in appraisal will be laid off, and that positions will be rotated for improving multiple skills. Thus, it further stimulated management vitality, and promoted the cultivation of comprehensive talents. (VI) The Company maintained the integrity of thoughts to vitalize the driving force of Party building The Company promoted its high-quality development with high-quality Party-building. Its staff members at various levels solidly carried out the learning and education of Party history, earnestly implemented the guiding principle of the important "July 1” remarks made by General Secretary Xi Jinping, and that of the Sixth Plenary Session of the 19th CPC Central Committee, made in-depth understanding of the decisive significance of the “Two Establishments", enhanced the "Four Consciousnesses", firmly believed in the "Four Self-confidences", and implemented the "Two Maintenances". The Company carried forward the great spirit of Party-building and used it into the whole process of corporate operation and management. As a result, work style in the Company was continuously improved, and ideological and political awareness and the self-consciousness for actions constantly became better. (VII) In the Reporting Period, the Company was still under pressure and had deficiencies as follows. (1) Brand driving force was not strong enough, and nationwide promotion was yet to be intensified. (2) The internal management system of the Company was not excellent, the mechanism was not vigorous, and its internal power was yet to be stimulated. (3) The supply chain management was not fully modernized, its service was not sound, and its efficiency was not high. 2. Revenue and Cost Analysis (1) Breakdown of Operating Revenue Unit: RMB 2021 2020 As % of total As % of total Change (%) Operating revenue operating revenue Operating revenue operating revenue (%) (%) Total 13,269,826,266.04 100% 10,292,064,534.41 100% 28.93% By operating division ~ 16 ~ Annual Report 2021 Manufacturing 13,269,826,266.04 100.00% 10,292,064,534.41 100.00% 28.93% By product category Distilled spirits 12,760,915,418.70 96.16% 10,074,148,990.37 97.88% 26.67% Hotel services 75,349,826.75 0.57% 63,321,699.07 0.62% 19.00% Other 433,561,020.59 3.27% 154,593,844.97 1.50% 180.45% By operating segment North China 1,070,574,558.72 8.07% 692,953,553.05 6.73% 54.49% Central China 11,311,204,419.40 85.24% 9,015,585,004.98 87.60% 25.46% South China 877,937,089.22 6.62% 579,972,219.24 5.64% 51.38% Overseas 10,110,198.70 0.08% 3,553,757.14 0.03% 184.49% By sales model Online 531,343,420.84 4.00% 375,683,415.01 3.65% 41.43% Offline 12,738,482,845.20 96.00% 9,916,381,119.40 96.35% 28.46% (2) Operating Division, Product Category, Operating Segment or Sales Model Contributing over 10% of Operating Revenue or Operating Profit √ Applicable □ Not applicable Unit: RMB YoY change in YoY change in Gross profit YoY change in Operating revenue Cost of sales operating revenue gross profit margin cost of sales (%) (%) margin (%) By operating division Manufacturing 13,269,826,266.04 3,304,077,011.92 75.10% 28.93% 29.58% -0.13% By product category Distilled spirits 12,760,915,418.70 2,908,742,234.38 77.21% 26.67% 20.71% 1.13% Hotel services 75,349,826.75 41,333,869.68 45.14% 19.00% 24.38% -2.38% Other 433,561,020.59 354,000,907.86 18.35% 180.45% 231.04% -12.48% By operating segment North China 1,070,574,558.72 269,682,095.69 74.81% 54.49% 42.47% 2.13% Central China 11,311,204,419.40 2,836,727,062.69 74.92% 25.46% 28.39% -0.57% South China 877,937,089.22 194,916,297.30 77.80% 51.38% 30.67% 3.52% Overseas 10,110,198.70 2,751,556.24 72.78% 184.49% 39.87% 28.14% By sales model Online 531,343,420.84 121,945,000.89 77.05% 41.43% 32.58% 1.53% Offline 12,738,482,845.20 3,182,132,011.03 75.02% 28.46% 29.47% -0.19% ~ 17 ~ Annual Report 2021 Core business data of the prior year restated according to the changed statistical caliber for the Reporting Period: □ Applicable √ Not applicable (3) Whether Revenue from Physical Sales is Higher than Service Revenue √ Yes □ No Operating division Item Unit 2021 2020 Change (%) Sales volume Ton 101,054.70 86,930.68 16.25% Distilled spirits Output Ton 109,947.76 83,668.45 31.41% brewage Inventory Ton 19,618.66 10,725.60 82.91% Any over 30% YoY movements in the data above and why: √ Applicable □ Not applicable Output increased 31.41% compared to 2020, primarily driven by the increased inventories prepared for the Spring Festival. Inventory increased 82.91% compared to 2020, primarily driven by the increased inventories prepared for the Spring Festival. (4) Execution Progress of Major Signed Sales and Purchase Contracts in the Reporting Period □ Applicable √ Not applicable (5) Breakdown of Cost of Sales By operating division Unit: RMB 2021 2020 Operating Item As % of total cost As % of total cost Change (%) division Cost of sales Cost of sales of sales (%) of sales (%) Food Direct materials 2,321,320,105.47 70.26% 1,857,491,476.93 72.85% 24.97% manufacturing Food Direct labor cost 285,205,229.63 8.63% 261,553,817.02 10.26% 9.04% manufacturing Food Manufacturing 210,507,603.20 6.37% 201,171,173.25 7.89% 4.64% manufacturing expenses Food Fuels 91,709,296.08 2.78% 89,428,707.39 3.51% 2.55% manufacturing (6) Changes in the Scope of Consolidated Financial Statements for the Reporting Period √Yes □ No Compared with the prior year, the following subsidiaries were added to the consolidated financial statements of the Reporting Period: Anhui Mingguang Distillery Co., Ltd., Renhuai Maotai Town Zhencang Winery Industry Co., Ltd., Mingguang Tiancheng Ming ~ 18 ~ Annual Report 2021 Wine Sales Co., Ltd., Fengyang Xiaogang Village Ming Wine Distillery Co., Ltd., Anhui Jiuhao China Railway Construction Engineering Co., Ltd., and Anhui Jiuan Mechanical Electrical Equipment Co., Ltd. Meanwhile, Bozhou Gujing Waste Recycling Co., Ltd. has been de-registered during the Reporting Period. (7) Major Changes to the Business Scope or Product or Service Range in the Reporting Period □ Applicable √ Not applicable (8) Major Customers and Suppliers Major customers: Total sales to top five customers (RMB) 1,845,323,034.24 Total sales to top five customers as % of total sales of the 13.91% Reporting Period (%) Total sales to related parties among top five customers as % of 0.00% total sales of the Reporting Period (%) Information about top five customers: Sales revenue contributed for No. Customer As % of total sales revenue (%) the Reporting Period (RMB) 1 Distributor A 658,146,119.50 4.96% 2 Distributor B 496,463,500.64 3.74% 3 Distributor C 319,902,346.49 2.41% 4 Distributor D 194,693,089.35 1.47% 5 Distributor E 176,117,978.26 1.33% Total -- 1,845,323,034.24 13.91% Other information about major customers: □ Applicable √ Not applicable Major suppliers: Total purchases from top five suppliers (RMB) 1,089,038,984.77 Total purchases from top five suppliers as % of total purchases 29.55% of the Reporting Period (%) Total purchases from related parties among top five suppliers 0.00% as % of total purchases of the Reporting Period (%) Information about top five suppliers: Purchase in the Reporting No. Supplier As % of total purchases (%) Period (RMB) 1 Supplier A 297,710,603.31 8.08% 2 Supplier B 290,714,378.92 7.89% ~ 19 ~ Annual Report 2021 3 Supplier C 215,756,887.60 5.85% 4 Supplier D 161,148,582.38 4.37% 5 Supplier E 123,708,532.56 3.36% Total -- 1,089,038,984.77 29.55% Other information about major suppliers: □ Applicable √ Not applicable 3. Expense Unit: RMB 2021 2020 Change (%) Reason for any significant change Selling expense 4,008,075,483.08 3,120,977,163.32 28.42% Administrative expense 1,022,181,419.74 802,201,580.48 27.42% Finance costs -204,055,657.06 -260,836,456.07 21.77% R&D expense 51,449,475.36 40,590,136.46 26.75% The Company is subject to the Guideline No. 14 of the Shenzhen Stock Exchange on Information Disclosure by Industry—for Listed Companies Engaging in Food and Liquor & Wine Production. Breakdown of selling expense: Unit: RMB Item 2021 2020 Change (%) Reason Employment 863,583,183.40 723,874,977.05 19.30% benefits Travel fees 161,091,812.25 133,511,390.56 20.66% Advertisement 900,546,437.33 840,407,171.96 7.16% fees Comprehensive 1,268,396,513.56 755,941,972.88 67.79% More sales promotion activities promotion costs Service fees 705,368,563.00 578,401,082.92 21.95% Others 109,088,973.54 88,840,567.95 22.79% Total 4,008,075,483.08 3,120,977,163.32 28.42% Details about advertisement No. Main way Amount (RMB’0,000) 1 TV 41,466.82 2 Offline 36,967.85 3 Online 11,619.97 Total 90,054.64 ~ 20 ~ Annual Report 2021 4. R&D Investments √ Applicable □ Not applicable Names of main Expected impact on the future Project objectives Project progress Objectives to be achieved R&D projects development of the Company Aiming at different types The experimental research on of raw materials, the liquor making with different process and experiments The process of liquor-making Research of process types of original grain will of liquor making are with different types of and experiments on Promoted and play an important role in conducted to provide the original grain is explored to original grain for applied. optimized selection of Company with data expand the scope of using liquor distillation original grain, and support for the selection original grain. improvement of quality of of original grain for original liquor. liquor-making. The experiments systematically optimize The process and Theoretically and practically, Research and the production process of experiments have the various parameters of the The quality of Gujinggong application of making strongly fragrant been carried out for strongly fragrant liquor are liquor will be steadily process and liquor, improve the many times, and part revealed to be scientific and improved to maintain the experiments for sensory quality of of the experimental reasonable, and the continuously improving making strongly Gujinggong liquor, achievements have self-consciousness of process quality of the brand. fragrant liquor making the product No. 1 been promoted and performance is improved. in China in terms of applied. strongly fragrant liquor. The exploring of the production process of The process of producing The high-quality flavoring compound fragrant liquor will Research on and compound fragrant liquor liquor with unique flavor is enable the production of the application of the is explored to prepare for Promoted and produced to prepare for the high-quality flavoring liquor process of making the development of new applied. development of new products with unique flavor, further compound fragrant products and the design and the design of liquor body enrich the product system of liquor of liquor body of the of the Company. Gujinggong Liquor, and Company. strengthen its competitiveness. The production process The parameters of the Standardized documents for of high-temperature Qu Optimization and production process of operation and process will be liquor is standardized to regularization of the high-temperature Qu liquor provided for the Company to form standard operation Promoted and production process are determined, the quality of improve the production documents and further applied. of high-temperature the liquor is improved, and quality of high-temperature improve the quality of Qu liquor the richness of original liquor Qu liquor, and to stabilize the high-temperature Qu is increased. quality of the liquor. liquor. Research with optimized The taste and quality of experiments on the Part of the The taste of liquor body is original liquor is The quality of the original method of achievements of the enriched to provide the improved to enhance the liquor on the high level of a collecting scums project have been Company with an exploration overall quality of liquor liquor pit is improved floated in liquid in a promoted. on optimizing process. samples. micro-recirculation way Research on the Different means to add The technical and operational The impact on the quality of means to add syrup syrup is comprehensively Promoted and original liquor caused by foundation will be laid for the to strongly fragrant assessed to provide applied. improvement of quality of different means to add syrup liquor technical support for the original liquor. is judged to choose relatively Company regarding the ~ 21 ~ Annual Report 2021 usage of adding syrup to better syrup adding way. liquor-making process. Details about R&D personnel: 2021 2020 Change (%) Number of R&D personnel 978 1,014 -3.35% R&D personnel as % of total 9.10% 10.21% -1.11% employees Educational background of —— —— —— R&D personnel Bachelor’s degree 211 228 -7.46% Master’s degree 41 43 -4.65% Other 726 743 -2.29% Age structure of R&D —— —— —— personnel Below 30 164 168 -2.38% 30~40 321 391 -17.90% Over 40 493 455 8.35% Details about R&D investments: 2021 2020 Change (%) R&D investments (RMB) 300,602,964.92 300,404,769.73 0.07% R&D investments as % of 2.27% 2.92% -0.65% operating revenue Capitalized R&D investments 0.00 0.00 0.00% (RMB) Capitalized R&D investments 0.00% 0.00% 0.00% as % of total R&D investments Reasons for any significant change to the composition of R&D personnel and the impact: □ Applicable √ Not applicable Reasons for any significant YoY change in the percentage of R&D investments in operating revenue: □ Applicable √ Not applicable Reasons for any sharp variation in the percentage of capitalized R&D investments and rationale: □ Applicable √ Not applicable 5. Cash Flows Unit: RMB Item 2021 2020 Change (%) Subtotal of cash generated from 16,698,641,516.83 13,919,228,342.47 19.97% operating activities Subtotal of cash used in operating 11,444,333,389.04 10,294,684,816.94 11.17% activities ~ 22 ~ Annual Report 2021 Net cash generated from/used in 5,254,308,127.79 3,624,543,525.53 44.96% operating activities Subtotal of cash generated from 721,528,559.15 372,197,845.63 93.86% investing activities Subtotal of cash used in investing 9,582,979,679.33 603,414,750.96 1,488.12% activities Net cash generated from/used in -8,861,451,120.18 -231,216,905.33 -3,732.53% investing activities Subtotal of cash generated from 5,165,337,169.81 130,665,500.00 3,853.10% financing activities Subtotal of cash used in financing 1,137,547,692.56 831,838,344.55 36.75% activities Net cash generated from/used in 4,027,789,477.25 -701,172,844.55 674.44% financing activities Net increase in cash and cash 420,646,484.86 2,692,153,775.65 -84.38% equivalents Explanation of why any of the data above varies significantly: √ Applicable □ Not applicable (1) Net cash generated from operating activities stood at RMB5,254,308,127.79 in the Reporting Period, up 44.96% year-on-year, primarily driven by the increased sales revenue. (2) Subtotal of cash used in investing activities stood at RMB9,582,979,679.33 in the Reporting Period, up 1,488.12% year-on-year, the main reason is the impact of purchasing financial products. (3) Net cash generated from financing activities stood at RMB4,027,789,477.25 in the Reporting Period, up 674.44% year-on-year, primarily driven by the arrival of funds raised through a private placement. (4) Net increase in cash and cash equivalents stood at RMB420,646,484.86 in the Reporting Period, down 84.38% year-on-year, the main reason is the impact of purchasing financial products. Reasons for any big difference between the net operating cash flow and the net profit for this Reporting Period □ Applicable √ Not applicable V Analysis of Non-Core Businesses □ Applicable √ Not applicable VI Analysis of Assets and Liabilities 1. Significant Changes in Asset Composition Unit: RMB 31 December 2021 31 December 2020 Change in Reason for any significant As % of total As % of total percentage Amount Amount change assets assets (%) ~ 23 ~ Annual Report 2021 Monetary assets 11,924,922,771.76 46.92% 5,971,212,569.66 39.18% 7.74% Accounts 89,005,804.17 0.35% 67,933,735.91 0.45% -0.10% receivable Inventories 4,663,456,672.30 18.35% 3,416,880,808.96 22.42% -4.07% Investment 4,075,801.06 0.02% 4,392,943.54 0.03% -0.01% property Long-term equity 5,312,600.78 0.02% 4,915,575.83 0.03% -0.01% investments Fixed assets 1,984,063,975.87 7.81% 1,797,789,271.62 11.80% -3.99% Construction in 1,064,134,904.21 4.19% 279,169,201.60 1.83% 2.36% progress Right-of-use 43,927,228.97 0.17% 57,402,412.53 0.38% -0.21% assets Short-term 30,035,138.89 0.12% 70,665,500.00 0.46% -0.34% borrowings Contract 1,825,447,705.85 7.18% 1,206,573,886.26 7.92% -0.74% liabilities Long-term 172,356,255.83 0.68% 60,117,638.89 0.39% 0.29% borrowings Lease liabilities 28,107,223.18 0.11% 53,226,677.43 0.35% -0.24% Indicate whether overseas account for a larger proportion in the total assets. □ Applicable √ Not applicable 2. Assets and Liabilities at Fair Value √ Applicable □ Not applicable Unit: RMB Gain/loss on Cumulative Impairment fair-value fair-value allowance Sold in the Beginning changes in Purchased in the Other Item changes for the Reporting Ending amount amount the Reporting Period changes charged to Reporting Period Reporting equity Period Period Financial assets ~ 24 ~ Annual Report 2021 1.Held-for-trading financial assets (excluding 203,877,915.51 7,225,961.17 0.00 2,450,000,000.00 2,661,103,876.68 derivative financial assets) 2. Investment in other equity 0.00 0.00 693,720.70 53,848,697.80 54,542,418.50 instruments Subtotal of 203,877,915.51 7,225,961.17 693,720.70 2,503,848,697.80 2,715,646,295.18 financial assets Total of the above 203,877,915.51 7,225,961.17 693,720.70 2,503,848,697.80 2,715,646,295.18 Financial 0.00 0.00 0.00 0.00 0.00 liabilities Significant changes to the measurement attributes of the major assets in the Reporting Period: □ Yes √ No 3. Restricted Asset Rights as at the Period-End Item Ending carrying value (RMB) Reason for restriction Structured deposits and time deposits that cannot be withdrawn in advance and Monetary assets 5,867,372,593.16 time deposits that are pledged for issuing bank acceptance drafts Fixed assets 4,225,738.45 Mortgage secured borrowing. Intangible assets 2,780,644.18 Mortgage secured borrowing. Total 5,874,378,975.79 -- VII Investments Made 1. Total Investment Amount □ Applicable √ Not applicable ~ 25 ~ Annual Report 2021 2. Major Equity Investments Made in the Reporting Period □ Applicable √ Not applicable 3. Major Non-Equity Investments Ongoing in the Reporting Period √ Applicable □ Not applicable Unit: RMB Reason for Accumulative Input amount Accumulative not reaching Fixed assets Estimated realized Way of Industry in the actual input Capital the schedule Disclosure Disclosure Item investment Progress return on revenues as investment involved Reporting amount as of the resources and date (if any) index (if any) or not investment of the Period period-end anticipated period-end income For details, please refer to the Announcement on Investment The smart in the Smart technology Self-owned Technology transformation Liquor 3 March Self-built Yes 841,790,505.09 1,001,582,020.44 funds and 11.22% N/A N/A N/A Transformation project for production 2020 raised funds Project for liquor Liquor production Production disclosed by the Company on the website of Cninfo ~ 26 ~ Annual Report 2021 dated 3 March 2020. Total -- -- -- 841,790,505.09 1,001,582,020.44 -- -- N/A N/A -- -- -- 4. Financial Investments √ Applicable □ Not applicable Unit: RMB Gain/loss on fair Cumulative Variety Purchased in Code of Name of Initial Accounting Beginning value fair value Sold in the Gain/loss in Ending Source of the of measurement changes in changes Reporting the Reporting Accounting title securities securities investment cost Reporting funds model carrying value the charged to Period Period carrying value securities Period Reporting equity Period DAPU Asset Fair value Held-for-trading Self-owned Fund 200,000,000.00 203,877,915.51 -339,271.15 14,393,316.21 203,538,644.36 Management method financial assets funds Other ending holding securities -- -- investments Total 200,000,000.00 -- 203,877,915.51 -339,271.15 14,393,316.21 203,538,644.36 -- -- Disclosure date of the announcement about the board’s The Company held the 8th Meeting of the 9th Board of Directors on 27 August 2021, reviewed and approved the proposal on carrying out securities investment consent for the securities business. investment Disclosure date of the announcement about the general N/A meeting’s consent for the securities investment (if any) ~ 27 ~ Annual Report 2021 (2) Investments in Derivative Financial Instruments √ Applicable □ Not applicable Unit: RMB’0,000 Proportion of closing Actual Purchased in investment Relationship Initial Beginning Sold in the Impairment Ending gain/loss in Connected Type of the amount in Operator with the investment Starting date Ending date investment Reporting provision (if investment the transaction derivative Reporting the Company amount amount Period any) amount Reporting Period Company’s Period ending net assets Reverse Reverse repurchase 27 January 5 January Naught No repurchase of 0.00 0.00 60,970.20 53,349.70 7,620.50 0.44% 67.35 of national 2021 2022 national debt debt Total 0.00 -- -- 0.00 60,970.20 53,349.70 7,620.50 0.44% 67.35 Capital source for derivative investment Company’s own funds Lawsuits involved (if applicable) N/A Disclosure date of board announcement approving 30 August 2013 derivative investment (if any) Disclosure date of shareholders’ meeting announcement approving derivative investment (if any) Analysis of risks and control measures associated with derivative investments held in the Reporting Period The Company had controlled the relevant risks strictly according to the Derivatives Investment Management System. (including but not limited to market risk, liquidity risk, ~ 28 ~ Annual Report 2021 credit risk, operational risk, legal risk, etc.) Changes in market prices or fair value of derivative investments during the Reporting Period (fair value Naught analysis should include measurement method and related assumptions and parameters) Significant changes in accounting policies and specific accounting principles adopted for derivative Naught investments in the Reporting Period compared to previous reporting period Based on the sustainable development of the main business and the sufficient free idle money, the Company increased the profits through investing in the reasonable financial derivative instruments, which was in favor of improving the service efficiency of the idle funds; in order to reduce the investment risks of the financial derivative instruments, the Company had set up corresponding supervision Opinion of independent directors on derivative mechanism for the financial derivative instrument business and formulated reasonable accounting policy as well as specific principles of investments and risk control financial accounting; the derivative Investment business developed separately took national debts as mortgage object, which was met with the cautious and steady risks management principle and the interest of the Company and shareholders. Therefore, agreed the Company to develop the derivative Investment business of reverse repurchase of national debt not more than the limit of RMB0.3 billion. 5. Use of Funds Raised √ Applicable □ Not applicable (1) Overall Usage of Funds Raised √ Applicable □ Not applicable Unit: RMB’0,000 Total funds Total funds used Accumulative Total funds with Accumulative Proportion of Total unused The usage and Amount of Year Way of raising raised in the Current fund used usage changed funds with accumulative funds destination of funds raised idle ~ 29 ~ Annual Report 2021 Period usage changed funds with unused funds for over two usage changed years Deposited in Private fund raising 2021 placement of 495,434.21 43,076.74 43,076.74 0.00 0.00 0.00% 452,357.47 account and 0.00 stocks cash management Total -- 495,434.21 43,076.74 43,076.74 0.00 0.00 0.00% 452,357.47 -- 0.00 Explanation of overall usage of funds raised Through this issuance, the Company raised total proceeds of RMB5,000,000,000.00. After deducting the expenses related to the issuance of RMB45,657,925.15 (excluding VAT), the actual net proceeds raised were RMB4,954,342,074.85, the actual amount of funds received is RMB 4,957,547,169.81. During 2021, the Company used raised funds of RMB430.7674 million in total, paid issuance costs of RMB1.2514 million, received income revenue of RMB16.6838 million in the raised funds account (deducting the issuance costs and used raised funds), and used temporarily idle raised funds to purchase structured deposits of RMB4,420 million. At 31 December 2021, the balance of t he raised funds account stood at RMB4,542.2122 million. (2) Commitment Projects of Fund Raised √ Applicable □ Not applicable Unit: RMB’0,000 Whether Accumulative Investment Changed or Investment Date of Realized Whether occurred Committed Investment investment schedule as Committed investment project not (including amount in the reaching income in the reached significant investment amount after amount as of the and super raise fund arrangement partial Reporting intended use Reporting anticipated changes in amount adjustment (1) the period-end period-end changes) Period of the project Period income project (2) (3)=(2)/(1) feasibility Committed investment project The smart technology Not 495,434.21 495,434.21 43,076.74 43,076.74 8.69% 31 December N/A Not ~ 30 ~ Annual Report 2021 transformation project for liquor 2024 production Subtotal of committed investment -- 495,434.21 495,434.21 43,076.74 43,076.74 -- -- -- -- project Total -- 495,434.21 495,434.21 43,076.74 43,076.74 -- -- -- -- Condition and reason for not reaching the schedule and N/A anticipated income (by specific items) Notes of condition of significant changes occurred in project N/A feasibility Amount, usage and schedule of N/A super raise fund Changes in implementation N/A address of investment project Adjustment of implementation N/A mode of investment project Advance investments in projects financed with raised funds and swaps of such advance N/A investments with subsequent raised funds Idle fund supplementing the N/A current capital temporarily ~ 31 ~ Annual Report 2021 Amount of surplus in project N/A implementation and the reasons Usage and destination of unused As of December 31, 2021, the unused raised funds and interest were stored in the special account, the idle raised funds were used for cash management, and funds the purchase of financial products had not been redeemed by 44.20 million yuan. Problems incurred in fund using N/A and disclosure or other condition (3) Changes in Items of Funds Raised □ Applicable √ Not applicable No such cases in the Reporting Period. VIII Sale of Major Assets and Equity Interests 1. Sale of Major Assets □ Applicable √ Not applicable No such cases in the Reporting Period. 2. Sale of Major Equity Interests □ Applicable √ Not applicable IX Principal Subsidiaries and Joint Stock Companies √ Applicable □ Not applicable Principal subsidiaries and joint stock companies with an over 10% effect on the consolidated net profit: Unit: RMB ~ 32 ~ Annual Report 2021 Relationship with the Main business Company name scope Registered capital Total assets Net assets Operating revenues Operating profit Net profit Company Wholesales of distilled spirit, Bozhou Gujing Subsidiary construction 84,864,497.89 4,809,706,779.15 127,377,019.76 11,364,553,622.12 840,739,673.81 625,815,758.69 Sales Co., Ltd materials, feeds and assistant materials Manufacture and Anhui Longrui Subsidiary sale of glass 86,660,268.98 427,785,997.39 357,183,946.32 321,096,222.99 46,908,148.94 40,890,221.16 Glass Co., Ltd products Yellow Crane Tower Production and Wine Industry Co., Subsidiary sales of distilled 400,000,000.00 1,735,601,365.26 712,095,045.65 1,458,982,962.92 221,500,064.26 171,059,692.48 Ltd spirit Shanghai Gujing Jinhao Hotel Hotel management Subsidiary 54,000,000.00 194,348,147.99 77,011,449.84 67,349,141.24 21,002,505.46 19,134,556.66 Management Co., and house lease Ltd. Subsidiaries obtained or disposed in the Reporting Period: √Applicable □Not applicable Acquisition and disposal of subsidiaries during the reporting The impact on the overall production operation and The name of the company period performance Strengthen the development of the Company’s main business of liquor, accelerate the national layout of the product market, Anhui Mingguang Distillery Co., Ltd. Business combination not under the same control and enhance the Company’s brand influence and business scale Mingguang Tiancheng Ming Wine Sales Co., Ltd. Business combination not under the same control Strengthen the development of the Company’s main business ~ 33 ~ Annual Report 2021 of liquor, accelerate the national layout of the product market, and enhance the Company’s brand influence and business scale Strengthen the development of the Company’s main business of liquor, accelerate the national layout of the product market, Fengyang Xiaogang Village Ming Wine Distillery Co., Ltd. Business combination not under the same control and enhance the Company’s brand influence and business scale Strengthen the development of the Company’s main business of liquor, accelerate the national layout of the product market, Renhuai Maotai Town Zhencang Winery Industry Co., Ltd. Business combination not under the same control and enhance the Company’s brand influence and business scale Optimize the internal management structure and enhance the Anhui Jiuan Mechanical Electrical Equipment Co., Ltd. Set up internal driving force. Anhui Jiuhao China Railway Construction Engineering Co., Optimize the internal management structure and enhance the Set up Ltd. internal driving force. Bozhou Gujing Waste Recycling Co., Ltd. Cancel Other information on principal subsidiaries and joint stock companies: N/A X Structured Bodies Controlled by the Company □ Applicable √ Not applicable ~ 34 ~ Annual Report 2021 XI Prospects (I) Development Prospect of the Industry the Company is in 1. The tightening regulation has promoted the sound development of the liquor and spirits industry Since the National Development and Reform Commission issued the Catalogue for Guiding Industry Restructuring in 2019, "the product line of liquor and spirits" has been deleted from "restricted" items. This has released the "trammels" besetting the development of this industry for many years, and has brought a period of rapid development for the liquor and spirits industry. In 2021, the regulatory authorities intensified the regulation on the liquor and spirits industry. The government and relevant departments successively issued a number of policies, and the State Administration for Market Regulation regulated and guided the development of the industry through multiple channels, all of which have promoted the sound development of the liquor and spirits industry. 2. The exacerbating differentiation has further increased the brand concentration among liquor enterprises China's liquor and spirits industry is moving faster to transform from an expanding market to a competitive market, and as a result, the strong have become stronger and the weak have become weaker. The "Matthew Effect" has become intensified. The market shares of leading liquor enterprises above the designated size have kept rising, but the overall number of liquor enterprises has kept declining. Meanwhile, the consumption philosophies of rational drinking and healthy drinking have been gradually deeply rooted in people's hearts, and when making choices of consuming liquor and spirits, consumers have gradually strengthened their brand awareness. 3. Channel transformation, particularly digital transformation, has enabled liquor enterprises to enhance their core competitiveness Due to the pandemic, channel transformation has been intensified, digital trend has emerged, the online and offline closed-loop flow has offered all-channel shopping experience to consumers, and the penetration rate in such digital channels as E-commerce, O2O, live streaming, and community group purchasing has been increased. Thus, the concentration in the liquor and spirits industry has been further strengthened, and the enterprises, in order to enhance their core competitiveness, have relied on digital platforms to refine the management of supply side, internal procedures of enterprises, and customer operations in the whole process of operations, which enables the enterprises to reduce their operation costs and improve their operation efficiency. 4. The alternating pattern of the consumer groups of the liquor and spirits industry is being transformed Young consumer groups constitute the future main consumption force of the liquor and spirits industry, and the future new growth points in the sector of China's liquor and spirits. In consideration of the alternation toward younger consumers, in which the consumption of liquor and spirits is being more rapidly transformed toward the new generation of consumers, many renowned liquor enterprises have made their overall arrangements for their brand promotion and the packing and appearance of products with the symbols and expression of a younger and more fashionable orientation. In such manners as online marketing and offline branding, brand promotion has redefined the cognition of younger consumption groups to the brands and products of liquor and spirits, which has realized the market education to young consumer groups through brand promotion of liquor and spirits. (II) Development Strategy of the Company 1. Firmly boost "Strategy 5.0, Five-Star Operation” Strategy Comprehensively fulfill Strategy 5.0 and have the "User-Centered" thought fully and deeply implemented in the Company. Solidly create the "Five-Star Operation", enhance competitive force, improve quality and efficiency, optimize services and promote healthy and efficient operation of the enterprise. 2. Firmly boost reform and innovation strategy Deeply boost marketing innovation, technological innovation and mechanism innovation and generate endogenous power of the enterprise. 3. Firmly create “Talent Highland” strategy Intensify talent recruitment and attraction and establish flexible talent attraction and wisdom experience borrowing mechanism. Innovate talent training mode and promote independent cultivation & development and absorption & attraction simultaneously. ~ 35 ~ Annual Report 2021 (III) Operating Revenue Plan of the Company in 2022 In 2022, the Company plans to achieve the operating revenue of RMB15.3 billion, rising 15.30% compared with that of last year; and achieve a total profit of RMB3.55 billion, rising 11.94% compared with that of last year. (IV) Operating Risk of the Company 1. The adverse effect of the systematic risk in the macro-economic environment on the development of the industry and the Company. 2. The strengthened concentration, intensified polarization, and continuously escalated competition in the liquor and spirits industry 3. The normalization of the COVID-19 pandemic, and the more complex, severe and uncertain external environment. (V) Operating Measures 1. Marketing The Company made all efforts to push forward market and brand building, optimized the supply of resources, intensified the dissemination via Internet and new media, upgraded its brand IP, and increased the influence of Gujinggong brand. It was determined to carry out unswervingly its "nationwide, sub-high-end, and Gu 20+" strategy, and to push forward the re-optimization of its product structure and market structure. 2. Product Management The Company strictly kept carrying out its production processes, continuously optimized its production operations, further explored the improvement of its key processes, and constantly improved the quality of its original liquor. It established a sound management system standard for planting of grain bases, prevented and controlled bio-safety risks, carried out an exploratory reformation for management mode of quality check, and intensified the control and supervision on production processes, so that the quality of original grain can be controlled well from the source. 3. Engineering Construction The Company accelerated the construction of the smart technology transformation project (smart park) for liquor production, and adhered to high standards and high quality to promote the construction of smart park projects. 4. Informatization Construction The Company intensified digital construction. Aided by modern technological means, the Company centered on smart manufacturing and green liquor making, set up an Internet platform for the liquor and spirits industry, and built a lighthouse factory of Gujing "5G+ industrial Internet", to comprehensively promote the digital transformation of Gujing. It proactively pushed forward big data building, strengthened business data analysis, promoted procedure optimization, and improved the Company's operation efficiency and management standard. 5. Safety and Environmental Protection The Company comprehensively consolidated safety responsibility system, and continuously made great efforts to investigate and control hazards, identify dangerous sources, and conduct safety education; it intensified fire-fighting management by specifying the spot checks of facilities, monitoring precautions, and fire control drills; it broadened thinking of safety work to build a steady safety defense line with the aid of the information system of safety prevention. Under the premise of ensuring up-to-standard pollutant discharge, and compliant waste disposal, the Company explored ways to comprehensively utilize the by-product of liquor-making, to improve energy service efficiency, increase the proportion of new energy, further conserve energy and reduce carbon emission, and pursue green development. 6. Internal Management The Company improved its incentive mechanism, and continuously promoted "separate legal entity system", and "creating platforms for innovation and entrepreneurship". It delegated powers to lower levels to stimulate vitality, and balanced powers with responsibilities, thus gradually realizing market-oriented distribution of such key factors as personnel, expenses, and remuneration. The measures also further vitalized the operation mechanism of grass-roots units, and stimulated the motivation and creativity of staff members. The Company also comprehensively sorted out such risk matters as its business, operating model, and financial management, optimizing its internal control system. Meanwhile, it deepened the internal control assessment, and effectively ~ 36 ~ Annual Report 2021 integrated internal control assessment with performance auditing and special auditing, thus intensifying the supervision on internal control. 7. Corporate Culture Construction The Company adhered to the principle that "Party-building helps build, vitalize, and stabilize the enterprise", and increased its cohesion through high-quality Party-building and cultural work, thus providing a strong political assurance for its high-quality development, and forming a firm ideological front line that helped build, revitalize, and strengthen the enterprise. The Company deepened and promoted the learning and education of Party history. It focused on the in-depth integration and mutual promotion of Party-building and production and operation, normally carried out the activities of "I do practical things for the masses", conducted "Party-building brand" creation activities, deepened co-built Party-building, consolidated the building achievements of standardization within Party branches, and optimized the Party-building training system. The Company strictly implemented the spirit of Eight-point Decision issued by the CPC Central Committee, and constantly improved the supervision and governance efficiency. It continuously integrated the Gujing Values into each aspect of the Company including production, operation, and management. In 2022, the Company will continue to be guided by Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, thoroughly implement the spirit of the 19th CPC National Congress and the various plenary sessions of the 19th CPC Central Committee, enhance the "Four Consciousnesses", firmly believe in the "Four Self-confidences", implement the "Two Maintenances", carry forward the great Party-building spirit, and adhere to the general principle of pursuing progress while ensuring stability. Under the strong leadership of the municipal CPC committee and the municipal government, the Company will implement the spirit of the provincial and municipal Party congresses, adhere to "three Stricts and Three Honests", and "do things immediately, genuinely, and solidly", gather strength to build "China Liquor Town", continuously implement long-term perspective mindset, the concept of excellence, and the awareness of high-quality products, maintain integrity and innovation, pursue progress while ensuring stability, and once again build a new "Gujing", an enterprise with digital and global operations and law-based management, enabling the Company to boast excellent achievements to celebrate the 20th CPC National Congress to be successfully held. XII Communications with the Investment Community such as Researches, Inquiries and Interviews □ Applicable √ Not applicable ~ 37 ~ Annual Report 2021 Part IV Corporate Governance I General Information of Corporate Governance Indicate by tick market whether there is any material in-compliance with laws, administrative regulations and the regulatory documents issued by the CSRC governing the governance of listed companies. □ Yes √ No The Company has enabled the General Meeting, the Board of Directors, the Board of Supervisors and the management to form a standardized and scientific decision-making mechanism of operation to sufficiently protect the rights and interests of investors, and small and medium investors in particular, and to intensify the standardized operation of the Company, in strict accordance with relevant laws and regulations such as the Company Law, the Securities Law, the Code of Corporate Governance for Listed Companies, the Rules for Stock Listing of Shenzhen Stock Exchange, and the Guidelines of the Shenzhen Stock Exchange for the Standard Operation of Listed Companies. During the Reporting Period, the Company's actual situation of corporate governance met the relevant requirements of the normative documents on the governance of listed companies issued by the China Securities Regulatory Commission. In strict accordance with the relevant laws and regulations, and the Company's requirements on internal rules, regulations, and management system, each of the directors, supervisors and senior managers of the Company executed his or her rights and obligations, to ensure transparent disclosure of the Company's information, its operation according to law, and honesty and trustworthiness. 1. Shareholders and General Meeting of Shareholders The Company regulates the convening, holding, and voting procedures of the general meeting of shareholders in strict accordance with the provisions and requirements of the Company Law, the Articles of Association, and the Rules of Procedure of the General Meeting. During the Reporting Period, the convening and holding procedures of general meetings of shareholders, the qualifications of attendants to the meetings and the voting procedures of the meetings all met the provisions of the Company Law, Rules of Procedure of the General Meeting, and other laws and regulations. The Company equally treated all of its shareholders, and small and medium shareholders in particular, to ensure full execution of rights of all shareholders. 2. The Company and Controlling Shareholders The Company's controlling shareholders are able to strictly regulate their own behaviors, without any violation of provisions of relevant laws, regulations, and the Company's Articles of Association. They have not directly or indirectly interfered with the Company's decision-making, and production and operation activities, nor have they occupied the Company's funds; the Company has not provided its controlling shareholders with any form of guarantee. 3. Directors and Board of Directors The Company's Board of Directors consists of nine directors, three of whom are independent directors. The number of directors and the personnel composition of the Board of Directors comply with the requirements of laws, regulations, and the Articles of Association. All directors act in accordance with the Articles of Association, Rules of Procedure of the Board of Directors, and the Work Policy for Independent Directors, etc., attend the meetings of the Board of Directors and general meetings of shareholders, diligently and faithfully perform their duties and obligations. Meanwhile, they actively participate in relevant training, and get familiar with relevant laws and legislations. Under the Board of Directors, there are four special committees, i.e., the Audit Committee, the Nominating Committee, the Remuneration and Appraisal Committee, and the Strategy Committee, which perform their normal duties, to provide scientific and professional comments and references for decision-making of the Board of Directors. 4. Supervisors and Board of Supervisors There are five supervisors in the Company's Board of Supervisors, including two employee supervisors. The number and ~ 38 ~ Annual Report 2021 composition of the Board of Supervisors are in compliance with the requirements of laws and regulations. All supervisors are able to conscientiously perform their duties in accordance with the requirements of the Rules of Procedure of the Board of Supervisors, earnestly perform their duties, and supervise the major events, related-party transactions, financial status, law-and-regulation compliance of performance of duties of directors and senior managers of the Company. 5. The Mechanism of Performance Appraisal, and Incentive and Constraint The procedures for appointment and removal of directors, supervisors, and senior managers of the Company shall be open and transparent, and in line with the relevant provisions of laws, regulations, and the Articles of Association; the Company's remuneration appraisal scheme shall specifically stipulate the evaluation to the Company's management team. The Company shall constantly improve the performance evaluation standard and incentive and constraint mechanism of directors, supervisors, and senior managers. 6. Fulfillment of Social Responsibilities, and Stakeholders The Company is able to fully respect and protect the legitimate rights and interests of relevant stakeholders, achieve a balance of interests between the society, shareholders, the Company, suppliers, customers, employees, and other relevant parties, to promote the sustainable, stable, and healthy development of the Company. 7. Information Disclosure and Transparency The Company faithfully performs the obligation of information disclosure in strict accordance with the Articles of Association of the Company, Listing Rules of Shenzhen Stock Exchange, Self-Regulatory Guidelines No. 1 for Companies Listed on Shenzhen Stock Exchange - Standard Operation of Listed Companies on the Main Board, Self-regulatory Guidelines No. 5 for Companies Listed on Shenzhen Stock Exchange - Management of Information Disclosure Affairs, and the relevant laws and regulations of China's Securities Regulatory Commission and Shenzhen Stock Exchange. The Company designates China Securities Journal, Shanghai Securities News, Ta Kung Pao, and Cninfo (http://www.cninfo.com.cn) as its information disclosure media and website, to guarantee investors' right to know, and to ensure that all shareholders of the Company have a fair opportunity to obtain information of the Company. Meanwhile, the Company has established diversified communication channels for investors, including special telephone line, exclusive mailbox, and interactive platform for investors, and many other forms, to fully guarantee the right of a large number of investors to know. 8. The formulation and implementation of the registration and management system on inside information and insiders In accordance with the requirements of regulatory authorities, the Company and all of its controlling shareholders have formulated the system for registration and record on inside information and insiders, regulated the acts of managing inside information of the Company and its controlling shareholder, strengthened the classification of inside information, and safeguarded the principle of fairness for information disclosure. During the Reporting Period, in strict accordance with the Management System on Inside Information and Insiders, the Company has made well classification of inside information, and registration and record on insiders. II The Company’s Independence from Its Controlling Shareholder and Actual Controller in Business, Personnel, Asset, Organization and Financial Affairs The Company and the controlling shareholder, Anhui Gujing Group Co., Ltd., realized five independences in terms of business, personnel, assets, organizations and financial affairs, with separate independent calculation, independent and complete business, independent operation ability, and independent responsibilities and risks. Majority shareholders cannot surpass the shareholders’ general meeting to directly or indirectly interfere with the Company’s decisions and legal production as well as operation activities, and there is no same trade competition state of the same products between the company and majority shareholders. 1. Independence of Business The Company is mainly engaged in the production and sale of liquor and spirits, and the Company's business is mutually independent of its controlling shareholder Gujing Group and other enterprises controlled by the Group. The issuer owns independent research and development system, purchasing system, production system, and sale system, forming a complete business chain, all of which do not rely on its shareholders and their subordinate enterprises. Therefore, the issuer's business is independent of its controlling ~ 39 ~ Annual Report 2021 shareholders. 2. Independence of Personnel The Company has independent management systems of labor, personnel, salary, etc., and independent staff teams, in which the salary payment and welfare expenditure of the Company are strictly independent of those of its shareholders and related parties. The directors, supervisors and senior managers of the Company are all selected in strict accordance with the relevant provisions of the Company Law and the Company's Articles of Association. All senior managers do not take other positions than directors or supervisors in any of other entities controlled by the controlling shareholders or actual controllers of the Company, nor do they receive salary from any other entities controlled by the controlling shareholders or actual controllers of the Company. None of the financial staff members of the Company takes part-time positions in any of other entities controlled by the controlling shareholders or actual controllers of the Company. 3. Independence of Assets The Company has its production system, auxiliary production system, and supporting facilities related to its production and operation; and legally has the ownership or use rights of the land, plants, machines, trademarks, and patents in relation to its production and operation. Therefore, there is not any damage to the Company's interests in such a way that the assets and funds of the Company are occupied by the Company's controlling shareholders and their related parties. 4. Independence of Organization The Company has established a sound and integral governance structure of general meeting of shareholders, the Board of Directors, and the Board of Supervisors, and formulated the corresponding internal control management system. The Company independently exercises the duties and rights of operation and management, in which the Company's units of production, operation, and office are completely separated from the shareholding entities. Therefore, the Company does not make mixed operation and has mixed office with its shareholding entities; the Company's shareholding entities and their related entities or persons do not interfere with the Company's structural setup; there is not any subordinate relationship between the Company and its controlling shareholders, or between their functional departments. 5. Independence of Finance The Company has set up an independent finance department with full-time personnel; and established an independent accounting system and financial management system, independently making financial decisions, and implementing a strict internal audit system. An independent bank account has been opened for the Company, without sharing the account with the Company's shareholding entities or any other entity or person. The Company, as an independent taxpayer, declares taxes and fulfills tax payment obligations independently according to law, and does not pay taxes together with its shareholding entities. III Horizontal Competition □ Applicable √ Not applicable IV Annual and Extraordinary General Meetings Convened during the Reporting Period 1. General Meeting Convened during the Reporting Period Investor Index to disclosed Meeting Type Date of the meeting Disclosure date participation ratio information Announcement on The 2020 Annual Annual General 59.34% 25 May 2021 26 May 2021 Resolutions of the General Meeting Meeting 2020 Annual ~ 40 ~ Annual Report 2021 General Meeting disclosed on www.cninfo.com.cn 2. Extraordinary General Meetings Convened at the Request of Preferred Shareholders with Resumed Voting Rights □ Applicable √ Not applicable V Directors, Supervisors and Senior Management 1. Basic Information Increase Decrease End Beginning in the in the Other Ending Incumbent/Form Gende Ag Start of of Name Office title shareholdin Reportin Reportin increase/decreas shareholdin er r e tenure tenur e g (share) g Period g Period e (share) g (share) (share) (share) Chairman 19 18 Liang of the Incumbent Male 56 June June Jinhui Board 2020 2023 19 18 Li Peihui Director Incumbent Male 49 June June 2020 2023 19 18 Zhou Director, Incumbent Male 48 June June Qingwu GM 2020 2023 Director, 19 18 Executive Yan Lijun Incumbent Male 49 June June Deputy 2020 2023 GM Director, 19 18 Xu Peng Deputy Incumbent Male 52 June June GM 2020 2023 Ye 19 18 Changqin Director Incumbent Male 48 June June g 2020 2023 19 18 Zhang Independen Incumbent Male 71 June June Guiping t director 2020 2023 Wang Independen 19 18 Incumbent Male 60 Ruihua t director June June ~ 41 ~ Annual Report 2021 2020 2023 19 18 Xu Independen Incumbent Male 46 June June Zhihao t director 2020 2023 Chairman of 19 18 Sun Supervisor Incumbent Male 57 June June Wanhua y 2020 2023 Committee 19 18 Yang Supervisor Incumbent Male 55 June June Xiaofan 2020 2023 10 19 Wang Employee Marc Incumbent Male 52 June Zibin supervisor h 2020 2022 19 18 Lu Supervisor Incumbent Male 42 June June Duicang 2020 2023 19 18 Employee Zhang Bo Incumbent Male 57 June June supervisor 2020 2023 19 18 Zhang Deputy Incumbent Male 54 June June Lihong GM 2020 2023 Zhu 19 18 Deputy Xianghon Incumbent Male 48 June June GM g 2020 2023 19 18 Gao Deputy Incumbent Male 52 June June Jiakun GM 2020 2023 28 18 Deputy Li Anjun Incumbent Male 52 August June GM 2020 2023 28 18 GM Kang Lei Incumbent Male 44 August June assistant 2020 2023 GM 28 18 Zhu assistant, Incumbent Male 45 August June Jiafeng Deputy 2020 2023 ~ 42 ~ Annual Report 2021 Chief Accountant Secretary 29 18 Zhu of the Incumbent Male 45 Octobe June Jiafeng Board r 2021 2023 Total -- -- -- -- -- -- Indicate by tick mark whether any directors or supervisors left or any senior management were disengaged during the Reporting Period □ Yes √ No Change of Directors, Supervisors and Senior Management √Applicable □ Not applicable Name Office title Type of change Date of change Reason for change Deputy GM, Chief Ye Changqing Accountant, Left 13 August 2021 Job change Secretary of the Board Secretary of the Zhu Jiafeng Appointed 29 October 2021 Appointment Board 2. Biographical Information Professional backgrounds, major work experience and current duties in the Company of the incumbent directors, supervisors and senior management: 1. Mr. Liang Jinhui, male, born in October 1966, member of CPC, is Political Engineer and a deputy to the 13th National People’s Congress with MBA degree, incumbent Secretary of CPC and president of the Company and president and Secretary of CPC of Gujing Group. He ever took the post of MD, GM, Deputy GM, GM of Bozhou Gujing Sales Co., Ltd., Supervisor of Third Supervisory Committee, Director of the 4th, 5th and 6th Board of Directors and Chairman of the 7th and 8th Board of Directors of the Company. 2. Mr. Li Peihui, male, born in July 1973, member of CPC, is a holder of master degree. He is a senior accountant, CPA and member of national leading accounting talents. At present, he acts as the Company’s Vice Secretary of CPC and president of Gujing Group. He had ever served as deputy GM and GM of Financial Department, deputy chief accountant, chief accountant, Secretary of Board of Directors and Director of the Company; Chairman of the Board of Anhui Ruijing Business Travel Group Co. and Anhui Huixin Financial Investment Group; executive vice president and CFO of Gujing Group; and director of the 7 th and 8th Board of Directors. 3. Mr. Zhou Qingwu, male, born in February 1974, member of CPC, is a senior engineer, and China Chief Liquor and Spirits Taster with educational experience of graduate student. At present, he is Vice Secretary of CPC, Director and General Manager of the Company, Vice Secretary of CPC of Gujing Group. He had ever acted as Deputy GM and deputy executive GM of the Company and Director of the 5th , 6th, 7th and 8th Board of Directors of the Company. 4. Mr. Yan Lijun, male, June 1973, member of CPC, is a holder of master degree with Senior Taster. Now he is Vice Secretary of CPC, Director, Executive Deputy GM of the Company, member of CPC Committee of Gujing Group, Chairman of the Board and GM of Bozhou Gujing Sales Co., Ltd. He once worked as a salesman of Sale Company, District Manager, Director of Market ~ 43 ~ Annual Report 2021 Research, Vice Manager of Planning Department, Director of Hefei Strategic Operations Center, Vice GM and director of the 7 th and 8th Board of Directors of the Company. 5. Mr. Xu Peng, male, born in September 1970, member of CPC, has educational experience of undergraduate college. He is the member of CPC Committee, Director and Deputy GM of the Company, member of CPC Committee of Gujing Group, and Chairman of the Board of Yellow Crane Tower Liquor Industry Co., Ltd. He had ever acted as Deputy Director and Director of Finance Second Office of Finance Department of the Company, Manager of Finance Department of Anhui Laobada Co., Ltd., Vice Manager and Manager of Finance Department of the Company, Deputy General Manager and Chief Supervisor of Market Supervision Department of Bozhou Gujing Sales Company, Chairman of the 7th Supervisory Committee and Director of the 7th and 8th Board of Directors of the Company. 6. Mr. Ye Changqing, male, born in October 1974, member of CPC, is a member of national leading accounting talents with master degree and International Certified Internal Auditor. He is the incumbent Director of the Company and CFO of Gujing Group. He had ever acted as Chief Auditor of Audit Department, Vice Manager of Audit Department and Vice Supervisor and Supervisor of Auditing& Supervision Department; and Supervisor of the 4th Supervisory Committee of the Company; Director and Secretary of the 5th, 6th, 7th and 8th Board of Directors, and Chief Accountant of the Company. 7. Zhang Guiping, male, born in August 1951, is a member of the Revolutionary Committee of the Chinese Kuomintang and a bachelor's degree holder. He is currently a member of the 13 th CPPCC National Committee, Chairman of Sunning Global, Chairman of Suning Universal Co., Ltd., Independent Director of the Company, President of Commercial Culture Association of China, Director of Anhui International Huishang Exchange Association, Director of Southeast University, Director and Professor at Nanjing Normal University, and other social positions. Many awards have been bestowed upon him, including “Excellent Contributor to Building of Socialism with Chinese Characteristics”, “China Outstanding Private Entrepreneur”, “China Most Influential Business Leader”, “Chinese Talent with Great Integrity”, “Top Ten Influential People in China Real Estate Industry”, and “Outstanding Individual Contributor to China Charity”. 8. Wang Ruihua, male, born in January 1962, member of CPC, is a non-practicing Chinese CPA with a doctor’s degree in management. Now he acts as a professor and doctoral advisor in the Business School of Central University of Finance and Economics, the independent director in the Company, BCEG Environmental Remediation Co., Ltd., and Bank Of Beijing Co., Ltd., member of Independent Director Committee of China Association for Public Companies. 9. Xu Zhihao, male, born in June 1976, is a senior engineer who graduated from Renmin University of China. He also holds a master's degree from the PBC School of Finance, Tsinghua University, and is studying for a doctorate at Zhejiang University and Singapore Management University. He possesses the professional qualifications to engage in fund and securities businesses. He is currently Independent Director of the Company, CEO of Geely Technology Group Co., Ltd., Chairman of QJMOTOR, and Chairman of Lifan Technology. 10. Sun Wanhua, male, was born in October 1965, member of CPC, with a bachelor degree. Now he acts as the Chairman of the Supervisory Committee of the Company, member of the Party Committee and vice president in Gujing Group. He once held the posts of the member of Standing Committee of CPC County Committee, the Party Secretary of People’s Armed Forces Department and political commissar in Minquan County, Henan Province, member of Standing Committee of Discipline Inspection Committee in Bozhou, Deputy Director of Bozhou Supervision Bureau and Deputy Secretary of Bozhou Discipline Inspection Committee, Chairman of the 8th Supervisory Committee of the Company. 11. Mr. Yang Xiaofan, male, born in April 1967, member of CPC, is a holder of master degree. At present, he is Supervisor of the Company and Vice President and member of CPC Committee of Gujing Group. He once acted as Vice President and General Manager of Anhui Gujing Real Estates Group Co., Ltd., Assistant to President of Gujing Group; Director of the 5 th, 6th and 7th Board of Directors of the Company and Supervisor of the 7 th and 8th Supervisory Committee of the Company. 12. Wang Zibin, male, born in August 1970, member of CPC, a senior auditor, certified internal auditor and CPA with a college degree. Now he acts as the Employee Supervisor of the Company, member of the Party Committee in Gujing Group. He once held ~ 44 ~ Annual Report 2021 the posts of the GM of Audit Department in Gujing Group, Assistant GM in Bozhou Construction Investment Real Estate Development Co., Ltd., CFO and Deputy GM in Hefei Marketing Center of Bozhou Gujing Sales Company, the Supervisor of the 7 th and 8th Supervisory Committee of the Company and Director in Audit Supervision Center and Secretary of the Discipline Inspection Committee in Gujing Group. 13. Lu Duicang, male, born in March 1980, member of CPC, a senior accountant with a master degree. Now he serves as the supervisor of the Company, the Chairman of Anhui Longrui Glass Co., Ltd. and director of Mengcheng Rural Commercial Bank Co., Ltd. He once acted as the accountant, deputy director, and director of No.1 Center of Finance Department, factory director of the Liquor and Spirits Bottling Branch and Manager of Finished Product Department in the Company, Controller of the Financial Management Center in Gujing Group, GM of Anhui Huixin Finance Investment Group Co., Ltd. Assistant Financial Controller in Gujing Group and the Supervisor of the 5th, 6th, 7th and 8th Supervisory Committee of the Company. 14. Mr. Zhang Bo, male, born in July 1965, member of CPC, is an economist with bachelor degree. Now, he serves as Employee Supervisor of the Company and director of 5A Management Committee (preparatory). He once worked as Chairman of the board and GM of Bozhou Gujing Printing Co., Ltd. and Bozhou Gujing Glassware Manufacturing Co., Ltd. as well as Chairman of the Board of Bozhou Ruineng Heat and Power Co., Ltd., Supervisor of the 7th and 8th Supervisory Committee of the Company, Chairman of the Labor Union of Gujing Group and Chairman of the Board & GM of Anhui Mingguang Distillery Co., Ltd. 15. Mr. Zhang Lihong, male, born in October 1968, member of CPC, is an economist with bachelor degree. He is incumbent Vice Secretary of CPC and Deputy GM of the Company and member of CPC Committee and deputy secretary of Commission for Discipline and Inspection of Gujing Group. He once acted as clerk, Secretary of Operation Department and Market Development Department, Deputy GM, Director of General Office, Director of Service Centre of Bozhou Gujing Sales Co., Ltd., Director of HR Department and Administrative Service Center and GM Assistant of the Company. 16. Mr. Zhu Xianghong, male, born in September 1974, member of CPC, is a senior Wine Taster with bachelor degree. He is incumbent Deputy GM of Company, GM of Yellow Crane Tower Liquor Industry Co., Ltd. He once acted as GM of Product Department of Bozhou Gujing Sales Co., Ltd., GM of Hefei Office, regional GM of Northern Anhui Province, GM of Anhui Operating Centre, standing Deputy GM of Sales Company and assistant to GM of the Company. 17. Mr. Gao Jiakun, male, born in November 1970, member of CPC, is a holder of bachelor degree. He is incumbent member of the CPC and Deputy GM of the Company. He once served as GM of Production Management Department, Vice Director of Production Management Centre, Chairman of the Board and GM of Bozhou Pairuite Packing Products Co., Ltd., Director of Finished Products Filling Centre and Production Management Centre, and assistant to GM of the Company. 18. Li Anjun, male, born in May 1970, is a member of CPC with a master's degree. He is currently a member of the Party Committee, Deputy General Manager, Chief Engineer, and Director of the Technical Quality Center of the Company. He served as the Deputy Director of the Company's Technical Quality Center. 19. Kang Lei, male, born in July 1978, is a member of CPC with a college degree. He is currently Assistant to General Manager, and Director of the Enterprise Management Center of the Company. He served as Deputy Director of the Financial Management Center of Bozhou Gujing Sales Company, Director of the Company's Administrative Service Center, and Deputy Director of the President's Executive Office of Gujing Group. 20. Zhu Jiafeng, male, born in August 1977, is a member of CPC with a college degree. He is currently assistant to General Manager, Deputy Chief Accountant, Secretary of the Board and Director of the Financial Management Center of the Company. He served as the Manager and Deputy Director of the Financial Management Center of the Company. Offices held concurrently in shareholding entities: √Applicable □Not applicable Office held in Remuneration or the Name Shareholding entity Start of tenure End of tenure allowance from the shareholding shareholding entity entity ~ 45 ~ Annual Report 2021 Chairman of Liang Jinhui Anhui Gujing Group Co., Ltd. the Board of 1 May 2014 Yes Directors 31 October Li Peihui Anhui Gujing Group Co., Ltd. President Yes 2017 Vice 31 October Sun Wanhua Anhui Gujing Group Co., Ltd. Yes President 2017 Vice 1 November Yang Xiaofan Anhui Gujing Group Co., Ltd. Yes President 2009 Ye Changqing Anhui Gujing Group Co., Ltd. CFO 13 August 2021 Yes The above-mentioned personnel, though they take posts in shareholders’ entities, comply with the relevant Notes employment requirements of Company Law, Securities Law and never disciplined by CSRC, other relevant departments and the Stock Exchange. Offices held concurrently in other entities: √Applicable □Not applicable Remuneration or Office held in Name Other entity Start of tenure End of tenure allowance from other entity other entity Chairman of Suning Universal Group Co.,Ltd December 2005 No the Board Zhang Guiping Chairman of Suning Universal Co.,Ltd the Board, October 2017 October 2023 Yes President Geely Technology Group Co., Ltd. CEO January 2018 Yes Chairman of Zhejiang Qjiang Motorcycle Co.,Ltd. February 2020 May 2024 No the Board Xu Zhihao Chairman of Lifan Technology (Group) Co.,Ltd. January 2021 January 2024 No the Board Mingtai Investment Development Group Chairman of August 2021 No Co., Ltd the Board Central University of Finance and Professor July 1983 Yes Economics Independent Wang Ruihua Bank Of Beijing Co., Ltd. December 2019 December 2022 Yes director BCEG Environmental Remediation Co., Independent March 2020 March 2023 Yes Ltd. director Mengcheng Rural Commercial Bank Co., Lu Duicang Director March 2018 No Ltd. Notes Zhang Guiping, Wang Ruihua and Xu Zhihua are independent directors of the Company. ~ 46 ~ Annual Report 2021 Punishments imposed in the recent three years by the securities regulator on the incumbent directors, supervisors and senior management as well as those who left in the Reporting Period: □ Applicable √ Not applicable 3. Remuneration of Directors, Supervisors and Senior Management Decision-making procedure, determination basis and actual payments of remuneration for directors, supervisors and senior management: (I) Decision-making procedure of remuneration for Directors, Supervisors and Executive Officers The remuneration of independent directors is decided through the general meeting of shareholders, and the remuneration of the directors, supervisors, and senior managers assuming positions in the Company is defined in accordance with the relevant regulations of the State-owned Assets Supervision and Administration Commission (the "SASAC") of Haozhou Municipal People's Government, and the relevant policies of the Company. (II) Determination basis of remuneration for Directors, Supervisors and Executive Officers The remuneration is determined based on the annual performance of the Company and the appraisal result in accordance with the spirits in the Implementation Opinion on Deepening the System Reform of Remuneration of Chargers in Provincial Enterprises (WF[2015] No. 28), and the Interim Procedures of Remuneration Management of Chargers in Municipal Enterprises (GZG[2017] No. 21) issued by the CPC Anhui Provincial Committee and the People’s Government of Anhui. (III) Actual Payment of remuneration for Directors, Supervisors and Executive Officers Part of basic remuneration is paid on a monthly basis, and according to appraisal, performance-based remuneration is paid at the end of the year. Remuneration of directors, supervisors and senior management for the Reporting Period Unit: RMB'0,000 Total before-tax Any Incumbent/Forme remuneration Name Office title Gender Age remuneration r from the from related party Company Chairman of the Liang Jinhui Male 56 Incumbent Yes Board Li Peihui Director Male 49 Incumbent Yes Zhou Qingwu Director, GM Male 48 Incumbent 183.13 No Director, Yan Lijun Executive Deputy Male 49 Incumbent 348.47 No GM Director, Deputy Xu Peng Male 52 Incumbent 134.24 No GM Ye Changqing Director Male 48 Incumbent 107.38 Yes Independent Zhang Guiping Male 71 Incumbent 7.5 No director Wang Ruihua Independent Male 60 Incumbent 7.5 No ~ 47 ~ Annual Report 2021 director Independent Xu Zhihao Male 46 Incumbent 7.5 No director Chairman of Sun Wanhua Supervisory Male 57 Incumbent Yes Committee Yang Xiaofan Supervisor Male 55 Incumbent Yes Employee Wang Zibin Male 52 Incumbent Yes supervisor Lu Duicang Supervisor Male 42 Incumbent 64.60 No Employee Zhang Bo Male 57 Incumbent Yes supervisor Zhang Lihong Deputy GM Male 54 Incumbent 163.61 No Zhu Xianghong Deputy GM Male 48 Incumbent 278.18 No Gao Jiakun Deputy GM Male 52 Incumbent 139.86 No Li Anjun Deputy GM Male 52 Incumbent 146.76 No Kang Lei GM assistant Male 44 Incumbent 143.93 No GM assistant, Deputy Chief Zhu Jiafeng Accountant, Male 45 Incumbent 142.81 No Secretary of the Board Total -- -- -- -- 1,875.47 -- VI Performance of Duty by Directors in the Reporting Period 1. Board Meeting Convened during the Reporting Period Meeting Date of the meeting Disclosure date Meeting resolutions Announcement on Resolutions of the 7th Meeting of the 9th Board of Directors of Anhui The 7th Meeting of the 9th Board 29 April 2021 30 April 2021 Gujing Distillery Company of Directors Limited (No.: 2021-012) disclosed on the website of Cninfo (www.cninfo.com.cn). Announcement on Resolutions The 8th Meeting of the 9th Board 27 August 2021 28 August 2021 of the 8th Meeting of the 9th of Directors Board of Directors of Anhui ~ 48 ~ Annual Report 2021 Gujing Distillery Company Limited (No.: 2021-026) disclosed on the website of Cninfo (www.cninfo.com.cn). Announcement on Resolutions of the 9th Meeting of the 9th Board of Directors of Anhui The 9th Meeting of the 9th Board 29 October 2021 30 October 2021 Gujing Distillery Company of Directors Limited (No.: 2021-035) disclosed on the website of Cninfo (www.cninfo.com.cn). 2. Attendance of Directors at Board Meetings and General Meetings Attendance of directors at board meetings and general meetings The director Total number Board failed to attend of board Board Board Board meetings meetings two General meetings the meetings meetings the Director attended by way of attended consecutive meetings director was attended on director failed telecommunication through a board attended eligible to site to attend proxy meetings attend (yes/no) Liang Jinhui 3 1 2 0 0 No 1 Li Peihui 3 1 2 0 0 No 1 Zhou Qingwu 3 1 2 0 0 No 1 Yan Lijun 3 1 2 0 0 No 1 Xu Peng 3 1 2 0 0 No 1 Ye Changqing 3 1 2 0 0 No 1 Zhang Guiping 3 0 3 0 0 No 0 Wang Ruihua 3 0 3 0 0 No 1 Xu Zhihao 3 1 2 0 0 No 0 3. Objections Raised by Directors on Matters of the Company Indicate by tick mark whether any independent directors raised any objections on any matter of the Company. □ Yes √ No No such cases in the Reporting Period. ~ 49 ~ Annual Report 2021 4. Other Information about the Performance of Duty by Directors Indicate by tick mark whether any suggestions from directors were adopted by the Company. √ Yes □ No Suggestions from directors adopted or not adopted by the Company During the Reporting Period, the directors of the Company carried out their work diligently and conscientiously in strict accordance with the Company Law, the Securities Law, the Code of Corporate Governance for Listed Companies, the Guidelines of the Shenzhen Stock Exchange for the Standard Operation of Listed Companies, the Articles of Association, and Rules of Procedure of the Board of Directors. Based on the Company's reality, they put forward relevant opinions on the Company's major governance and operation decisions, and reached consensus through full communication and discussion. They resolutely supervised and promoted the implementation of the resolutions of the Board of Directors to ensure scientific, timely, and efficient decision-making and safeguard the legitimate rights and interests of the Company and all of its shareholders. VII Performance of Duty by Specialized Committees under the Board in the Reporting Period Other informat Details ion about Number of Convene Important opinions and about issues Committee Members meetings Content d date suggestions raised the with convened perform objections ance of (if any) duty The Audit Committee carried out its work diligently and conscientiously in strict accordance with the Company Law, the regulations of the China Zhang Guiping, The Audit Securities Regulatory Wang Ruihua, 26 Review the Audit Plan Committee Commission, the Articles of Xu Zhihao, Xu 1 March for Annual Report 2020 under the Association, and the Rules Peng, Ye 2021 of the Company Board of Procedure of the Board Changqing of Directors. It put forward relevant opinions based on the reality of the Company. Upon full communication and discussion, all proposals were unanimously approved. The Audit Zhang Guiping, 26 April Review the Company’s The Audit Committee 1 Committee Wang Ruihua, 2021 Financial Report for carried out its work ~ 50 ~ Annual Report 2021 under the Xu Zhihao, Xu 2020 and Auditor’s diligently and Board Peng, Ye Report, the Internal conscientiously in strict Changqing Control Evaluation accordance with the Report for 2020, the Company Law, the Proposal on Contract regulations of the China Renewal of the CPAs Securities Regulatory Firm and the First Commission, the Articles of Quarterly Report 2021 Association, and the Rules of Procedure of the Board of Directors. It put forward relevant opinions based on the reality of the Company. Upon full communication and discussion, all proposals were unanimously approved. The Audit Committee carried out its work diligently and conscientiously in strict accordance with the Company Law, the regulations of the China Zhang Guiping, The Audit Securities Regulatory Wang Ruihua, 25 Review the Interim Committee Commission, the Articles of Xu Zhihao, Xu 1 August Report 2021 of the under the Association, and the Rules Peng, Ye 2021 Company Board of Procedure of the Board Changqing of Directors. It put forward relevant opinions based on the reality of the Company. Upon full communication and discussion, all proposals were unanimously approved. The Audit Committee carried out its work Zhang Guiping, diligently and The Audit Review the Third Wang Ruihua, 25 conscientiously in strict Committee Quarterly Report 2021 Xu Zhihao, Xu 1 October accordance with the under the and the Usage of Raised Peng, Ye 2021 Company Law, the Board Funds of the Company Changqing regulations of the China Securities Regulatory Commission, the Articles of ~ 51 ~ Annual Report 2021 Association, and the Rules of Procedure of the Board of Directors. It put forward relevant opinions based on the reality of the Company. Upon full communication and discussion, all proposals were unanimously approved. The Nomination Committee carried out its work diligently and conscientiously in strict accordance with the Company Law, the regulations of the China The Zhang Guiping, Review the Proposal on Securities Regulatory Nomination Wang Ruihua, 25 the Nomination of the Commission, the Articles of Committee Xu Zhihao, 1 October Company’s Secretary of Association, and the Rules under the Liang Jinhui, Li 2021 the Board of Procedure of the Board Board Peihui of Directors. It put forward relevant opinions based on the reality of the Company. Upon full communication and discussion, all proposals were unanimously approved. VIII Performance of Duty by the Supervisory Committee Indicate by tick mark whether the Supervisory Committee found any risk to the Company during its supervision in the Reporting Period. □ Yes √ No The Supervisory Committee raised no objections in the Reporting Period. IX Employees 1. Number, Functions and Educational Backgrounds of Employees Number of in-service employees of the Company as the parent at 5,671 the period-end Number of in-service employees of major subsidiaries at the 5,074 period-end ~ 52 ~ Annual Report 2021 Total number of in-service employees 10,745 Total number of paid employees in the Reporting Period 10,745 Number of retirees to whom the Company as the parent or its 1,370 major subsidiaries need to pay retirement pensions Functions Function Employees Production 5,387 Sales 2,911 Technical 586 Financial 217 Administrative 966 Other 678 Total 10,745 Educational backgrounds Educational background Employees Master or above 99 Bachelor 2,663 Junior college 2,355 High school or below 5,628 Total 10,745 2. Employee Remuneration Policy The remuneration policy was conducted strictly in line with the related law and regulations of the state, and the plan of operation performance and profits of the Company and the relevant remuneration policy management. 3. Employee Training Plans Employee training is significant in the Human resource management. The Company always pay high attention to the employee training and development, the Company sets up effective training plan combining with the current situation of the Company, annual plan, nature of the post and the demand of employee learning, which includes new employee induction training, on-job training, front-line employee operating skills training, management improvement training and part-time study. Continuously improve the whole quality of the employees, realized a win-win situation and progress between the Company and the employees. 4. Labor Outsourcing √ Applicable □ Not applicable Total man-hours (hour) 3,005,548 ~ 53 ~ Annual Report 2021 Total remuneration paid (RMB) 54,929,711.75 X Profit Distributions (in the Form of Cash and/or Stock) How the profit distribution policy, especially the cash dividend policy, was formulated, executed or revised in the Reporting Period: √ Applicable □ Not applicable The 2020 Annual General Meeting held on 25 May 2021 reviewed and approved the Company’s Interest Distribution Scheme in 2020 that based on the total shares of 503,600,000 of the Company on 31 December 2020, cash dividends was distributed at RMB15.00 per 10 shares (tax inclusive), and the total cash dividends distributed was RMB755,400,000.00 (tax inclusive), which has been carried out completely in June 2021. Special statement about the cash dividend policy In compliance with the Company’s Articles of Association and Yes resolution of general meeting Specific and clear dividend standard and ratio Yes Complete decision-making procedure and mechanism Yes Independent directors faithfully performed their duties and Yes played their due role Non-controlling interests are able to fully express their opinion Yes and desire and their legal rights and interests are fully protected In case of adjusting or changing the cash dividend policy, the conditions and procedures involved are in compliance with No adjustments or changes applicable regulations and transparent Indicate by tick mark whether the Company fails to put forward a cash dividend proposal for shareholders despite the facts that the Company has made profits in the Reporting Period and the profits of the Company as the parent distributable to shareholders are positive. □ Applicable √ Not applicable Final dividend plan for the Reporting Period √ Applicable □ Not applicable Bonus issue from capital reserves for every 10 0 shares (share) Dividend for every 10 shares (RMB) (tax inclusive) 22.00 Bonus issue from profit for every 10 shares (share) 0 Total shares as the basis for the final dividend plan 528,600,000 (share) Total cash dividends (RMB) (tax inclusive) 1,162,920,000.00 Cash dividends in other ways (such as share 0.00 repurchase) (RMB) Total cash bonus (including other methods) (RMB) 1,162,920,000.00 ~ 54 ~ Annual Report 2021 Distributable profits (RMB) 8,904,467,073.30 Percentage of cash dividends (including other 100.00% methods) to the total distributed profits Particulars about the cash dividends If the Company is in a mature development stage and has plans for any significant expenditure, in profit allocation, the ratio of cash dividends in the profit allocation shall be 40% or above. Details of final dividend plan for the Reporting Period The Company intends to distribute RMB22.00 (tax included) per 10 shares based on the total shares of 528,600,000 at the end of the year, totaling RMB1,162,920,000.00. This year does not send bonus, does not transfer to increase capital stock with accumulation fund. XI Equity Incentive Plans, Employee Stock Ownership Plans or Other Incentive Measures for Employees □ Applicable √ Not applicable No such cases in the Reporting Period. XII Establishment and Execution of the Internal Control System for the Reporting Period 1. Establishment and Execution of the Internal Control System In accordance with the provisions of the Basic Code for Internal Control of Enterprises and its supporting guidelines, the Company has set up a complete procedure system for internal control system, in which the assessment incorporates the entities, business, matters, and high risk fields, covering all major aspects of the Company's operation and management, without material omissions. The Company's internal control is designed soundly and reasonably, and basically implemented effectively, without material omissions. Through the operation, analysis, and assessment of the internal control system, the Company has effectively prevented risks in operation and management, and promoted the realization of internal control objectives. 2. Material Internal Control Weaknesses Identified for the Reporting Period □ Yes √ No XIII Management and Control over Subsidiaries by the Company for the Reporting Period During the Reporting Period, In accordance with the relevant requirements for standard operation of listed companies, and the relevant internal control system of the Company, and by dispatching directors and supervisors to subsidiary companies, the Company participated in the daily operation of the Board of Directors and the Board of Supervisors, thus realized the effective management and supervision on such matters as overseas investment, related-party transactions, development planning, compliant operation, and human resources of subsidiary companies, specified the reporting system and deliberation procedure of major events, and in a timely manner, followed up such major events as financial status, business operation, and investment operation of subsidiary companies. ~ 55 ~ Annual Report 2021 XIV Internal Control Self-Evaluation Report or Independent Auditor’s Report on Internal Control 1. Internal Control Self-Evaluation Report Disclosure date of the internal control 30 April 2022 self-evaluation report Index to the disclosed internal control See www.cninfo.com.cn for the Anhui Gujing Distillery Company Limited self-evaluation report Self-assessment Report of Internal Control Evaluated entities’ combined assets as % of 95.36% consolidated total assets Evaluated entities’ combined operating revenue as % of consolidated operating 99.87% revenue Identification standards for internal control weaknesses Weaknesses in internal control over financial Weaknesses in internal control not related Type reporting to financial reporting Critical defect: Separate defect or other defects that result in failure in preventing, finding out and correcting major wrong reporting in financial report in time. The following circumstances are deemed as Any of the following circumstances shall critical defects: (1) Ineffective in controlling be deemed as a critical defect, and other the environment; (2) Malpractice of directors, circumstances shall be deemed as major supervisors and senior management officers; or minor defects according to their degree (3) According to external auditing, there’s of impact. major wrong reporting in current financial (1) Violate national laws, regulations or report, which fails to be found by the standardized documents; company in its operating process; (4) Major (2) Major decision making procedure is Nature standard defects found and reported to the top not scientific; management fail to be corrected within a (3) Lack of systems results in systematic reasonable period of time; (5) The failure; supervision of audit committee of the (4) Critical or major defects fail to be company and its internal audit department for rectified; internal control is ineffective; (5) Other circumstances that have major (6) Other defects that may affect correct impact on the company. judgment of users of statements. Major defect: Separate defect or other defects that result in failure in preventing, finding out and correcting wrong reporting in financial report in time, which shall be noted by the top management despite of not attaining or ~ 56 ~ Annual Report 2021 exceeding critical level. Minor defect: Other internal control defects not constituting critical or major defects. Critical defect: (1) Wrong reporting ≥0.5% of total operating revenue; Critical defect: The defect with direct (2) Wrong reporting ≥5% of total profit; property loss amounting to over RMB10 (3) Wrong reporting ≥0.5% of total assets; million, has great negative impact on the (4) Wrong reporting ≥0.5% of total owner’s company and is disclosed in public in the equity. form of announcement. Major defect: Major defect: The defect with direct (1) Wrong reporting ≥0.2% but <0.5% of property loss amounting to RMB1 total operating revenue; million to RMB10 million (included), or (2) Wrong reporting ≥2% but <5% of total is penalized by governmental authority of Quantitative standard profit; the country but has not resulted in (3) Wrong reporting ≥0.2% but <0.5% of negative impact on the company. total assets; Minor defect: The defect with direct (4) Wrong reporting ≥0.2% but <0.5% of property loss no more than RMB1 million total owner’s equity. (included), or is penalized by governmental authority of the Minor defect: provincial-level or below but has not (1) Wrong reporting<0.2% of total operating resulted in negative impact on the revenue; company. (2) Wrong reporting<2% of total profit; (3) Wrong reporting<0.2% of total assets; (4) Wrong reporting<0.2% of total owner’s equity. Number of material weaknesses in internal 0 control over financial reporting Number of material weaknesses in internal 0 control not related to financial reporting Number of serious weaknesses in internal 0 control over financial reporting Number of serious weaknesses in internal 0 control not related to financial reporting 2. Independent Auditor’s Report on Internal Control √ Applicable □ Not applicable Opinion paragraph in the independent auditor’s report on internal control We believe that the Company has maintained effective internal control on financial report in all significant respects according to the Basic Rules for Enterprise Internal Control and relevant regulations on 31 December 2021. ~ 57 ~ Annual Report 2021 Independent auditor’s report on Disclosed internal control disclosed or not Disclosure date 30 April 2022 Index to such report disclosed See www.cninfo.com.cn for Audit Report of Internal Control Type of the auditor’s opinion Unmodified unqualified opinion Material weaknesses in internal control not related to financial None reporting Indicate by tick mark whether any modified opinion is expressed in the independent auditor’s report on the Company’s internal control. □ Yes √ No Indicate by tick mark whether the independent auditor’s report on the Company’s internal control is consistent with the internal control self-evaluation report issued by the Company’s Board. √ Yes □ No XV Rectifications of Problems Identified by Self-inspection in the Special Action for Listed Company Governance On 10 December 2020, the China Securities Regulatory Commission issued Announcement on Launching a Special Campaign to Improve the Governance of Listed Companies; and to implement the requirements of the Opinions of the State Council on Further Improving the Quality of Listed Companies, in 2021, the Company organized and carried out self-inspection on the special actions of corporate governance of the Company from 2018 to 2020. The self-inspection list involves the Company in regard to its basic information, the operation and decision-making of organization structure, controlling shareholders, actual controllers and their related parties, the system construction for standardizing internal control, information disclosure and transparency, institutional and overseas investors, and other issues, which are the matters of a total of seven aspects. The conclusion of the self-inspection is as follows: Through comprehensive self-inspection of the Company's self-governance, it is not identified that there is any violation of relevant laws and regulations, and such internal system as the Articles of Association. ~ 58 ~ Annual Report 2021 Part V Environmental and Social Responsibility I Major Environmental Issues Indicate by tick mark whether the Company or any of its subsidiaries is a heavily polluting business identified by the environmental protection authorities of China. Yes Numbe Discharge Name of r of Distribution Discharge Name of Way of standards Total Approved total Excessive major dischar of discharge concentratio polluter discharge implemente discharge discharge discharge pollutants ge outlets n d outlets Gujing plant≦50m Gujing Gujing plant: Anbui Gujing plant, g/L plant: 23.39t 105.916t 24.93mg/L Gujing Directly Zhangji plant, Zhangji Zhangji Zhangji plant: COD 3 33.31mg/L Naught Distillery discharge Headquarter plant、 plant: 6.64t 26.504t 25.60mg/L Co., Ltd. plant Headquarter Headquarter Headquarter plant≦100 plant: 40.74t plant: 116.0596t mg/L Gujing plant≦5mg/ Gujing Gujing plant: Anbui Gujing plant, L plant: 0.48t 10.5916t 0.51mg/L Gujing Directly Zhangji plant, Zhangji Zhangji Zhangji plant: NH3-N 3 0.63mg/L Naught Distillery discharge Headquarter plant、 plant: 0.13t 2.6504t 0.48mg/L Co., Ltd. plant Headquarter Headquarter Headquarter plant≦10m plant: 0.76t plant: 11.60596t g/L Gujing plant、 Gujing Organize Gujing plant: Anbui Gujing plant, Headquarter plant: 0.22t d 0.79mg/m 4.301t Gujing Zhangji plant, plant≦10m Zhangji Smoke discharge 3 1.58mg/m Zhangji plant: / Naught Distillery Headquarter g/m3 plant: 0.04t through 1.16mg/m Headquarter Co., Ltd. plant Zhangji Headquarter chimney plant: 5.01t plant≦20m plant: 0.64t g/ m3 Anbui Organize Gujing plant, Gujing Gujing Gujing plant: 3.41mg/m Gujing Sulfur Diox d Zhangji plant, plant、 plant: 0.96t 15.055t 3 0.84mg/m Naught Distillery ide discharge Headquarter Headquarter Zhangji Zhangji plant: / 8.01mg/m Co., Ltd. through plant plant≦35m plant: 0.02t Headquarter ~ 59 ~ Annual Report 2021 chimney g/m3 Headquarter plant: 17.536t Zhangji plant: 4.45t plant≦50m g/ m3 Gujing plant、 Gujing Gujing plant: Organize Anbui Gujing plant, Headquarter plant: 3.10t 21.056t d 10.95mg/m Gujing Nitrogen Zhangji plant, plant≦50m Zhangji Zhangji plant: discharge 3 24.21mg/m Naught Distillery oxide Headquarter g/m3 plant: 0.63t 10.318t through 23.30mg/m Co., Ltd. plant Zhangji Headquarter Headquarter chimney plant≦150 plant: 12.95t plant: 25.051t mg/ m3 Organize Anhui 1# furnace: d Longrui 1# furnace 0.74mg/m 0.244t Smoke discharge 2 ≦10mg/m / Naught Glass Co., 2# furnace 0.81mg/m 2# furnace: through Ltd 0.38t chimney Organize Anhui 1# furnace: d Longrui Sulfur Diox 1# furnace 9.63mg/m 3.158t discharge 2 ≦50mg/m / Naught Glass Co., ide 2# furnace 14mg/m 2# furnace: through Ltd 6.535t chimney Organize Anhui 1# furnace: d Longrui Nitrogen 1# furnace 56mg/m 18.357t discharge 2 ≦200mg/m / Naught Glass Co., oxide 2# furnace 49mg/m 2# furnace: through Ltd 22.847t chimney Construction and operation of facilities for preventing pollution: 1. Construction and operation of the sewage control facilities of the listed Company and its subsidiary companies (1) The sewage treatment capacity of the sewage treatment station of Zhangji plant of Anhui Gujing Distillery Co., Ltd is about 550 tons per day. IC anaerobic jar, improved A/O and in-depth treatment process has been adopted. The sewage is discharged after treatment and up to the standard, and discharge of sewage is in compliance with the direct discharge requirements in GB27631-2011 Discharge Standard of Water Pollutants for Fermentation Alcohol and Distilled Spirits Industry. (2) The sewage treatment capacity of the sewage treatment station of the headquarters of Anhui Gujing Distillery Co., Ltd is about 4300 tons per day. IC anaerobic jar, A/O and in-depth treatment process has been adopted. The sewage is discharged after treatment and up to the standard, and discharge of sewage is in compliance with the direct discharge requirements in GB27631-2011 Discharge Standard of Water Pollutants for Fermentation Alcohol and Distilled Spirits Industry. (3) The sewage treatment capacity of the sewage treatment station of Gujing Subsidiary under Anhui Gujing Distillery Co., Ltd is about 2600 tons per day. IC anaerobic jar, A/O and in-depth treatment process is adopted. The sewage is discharged after treatment and up to the standard, and discharge of sewage is in compliance with the direct discharge requirements in GB27631-2011 Discharge Standard of Water Pollutants for Fermentation Alcohol and Distilled Spirits Industry. (4) The production and living sewage of Anhui Longrui Glass Co., Ltd is discharged into the sewage treatment station of Zhangji ~ 60 ~ Annual Report 2021 Plant under Anhui Gujing Distillery Company Limited, and it is discharged after treatment and up to the standard. 2. Construction and operation situation of waste gas control facilities of the listed Company and its subsidiaries (1) The flue gas control facilities of thermal power stations of the Headquarters and Gujing Subsidiary of Anhui Gujing Distillery Company Limited run well, and waste gas is discharged through the 65-meter-tall exhaust funnel after the waste gas treatment is up to the standard, adopting the process of cloth-bag dust removal + Limestone - Wet flue gas Desulfurization+ SNCR Denitrification by non-catalytic reduction + SCR Denitrification by catalytic reduction + Wet electrostatic precipitator, and discharge of flue gas meets the super-low discharge requirements (smoke ≤10mg/m3, SO2≤35mg/m3, NOx≤50mg/m3). (2) The gas-fired boilers at Zhangji Plant under Anhui Gujing Distillery Company Limited operate in a steady manner, and waste gas is discharged through the 20-meter-tall exhaust funnel, of which and discharge of flue gas meets the requirements for gas-fired boiler in GB13271-2014 Emission Standard of Air Pollutants for Industrial Kiln and Furnace. (3) 1#, 2# furnace flue gas treatment facilities of Anhui Longrui Glass Co., Ltd. are operating well. For 1# furnace, the company uses bag dust removal + dry desulfurization + SCR catalytic reduction denitrification process. After it meets the standard, the exhaust gas will be discharged through a 48-meter high exhaust pipe. The flue gas emission is in line with the glass industry A-class enterprise emission requirements as set out in Technical Guide for the Development of Emergency Emission Reduction Measures for Key Industries in Heavy Pollution Weather (soot ≤ 10 mg/m3, SO2 ≤ 50 mg/m3, NOx ≤ 200 mg/m3). For 2# furnace, the company adopts bag dust removal + desulfurization tank + SCR low-temperature denitrification process, and the exhaust gas is discharged through a 50-meter high exhaust pipe after it meets the standard. The flue gas emission meets the glass industry A-class enterprise emission requirements as set out in Technical Guide for the Development of Emergency Emission Reduction Measures for Key Industries in Heavy Pollution Weather (soot ≤ 10 mg/m3, SO2 ≤ 50mg/m3, NOx ≤ 200 mg/m3). (4) The Headquarter of Anhui Gujing Distillery Company Limited and Gujing Branch finished product coding machine exhaust gas treatment facilities are operating well. By adopting photocatalytic oxidation technology, the Company’s flue gas emissions comply with the Table 1 standard requirements of DB12/524-2014 Emission Standard for Industrial Enterprises Volatile Organic Compounds. (5) The Headquarters of Anhui Gujing Distillery Company Limited and the odor treatment facilities of Zhangji Sewage Station are operating well. By adopting technologies like photocatalytic oxidation and activated carbon adsorption, and the Company’s emission of exhaust gas meets the requirements of Table 2 of the Standard for Emission of Pollutants. In 2021, the environment protection facilities of the Company and its subsidiaries ran normally in general, main pollutants can achieve up-to-standard discharge, environment information is opened to the public normally, and they have performed their social responsibilities properly. Environmental impact assessment of construction project and other administrative license situation in respect of environmental protection EIA approval (filing) No. Item Category of EIA EIA approval (filing) number time Intelligent Technical Transformation Project of Liquor Environment 1 2 February 2021 BHS【2021】No. 4 Production of Anhui Gujing affection report Distillery Co., Ltd. 12# Intelligent Integrated Storage Environment 2 Center Construction Project of 17 March 2021 BHB【2021】No. 5 affection form Anhui Gujing Distillery Co., Ltd. VOCs Advanced Treatment Project Environment 3 14 April 2021 20213416000100000018 of Anhui Longrui Glass Co., Ltd affection form Emergency plan for sudden environment affairs ~ 61 ~ Annual Report 2021 The Company has formulated the Emergency Plan of Anhui Gujing Distillery Company Limited for Sudden Environmental Pollution Accident, which has been filed with Bureau of Ecology and Environment of Bozhou (File No. 341602-2021-006-H). Emergency plan drills have been carried out as planned. Anhui Longrui Glass Co., Ltd has formulated the Emergency Plan of Anhui Longrui Glass Co., Ltd for Sudden Environmental Pollution Accident, which has been filed with Bureau of Ecology and Environment of Bozhou (File No. 341602-2021-006-M). Emergency plan drills have been carried out as planned. Environmental self-monitoring scheme Anhui Gujing Distillery Co., Ltd. has formulated the Self-Monitoring Scheme of Anhui Gujing Distillery Company Limited and published it on the relevant website of Anhui Province. Anhui Longrui Glass Co., Ltd has formulated the Self-Monitoring Scheme of Anhui Longrui Glass Co., Ltd and published it on the relevant website of Anhui Province. Administrative punishments received with respect to environmental issues in the Reporting Period Naught Other environment information that should be disclosed Naught Measures taken to reduce carbon emission and effects during the Reporting Period √ Applicable □ Not applicable 1. Balanced production of thermal power plant: In order to improve the operation efficiency of a boiler, and reduce carbon emission, in September 2021, balanced production was first conducted in Gujing plant area. After the execution of balanced production, the efficiency of coal burning was increased by 13% year on year. Calculated on the basis of the coal consumption from September to December, fire coal was conserved by approximately 1,500 tons year on year, converted to the standard coal of 1,070 tons, and carbon dioxide emission was reduced by approximately 2,900 tons. 2. Intensified power conservation of the Company: (1) The Company organized 440 battery-driven vehicles of various types and various entities for peak-shifting charge. (2) The Company conserved power in offices, sufficiently utilized natural light, and prohibited lamps from shining all the time, replaced lamps in passageways with sound-controlled types, and strictly implemented the requirements of temperature setting on air-conditioners. (3) The Company conserved power used by street lamps, and strictly specified turn-off and turn-on time; through the above-mentioned measures, power wasted in offices has been greatly reduced, which has played an active role in the energy conservation and carbon reduction of the Company. Other related environment protection information Naught II Social Responsibility For details, please refer to the Corporate Social Responsibility Report for 2021 disclosed by the Company on the website Cninfo dated 30 April 2022. III Consolidation and Expansion of Poverty Alleviation Outcomes, and Rural Revitalization The Company organized and carried out the activities tackling difficulties in poverty alleviation, activities with the theme of "Appreciating CPC, and Striding toward New Times", visited and conveyed greetings to the appointed cadres and poverty-stricken households and their children; organized Party members and management personnel to go to Wuma Town to express regards to the financially difficult households of the three villages under the assistance, and sent medicines, clinical thermometers, and masks to ~ 62 ~ Annual Report 2021 give aid for fighting pandemic. The goods for poverty alleviation were bought. The Company helped the poverty-stricken villages in Xingyuan Subdistrict in Woyang to sell tomatoes and celery; helped poverty-stricken households in Wuma to promote peaches; and helped Pishan County in Khotan Prefecture, Xinjiang to sell walnuts and Chinese dates. ~ 63 ~ Annual Report 2021 Part VI Significant Events I Fulfillment of Commitments 1. Commitments of the Company’s Actual Controller, Shareholders, Related Parties and Acquirers, as well as the Company Itself and other Entities Fulfilled in the Reporting Period or Ongoing at the Period-end √ Applicable □ Not applicable Date of Type of Details of Term of Commitment Promisor commitment Fulfillment commitment commitment commitment making The Company promised that Yellow Crane Tower Distillery Co., Ltd. would Complete the realize the performance Anhui Gujing Commitments made in acquisition operating commitment Distillery Performance documents or shareholding alteration revenue of 29 April 2016 Y2017-Y2021 of the Company commitment documents RMB1,700.56 supplementar Limited 25 million (tax y agreement inclusive) and in 2021. the net profit margin would be not lower than 11.00% in 2021. Fulfilled on time Yes Before and after the Spring Festival in 2020, the COVID-19 pandemic occurred and spread to many places across China (hereinafter referred to as the "pandemic"), and all provinces and municipalities successively launched the highest level of response for major public health emergencies. Hubei Province, where Yellow Crane Tower locates, was materially Specific reasons for failing to fulfill adversely affected by the pandemic. Annual performance: Revenue stood at commitments on time and plans for RMB583,131,800, down 55.27% year on year. Due to the force majeure of the COVID-19 next step (if any) pandemic, market trading activities were seriously affected, resulting in part of the terms of the original agreement unable to be fulfilled on schedule. To this end, upon consultation by all parties, the Supplementary Agreement on Equity Transfer was entered into. For the commitments in respect of net sales interest rate, net sales profit and expected distributable profit of Yellow Crane Tower, the assessment period has been extended by one year from ~ 64 ~ Annual Report 2021 the execution date of the Supplementary Agreement. In other words, the year 2020 will not be regarded as the assessment year, and 2021 will be taken as the fourth assessment year and 2022 as the fifth assessment year. 2. Where there had been an earnings forecast for an asset or project and the Reporting Period was still within the forecast period, explain why the forecast has been reached for the Reporting Period. □ Applicable √ Not applicable II Occupation of the Company’s Capital by the Controlling Shareholder or any of Its Related Parties for Non-Operating Purposes □ Applicable √ Not applicable III Irregularities in the Provision of Guarantees □ Applicable √ Not applicable IV Explanations Given by the Board of Directors Regarding the Latest “Modified Opinion” on the Financial Statements □ Applicable √ Not applicable V Explanations Given by the Board of Directors, the Supervisory Board and the Independent Directors (if any) Regarding the Independent Auditor's “Modified Opinion” on the Financial Statements of the Reporting Period □ Applicable √ Not applicable VI YoY Changes to Accounting Policies, Estimates or Correction of Material Accounting Errors √ Applicable □ Not applicable Contents of changes in accounting policies Approval procedures Note and reasons thereof On 7 December 2018, the Ministry of Finance revised and issued the Accounting Standards for Business Enterprises For details, please refer to the No.21-Leases (CK(2018)No.35) Reviewed and approved on the 7th Meeting announcement on changes in accounting (hereinafter referred to as the new of the 9th Board of Directors and the 5th policies disclosed on standards governing leases) and required Meeting of the 9th Supervisory Committee http://www.cninfo.com.cn dated 30 April those enterprises both listed in domestic 2021. and aboard and those enterprises overseas listed with International Financial ~ 65 ~ Annual Report 2021 Reporting Standards or Accounting Standards for Business Enterprises for preparation of financial statements to implement it since 1 January 2019, required other enterprises carrying out the Accounting Standards for Business Enterprises to implement it since 1 January 2021. VII YoY Changes to the Scope of the Consolidated Financial Statements √ Applicable □ Not applicable Principal Stake(%) Registered Nature of the Name of subsidiary place of Make way place business Directly Indirect business Business Chuzhou, Mingguang, combination not Anhui Mingguang Distillery Co., Ltd. Manufacturing 60.00 Anhui Anhui under the same control Business Mingguang Tiancheng Ming Wine Chuzhou, Mingguang, Trade and combination not 60.00 Sales Co., Ltd. Anhui Anhui business under the same control Business Fengyang Xiaogang Village Ming Chuzhou, Fengyang, combination not Manufacturing 42.00 Wine Distillery Co., Ltd. Anhui Anhui under the same control Incorporation Anhui Jiuhao China Railway Bozhou, Bozhou, Engineering 52.00 through Construction Engineering Co., Ltd. Anhui Anhui construction investment Incorporation Anhui Jiuan Mechanical Electrical Bozhou, Bozhou, Engineering 100.00 through Equipment Co., Ltd. Anhui Anhui construction investment Business Renhuai Maotai Town Zhencang Renhuai, Renhuai, combination not Manufacturing 60.00 Winery Industry Co., Ltd. Guizhou Guizhou under the same control ~ 66 ~ Annual Report 2021 VIII Engagement and Disengagement of Independent Auditor Current independent auditor Name of the domestic independent auditor RSM Certified Public Accountants (LLP) The Company’s payment to the domestic independent 200.00 auditor (RMB’0,000) How many consecutive years the domestic independent 3 auditor has provided audit service for the Company Names of the certified public accountants from the domestic independent auditor writing signatures on the Zhang Liping, Han Songliang auditor’s report How many consecutive years the certified public accountants have provided audit service for the 1 Company Indicate by tick mark whether the independent auditor was changed for the Reporting Period. □Yes √ No Independent auditor, financial advisor or sponsor engaged for the audit of internal controls: √ Applicable □ Not applicable In 2021, the Company engaged RSM Certified Public Accountants (LLP) as the internal control auditor and China International Capital Corporation Limited as the sponsor for the Company’s private placement of stocks with the payment of RMB1 million (tax inclusive). IX Possibility of Delisting after Disclosure of this Report □ Applicable √ Not applicable X Insolvency and Reorganization □ Applicable √ Not applicable XI Major Legal Matters □ Applicable √ Not applicable XII Punishments and Rectifications □ Applicable √ Not applicable XIII Credit Quality of the Company as well as Its Controlling Shareholder and Actual Controller □ Applicable √ Not applicable ~ 67 ~ Annual Report 2021 XIV Major Related-Party Transactions 1. Continuing Related-Party Transactions □ Applicable √ Not applicable 2. Related-Party Transactions Regarding Purchase or Sales of Assets or Equity Interests □ Applicable √ Not applicable 3. Related Transactions Regarding Joint Investments in Third Parties □ Applicable √ Not applicable 4. Credits and Liabilities with Related Parties □ Applicable √ Not applicable 5. Transactions with Related Finance Companies □ Applicable √ Not applicable 6. Transactions with Related Parties by Finance Companies Controlled by the Company □ Applicable √ Not applicable 7. Other Major Related-Party Transactions □ Applicable √ Not applicable XV Major Contracts and Execution thereof 1. Entrustment, Contracting and Leases (1) Entrustment □ Applicable √ Not applicable (2) Contracting □ Applicable √ Not applicable (3) Leases □ Applicable √ Not applicable ~ 68 ~ Annual Report 2021 2. Major Guarantees □ Applicable √ Not applicable 3. Cash Entrusted for Wealth Management (1) Cash Entrusted for Wealth Management √ Applicable □ Not applicable Overviews of cash entrusted for wealth management during the Reporting Period Unit: RMB'0,000 Unrecovered Unrecovered overdue amount Specific type Capital resources Amount incurred Undue balance overdue amount with provision for impairment Bank financial Raised funds 442,000.00 442,000.00 0.00 0.00 products Others Self-owned funds 20,000.00 20,000.00 0.00 0.00 Total 462,000.00 462,000.00 0.00 0.00 Particulars of cash entrusted for wealth management with single significant amount or low security, bad liquidity, and no capital preservation Unit: RMB’0,000 Amou Actual Plan for nt of recover Overvi entrusted Type Determin Annua Estim actual y of Allowa ews of Type Sta En Legal asset Name of of ation l yield ate profit profit nce for events of the Amo Capital rt d Use of proced manage the the method of for profit or loss or loss impair and truste unt resource dat da fund ures or ment in trustee prod remunerat refere (if in in ment (if query e e te not the uct ion nce any) Report Reporti any) index future or ing ng (if any not Period Period Purchas ing new shares 1.2% of Privat DAPU offline, products’ e Asset 20,00 Self-fun product net value 1,439. Recove fund Fund 7.00% Yes Yes Manage 0 ded s with and 20% 33 red mana ment fixed of excess ger earning earnings s, reverse ~ 69 ~ Annual Report 2021 repurch ase of nationa l debt, and etc. 20,00 1,439. Total -- -- -- -- -- -- -- -- -- -- 0 33 Whether there is the case where the principal cannot be recovered at maturity or other case which may cause impairment for cash entrusted for wealth management □ Applicable √ Not applicable (2) Entrusted Loans □ Applicable √ Not applicable 4. Other Major Contracts □ Applicable √ Not applicable XVI Other Significant Events □ Applicable √ Not applicable XVII Significant Events of Subsidiaries □ Applicable √ Not applicable ~ 70 ~ Annual Report 2021 Part VII Share Changes and Shareholder Information I Share Changes 1. Share Changes Unit: share Before Increase/decrease in the Reporting Period (+/-) After Shares as Shares as dividend Percentage dividend Percentag Shares New issues converted Other Subtotal Shares (%) converted e (%) from capital from profit reserves I. Restricted shares 25,000,000 25,000,000 25,000,000 4.73% 1. Shares held by the state 2. Shares held by state-owned 1,900,000 1,900,000 1,900,000 0.36% corporations 3. Shares held by other domestic 21,600,000 21,600,000 21,600,000 4.09% investors Among which: Shares held by 21,600,000 21,600,000 21,600,000 4.09% domestic corporations Shares held by domestic individuals 4. Shares held by foreign investors 1,500,000 1,500,000 1,500,000 0.28% Among which: Shares held by 1,500,000 1,500,000 1,500,000 0.28% foreign corporations Shares held by foreign individuals 503,600,000 100.00% 503,600,000 95.27% II. Non-restricted shares 383,600,000 76.17% 383,600,000 72.57% 1. RMB ordinary shares 2. Domestically listed foreign 120,000,000 23.83% 120,000,000 22.70% shares 3. Overseas listed foreign shares 4. Other ~ 71 ~ Annual Report 2021 III. Total shares 503,600,000 100.00% 25,000,000 25,000,000 528,600,000 100.00% Reasons for share changes: √ Applicable □ Not applicable On 23 June 2021, the Company issued 25,000,000 ordinary shares (A shares) denominated in Renminbi to specific targets in a non-public manner. Approval of share changes: √ Applicable □ Not applicable Approved by the China Securities Regulatory Commission under CSRC Permit [2021] No. 1422, the Company issued RMB25,000,000 ordinary shares (A shares) to specific targets on 23 June 2021. The above shares were registered with the Shenzhen Branch of CSDC on 12 July 2021 and listed on the Shenzhen Stock Exchange on 22 July 2021. Transfer of share ownership: √ Applicable □ Not applicable The relevant matters of the 25,000,000 shares of the Company issued in a non-public manner were audited and confirmed with the Shenzhen Branch of China Securities Depository and Clearing Corporation Limited, registered with the Branch on 12 July 2021, and listed on the Shenzhen Stock Exchange on 22 July 2021. Upon completion of this share issuance in a non-public manner, the total shares of the Company were changed from 503,600,000 shares to 528,600,000 shares. Effects of share changes on the basic and diluted earnings per share, equity per share attributable to the Company’s ordinary shareholders and other financial indicators of the prior year and the prior accounting period, respectively: √ Applicable □ Not applicable During the Reporting Period, the total share capital of the Company was changed from 503,600,000 shares at the beginning of the period to 528,600,000 shares at the end of the period, which has diluted to a certain degree the earnings per share and the net asset per share owned by the shareholders of ordinary shares of the Company. Other information that the Company considers necessary or is required by the securities regulator to be disclosed: □ Applicable √ Not applicable 2. Changes in Restricted Shares √ Applicable □ Not applicable Unit: Share Restricted shares Restricted shares Restricted shares Restricted shares Name of the Restricted Restricted shares amount at the increased of the relieved of the amount at the shareholders reasons relieved date period-begin period period period-end JPMorgan Chase Private Bank, National 0 750,000 0 750,000 22 January 2022 placement Association Guotai Junan Private 0 1,125,000 0 1,125,000 22 January 2022 Securities Co., Ltd. placement E Fund Private 0 12,750,000 0 12,750,000 22 January 2022 Management Co., placement ~ 72 ~ Annual Report 2021 Ltd. Caitong Fund Private Management Co., 0 1,130,000 0 1,130,000 22 January 2022 placement Ltd. Taiping Fund Private Management 0 750,000 0 750,000 22 January 2022 placement Company Limited Fullgoal Fund Private Management Co., 0 1,275,000 0 1,275,000 22 January 2022 placement Ltd. Huatai Securities Private 0 775,000 0 775,000 22 January 2022 Co., Ltd. placement Huatai Securities Private Asset Management 0 750,000 0 750,000 22 January 2022 placement Co., Ltd. ICBC Credit Suisse Private Asset Management 0 2,150,000 0 2,150,000 22 January 2022 placement Co., Ltd. Morgan Stanley & Private Co. International 0 750,000 0 750,000 22 January 2022 placement Plc China Life Asset Private Management Co., 0 750,000 0 750,000 22 January 2022 placement Ltd. China Merchants Private Fund Management 0 2,000,000 0 2,000,000 22 January 2022 placement Co., Ltd. China Universal Private Asset Management 0 45,000 0 45,000 22 January 2022 placement Co., Ltd. Total 0 25,000,000 0 25,000,000 -- -- II. Issuance and Listing of Securities 1. Securities (Exclusive of Preferred Shares) Issued in the Reporting Period √ Applicable □ Not applicable Name of Issue price Number Termination Index to Issued Disclosure stock and its Issue date (or interest Listing date approved for date of disclosed number date derivative rate) public trading transaction information ~ 73 ~ Annual Report 2021 securities Stocks For details, see the Report on the Issuance of the Private Placement of A-shares & Private RMB200/sha Announceme 23 June 2021 25,000,000 22 July 2021 25,000,000 21 July 2021 placement re nt on the Listing of These Shares disclosed by the Company on www.cninfo. com.cn Particulars about the securities (exclusive of preferred shares) issued in the Reporting Period: Approved by the China Securities Regulatory Commission under CSRC Permit [2021] No. 1422, the Company issued RMB25,000,000 ordinary shares (A shares) to specific targets on 23 June 2021 at an issuing price of RMB200.00 per share, raising total proceeds of RMB5,000,000,000.00. After deducting the expenses related to the issue of RMB45,657,925.15 (excluding VAT), the actual net proceeds raised were RMB4,954,342,074.85. RSM (special ordinary partnership) has audited the availability of the funds raised from the non-public offering of shares of the Company on 29 June 2021 and issued Capital Verification Report R.C.Y.Z [2021] No. 518Z0050. The above shares were registered with the Shenzhen Branch of CSDC on 12 July 2021 and listed on the Shenzhen Stock Exchange on 22 July 2021. 2. Changes to Total Shares, Shareholder Structure and Asset and Liability Structures √ Applicable □ Not applicable Upon completion of this share issuance of the Company in a non-public manner, the total share capital of the Company was changed from 503,600,000 shares to 528,600,000 shares, with the total assets increased, and the asset-liability ratio decreased accordingly. 3. Existing Staff-Held Shares □ Applicable √ Not applicable III Shareholders and Actual Controller 1. Shareholders and Their Shareholdings at the Period-End Unit: share Number of 31,645 Number of 35,931 Number of 0 Number of 0 ~ 74 ~ Annual Report 2021 ordinary ordinary preferred preferred shareholders shareholders at shareholders with shareholders the month-end resumed voting with resumed prior to the rights (if any) (see voting rights at disclosure of this note 8) the month-end Report prior to the disclosure of this Report (if any) (see note 8) 5% or greater shareholders or top 10 shareholders Increas Shares in pledge, marked or e/decre frozen Shareholdi Total shares ase in Restricted Name of Nature of Non-restricte ng held at the the shares shareholder shareholder d shares held percentage period-end Reporti held Status Shares ng Period ANHUI GUJING GROUP State-owned 51.12% 270,234,022 270,234,022 In pledge 114,000,000 COMPANY legal person LIMITED GAOLING Foreign legal 2.35% 12,446,408 12,446,408 FUND,L.P. person BANK OF CHINA-CHINA MERCHANTS CHINA SECURITIES Other 2.10% 11,110,421 1,900,000 9,210,421 LIQUOR INDEX CLASSIFICATIO N SECURITIES INVESTMENT FUND AGRICULTURAL BANK OF CHINA - E FUND CONSUMPTION Other 1.92% 10,128,102 1,000,000 9,128,102 SECTOR STOCK SECURITIES INVESTMENT FUND INDUSTRIAL Other 1.89% 9,999,951 9,999,951 ~ 75 ~ Annual Report 2021 AND COMMERCIAL BANK OF CHINA LIMITED- INVESCO GREAT WALL EMERGING GROWTH HYBRID SECURITIES INVESTMENT FUND CHINA INTERNATIONA L CAPITAL Foreign legal 1.65% 8,707,752 8,707,752 CORPORATION person HONG KONG SECURITIES LTD HONG KONG SECURITIES Foreign legal 1.53% 8,086,818 8,086,818 CLEARING person COMPANY LTD. UBS (LUX) EQUITY FUND - Foreign legal CHINA 1.42% 7,505,261 7,505,261 person OPPORTUNITY (USD) BANK OF CHINA- INVESCO GREAT WALL DINGYI Other 0.95% 4,995,403 4,995,403 HYBRID SECURITIES INVESTMENT FUND (LOF) GREENWOODS Foreign legal CHINA ALPHA 0.87% 4,614,326 4,614,326 person MASTER FUND Strategic investor or general legal person becoming a top-10 ordinary N/A shareholder due to rights issue (if any) (see note 3) ~ 76 ~ Annual Report 2021 Among the shareholders above, the Company’s controlling shareholder—Anhui Gujing Group Company Limited—is not a related party of other shareholders; nor are they parties acting in concert as defined in the Administrative Measures on Information Disclosure of Changes in Related or acting-in-concert parties Shareholding of Listed Companies. As for the other shareholders, the Company does not know among the shareholders above whether they are related parties or whether they belong to parties acting in concert as defined in the Administrative Measures on Information Disclosure of Changes in Shareholding of Listed Companies. Explain if any of the shareholders above was involved in entrusting/being entrusted with N/A voting rights or waiving voting rights Special account for share repurchases (if any) among the top N/A 10 shareholders (see note 10) Top 10 non-restricted shareholders Shares by type Name of shareholder Non-restricted shares held at the period-end Type Shares ANHUI GUJING GROUP RMB-denominate 270,234,022 270,234,022 COMPANY LIMITED d ordinary share Domestically GAOLING FUND,L.P. 12,446,408 listed foreign 12,446,408 share INDUSTRIAL AND COMMERCIAL BANK OF CHINA LIMITED- INVESCO RMB-denominate 9,999,951 9,999,951 GREAT WALL EMERGING d ordinary share GROWTH HYBRID SECURITIES INVESTMENT FUND BANK OF CHINA-CHINA MERCHANTS CHINA RMB-denominate SECURITIES LIQUOR INDEX 9,210,421 9,210,421 d ordinary share CLASSIFICATION SECURITIES INVESTMENT FUND AGRICULTURAL BANK OF CHINA - E FUND RMB-denominate CONSUMPTION SECTOR 9,128,102 9,128,102 d ordinary share STOCK SECURITIES INVESTMENT FUND CHINA INTERNATIONAL Domestically 8,707,752 8,707,752 CAPITAL CORPORATION listed foreign ~ 77 ~ Annual Report 2021 HONG KONG SECURITIES LTD share HONG KONG SECURITIES RMB-denominate 8,086,818 8,086,818 CLEARING COMPANY LTD. d ordinary share Domestically UBS (LUX) EQUITY FUND - 7,505,261 listed foreign 7,505,261 CHINA OPPORTUNITY (USD) share BANK OF CHINA- INVESCO GREAT WALL DINGYI HYBRID RMB-denominate 4,995,403 4,995,403 SECURITIES INVESTMENT d ordinary share FUND (LOF) Domestically GREENWOODS CHINA ALPHA 4,614,326 listed foreign 4,614,326 MASTER FUND share Among the shareholders above, the Company’s controlling shareholder—Anhui Gujing Group Related or acting-in-concert parties Company Limited—is not a related party of other shareholders; nor are they parties acting in among top 10 unrestricted public concert as defined in the Administrative Measures on Information Disclosure of Changes in shareholders, as well as between Shareholding of Listed Companies. As for the other shareholders, the Company does not know top 10 unrestricted public whether they are related parties or whether they belong to parties acting in concert as defined shareholders and top 10 in the Administrative Measures on Information Disclosure of Changes in Shareholding of shareholders Listed Companies. Since October 2021, the Company's controlling shareholder Gujing Group has conducted the Top 10 ordinary shareholders business of "Refinancing by Lending Securities", and as of 31 December 2021, 1,170,000 lent involved in securities margin shares were outstanding,the ownership of the shares lent by the refinancing securities will not trading (if any) (see note 4) be transferred. Indicate by tick mark whether any of the top 10 ordinary shareholders or the top 10 unrestricted ordinary shareholders of the Company conducted any promissory repo during the Reporting Period. □ Yes √ No No such cases in the Reporting Period. 2. Controlling Shareholder Nature of the controlling shareholder: controlled by a local state-owned legal person Type of the controlling shareholder: legal person Legal Name of controlling Unified social credit representative/person Date of establishment Principal activity shareholder code in charge Making beverage, ANHUI GUJING GROUP Liang Jinhui 16 January 1995 91341600151947437P construction materials and COMPANY LIMITED plastic products, etc. Controlling shareholder’s As of 31 December 2021, the controlling shareholder ANHUI GUJING GROUP COMPANY holdings in other listed LIMITED directly holds 99,220,400 shares of Huaan Securities Co., Ltd. owning the proportion of ~ 78 ~ Annual Report 2021 companies at home or abroad shares of 2.11%. in the Reporting Period Change of the controlling shareholder in the Reporting Period: □ Applicable √ Not applicable No such cases in the Reporting Period. 3. Information about the Actual Controller and Acting-in-concert Parties Nature of the actual controller: Local administrator for state-owned assets Type of the actual controller: legal person Legal Date of Unified social credit Name of actual controller representative/person Principal activity establishment code in charge State-owned Assets Supervision and Administration Zhao Liang N/A 113416007316875206 N/A Commission of the People’s Government of Bozhou Other listed companies at home or abroad controlled by the N/A actual controller in the Reporting Period Change of the actual controller during the Reporting Period: □ Applicable √ Not applicable No such cases in the Reporting Period. Ownership and control relations between the actual controller and the Company: Indicate by tick mark whether the actual controller controls the Company via trust or other ways of asset management. ~ 79 ~ Annual Report 2021 □ Applicable √ Not applicable 4. Number of Accumulative Pledged Shares held by the Company’s Controlling Shareholder or the Largest Shareholder as well as Its Acting-in-Concert Parties Accounts for 80% of all shares of the Company held by Them □ Applicable √ Not applicable 5. Other 10% or Greater Corporate Shareholders □ Applicable √ Not applicable 6. Limitations on Shareholding Decrease by the Company’s Controlling Shareholder, Actual Controller, Reorganizer and Other Commitment Makers □ Applicable √ Not applicable IV Specific Implementation of Share Repurchase during the Reporting Period Progress on any share repurchase □ Applicable √ Not applicable Progress on reducing the repurchased shares by means of centralized bidding □ Applicable √ Not applicable ~ 80 ~ Annual Report 2021 Part VIII Preference Shares □ Applicable √ Not applicable No preference shares in the Reporting Period. ~ 81 ~ Annual Report 2021 Part IX Bonds □ Applicable √ Not applicable ~ 82 ~ Annual Report 2021 Part X Financial Statements I Independent Auditor’s Report Type of auditor’s opinion Unmodified unqualified opinion Date of signing the auditor’s report 29 April 2022 Name of the auditor RSM China No. of the auditor’s report Rongcheng audit character [2022] 518Z0165 Name of CPA Zhang Liping, Han Songliang Text of the Auditor’s Report To the Shareholders of Anhui Gujing Distillery Company Limited: I. Opinion We have audited the financial statements of Anhui Gujing Distillery Co., Ltd. (hereafter referred to as “Anhui Gujing”), which comprises the consolidated and the parent company’s statement of financial position as at 31 December 2021, the consolidated and the parent company’s statement of profit or loss and other comprehensive income, the consolidated and the parent company’s statement of cash flows, the consolidated and the parent company’s statement of changes in equity for the year then ended, and the notes to the financial statements. In our opinion, the accompanying Anhui Gujing’s financial statements present fairly, in all material respects, the consolidated and the company’s financial position as at 31 December 2021 and of their financial performance and cash flows for the year then ended in accordance with Accounting Standards for Business Enterprises. II. Basis for Opinion We conducted our audit in accordance with Chinese Standards on Auditing (CSAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of Anhui Gujing in accordance with the Code of Ethics for Professional Accountants of the Chinese Institute of Certified Public Accountants, and we have fulfilled our other ethical responsibilities. We believe that the audit evidence we obtained is sufficient and appropriate to provide a basis for our opinion. III. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of the most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and informing our opinion thereon, and we do not provide a separate opinion on these matters. (I) Revenue recognition 1. Description Refer to notes to the consolidated financial statements "3. 27. Revenue" and "5. 37. Revenue and Cost of Sales ". In 2021, the Company achieved revenue of RMB13.27 billion, an increase of 28.93% compared with the same period in 2020. As revenue is one of the key performance indicators of the company, there may be the risk of material misstatement in whether the revenue is recognized in an appropriate accounting period. Therefore, we regard revenue recognition as a key audit matter. 2. Audit response ~ 83 ~ Annual Report 2021 Our procedures for revenue recognition include: (1) Understand the internal control process design related to the sales business, and execute the walk-through test, perform the control test on the identified key control points; (2) Interview with the management, check the samples of sales contract, analyze the significant risk and reward transferring point related to revenue recognition of liquor sales, and then evaluate whether the company's sales revenue recognition policy is reasonable; (3) Sampling inspection of supporting documents related to liquor sales revenue recognition, including sales orders, sales invoices, outbound orders, etc.; (4) Compared with the liquor sales data of other enterprises in the same industry, compared the liquor sales data of the last period with the current period, analyzed the overall rationality of revenue and gross margin; (5) For the liquor sales revenue recognized before and after the balance sheet date, select samples to check the sales orders, sales invoices, outbound orders, etc., in order to evaluate whether the sales revenue is recorded in an appropriate accounting period; (6) Confirm the amount of liquor sold and the closing balance of the advance payment to the main distributor by sending confirmation letter. (II) Accuracy of inventory balances 1. Description Refer to notes to the consolidated financial statements "3 12. Inventory" and "5. 7. Inventory". Anhui Gujing has a large inventory balance and needs to maintain an appropriate level of inventory to meet future market or production demand. The inventory balance accounts for 18.35% of the Company's total assets, and most of the inventory is semi-finished products and work in progress products. As the most important asset of liquor production enterprises, inventory has a high balance at the end of the year and a large proportion of the total assets. Therefore, we regard the accuracy of the Company's inventory balance as a key audit matter. 2. Audit response Our procedures for the accuracy of inventory balances include: (1) Understand the internal control process design related to inventory business, and carry out walk-through test, carry out control tests for identified key control points; (2) Obtain the stocktaking plan and stocktaking results of the company, understand the stocktaking methods and review procedures of the company, and supervise the stocktaking; (3) Understand the company's inventory cost accounting method, select several months of cost calculation sheet to review, and select the main categories of inventory to carry out valuation test; (4) To understand the provision method of the company's inventory impairment, evaluate the appropriateness of the provision method, and review whether the provision amount is correct; (5) Perform analytical procedures and compare with companies in the same industry. IV. Other information Management of Anhui Gujing is responsible for the other information. The other information comprises the information included in the Annual Report of Anhui Gujing for the year of 2021, but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or ~ 84 ~ Annual Report 2021 otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. V. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management of Anhui Gujing is responsible for the preparation and fair presentation of the financial statements in accordance with Accounting Standards of Business Enterprises, and for the design, implementation and maintenance of such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing Anhui Gujing’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate Anhui Gujing or to cease operations, or have no realistic alternative but to do so. Those charged with governance are responsible for overseeing Anhui Gujing’s financial reporting process. VI. Auditor’s Responsibilities for the Audit of the Financial Statements Our Objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with CSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with CSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on Anhui Gujing’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause Anhui Gujing to cease to continue as a going concern. 5. Evaluate the overall presentation, structure and content of the financial statements, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within Anhui Gujing to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding ~ 85 ~ Annual Report 2021 independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. RSM China CPA LLP [Name of CPA]:Zhang Liping (Engagement Partner) ChinaBeijing [Name of CPA]:Han Songliang [Date] 29 April 2022 ~ 86 ~ Annual Report 2021 II Financial Statements Currency unit for the financial statements and the notes thereto: RMB 1. Consolidated Balance Sheet Prepared by Anhui Gujing Distillery Company Limited 31 December 2021 Unit: RMB Item 31 December 2021 31 December 2020 Current assets: Monetary assets 11,924,922,771.76 5,971,212,569.66 Settlement reserve Interbank loans granted Held-for-trading financial assets 2,661,103,876.68 203,877,915.51 Derivative financial assets Notes receivable Accounts receivable 89,005,804.17 67,933,735.91 Accounts receivable financing 545,204,103.42 1,673,510,794.51 Prepayments 156,570,970.99 55,575,543.21 Premiums receivable Reinsurance receivables Receivable reinsurance contract reserve Other receivables 71,753,212.24 33,451,121.48 Including: Interest receivable Dividends receivable Financial assets purchased under resale agreements Inventories 4,663,456,672.30 3,416,880,808.96 Contract assets Assets held for sale Current portion of non-current assets Other current assets 178,222,222.56 97,412,681.26 Total current assets 20,290,239,634.12 11,519,855,170.50 Non-current assets: Loans and advances to customers ~ 87 ~ Annual Report 2021 Investments in debt obligations Investments in other debt obligations Long-term receivables Long-term equity investments 5,312,600.78 4,915,575.83 Investments in other equity 54,542,418.50 0.00 instruments Other non-current financial assets Investment property 4,075,801.06 4,392,943.54 Fixed assets 1,984,063,975.87 1,797,789,271.62 Construction in progress 1,064,134,904.21 279,169,201.60 Productive living assets Oil and gas assets Right-of-use assets 43,927,228.97 0.00 Intangible assets 1,063,468,842.61 934,711,977.79 Development costs Goodwill 561,364,385.01 478,283,495.29 Long-term prepaid expense 55,908,338.03 64,591,933.65 Deferred income tax assets 283,828,000.24 96,972,421.95 Other non-current assets 7,220,318.40 5,943,717.02 Total non-current assets 5,127,846,813.68 3,666,770,538.29 Total assets 25,418,086,447.80 15,186,625,708.79 Current liabilities: Short-term borrowings 30,035,138.89 70,665,500.00 Borrowings from the central bank Interbank loans obtained Held-for-trading financial liabilities Derivative financial liabilities Notes payable 127,114,336.16 140,614,535.60 Accounts payable 1,020,437,321.89 505,206,561.86 Advances from customers Contract liabilities 1,825,447,705.85 1,206,573,886.26 Financial assets sold under repurchase agreements Customer deposits and interbank deposits ~ 88 ~ Annual Report 2021 Payables for acting trading of securities Payables for underwriting of securities Employee benefits payable 709,671,787.74 498,129,114.76 Taxes payable 873,270,986.71 349,142,692.10 Other payables 2,280,937,078.12 1,396,599,161.14 Including: Interest payable Dividends payable Handling charges and commissions payable Reinsurance payables Liabilities directly associated with assets held for sale Current portion of non-current 13,190,399.32 0.00 liabilities Other current liabilities 799,522,562.60 320,792,383.03 Total current liabilities 7,679,627,317.28 4,487,723,834.75 Non-current liabilities: Insurance contract reserve Long-term borrowings 172,356,255.83 60,117,638.89 Bonds payable Including: Preferred shares Perpetual bonds Lease liabilities 28,107,223.18 0.00 Long-term payables Long-term employee benefits payable Provisions Deferred income 91,101,512.05 75,111,997.53 Deferred income tax liabilities 194,033,257.93 114,821,451.24 Other non-current liabilities Total non-current liabilities 485,598,248.99 250,051,087.66 Total liabilities 8,165,225,566.27 4,737,774,922.41 Owners’ equity: Share capital 528,600,000.00 503,600,000.00 Other equity instruments ~ 89 ~ Annual Report 2021 Including: Preferred shares Perpetual bonds Capital reserves 6,224,747,667.10 1,295,405,592.25 Less: Treasury stock Other comprehensive income -2,735,058.19 0.00 Specific reserve Surplus reserves 269,402,260.27 256,902,260.27 General reserve Retained earnings 9,517,374,574.46 7,987,380,161.21 Total equity attributable to owners of 16,537,389,443.64 10,043,288,013.73 the Company as the parent Non-controlling interests 715,471,437.89 405,562,772.65 Total owners’ equity 17,252,860,881.53 10,448,850,786.38 Total liabilities and owners’ equity 25,418,086,447.80 15,186,625,708.79 Legal representative: Liang Jinhui The Company’s chief accountant: Zhu Jiafeng Head of the Company’s financial department: Zhu Jiafeng 2. Balance Sheet of the Company as the Parent Unit: RMB Item 31 December 2021 31 December 2020 Current assets: Monetary assets 6,701,949,499.06 4,287,808,756.66 Held-for-trading financial assets 2,611,037,013.67 203,877,915.51 Derivative financial assets Notes receivable Accounts receivable 0.00 494,976.27 Accounts receivable financing 269,471,899.40 1,399,214,331.97 Prepayments 85,579,299.60 11,737,580.47 Other receivables 290,480,736.49 141,378,010.40 Including: Interest receivable Dividends receivable Inventories 3,667,928,608.55 2,976,360,208.66 Contract assets ~ 90 ~ Annual Report 2021 Assets held for sale Current portion of non-current assets Other current assets 142,527,867.24 9,734,249.41 Total current assets 13,768,974,924.01 9,030,606,029.35 Non-current assets: Investments in debt obligations Investments in other debt obligations Long-term receivables Long-term equity investments 1,547,415,641.38 1,118,213,665.32 Investments in other equity instruments Other non-current financial assets Investment property 4,075,801.06 4,392,943.54 Fixed assets 1,375,344,792.42 1,322,818,855.86 Construction in progress 692,315,065.86 139,865,487.21 Productive living assets Oil and gas assets Right-of-use assets 40,811,867.62 0.00 Intangible assets 437,919,619.31 369,163,089.18 Development costs Goodwill Long-term prepaid expense 41,319,866.13 44,072,241.78 Deferred income tax assets 28,775,933.22 30,716,488.80 Other non-current assets 0.00 75,999.80 Total non-current assets 4,167,978,587.00 3,029,318,771.49 Total assets 17,936,953,511.01 12,059,924,800.84 Current liabilities: Short-term borrowings Held-for-trading financial liabilities Derivative financial liabilities Notes payable 0.00 74,535.60 Accounts payable 672,018,963.99 397,554,006.51 Advances from customers Contract liabilities 23,438,890.01 1,130,074,436.39 ~ 91 ~ Annual Report 2021 Employee benefits payable 160,404,100.41 127,974,331.78 Taxes payable 473,881,384.92 200,876,134.49 Other payables 632,857,371.46 524,000,730.59 Including: Interest payable Dividends payable Liabilities directly associated with assets held for sale Current portion of non-current 11,633,827.85 0.00 liabilities Other current liabilities 15,080,461.56 160,738,917.51 Total current liabilities 1,989,315,000.20 2,541,293,092.87 Non-current liabilities: Long-term borrowings Bonds payable Including: Preferred shares Perpetual bonds Lease liabilities 26,476,999.19 0.00 Long-term payables Long-term employee benefits payable Provisions Deferred income 27,176,546.19 31,601,732.51 Deferred income tax liabilities 21,499,021.71 19,407,895.89 Other non-current liabilities Total non-current liabilities 75,152,567.09 51,009,628.40 Total liabilities 2,064,467,567.29 2,592,302,721.27 Owners’ equity: Share capital 528,600,000.00 503,600,000.00 Other equity instruments Including: Preferred shares Perpetual bonds Capital reserves 6,176,504,182.20 1,247,162,107.35 Less: Treasury stock Other comprehensive income -1,385,311.78 0.00 Specific reserve ~ 92 ~ Annual Report 2021 Surplus reserves 264,300,000.00 251,800,000.00 Retained earnings 8,904,467,073.30 7,465,059,972.22 Total owners’ equity 15,872,485,943.72 9,467,622,079.57 Total liabilities and owners’ equity 17,936,953,511.01 12,059,924,800.84 3. Consolidated Income Statement Unit: RMB Item 2021 2020 1. Revenue 13,269,826,266.04 10,292,064,534.41 Including: Operating revenue 13,269,826,266.04 10,292,064,534.41 Interest income Insurance premium income Handling charge and commission income 2. Costs and expenses 10,213,542,938.71 7,878,036,538.50 Including: Cost of sales 3,304,077,011.92 2,549,814,944.76 Interest expense Handling charge and commission expense Surrenders Net insurance claims paid Net amount provided as insurance contract reserve Expenditure on policy dividends Reinsurance premium expense Taxes and surcharges 2,031,815,205.67 1,625,289,169.55 Selling expense 4,008,075,483.08 3,120,977,163.32 Administrative expense 1,022,181,419.74 802,201,580.48 R&D expense 51,449,475.36 40,590,136.46 Finance costs -204,055,657.06 -260,836,456.07 Including: Interest 7,036,575.14 876,815.80 expense Interest 210,634,326.57 261,861,342.00 income Add: Other income 55,269,628.48 47,474,532.19 ~ 93 ~ Annual Report 2021 Return on investment (“-” for loss) 4,692,379.15 6,787,443.77 Including: Share of profit or loss 397,024.95 237,293.59 of joint ventures and associates Income from the derecognition of financial assets at amortized cost (“-” for loss) Exchange gain (“-” for loss) Net gain on exposure hedges (“-” for loss) Gain on changes in fair value (“-” 7,225,961.17 -19,983,181.51 for loss) Credit impairment loss (“-” for -6,492,841.44 -933,752.84 loss) Asset impairment loss (“-” for loss) -16,738,156.85 -14,095,047.32 Asset disposal income (“-” for 1,368,763.13 1,223,536.53 loss) 3. Operating profit (“-” for loss) 3,101,609,060.97 2,434,501,526.73 Add: Non-operating income 80,358,158.20 66,597,288.07 Less: Non-operating expense 10,673,284.61 27,262,848.08 4. Profit before tax (“-” for loss) 3,171,293,934.56 2,473,835,966.72 Less: Income tax expense 796,962,295.09 625,947,783.69 5. Net profit (“-” for net loss) 2,374,331,639.47 1,847,888,183.03 5.1 By operating continuity 5.1.1 Net profit from continuing 2,374,331,639.47 1,847,888,183.03 operations (“-” for net loss) 5.1.2 Net profit from discontinued operations (“-” for net loss) 5.2 By ownership 5.2.1 Net profit attributable to shareholders of the Company as the 2,297,894,413.25 1,854,576,249.29 parent 5.2.1 Net profit attributable to 76,437,226.22 -6,688,066.26 non-controlling interests 6. Other comprehensive income, net of -2,702,255.36 0.00 tax Attributable to owners of the Company -2,735,058.19 0.00 as the parent 6.1 Items that will not be 312,174.31 0.00 reclassified to profit or loss ~ 94 ~ Annual Report 2021 6.1.1 Changes caused by remeasurements on defined benefit schemes 6.1.2 Other comprehensive income that will not be reclassified to profit or loss under the equity method 6.1.3 Changes in the fair value of 312,174.31 0.00 investments in other equity instruments 6.1.4 Changes in the fair value arising from changes in own credit risk 6.1.5 Other 6.2 Items that will be reclassified to -3,047,232.50 0.00 profit or loss 6.2.1 Other comprehensive income that will be reclassified to profit or loss under the equity method 6.2.2 Changes in the fair value of investments in other debt obligations 6.2.3 Other comprehensive income arising from the reclassification -3,047,232.50 0.00 of financial assets 6.2.4 Credit impairment allowance for investments in other debt obligations 6.2.5 Reserve for cash flow hedges 6.2.6 Differences arising from the translation of foreign currency-denominated financial statements 6.2.7 Other Attributable to non-controlling 32,802.83 0.00 interests 7. Total comprehensive income 2,371,629,384.11 1,847,888,183.03 Attributable to owners of the Company 2,295,159,355.06 1,854,576,249.29 as the parent Attributable to non-controlling 76,470,029.05 -6,688,066.26 interests 8. Earnings per share 8.1 Basic earnings per share 4.45 3.68 8.2 Diluted earnings per share 4.45 3.68 ~ 95 ~ Annual Report 2021 Legal representative: Liang Jinhui The Company’s chief accountant: Zhu Jiafeng Head of the Company’s financial department: Zhu Jiafeng 4. Income Statement of the Company as the Parent Unit: RMB Item 2021 2020 1. Operating revenue 6,861,927,173.56 5,879,367,295.74 Less: Cost of sales 2,685,143,091.93 2,404,770,507.12 Taxes and surcharges 1,709,930,259.58 1,486,154,736.28 Selling expense 57,374,585.54 51,077,418.28 Administrative expense 638,615,142.40 573,997,212.59 R&D expense 24,789,072.53 26,372,590.76 Finance costs -146,376,995.59 -147,492,851.31 Including: Interest expense 2,057,303.09 Interest income 148,286,685.55 147,976,230.15 Add: Other income 12,884,387.21 22,085,298.08 Return on investment (“-” for 740,925,389.76 703,295,993.73 loss) Including: Share of profit or loss of joint ventures and associates Income from the derecognition of financial assets at amortized cost (“-” for loss) Net gain on exposure hedges (“-” for loss) Gain on changes in fair value (“-” 7,159,098.16 -19,983,181.51 for loss) Credit impairment loss (“-” for 1,569,395.15 381,399.86 loss) Asset impairment loss (“-” for -9,447,015.13 -8,393,409.55 loss) Asset disposal income (“-” for 1,217,988.71 60,176.99 loss) 2. Operating profit (“-” for loss) 2,646,761,261.03 2,181,933,959.62 Add: Non-operating income 45,118,776.84 38,145,926.01 Less: Non-operating expense 5,010,863.26 22,352,299.16 3. Profit before tax (“-” for loss) 2,686,869,174.61 2,197,727,586.47 ~ 96 ~ Annual Report 2021 Less: Income tax expense 479,562,073.53 374,398,634.87 4. Net profit (“-” for net loss) 2,207,307,101.08 1,823,328,951.60 4.1 Net profit from continuing 2,207,307,101.08 1,823,328,951.60 operations (“-” for net loss) 4.2 Net profit from discontinued operations (“-” for net loss) 5. Other comprehensive income, net of -1,385,311.78 0.00 tax 5.1 Items that will not be reclassified to profit or loss 5.1.1 Changes caused by remeasurements on defined benefit schemes 5.1.2 Other comprehensive income that will not be reclassified to profit or loss under the equity method 5.1.3 Changes in the fair value of investments in other equity instruments 5.1.4 Changes in the fair value arising from changes in own credit risk 5.1.5 Other 5.2 Items that will be reclassified to -1,385,311.78 0.00 profit or loss 5.2.1 Other comprehensive income that will be reclassified to profit or loss under the equity method 5.2.2 Changes in the fair value of investments in other debt obligations 5.2.3 Other comprehensive income arising from the reclassification of -1,385,311.78 0.00 financial assets 5.2.4 Credit impairment allowance for investments in other debt obligations 5.2.5 Reserve for cash flow hedges 5.2.6 Differences arising from the translation of foreign currency-denominated financial statements 5.2.7 Other 6. Total comprehensive income 2,205,921,789.30 1,823,328,951.60 ~ 97 ~ Annual Report 2021 7. Earnings per share 7.1 Basic earnings per share 4.18 3.62 7.2 Diluted earnings per share 4.18 3.62 5. Consolidated Cash Flow Statement Unit: RMB Item 2021 2020 1. Cash flows from operating activities: Proceeds from sale of commodities 15,533,370,561.71 10,807,605,859.36 and rendering of services Net increase in customer deposits and interbank deposits Net increase in borrowings from the central bank Net increase in loans from other financial institutions Premiums received on original insurance contracts Net proceeds from reinsurance Net increase in deposits and investments of policy holders Interest, handling charges and commissions received Net increase in interbank loans obtained Net increase in proceeds from repurchase transactions Net proceeds from acting trading of securities Tax rebates 10,939,461.17 7,344,191.33 Cash generated from other operating 1,154,331,493.95 3,104,278,291.78 activities Subtotal of cash generated from 16,698,641,516.83 13,919,228,342.47 operating activities Payments for commodities and 2,476,695,652.35 2,216,094,155.87 services Net increase in loans and advances to customers Net increase in deposits in the central bank and in interbank loans granted ~ 98 ~ Annual Report 2021 Payments for claims on original insurance contracts Net increase in interbank loans granted Interest, handling charges and commissions paid Policy dividends paid Cash paid to and for employees 2,764,878,720.68 2,377,569,201.11 Taxes paid 3,745,603,413.41 3,323,475,922.81 Cash used in other operating 2,457,155,602.60 2,377,545,537.15 activities Subtotal of cash used in operating 11,444,333,389.04 10,294,684,816.94 activities Net cash generated from/used in 5,254,308,127.79 3,624,543,525.53 operating activities 2. Cash flows from investing activities: Proceeds from disinvestment 685,446,809.53 326,968,000.00 Return on investment 27,570,964.03 41,473,224.56 Net proceeds from the disposal of fixed assets, intangible assets and other 8,510,785.59 3,756,621.07 long-lived assets Net proceeds from the disposal of subsidiaries and other business units Cash generated from other investing activities Subtotal of cash generated from 721,528,559.15 372,197,845.63 investing activities Payments for the acquisition of fixed assets, intangible assets and other 578,154,171.08 561,616,750.96 long-lived assets Payments for investments 8,939,702,000.00 41,798,000.00 Net increase in pledged loans granted Net payments for the acquisition of 65,123,508.25 0.00 subsidiaries and other business units Cash used in other investing activities Subtotal of cash used in investing 9,582,979,679.33 603,414,750.96 activities Net cash generated from/used in -8,861,451,120.18 -231,216,905.33 investing activities 3. Cash flows from financing activities: ~ 99 ~ Annual Report 2021 Capital contributions received 4,962,827,169.81 0.00 Including: Capital contributions by 5,280,000.00 0.00 non-controlling interests to subsidiaries Borrowings raised 202,510,000.00 130,665,500.00 Cash generated from other financing activities Subtotal of cash generated from 5,165,337,169.81 130,665,500.00 financing activities Repayment of borrowings 357,436,327.65 0.00 Interest and dividends paid 760,093,886.59 831,838,344.55 Including: Dividends paid by 0.00 75,792,108.39 subsidiaries to non-controlling interests Cash used in other financing 20,017,478.32 0.00 activities Subtotal of cash used in financing 1,137,547,692.56 831,838,344.55 activities Net cash generated from/used in 4,027,789,477.25 -701,172,844.55 financing activities 4. Effect of foreign exchange rates changes on cash and cash equivalents 5. Net increase in cash and cash 420,646,484.86 2,692,153,775.65 equivalents Add: Cash and cash equivalents, 5,636,903,693.74 2,944,749,918.09 beginning of the period 6. Cash and cash equivalents, end of the 6,057,550,178.60 5,636,903,693.74 period 6. Cash Flow Statement of the Company as the Parent Unit: RMB Item 2021 2020 1. Cash flows from operating activities: Proceeds from sale of commodities 6,255,940,908.12 6,224,786,292.61 and rendering of services Tax rebates 136,317.05 367,573.41 Cash generated from other operating 1,011,350,323.14 1,055,973,163.52 activities Subtotal of cash generated from 7,267,427,548.31 7,281,127,029.54 operating activities Payments for commodities and 1,619,308,652.04 1,620,053,478.29 services ~ 100 ~ Annual Report 2021 Cash paid to and for employees 893,957,837.80 785,902,280.22 Taxes paid 2,421,277,549.92 2,490,592,485.18 Cash used in other operating 257,177,069.10 235,549,046.19 activities Subtotal of cash used in operating 5,191,721,108.86 5,132,097,289.88 activities Net cash generated from/used in 2,075,706,439.45 2,149,029,739.66 operating activities 2. Cash flows from investing activities: Proceeds from disinvestment 546,849,809.53 306,970,000.00 Return on investment 43,845,258.48 738,058,038.36 Net proceeds from the disposal of fixed assets, intangible assets and other 6,000,032.69 5,535,791.98 long-lived assets Net proceeds from the disposal of 13,673,346.37 0.00 subsidiaries and other business units Cash generated from other investing activities Subtotal of cash generated from 610,368,447.07 1,050,563,830.34 investing activities Payments for the acquisition of fixed assets, intangible assets and other 793,665,435.61 414,403,643.54 long-lived assets Payments for investments 8,151,105,000.00 21,800,000.00 Net payments for the acquisition of 440,643,400.00 0.00 subsidiaries and other business units Cash used in other investing activities Subtotal of cash used in investing 9,385,413,835.61 436,203,643.54 activities Net cash generated from/used in -8,775,045,388.54 614,360,186.80 investing activities 3. Cash flows from financing activities: Capital contributions received 4,957,547,169.81 0.00 Borrowings raised Cash generated from other financing activities Subtotal of cash generated from 4,957,547,169.81 0.00 financing activities Repayment of borrowings ~ 101 ~ Annual Report 2021 Interest and dividends paid 755,400,000.00 755,400,000.00 Cash used in other financing 18,667,478.32 0.00 activities Subtotal of cash used in financing 774,067,478.32 755,400,000.00 activities Net cash generated from/used in 4,183,479,691.49 -755,400,000.00 financing activities 4. Effect of foreign exchange rates changes on cash and cash equivalents 5. Net increase in cash and cash -2,515,859,257.60 2,007,989,926.46 equivalents Add: Cash and cash equivalents, 4,087,808,756.66 2,079,818,830.20 beginning of the period 6. Cash and cash equivalents, end of the 1,571,949,499.06 4,087,808,756.66 period ~ 102 ~ Annual Report 2021 7. Consolidated Statements of Changes in Owners’ Equity 2021 Unit: RMB 2021 Equity attributable to owners of the Company as the parent Other equity Item Gener instruments Less: Other Specifi Non-controlli Total owners’ Capital Surplus al Retained Othe Share capital Perpetu Treasur comprehensi c Subtotal ng interests equity Preferre Othe reserves reserves reserv earnings r al y stock ve income reserve d shares r e bonds 1. Balance as at the end of 503,600,000. 1,295,405,592. 256,902,260. 7,987,380,161. 10,043,288,013. 405,562,772. 10,448,850,786. the prior 00 25 27 21 73 65 38 year Add: Adjustment for change in accounting policy Adjustment for correction of previous error ~ 103 ~ Annual Report 2021 Adjustment for business combination under common control Other adjustments 2. Balance as at the 503,600,000. 1,295,405,592. 256,902,260. 7,987,380,161. 10,043,288,013. 405,562,772. 10,448,850,786. beginning of 00 25 27 21 73 65 38 the year 3. Increase/ decrease in 25,000,000.0 4,929,342,074. -2,735,058.1 12,500,000.0 1,529,994,413. 6,494,101,429.9 309,908,665. 6,804,010,095.1 the period 0 85 9 0 25 1 24 5 (“-” for decrease) 3.1 Total -2,735,058.1 2,297,894,413. 2,295,159,355.0 76,470,029.0 2,371,629,384.1 comprehensi 9 25 6 5 1 ve income 3.2 Capital 25,000,000.0 4,929,342,074. 4,954,342,074.8 233,438,636. 5,187,780,711.0 increased 0 85 5 19 4 and reduced by owners 3.2.1 Ordinary 25,000,000.0 4,929,342,074. 4,954,342,074.8 4,954,342,074.8 shares 0 85 5 5 increased by ~ 104 ~ Annual Report 2021 owners 3.2.2 Capital increased by holders of other equity instruments 3.2.3 Share-based payments included in owners’ equity 3.2.4 233,438,636. 233,438,636.19 Other 19 3.3 Profit 12,500,000.0 -767,900,000.0 -755,400,000.00 -755,400,000.00 distribution 0 0 3.3.1 Appropriatio 12,500,000.0 -12,500,000.00 n to surplus 0 reserves 3.3.2 Appropriatio n to general reserve 3.3.3 -755,400,000.0 Appropriatio -755,400,000.00 -755,400,000.00 0 n to owners ~ 105 ~ Annual Report 2021 (or shareholders ) 3.3.4 Other 3.4 Transfers within owners’ equity 3.4.1 Increase in capital (or share capital) from capital reserves 3.4.2 Increase in capital (or share capital) from surplus reserves 3.4.3 Loss offset by surplus reserves 3.4.4 Changes in defined ~ 106 ~ Annual Report 2021 benefit schemes transferred to retained earnings 3.4.5 Other comprehensi ve income transferred to retained earnings 3.4.6 Other 3.5 Specific reserve 3.5.1 Increase in the period 3.5.2 Used in the period 3.6 Other 4. Balance as 528,600,000. 6,224,747,667. -2,735,058.1 269,402,260. 9,517,374,574. 16,537,389,443. 715,471,437. 17,252,860,881. at the end of 00 10 9 27 46 64 89 53 the period 2020 ~ 107 ~ Annual Report 2021 Unit: RMB 2020 Equity attributable to owners of the Company as the parent Other equity Item Gener instruments Less: Other Specifi Non-controlli Total owners’ Capital Surplus al Retained Othe Share capital Treasur comprehensi c Subtotal ng interests equity Perpetu Preferre Othe reserves reserves reserv earnings r al y stock ve income reserve d shares r e bonds 1. Balance as at the end of 503,600,000. 1,295,405,592. 256,902,260. 6,888,203,911. 8,944,111,764.4 488,042,947. 9,432,154,711.7 the prior 00 25 27 92 4 30 4 year Add: Adjustment for change in accounting policy Adjustment for correction of previous error Adjustment for business combination under ~ 108 ~ Annual Report 2021 common control Other adjustments 2. Balance as at the 503,600,000. 1,295,405,592. 256,902,260. 6,888,203,911. 8,944,111,764.4 488,042,947. 9,432,154,711.7 beginning of 00 25 27 92 4 30 4 the year 3. Increase/ decrease in 1,099,176,249. 1,099,176,249.2 -82,480,174.6 1,016,696,074.6 the period 29 9 5 4 (“-” for decrease) 3.1 Total 1,854,576,249. 1,854,576,249.2 1,847,888,183.0 comprehensi -6,688,066.26 29 9 3 ve income 3.2 Capital increased and reduced by owners 3.2.1 Ordinary shares increased by owners 3.2.2 Capital increased by ~ 109 ~ Annual Report 2021 holders of other equity instruments 3.2.3 Share-based payments included in owners’ equity 3.2.4 Other 3.3 Profit -755,400,000.0 -75,792,108.3 -755,400,000.00 -831,192,108.39 distribution 0 9 3.3.1 Appropriatio n to surplus reserves 3.3.2 Appropriatio n to general reserve 3.3.3 Appropriatio n to owners -755,400,000.0 -75,792,108.3 -755,400,000.00 -831,192,108.39 (or 0 9 shareholders ) 3.3.4 Other ~ 110 ~ Annual Report 2021 3.4 Transfers within owners’ equity 3.4.1 Increase in capital (or share capital) from capital reserves 3.4.2 Increase in capital (or share capital) from surplus reserves 3.4.3 Loss offset by surplus reserves 3.4.4 Changes in defined benefit schemes transferred to retained earnings ~ 111 ~ Annual Report 2021 3.4.5 Other comprehensi ve income transferred to retained earnings 3.4.6 Other 3.5 Specific reserve 3.5.1 Increase in the period 3.5.2 Used in the period 3.6 Other 4. Balance as 503,600,000. 1,295,405,592. 256,902,260. 7,987,380,161. 10,043,288,013. 405,562,772. 10,448,850,786. at the end of 00 25 27 21 73 65 38 the period 8. Statements of Changes in Owners’ Equity of the Company as the Parent 2021 Unit: RMB Item 2021 ~ 112 ~ Annual Report 2021 Other equity instruments Less: Other Specific Surplus Retained Total owners’ Share capital Preferred Perpetual Capital reserves Treasury comprehensive Other Other reserve reserves earnings equity shares bonds stock income 1. Balance as at the end 503,600,000.00 1,247,162,107.35 251,800,000.00 7,465,059,972.22 9,467,622,079.57 of the prior year Add: Adjustment for change in accounting policy Adjustment for correction of previous error Other adjustments 2. Balance as at the 503,600,000.00 1,247,162,107.35 251,800,000.00 7,465,059,972.22 9,467,622,079.57 beginning of the year 3. Increase/ decrease in the period (“-” for 25,000,000.00 4,929,342,074.85 -1,385,311.78 12,500,000.00 1,439,407,101.08 6,404,863,864.15 decrease) 3.1 Total -1,385,311.78 2,207,307,101.08 2,205,921,789.30 comprehensive income 3.2 Capital increased 25,000,000.00 4,929,342,074.85 4,954,342,074.85 and reduced by owners 3.2.1 Ordinary shares increased by 25,000,000.00 4,929,342,074.85 4,954,342,074.85 owners 3.2.2 Capital increased by holders of other equity instruments ~ 113 ~ Annual Report 2021 3.2.3 Share-based payments included in owners’ equity 3.2.4 Other 3.3 Profit 12,500,000.00 -767,900,000.00 -755,400,000.00 distribution 3.3.1 Appropriation to 12,500,000.00 -12,500,000.00 surplus reserves 3.3.2 Appropriation to -755,400,000.00 -755,400,000.00 owners (or shareholders) 3.3.3 Other 3.4 Transfers within owners’ equity 3.4.1 Increase in capital (or share capital) from capital reserves 3.4.2 Increase in capital (or share capital) from surplus reserves 3.4.3 Loss offset by surplus reserves 3.4.4 Changes in defined benefit ~ 114 ~ Annual Report 2021 schemes transferred to retained earnings 3.4.5 Other comprehensive income transferred to retained earnings 3.4.6 Other 3.5 Specific reserve 3.5.1 Increase in the period 3.5.2 Used in the period 3.6 Other 4. Balance as at the end 528,600,000.00 6,176,504,182.20 -1,385,311.78 264,300,000.00 8,904,467,073.30 15,872,485,943.72 of the period 2020 Unit: RMB 2020 Other equity instruments Less: Other Item Specific Surplus Retained Total owners’ Share capital Preferred Perpetual Capital reserves Treasury comprehensive Other Other reserve reserves earnings equity shares bonds stock income 1. Balance as at the 503,600,000.00 1,247,162,107.35 251,800,000.00 6,397,131,020.62 8,399,693,127.97 end of the prior year Add: Adjustment for change in accounting policy Adjustment for ~ 115 ~ Annual Report 2021 correction of previous error Other adjustments 2. Balance as at the 503,600,000.00 1,247,162,107.35 251,800,000.00 6,397,131,020.62 8,399,693,127.97 beginning of the year 3. Increase/ decrease in the period (“-” for 1,067,928,951.60 1,067,928,951.60 decrease) 3.1 Total comprehensive 1,823,328,951.60 1,823,328,951.60 income 3.2 Capital increased and reduced by owners 3.2.1 Ordinary shares increased by owners 3.2.2 Capital increased by holders of other equity instruments 3.2.3 Share-based payments included in owners’ equity 3.2.4 Other 3.3 Profit -755,400,000.00 -755,400,000.00 distribution ~ 116 ~ Annual Report 2021 3.3.1 Appropriation to surplus reserves 3.3.2 Appropriation to -755,400,000.00 -755,400,000.00 owners (or shareholders) 3.3.3 Other 3.4 Transfers within owners’ equity 3.4.1 Increase in capital (or share capital) from capital reserves 3.4.2 Increase in capital (or share capital) from surplus reserves 3.4.3 Loss offset by surplus reserves 3.4.4 Changes in defined benefit schemes transferred to retained earnings 3.4.5 Other comprehensive income transferred to retained earnings ~ 117 ~ Annual Report 2021 3.4.6 Other 3.5 Specific reserve 3.5.1 Increase in the period 3.5.2 Used in the period 3.6 Other 4. Balance as at the 503,600,000.00 1,247,162,107.35 251,800,000.00 7,465,059,972.22 9,467,622,079.57 end of the period ~ 118 ~ Annual Report 2021 Anhui Gujing Distillery Company Limited Notes to the Financial Statements for the Year Ended 31 December 2021 (Unless otherwise stated, all amounts are expressed in CNY Yuan.) Note 1 Company profile 1.1 Company profile The Anhui State-owned Asset Management Bureau approved through WanGuoZiGongZi (1996) Di 053 Hao the incorporation of Anhui Gujing Distillery Company Limited (the Company and GJ Distillery) by Anhui Gujing Group Company Limited (GJ Group), as the sole founder, by the operating assets of Anhui Bozhou Gujing Distillery Factory (GJ Distillery Factory), which is the core operating unit of GJ Group. The incorporation was further approved by the Anhui People's Government through WanZhengMi (1996) 42 Hao. The incorporation General Meeting was held on 28 May 1996 and the incorporation was registered with the Anhui Admistration Bureau for Commerce and Industry on 30 May 1996 with the registered address at Bozhou, Anhui, the People’s Republic of China (the PRC). At incorporation, the Company’s total number of shares stood at 155 million with a valuation of CNY 377 .17million, which was the fair value of the operating assets of GJ Distillery Factory upon appraisal. The Company initiated public offering of 60 million domestic listed shares held by foreign investors (known as “B share(s)”) in June 1996 and 20 million domestic listed CNY ordinary shares (known as “A share(s)”) in September 1996. The par value of both the B share and A share is CNY 1.00 per share. The B shares and A shares issued were listed on the Shenzhen Stock Exchange. The Company is headquartered at Gujing, Bozhou, Anhui. The Company and its subsidiaries (collectively, the Group) operates in the food manufacturing sector and engages in the production and sales of distilled wine. As of the public listing, the Company has 235 million shares in total with the share capital at CNY 235 million. The Company’s at public listing comprised 155 million state-owned shares, 60 million B shares and 20 million A shares. Each of the Company’s shares has a par value at CNY 1.00 per share. In accordance with the resolution of the General Meeting held on 29 May 2006, the Company exercised the share reorganisation plan in June 2006. Immediately after the 119 Annual Report 2021 implementation of the share reorganisation plan, the Company had in total 235 million shares, comprising 147 million shares with restriction of disposal (equal to 62.55% of total shares) and 88 million free-floating shares (equal to 37.45% of total shares). Upon the Company’s publication of the Notice of Lifting Restriction of Shares on 27 June 2007, the restriction on disposal on 11.75 million shares was lifted on 29 June 2007. Immediately after the lifting, the Company had in total 235 million shares, comprising 135.25 million shares with restriction of disposal (equal to 57.55% of total shares) and 99.75 million free-floating shares (equal to 42.45% of total shares). Upon the Company’s publication of the Notice of Lifting Restriction of Shares on 17 July 2008, the restriction on disposal on 11.75 million shares was lifted on 18 July 2008. Immediately after the lifting, the Company had in total 235 million shares, comprising 123.5 million shares with restriction of disposal (equal to 52.55% of total shares) and 111.5 million free-floating shares (equal to 47.45% of total shares). Upon the Company’s publication of the Notice of Lifting Restriction of Shares on 24 July 2009, the restriction on disposal on 123.5 million shares was lifted on 29 July 2009. Immediately after the lifting, the Company had in total 235 million shares, comprising 235 million free-floating shares (equal to 100% of total shares). Upon approval by the China Securities Regulatory Commission (CSRC) through ZhengJianXuKe [2011] 943 Hao, the Company issued on 15 July 2011 through private offering of 16.8 million A shares with the par value at CNY 1.00 to designated investors. The shares were issued at CNY 75.00 per share. Gross proceeds from this issuance was CNY 1,260 million and the respective net proceeds after deduction of the cost of issuance (CNY 32.5 million) was CNY 1,227.5 million. The subscription for the issuance was verified by Reanda CPAs Co., Ltd. through Reanda YanZi [2011] Di 1065 Hao. Immediately after this private offering, the share capital of the Company increased to CNY 251.8 million. In accordance with the resolution of the Company’s 2011 General Meeting, a bonus issue of 10 shares for every 10 shares held at 31 December 2011 through utilisation of capital reserves was exercised in 2012. 251.8 bonus shares were issued in total. Immediately after the exercise of the bonus issue, the Company’s share capital increased to CNY 503.6 million. Upon approval by the CSRC through ZhengJianXuKe [2021] 1422 Hao, the Company issued on 22 July 2021 through private offering of 25 million A shares with the par value at CNY 1.00 to designated investors. The shares were issued at CNY 200.00 per share. Gross proceeds from this issuance was CNY 5,000 million and the respective net proceeds after 120 Annual Report 2021 deduction of the cost of issuance (CNY 45.66 million) was CNY 4,954.34 million. The subscription for the issuance was verified by RSM China CPAs LLP through RSM Yan [2021] No. 518Z0050. Immediately after this private offering, the share capital of the Company increased to CNY 528.6 million. As of 31 December 2021, total number of the Company’s shares stood at 528.6 million. See Note 5.32 for further details. Place of registration: Gujing, Bozhou, Anhui. Registered scope of operation: grain purchase (operation under permit), production of distilled wine, brewery equipments, packaging materials, glass bottles, alcohol, fat (as by-product of alcohol production), development of innovative technology and biological technology, deep processing of agricultural and auxillary products, and sales of owned produced goods. These financial statements are approved on 29 April 2022 by the Company’s Board of Directors for publication. 1.2 Scope of consolidation 1.2.1 Subsidiaries included in the Company’s scope of consolidation as of the statement date Shareholding % Subsidiary Abbreviation Direct Indirect 1 Bozhou Gujing Sales Co., Ltd. GJ Sales 100 - 2 Anhui Jinyunlai Culture Media Co., Ltd. Jinyunlai 100 - 3 Anhui Ruisi Weier Technology Co., Ltd. Ruisi Weier 100 - 4 Anhui Longrui Glass Co., Ltd. Longrui Glass 100 - 5 Bozhou Gujing Waste Recycle Co., Ltd. (Dissolved) Waste Recycle 100 - 6 Shanghai Gujing Jinhao Hotel Management Co., Ltd. Jinhao Hotel 100 - 7 Baozhou Gujing Guest House Co., Ltd. GJ Guest House 100 - 8 YQ Environment 100 - Anhui Yuanqing Environment Protection Co., Ltd. Protection 9 Anhui Gujing Yunshang E-Commerce Co., Ltd. GJ E-Commerce 100 - 10 Anhui Runan Xinke Testing Technology Co., Ltd. Runan Xinke 100 - 11 Anhui Jiuan Electric Equipments Co., Ltd. Jiuan Electric 100 - 12 Anhui Jiudao Culture Media Co., Ltd. Jiudao Media 100 - 13 Anhui Jiuhao ChinaRail Construction Engineering Co., Ltd. Jiuhao ChinaRail 52 - 14 Anhui Zhenrui Construction Engineering Co., Ltd. Zhenrui Construction - 52 121 Annual Report 2021 Shareholding % Subsidiary Abbreviation Direct Indirect 15 Huanghelou Distillery Co., Ltd. HHL Distillery 51 - 16 HHL Distillery (Suizhou) Co., Ltd. HHL Suizhou - 51 17 Hubei Junlou Culture Travel Co., Ltd. Junlou Culture - 51 18 Hubei HHL Beverage Co., Ltd. HHL Beverage - 51 19 HHL Distillery (Xianning) Co., Ltd. HHL Xianning - 51 20 Wuhan Yashibo Technology Co., Ltd. Yashibo - 51 21 Hubei Xinjia Testing Technology Co., Ltd. Xinjia Testing - 51 22 Wuhan Tianlong Jindi Technology Development Co., Ltd. Tianlong Jindi - 51 23 Wuhan Junya Sales Co., Ltd. Junya Sales - 51 24 Xianning Junhe Sales Co., Ltd. Xianning Junhe - 51 25 Suizhou Junhe Trading Co., Ltd. Suizhou Junhe - 51 26 Guizhou Huairen Maotai Treasure Distillery Co., Ltd. Treasure Distillery 60 - 27 Anhui Mingguang Distillery Co., Ltd. Mingguang Distillery 60 - 28 Mingguang Tiancheng Mingjiu Sales Co., Ltd. Tiancheng Sales - 60 29 Fengyang Xiaogangcun Mingjiu Distillery Co., Ltd. FY Xiaogangcun - 42 See Note 7 for further details. 1.2.2 Change of the scope of consolidation in the period See Note 7 for further details. Mingguang Distillery, Tiancheng Sales, FY Xiaogangcun, Treasure Distillery, Jiuhao ChinaRail and Jiuan Electric were included in the Company’s scope of consolidation in the period for the first time. Waste Recylce was excluded from the Company’s scope of consolidation in the period upon dissolution. Note 2 Basis of preparation for the financial statements 2.1 Basis of preparation Based on going concern, according to actually occurred transactions and events, the Company prepares its financial statements in accordance with the Accounting Standards for Business Enterprises – Basic standards and concrete accounting standards, Accounting Standards for Business Enterprises – Application Guidelines, Accounting Standards for Business Enterprises – Interpretations and other relevant provisions (collectively known as “Accounting Standards for Business Enterprises” or ASBE(s)). At the same time, the Company discloses relevant financial information in accordance with Disclosure Rule for Companies with Publicly Traded Securities No. 15 – General Provisions for Financial 122 Annual Report 2021 Statements (Revised in 2014) issued by the CSRC. 2.2 Going concern The Company has assessed its ability to continually operate for the next twelve months from the end of the reporting period, and no any matters that may result in doubt on its ability as a going concern were noted. Therefore, it is reasonable for the Company to prepare financial statements on the going concern basis. Note 3 Significant account policies and accounting estimates The following significant accounting policies and accounting estimates of the Company are formulated in accordance with the Accounting Standards for Business Enterprises. Businesses not mentioned are complied with relevant accounting policies of the Accounting Standards for Business Enterprises. 3.1 Statement of compliance with the Accounting Standards for Business Enterprises The Company prepares its financial statements in accordance with the requirements of the Accounting Standards for Business Enterprises, truly and completely reflecting the Company’s financial position as at 31 December 2021, and its operating results, changes in shareholders' equity, cash flows and other related information for the year then ended. 3.2 Accounting period The accounting year of the Company is from January 1 to December 31 in calendar year. 3.3 Operating cycle The normal operating cycle of the Company is twelve months. 3.4 Functional currency The functional currency of the Company is CNY Yuan. An Overseas subsidiary (or branch) uses the currency prominent in its business activities as its functional currency. 3.5 Business combination under common control and business combination not under common contorl 3.5.1 Business combination under common control The assets and liabilities that the Company obtains in a business combination under common control are measured at their carrying amounts as consolidated in the ultimate controller’s consolidated statement of financial position at the combination date. If the accounting policy adopted by the acquired entity is different from that adopted by the Company, the Company, according to accounting policy it adopts, adjusts the relevant items in the financial statements of the acquired entity based on the principle of materiality. the Company’s capital reserve (capital premium or share premium) is adjusted 123 Annual Report 2021 by the difference between the carrying amount of the net assets obtained by the Company and the carrying amount of the consideration paid for the combination; where the capital reserve (capital premium or share premium) is not sufficient to absorb the difference, the excess is adjusted to the Company’s surplus reserves, and retained earnings if needed. See Note 3.6.6 for business combination under common control through multiple transactions. 3.5.2 Business combination not under common control The identifiable assets and liabilities that the Company obtains in a business combination not under common control are measured at their fair value at the acquisition date. If the accounting policy adopted by the acquired entity is different from that adopted by the Company, the Company, according to accounting policy it adopts, adjusts the relevant items in the financial statements of the acquired entity based on the principle of materiality. The Company recognises the excess of the cost of combination over the fair value of the identifiable net assets it obtains from the acquired entity as goodwill. Where the fair value of the identifiable net assets obtained by the Company is higher than the cost of combination, the Company review the measurement of the fair values of the identifiable assets, liabilities and contingent liabilities it obtains from the acquired entity as well as the cost of combination; where the excess remains upon the review, the Company recognises the excess through profit or loss for the period in which the combination occurs. See Note 3.6.6 for business combination not under common control through multiple transactions. 3.5.3 Transaction costs of a business combination The intermediary costs such as audit, legal services and valuation consulting and other related management costs that are directly attributable to the business combination are charged to profit or loss in the period in which they are incurred. The costs to issue equity or debt securities for the consideration of business combination are recorded as a part of the value of the respect equity or debt securities upon initial recognition. 3.6 Consolidated financial statements 3.6.1 Scope of consolidation The scope of consolidation is determined on the basis of control. It not only includes subsidiaries determined based on voting power (or similar) or other arrangement, but also structured entities under one or several contract arrangements. Control exists when the Company has all the following: power over the investee; exposure, 124 Annual Report 2021 or rights to variable returns from the Company’s involvement with the investee; and the ability to use its power over the investee to affect the amount of the investor’s returns. Subsidiaries are the entities that controlled by the Company (including a legal entity, a divisible part of the investee, and a structured entity controlled by a legal entity). A structured entity (sometimes called a Special Purpose Entity) is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. 3.6.2 Accounting policies applicable to an investing entity Where an entity is an investing entity, it consolidates its subsidiaries to the extent that the subsidiaries which provide services to the investing entity; investment by the investing entity in other subsidiaries of the investing entity which are not consolidated by the investing entity is reocgnised as financial assets at fair value through profit or loss. An entity is an investing entity is all of the following conditions are satisfied: I. the entity obtains funds from one or more investors for the purpose of providing those investors with investment management services; II. the entity commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both; and III. the entity measures and evaluates the performance of substantially all of its investments on a fair value basis. Where a non-investing entity becomes an investing entity, subsidiaries excluded from consolidation upon the change in status are accounted for in accordance with the principle of partial disposal not giving rise to loss of control. Where an investing entity becomes a non-investing entity, subsidiairies which were not previously consolidated are consolidated into the non-investing entity upon the change in status in accordance with the principle of business combination not under common control while their fair value as of the date of change in status is recognised by the non-investing entity as cost of combination. 3.6.3 Preparation of the consolidated financial statements The consolidated financial statements are prepared by the Company based on the financial statements of the Company and its subsidiaries, and using other related information. When preparing consolidated financial statements, the Company considers the entire group as an accounting entity, adopts uniform accounting policies and applies the requirements of Accounting Standard for Business Enterprises related to recognition, measurement and presentation. The consolidated financial statements reflect the overall 125 Annual Report 2021 financial position, operating results and cash flows of the group. I. Like items of assets, liabilities, equity, income, expenses and cash flows of the parent are combined with those of the subsidiaries. II. The carrying amount of the parent’s investment in each subsidiary is eliminated (off-set) against the parent’s portion of equity of each subsidiary. III. The impact of intragroup transactions between the Company and the subsidiaries or between subsidiaries are eliminated, and when intragroup transactions indicate an impairment of related assets, the losses are recognised in full. IV. Adjustments are made for special transactions from the perspective of the group. 3.6.4 Accounting for inclusion into and exclusion from the scope of consolidation 3.6.4.1 Inclusion into the scope of consolidation I. Subsidiaries or businesses acquired through business combination under common control When preparing the consolidated statements of financial position, the opening balances are adjusted. Related items of comparative financial statements are adjusted as well, deeming that the combined entity has always existed ever since the ultimate controlling party began to control. Incomes, expenses and profits of the subsidiary arising from the beginning of the reporting period to the end of the reporting period are included into the consolidated statement of comprehensive income. Related items of comparative financial statements are adjusted as well, deeming that the combined entity has always existed ever since the ultimate controlling party began to control. Cash flows from the beginning of the reporting period to the end of the reporting period are included into the consolidated statement of cash flows. Related items of comparative financial statements are adjusted as well, deeming that the combined entity has always existed ever since the ultimate controlling party began to control. II. Subsidiaries or businesses acquired through business combination not under common control When preparing the consolidated statements of financial position, the opening balances of the consolidated statements of financial position are not adjusted. Incomes, expenses and profits of the subsidiary arising from the acquisition date to the end of the reporting period are included into the consolidated statement of comprehensive income. Cash flows from the acquisition date to the end of the reporting period are included 126 Annual Report 2021 into the consolidated statement of cash flows. 3.6.4.2 Exclusion from the scope of consolidation resulted from disposal of subsidiaries or businesses When preparing the consolidated statements of financial position, the opening balances of the consolidated statements of financial position are not adjusted. Incomes, expenses and profits incurred from the beginning of the subsidiary to the disposal date are included into the consolidated statement of comprehensive income. Cash flows from the beginning of the subsidiary to the disposal date are included into the consolidated statement of cash flows. 3.6.5 Special consideration in consolidation elimination 3.6.5.1 Long-term equity investment held by the subsidiaries to the Company is recognised as treasury stock of the Company, which is offset with equity, represented as “treasury stock” under “equity” in the consolidated statement of financial position. Long-term equity investment held by subsidiaries between each other is accounted for taking long-term equity investment held by the Company to its subsidiaries as reference. That is, the long-term equity investment is eliminated (off- set) against the portion of the corresponding subsidiary’s equity. 3.6.5.2 Due to not belonging to share capital and capital reserve, and being different from retained earnings and undistributed profit, “Specific reserves” is recovered based on the proportion attributable to owners of the parent company after long-term equity investment to the subsidiaries is eliminated with the subsidiaries’ equity. 3.6.5.3 If temporary timing difference between the book value of the assets and liabilities in the consolidated statement of financial position and their tax basis is generated as a result of elimination of unrealised inter-company transaction profit or loss, deferred tax assets of deferred tax liabilities are recognised, and income tax expense in the consolidated statement of comprehensive income is adjusted simultaneously, excluding deferred taxes related to transactions or events directly recognised in equity or business combination. 3.6.5.4 Unrealised inter-company transactions profit or loss generated from the Company selling assets to its subsidiaries is eliminated against “net profit attributable to the shareholders of the parent company” in full. Unrealised inter-company transactions profit or loss generated from the subsidiaries selling assets to the Company is eliminated between “net profit attributable to the shareholders of the parent company” and “net profit attributable to non-controlling shareholders” pursuant to the proportion of the 127 Annual Report 2021 Company in the related subsidiaries. Unrealised inter-company transactions profit or loss generated from the assets sales between the subsidiaries is eliminated between “net profit attributable to the shareholders of the parent company” and “net profit attributable to non-controlling shareholders” pursuant to the proportion of the Company in the selling subsidiaries. 3.6.5.5 If loss attributable to the non-controlling shareholders of a subsidiary in current period is more than the proportion of non-controlling interest in this subsidiary at the beginning of the period, non-controlling interest is still to be written down. 3.6.6 Accounting for special transactions 3.6.6.1 Acquiring shares from non-controlling shareholders Where, the Company purchases non-controlling interests of its subsidiary, in the separate financial statements of the Company, the cost of the long-term equity investment obtained in purchasing non-controlling interests is measured at the fair value of the consideration paid. In the consolidated financial statements, difference between the cost of the long-term equity investment newly obtained in purchasing non-controlling interests and share of the subsidiary’s net assets from the acquisition date or combination date continuingly calculated pursuant to the newly acquired shareholding proportion shall be adjusted into capital reserve (capital premium or share premium). If capital reserve is insufficient for offset, surplus reserve and retained earnings shall be offset in turn. 3.6.6.2 Gaining control over a subsidiary in stages through multiple transactions I. Business combination under common control through multiple transactions On the combination date, in the separate financial statement, initial cost of the long-term equity investment is determined according to the share of carrying amount of the acquiree’s net assets in the ultimate controlling entity’s consolidated financial statements after combination. The difference between the initial cost of the long-term equity investment and the carrying amount of the long -term investment held prior of control plus book value of additional consideration paid at acquisition date is adjusted into capital reserve (capital premium or share premium). If the capital reserve is not enough to absorb the difference, any excess is adjusted against surplus reserve and undistributed profit in turn. In the consolidated financial statements, the assets and liabilities acquired during the combination are recognised at their carrying amounts in the ultimate controlling entity’s consolidated financial statements on the combination date unless any adjustment is resulted from the difference in accounting policies. The difference between the carrying amount of the investment held prior of control plus book value 128 Annual Report 2021 of additional consideration paid on the acquisition date and the net assets acquired through the combination is adjusted into capital reserve (capital premium or share premium). If the capital reserve is not enough to absorb the difference, any excess is adjusted against retained earnings. If the acquiring entity holds equity investment in the acquired entity prior to the combination date and the equity investment is accounted for under the equity method, related profit or loss, other comprehensive income and other changes in equity which have been recognised during the period from the later of the date of the Company obtaining original equity interest and the date of both the acquirer and the acquiree under common control of the same ultimate controlling party to the combination is offset against the opening balance of retained earnings at the comparative financial statements period respectively. II. Business combination not under common control through multiple transactions On the consolidation date, in the separate financial statements, the initial cost of long-term equity investment is determined according to the carrying amount of the original long-term investment plus the cost of new investment. In the consolidated financial statements, the equity interest of the acquired entity held prior to the acquisition date is re-measured at its fair value on the acquisition date. Difference between the fair value of the equity interest and its book value is recognised as investment income. Other comprehensive income related to the equity interest held prior to the acquisition date calculated through equity method is transferred to current investment income of the acquisition period, excluding other comprehensive income resulted from the remeasurement of defined benefit plans. The Company discloses acquisition-date fair value of the equity interest held prior to the acquisition date, and the related gains or losses due to the remeasurement based on fair value. 3.6.6.3 Disposal of investment in subsidiaries without a loss of control For partial disposal of a long-term equity investment in a subsidiary without a loss of control, when the Company prepares consolidated financial statements, difference between consideration received from the disposal and the corresponding share of subsidiary’s net assets cumulatively calculated from the acquisition date or combination date is adjusted into capital reserve (capital premium or share premium). If the capital reserve is not enough to absorb the difference, any excess is adjusted against retained earnings. 3.6.6.4 Disposal of investment in subsidiaries with a loss of control 129 Annual Report 2021 I. Loss of control through one single transaction If the Company loses control in an investee through partial disposal of the equity investment, when the consolidated financial statements are prepared, the retained equity interest is re-measured at fair value at the date of loss of control. The difference between i) the fair value of consideration received from the disposal plus non-controlling interest retained; ii) share of the former subsidiary’s net assets cumulatively calculated from the acquisition date or combination date according to the original proportion of equity interest, is recognised in current investment income when control is lost. Moreover, other comprehensive income and other changes in equity related to the equity investment in the former subsidiary is transferred into current investment income when control is lost, excluding other comprehensive income resulted from the remeasurement of defined benefit plans. II. Loss of control through multiple transactions In the consolidated financial statements, whether the transactions should be accounted for as “a single transaction” needs to be decided firstly. If the disposal through multiple transactions is not classified as “a single transaction”, in the separate financial statements, for transactions prior to the date of loss of control, carrying amount of each disposal of long-term equity investment is de-recognised at upon disposal, and the difference between consideration received and the carrying amount of long-term equity investment corresponding to the equity interest disposed is recognised in current investment income; in the consolidated financial statements, the disposal transaction is accounted for in accordance with 3.6.6.3. If the disposal through multiple transactions is classified as “a single transaction”, these transactions should be accounted for as one single transaction of disposal of subsidiary resulting in loss of control. In the separate financial statements, for each transaction prior to the date of loss of control, difference between consideration received and the carrying amount of long-term equity investment corresponding to the equity interest disposed is recognised in other comprehensive income firstly, and transferred to profit or loss as a whole when control is lost; in the consolidated financial statements, for each transaction prior to the date of loss of control, difference between consideration received and proportion of the subsidiary’s net assets corresponding to the equity interest disposed is recognised in profit or loss as a 130 Annual Report 2021 whole when control is lost. In considering of the terms and conditions of the transactions as well as their economic impact, the presence of one or more of the following indicators may lead to account for multiple transactions as a single transaction: i. The transactions are entered into simultaneously or in contemplation of one another. ii. The transactions form a single transaction designed to achieve an overall commercial effect. iii. The occurrence of one transaction depends on the occurrence of at least one other transaction. iv. One transaction, when considered on its own merits, does not make economic sense, but when considered together with the other transaction or transactions would be considered economically justifiable. 3.6.6.5 Diluting equity share of parent company in its subsidiaries due to additional capital contribution by the subsidiaries’ non-controlling shareholders. Other shareholders (non-controlling shareholders) of the subsidiaries inject additional capital in the subsidiary, which results in the dilution of equity interest of parent company in the subsidiary. In the consolidated financial statements, difference between share of the corresponding subsidiary’s net assets calculated based on the parent’s equity interest before and after the capital injection is adjusted into capital reserve (capital premium or share premium). If the capital reserve is not enough to absorb the difference, any excess is adjusted against retained earnings. 3.7 Joint arrangement A joint arrangement is an arrangement of which two or more parties have joint control. Joint arrangement of the Company is classified as either a joint operation or a joint venture. 3.7.1 Joint operation A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. The Company recognises the following items in relation to shared interest in a joint operation, and accounts for them in accordance with relevant accounting standards of the Accounting Standards for Business Enterprises: I. its assets, including its share of any assets held jointly; 131 Annual Report 2021 II. its liabilities, including its share of any liabilities incurred jointly; III. its revenue from the sale of its share of the output arising from the joint operation; IV. its share of the revenue from the sale of the output by the joint operation; and V. its expenses, including its share of any expenses incurred jointly. 3.7.2 Joint venture A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. The Company accounts for its investment in the joint venture by applying the equity method of long-term equity investment. 3.8 Cash and cash equivalents Cash comprises cash on hand and deposits that can be readily withdrawn on demand. Cash equivalents include short-term (generally within three months of maturity at acquisition), highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. 3.9 Foreign currency 3.9.1 Translation of a transaction denominated in a foreign currency At the time of initial recognition of a foreign currency transaction, the amount in the foreign currency is translated into the amount in the functional currency at the spot exchange rate of the transaction date, or at an exchange rate which is determined through a systematic and reasonable method and is approximate to the spot exchange rate of the transaction date (hereinafter referred to as the approximate exchange rate). 3.9.2 Translation of monetary items denominated in foreign currencies on a balance-sheet date The foreign currency monetary items are translated at the spot exchange rate on the balance sheet date. The balance of exchange arising from the difference between the spot exchange rate on the balance sheet date and the spot exchange rate at the time of initial recognition or prior to the balance sheet date shall be recorded into the profits and losses at the current period. The foreign currency non-monetary items measured at the historical cost are translated at the spot exchange rate on the transaction date; the foreign currency non-monetary items restated to a fair value measurement are translated at the spot exchange rate at the date when the fair value was determined, the difference between the restated functional currency amount and the original functional currency amount shall be recorded into the profits and losses at the current period. 3.9.3 Translation of financial statements denominated in a foreign currency 132 Annual Report 2021 Before translating the financial statements of foreign operations, the accounting period and accounting policies are adjusted so as to conform to the Company’s accounting period and accounting policies. The adjusted foreign operation financial statements denominated in foreign currency (other than functional currency) are translated in accordance with the following method: I. The asset and liability items in the statement of financial position shall be translated at the spot exchange rates at the date of that statement of financial position. The equity items except retained earnings are translated at the spot exchange rates when they are incurred. II. The income and expense items in the statement of comprehensive income are translated at the spot exchange rates or approximate exchange rate at the date of transaction. III. Foreign currency cash flows and cash flows of foreign subsidiaries are translated at the spot exchange rate or approximate exchange rate when the cash flows are incurred. The effect of exchange rate changes on cash is presented separately in the statement of cash flows as an adjustment item. IV. The differences arising from the translation of foreign currency financial statements are presented separately as “other comprehensive income” under the equity items of the consolidated statement of financial position. When disposing a foreign operation involving loss of control, the cumulative amount of the exchange differences relating to that foreign operation recognised under other comprehensive income in the statement of financial position are reclassified into current profit or loss according to the proportion disposed. 3.10 Financial instruments A financial instrument is any contract which gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity. 3.10.1 Recognition and derecognition of a financial instrument A financial asset or a financial liability is recognised in the statement of financial position when, and only when, an entity becomes party to the contractual provisions of the instrument. A financial asset can only be derecognised when the rights to the contractual cash flows from the financial asset expire; or A financial liability (or a part of a financial liability) is derecognised in on of the following ways: I. a financial liability (or a part of the financial liability) is derecognised when the 133 Annual Report 2021 obligation associated with the financial liability (or the part of the financial liability) is released; II. Where an existing financial liability is replaced by a new financial liability by an agreement with the counter party and the new financial liability is substantially different from the existing financial liability, the existing financial liability is derecognised while the new financial liablity is recognised; III. Where the contractual terms of a financial liability (or a part of a financial liability) are substantially altered, the financial liablity is dercognised in full and a new financial liablity reflecting the contractual terms after alteration is recognised. Purchase or sale of a financial instrument in a regular-way is recognised and derecognised using trade date accounting. A regular-way purchase or sale of a financial instrument is a transaction under a contract whose terms require delivery of the instrument within the timeframe established generally by regulations or convention in the market place concerned. Trade date is the date on which the entity commits itself to purchase or sell aA financial instrument. 3.10.2 Classification and measurement of financial assets A financial asset is recognised as one of the following upon initial recognition based on both the business model for managing the financial asset and the contractual cash flow characteristics of the financial asset: I. a financial asset at amortised cost; II. a financial asset at fair value through profit or loss (FVATPL); or III. a financial asset at fair value through other comprehensive income (FVATOCI). Reclassification of a financial asset is permitted if, and only if, the objective of the entity’s business model for managing the financial asset changes. In this circumstance, all affected financial assets are reclassified on the first day of the first reporting period after the changes in business model; otherwise a financial asset cannot be reclassified after initial recognition. Financial assets shall be measured at initial recognition at fair value. For financial assets measured at fair value through profit or loss, transaction costs are recognised in current profit or loss. For financial assets not measured at fair value through profit or loss, transaction costs should be included in the initial measurement. Notes receivable or accounts receivable that arise from sales of goods or rendering of services are initially measured at the transaction price defined in the accounting standard of revenue where the transaction does not include a significant financing component. Subsequent measurement of financial assets will be based on their categories: 134 Annual Report 2021 I. Financial assets at amortised cost A financial asset is classified as a financial asset at amortised cost when both the following conditions are satisfied: i. the financial asset is held within the business model whose objective is to hold the financial asset in order to collect contractual cash flows; and ii. the contractual term of the financial asset gives rise to cash flows on specified dates that are solely payment of principal and interest on the outstanding principal amount. A financial asset at amortised cost is subsequently measured at amortised cost by adopting the effective interest rate method. Any gain or loss arising from derecognition, amortisation computed using the effective interest rate method, and impairment are recognised in current profit or loss. II. Financial assets at fair value through other comprehensive income (FVATOCI) A financial asset is classified as a FVATOCI when both the following conditions are satisfied: i. the financial asset is held within the business model whose objective is achieved by both collecting contractual cash flows and selling financial asset; and ii. the contractual term of the financial asset gives rise to cash flows on specified dates that are solely payment of principal and interest on the outstanding principal amount. A FVATOCI is subsequently measured at fair value with changes in fair value recognised in other comprehensive income excep for the following gain or loss, which is recognised in current profit or loss: i. gain or loss arising from impairment or exchange differences; and ii. interest income calculated based on the effective interest rate Where a non-trading equity instrument investment is irrevocably designated as a FVTAOCI, fair value change is recognised in other comprehensive income and dividend income is recognised in current profit or loss. Upon derecognised, cumulative gain or loss previously recognised in other comprehensive income is reclassified to retained earnings. III Financial assets at fair value through profit or loss (FVATPL) A financial asset which is neither a financial asset at amortised cost nor a FVATOCI is classified as a FVATPL. A FVATPL is subsequently measured as fair value with changes in fair value recognised in current profit or loss. 3.10.3 Classification and measurement of financial liabilities 135 Annual Report 2021 The Company classified the financial liabilities as financial liabilities at fair value through profit or loss (FVLTPL), loan commitments at a below-market interest rate, financial guarantee contracts, and financial liablities at amortised cost. Subsequent measurement of financial assets will be based on the classification: I. Financial liabilities at fair value through profit or loss (FVLTPL) Held-for-trading financial liabilities (including derivatives that are financial liabilities) and financial liabilities designated as FVLTPL are classified as financial liabilities at FVLTPL. After initial recognition, any gain or loss (including interest expense) are recognised in current profit or loss except for those to which hedge accounting is applied. For a financial liability that is designated as a FVLTPL, changes in the fair value of the financial liability that is attributable to changes in the own credit risk of the issuer is recognised in other comprehensive income. At derecognition, cumulative gain or loss previously recognised under other comprehensive income is reclassified to retained earnings. II. Loan commitments and financial guarantee contracts A loan commitment is a commitment by the Company to provide a loan to customer under specified contract terms. The provision of impairment losses of loan commitments is recognised based on expected credit losses model. A financial guarantee contract is a contract that requires the Company to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. A financial guarantee contract liability shall be subsequently measured at the higher of the amount determined in accordance with the accounting policies applicable to impairment of a financial asset and the amount initially recognised less the cumulative amortisation calculated in accordance with the accounting policies applicable to revenue. III. Financial liabilities at amortised cost A financial liability at amortised cost is subsequently measured at its amortised cost calculated using the effective interest rate method. Unless in exceptional case, financial liabilities and equity instruments are classfified in the following ways: I. Where the issuer of a financial instrument has no uncondintional right to avoid deliverying cash or another financial asset(s) to fulfill an obligation, this obligation meets the definition of a financial liablity. A contract of a financial instrument may not 136 Annual Report 2021 explicitly comprise terms and conditions relating to a obligation of delivery cash or another financial asset(s), it may implicitly include such obligation through other terms and conditions. II. Where a financial instrument can only or may be settled by the issuer’s own equity instruments: i. if the issuer’s equity instruments are a substitution of cash or other financial asset(s), the financial instrument is the issuer’s liability; ii. if the issuer’s equity instruments enable the holder to the issuer’s residual interest after deducting all of the issuer’s liabilities from all of the issuer’s assets, the financial instrument is the issuer’s equity instrument. In certain cases, a financial instrument can only or may be settled by the issuer’s own equity instruments and the settlement amount is calculated by multiplying the number of equity instruments deliverable with the fair value of the equity instrument at the settlement date, the instrument is the issuer’s financial liablity regardless of whether the settlement amount is fixed or determinable wholly or partly by variables other than the market price of the issuer’s own equity instrument (such as interest rate, market price of a commodity, or price of a financial instrument). 3.10.4 Derivatives and embedded derivatives A financial derivative is initially measured at its fair value at the inception date of the derivative contract and subsequently measured at fair value. At initial recognition, a financial deriivative with fair value at positive amount is recognised as an asset and as a liability is the fair value is at negative amount. Except for the change of fair value of the effective portion of a cash flow hedge, which is recognised other comprehensive income and reclassified to profit or loss upon cease of hedging effectiveness, change of fair value of a financial financial derivative in recognised in current profit or loss. Where the non-derivative part of a hybrid instrument is a financial asset, the hybrid instrument is as a whole accounted for a financial asset. Where the non-derivative part of a hybrid instrument is a non-financial asset, the derivative part is separately accounted for as a financial derivative if all of the following conditions are satisfied: I. the hybrid instrument is not accounted for at fair value through profit or loss; II. the economic characteristics and risks of the derivative part is not closely related to those of the non-derivative part; and III. a stand-alone instrument with characteristics similar to the derivative part is a 137 Annual Report 2021 financial derivative. Where the fair value of the derivative part of a hybrid instrument with the non-derivative part being a non-financial asset cannot be inidividually measured either upon or subsequent to initial recognition, the hybrid instrument as a whole is accounted as either a FVATPL or FVLTPL. 3.10.5 Impairment of financial instruments Impairment allowance for financial assets at amortised costs, FVATOCI, contract assets, lease receivables, loan commitments and financial guarantee contracts is recognised on the basis of their expected credit loss. I. Measurement of expected credit loss Expected credit loss are the weighted average of credit loss of a financial instrument with the respective risks of a default occurring as the weights. Credit loss is the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the Company expects to receive (ie all cash shortfalls), discounted at the original effective interest rate or credit-adjusted effective interest rate in the case of purchased credit-impaired financial assets or financial assets with origninated credit impairment. Lifetime expected credit losses are the expected credit losses that result from all possible default events over the expected life of a financial instrument. 12-month expected credit losses are the portion of lifetime expected credit losses that represent the expected credit losses that result from default events on a financial instrument that are possible within the 12 months after the reporting date (or the expected lifetime, if the expected life of a financial instrument is less than 12 months). At each reporting date, the Company classifies financial instruments into three stages and makes provisions for expected credit losses accordingly. A financial instrument of which the credit risk has not significantly increased since initial recognition is at stage 1. The Company shall measure the loss allowance for that financial instrument at an amount equal to 12-month expected credit losses. A financial instrument with a significant increase in credit risk since initial recognition but is not considered to be credit-impaired is at stage 2. The Company shall measure the loss allowance for that financial instrument at an amount equal to the lifetime expected credit losses. A financial instrument is considered to be credit-impaired as at the end of the reporting period is at stage 3. The Company shall measure the loss allowance for that financial instrument at an amount equal to the lifetime expected credit losses. The Company may assume that the credit risk on a financial instrument has not 138 Annual Report 2021 increased significantly since initial recognition if the financial instrument is determined to have low credit risk at the reporting date and measure the loss allowance for that financial instrument at an amount equal to 12-month expected credit losses. For financial instrument at stage 1, stage 2 and those have low credit risk, the interest revenue shall be calculated by applying the effective interest rate to the gross carrying amount of a financial asset (ie, impairment loss not been deducted). For financial instrument at stage 3, interest revenue shall be calculated by applying the effective interest rate to the amortised cost after deducting of impairment loss. For notes receivable, accounts receivable and accounts receivable financing, no matter it contains a significant financing component or not, the Company shall measure the loss allowance at an amount equal to the lifetime expected credit losses. i. Receivables For the notes receivable, accounts receivable, other receivables, accounts receivable financing and long-term receivables which are demonstrated to be impaired by any objective evidence, or applicable for individual assessment, the Company shall individually assess for impairment and recognise the loss allowance for expected credit losses. If the Company determines that no objective evidence of impairment exists for notes receivable, accounts receivable, other receivables, accounts receivable financing and long-term receivables, or the expected credit loss of a single financial asset cannot be assessed at reasonable cost, such notes receivable, accounts receivable, other receivables, accounts receivable financing and long-term receivables shall be divided into several groups with similar credit risk characteristics and collectively calculated the expected credit loss. The determination basis of groups is as following: A. Notes receivables: Group 1: Commercial acceptance Group 2: Bank acceptance For each group, the Company calculates expected credit losses through default exposure and the lifetime expected credit losses rate, taking reference to historical experience for credit losses and considering current condition and expectation for the future economic situation. B. Accounts receivable: Group 1: Related parties within the scope of consolidation Group 2: Receivables due from third parties The expected credit loss for a portfolio of accounts receivable is computed 139 Annual Report 2021 using the expected credit loss rate over the entire lifes of the accounts receivable and the age groups of these accouns receivable while taking into consideration of their historical credit loss and the assessment for current and expected general economic conditions. C. Other receivables: Group 1: Related parties within the scope of consolidation Group 2: Receivables due from third parties The expected credit loss for a portfolio of other receivables is computed using the expected credit loss rate over the next 12 months of the other receivables and their exposure to default risk while taking into consideration of their historical credit loss and the assessment for current and expected general economic conditions. ii. Debts investment and other debt investments The expected credit loss for a debt investment or other debt investment is computed using the expected credit loss rate over the next 12 months or the entire life of the investment and its exposure to default risk while taking into consideration of its nature. II. Low credit risk If the financial instrument has a low risk of default, the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfill its contractual cash flow obligations. III. Significant increase in credit risk The Company shall assess whether the credit risk on a financial instrument has increased significantly since initial recognition, using the change in the risk of a default occurring over the expected life of the financial instrument, through the comparison of the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition. To make that assessment, the Company shall consider reasonable and supportable information, that is available without undue cost or effort, and that is indicative of significant increases in credit risk since initial recognition, including forward-looking information. The information considered by the Company are as following: i. significant changes in internal price indicators of credit risk as a result of a change in credit risk since inception; 140 Annual Report 2021 ii. existing or forecast adverse change in the business, financial or economic conditions of the borrower that results in a significant change in the borrower’s ability to meet its debt obligations; iii. an actual or expected significant change in the operating results of the borrower; An actual or expected significant adverse change in the regulatory, economic, or technological environment of the borrower; iv. significant changes in the value of the collateral supporting the obligation or in the quality of third-party guarantees or credit enhancements, which are expected to reduce the borrower’s economic incentive to make scheduled contractual payments or to otherwise have an effect on the probability of a default occurring; v. significant change that are expected to reduce the borrower’s economic incentive to make scheduled contractual payments vi. expected changes in the loan documentation including an expected breach of contract that may lead to covenant waivers or amendments, interest payment holidays, interest rate step-ups, requiring additional collateral or guarantees, or other changes to the contractual framework of the instrument; vii. significant changes in the expected performance and behaviour of the borrower viii. contractual payments are not less than 30 days past due. Depending on the nature of the financial instruments, the Company shall assess whether the credit risk has increased significantly since initial recognition on an individual financial instrument or a group of financial instruments. When assessed based on a group of financial instruments, the Company can group financial instruments on the basis of shared credit risk characteristics, for example, past due information and credit risk rating. Generally, the Company shall determine the credit risk on a financial asset has increased significantly since initial recognition when contractual payments are more than 30 days past due. The Company can only rebut this presumption if the Company has reasonable and supportable information that is available without undue cost or effort, that demonstrates that the credit risk has not increased significantly since initial recognition even though the contractual payments are more than 30 days past due. IV. Credit-impaired financial asset The Company shall assess at each reporting date whether the credit impairment has occurred for financial asset at amortised cost and debt investment at fair value through other comprehensive income. A financial asset is credit-impaired when one or 141 Annual Report 2021 more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidences that a financial asset is credit-impaired include observable data about the following events: Significant financial difficulty of the issuer or the borrower;a breach of contract, such as a default or past due event; the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider;it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation;the disappearance of an active market for that financial asset because of financial difficulties;the purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses. V. Presentation of impairment of expected credit loss In order to reflect the changes of credit risk of financial instrument since initial recognition, the Company shall at each reporting date remeasure the expected credit loss and recognise in profit or loss, as an impairment gain or loss, the amount of expected credit losses addition(or reversal). For financial asset at amortised cost, the loss allowance shall reduce the carrying amount of the financial asset in the statement of financial position; for debt investment at fair value through other comprehensive income, the loss allowance shall be recognised in other comprehensive income and shall not reduce the carrying amount of the financial asset in the statement of financial position. VI. Write-off The Company shall directly reduce the gross carrying amount of a financial asset when the Company has no reasonable expectations of recovering the contractual cash flow of a financial asset in its entirety or a portion thereof. Such write-off constitutes a derecognition of the financial asset. This circumstance usually occurs when the Company determines that the debtor has no assets or sources of income that could generate sufficient cash flow to repay the write-off amount. Recovery of financial asset written off shall be recognised in profit or loss as reversal of impairment loss. 3.10.6 Transfer of financial assets An entity may transfer a financial asset by either transferring the contractual rights to the cash flows of the financial asset to another party or transferring the financial asset to another party while retaining the contractual rights to the cash flows of the financial asset and assuming the contractual obligations to deliver cash flows received to one or multiple 142 Annual Report 2021 parties. I. Derecognition of transferred assets If the Company transfers substantially all the risks and rewards of ownership of the financial asset, or neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset but has not retained control of the financial asset, the financial asset shall be derecognised. Whether the Company has retained control of the transferred asset depends on the transferee’s ability to sell the asset. If the transferee has the practical ability to sell the asset in its entirety to an unrelated third party and is able to exercise that ability unilaterally and without needing to impose additional restrictions on the transfer, the Company has not retained control. The Company judges whether the transfer of financial asset qualifies for derecognition based on the substance of the transfer. If the transfer of financial asset qualifies for derecognition in its entirety, the difference between the following shall be recognised in profit or loss: i. the carrying amount of transferred financial asset; ii. the sum of consideration received and the part derecognised of the cumulative changes in fair value previously recognised in other comprehensive income (The financial assets involved in the transfer are classified as financial assets at fair value through other comprehensive income in accordance with Article 18 of the Accounting Standards for Business Enterprises - Recognition and Measurement of Financial Instruments). If the transferred asset is a part of a larger financial asset and the part transferred qualifies for derecognition, the previous carrying amount of the larger financial asset shall be allocated between the part that continues to be recognised (For this purpose, a retained servicing asset shall be treated as a part that continues to be recognised) and the part that is derecognised, based on the relative fair values of those parts on the date of the transfer. The difference between following two amounts shall be recognised in profit or loss: i. the carrying amount (measured at the date of derecognition) allocated to the part derecognised ii. the sum of the consideration received for the part derecognised and part derecognised of the cumulative changes in fair value previously recognised in other comprehensive income (The financial assets involved in the transfer are classified as financial assets at fair value through other comprehensive income in 143 Annual Report 2021 accordance with Article 18 of the Accounting Standards for Business Enterprises - Recognition and Measurement of Financial Instruments). II. Continuing involvement in transferred assets If the Company neither transfers nor retains substantially all the risks and rewards of ownership of a transferred asset, and retains control of the transferred asset, the Company shall continue to recognise the transferred asset to the extent of its continuing involvement and also recognise an associated liability. The extent of the Company’s continuing involvement in the transferred asset is the extent to which it is exposed to changes in the value of the transferred asset. III. Continue to recognise the transferred assets If the Company retains substantially all the risks and rewards of ownership of the transferred financial asset, the Company shall continue to recognise the transferred asset in its entirety and the consideration received shall be recognised as a financial liability. The financial asset and the associated financial liability shall not be offset. In subsequent accounting period, the Company shall continuously recognise any income (gain) arising from the transferred asset and any expense (loss) incurred on the associated liability. 3.10.7 Offsetting financial assets and financial liabilities Financial assets and financial liabilities shall be presented separately in the statement of financial position and shall not be offset. When meets the following conditions, financial assets and financial liabilities shall be offset and the net amount presented in the statement of financial position: The Company currently has a legally enforceable right to set off the recognised amounts; The Company intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. In accounting for a transfer of a financial asset that does not qualify for derecognition, the Company shall not offset the transferred asset and the associated liability. 3.10.8 Determination of fair value of financial instruments See Note 3.11 for determination of fair value of financial instruments. 3.11 Determination of fair value Fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company determines fair value of the related assets and liabilities based on market value in the principal market, or in the absence of a principal market, in the most 144 Annual Report 2021 advantageous market price for the related asset or liability. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. The principal market is the market in which transactions for an asset or liability take place with the greatest volume and frequency. The most advantageous market is the market which maximizes the value that could be received from selling the asset and minimizes the value which is needed to be paid in order to transfer a liability, considering the effect of transport costs and transaction costs both. If the active market of the financial asset or financial liability exists, the Company shall measure the fair value using the quoted price in the active market. If the active market of the financial instrument is not available, the Company shall measure the fair value using valuation techniques. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. 3.11.1 Valuation techniques The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, including the market approach, the income approach and the cost approach. The Company shall use valuation techniques consistent with one or more of those approaches to measure fair value. If multiple valuation techniques are used to measure fair value, the results shall be evaluated considering the reasonableness of the range of values indicated by those results. A fair value measurement is the point within that range that is most representative of fair value in the circumstances. When using the valuation technique, the Company shall give the priority to relevant observable inputs. The unobservable inputs can only be used when relevant observable inputs is not available or practically would not be obtained. Observable inputs refer to the information which is available from market and reflects the assumptions that market participants would use when pricing the asset or liability. Unobservable Inputs refer to the information which is not available from market and it has to be developed using the best information available in the circumstances from the assumptions that market participants would use when pricing the asset or liability. 3.11.2 Fair value hierarchy To Company establishes a fair value hierarchy that categorises into three levels the inputs 145 Annual Report 2021 to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to Level 1 inputs and second to the Level 2 inputs and the lowest priority to Level 3 inputs. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. 3.12 Inventories 3.12.1 Classification of inventories Inventories are finished goods or products held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or in the rendering of services, including raw materials, semi-finished goods, work in progress, finished goods, merchandises, consumables, etc. 3.12.2 Measurement method applicable to issuance of inventories Inventories are measured at actual cost at recognition. The actual cost of an item of inventories comprises the purchase cost, cost of processing and other costs. Inventories are issued at weighted average cost. 3.12.3 Inventory system The perpetual inventory system is adopted. The inventories should be counted at least once a year, and surplus or losses of inventory stocktaking shall be included in current profit and loss. 3.12.4 Provision for impairment of inventory Inventories are stated at the lower of cost and net realizable value. The excess of cost over net realisable value of the inventories is recognised as provision for impairment of inventory, and recognised in current profit or loss. Net realizable value of the inventory should be determined on the basis of reliable evidence obtained, and factors such as purpose of holding the inventory and impact of post balance sheet event shall be considered. 3.12.4.1 In normal operation process, finished goods, products and materials for direct sale, their net realizable values are determined at estimated selling prices less estimated selling expenses and relevant taxes and surcharges; for inventories held to execute sales contract or service contract, their net realizable values are calculated on the basis of contract price. If the quantities of inventories specified in sales contracts are less than the quantities held by the Company, the net realizable value of the excess portion of inventories shall be 146 Annual Report 2021 based on general selling prices. Net realizable value of materials held for sale shall be measured based on market price. 3.12.4.2 For materials in stock need to be processed, in the ordinary course of production and business, net realisable value is determined at the estimated selling price less the estimated costs of completion, the estimated selling expenses and relevant taxes. If the net realisable value of the finished products produced by such materials is higher than the cost, the materials shall be measured at cost; if a decline in the price of materials indicates that the cost of the finished products exceeds its net realisable value, the materials are measured at net realisable value and differences shall be recognised at the provision for impairment. 3.12.4.3 Provisions for inventory impairment are generally determined on an individual basis. For inventories with large quantity and low unit price, the provisions for inventory impairment are determined on a category basis. 3.12.4.4 If any factor rendering write-downs of the inventories has been eliminated at the reporting date, the amounts written down are recovered and reversed to the extent of the inventory impairment, which has been provided for. The reversal shall be included in profit or loss. 3.12.5 Amortisation method of low-value consumables A low-value consumable is amortised in full upon issuance. A packaging material is amortised in full upon issuance. 3.13. Contract assets and contract liabilities Effective on 1 January 2020 Contract assets and contract liabilities are reocgnised on the basis of fulfilment of performance obligations and payment received from clients. A right to receive a promised consideration from a client resulting from goods transferred to or services provided to the client (where the right to consideration is dependent on factors other than the passage of time) is reocgnised a contract asset. A payment received from a client for which goods shall be transferred to or services shall be provided to the client is recognised as a contract liability. See Note 3.10 for impairment of contract assets. Contract assets and contract liabilities are presentd as line items on the statement of financial position. A contract asset and contract liability arising from one contract are presented in net; while the net amount is a debit balance, it is presented in contract assets or other non-current assets depending on liquidity; while the net amount is a credit balance, it is presented in contract liabilities or other non-current liabilities depending on 147 Annual Report 2021 liquidity. Contract assets and contract liabilities arising form different contracts are not be offset. 3.14 Contract costs Effective on 1 January 2020 Costs for a contract include costs to fulfill the contract and costs to obtain the contract. An asset is recognised for the costs incurred to fulfill a contract on if those costs meet all of the following criteria: I. the costs are directly associated with a contract or an anticipated contract, explicitly chargeable to the client under the contract, incurred only for the contract; II. the costs generate or enhance resouces of the Company that will be used in satisfying performance obligations in the future; and III. the costs are expected to be recovered. An asset is recognised for the costs incurred to obtain a contract with a client if those costs are expected to be recovered. An asset recognised for the costs of a contract are amortised on a systematic basis that is consistent with recognition of revenue arising from the contract. Where the costs incurred to obtain a contract would be amortised for a period less than one year should they be recognised as an asset, the costs are recognised in the current profit or loss as incurred. An impairment is recognised for an asset recognised for the costs of a contract to the extent that the carrying amount of the asset exceeds: I. the remaining amount of consideration that is expected to be received in exchange for the goods or services to which the asset relates; less II. the costs that relate directly to providing those goods or services and that have not been recognised as expenses. Upon recognition of the impairment, further consideration is given for provision for an onerous contract, in necessary. A reversal of some or all of an impairment loss previously recognised for an asset for the costs of a contract when the impairment conditions no longer exist or have improved. The increased carrying amount of the asset is cappted by the amount that would have been determined (net of amortisation) if no impairment loss had been recognised previously. An asset recognised for the costs to fulfill a contract is presented in inventories if its amortisation is not longer than 1 year or an operating cycle upon initial recognition; otherwise, it is presented in other non-current assets. An asset recognised for the costs to obtain a contract is presented in other current assets if its amortisation is not longer than 1 year or an operating cycle upon initial recognition; 148 Annual Report 2021 otherwise, it is presented in other non-current assets. 3.15 Long-term equity investments Long-term equity investments refer to equity investments where an investor has control of, or significant influence over, an investee, as well as equity investments in joint ventures. Associates of the Company are those entities over which the Company has significant influence. 3.15.1 Determination basis of joint control or significant influence over the investee Joint control is the relevant agreed sharing of control over an arrangement, and the arranged relevant activity must be decided under unanimous consent of the parties sharing control. In assessing whether the Company has joint control of an arrangement, the Company shall assess first whether all the parties, or a group of the parties, control the arrangement. When all the parties, or a group of the parties, considered collectively, are able to direct the activities of the arrangement, the parties control the arrangement collectively. Then the Company shall assess whether decisions about the relevant activities require the unanimous consent of the parties that collectively control the arrangement. If two or more groups of the parties could control the arrangement collectively, it shall not be assessed as have joint control of the arrangement. When assessing the joint control, the protective rights are not considered. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies. In determination of significant influence over an investee, the Company should consider not only the existing voting rights directly or indirectly held but also the effect of potential voting rights held by the Company and other entities that could be currently exercised or converted, including the effect of share warrants, share options and convertible corporate bonds that issued by the investee and could be converted in current period. If the Company holds, directly or indirectly 20% or more but less than 50% of the voting power of the investee, it is presumed that the Company has significant influence of the investee, unless it can be clearly demonstrated that in such circumstance, the Company cannot participate in the decision-making in the production and operating of the investee. 3.15.2 Determination of initial investment cost 3.15.2.1 Long-term equity investments arising from business combination 3.15.2.1.1 For a business combination involving enterprises under common control, if the Company makes payment in cash, transfers non-cash assets or bears liabilities as the consideration for the business combination, the share of carrying amount of the owners’ equity of the acquiree in the consolidated financial statements of the ultimate controlling 149 Annual Report 2021 party is recognised as the initial cost of the long-term equity investment on the combination date. The difference between the initial investment cost and the carrying amount of cash paid, non-cash assets transferred and liabilities assumed shall be adjusted against the capital reserve; if capital reserve is not enough to be offset, undistributed profit shall be offset in turn. 3.15.2.1.2 For a business combination involving enterprises under common control, if the Company issues equity securities as the consideration for the business combination, the share of carrying amount of the owners’ equity of the acquiree in the consolidated financial statements of the ultimate controlling party is recognised as the initial cost of the long-term equity investment on the combination date. The total par value of the shares issued is recognised as the share capital. The difference between the initial investment cost and the carrying amount of the total par value of the shares issued shall be adjusted against the capital reserve; if capital reserve is not enough to be offset, undistributed profit shall be offset in turn. 3.15.2.1.3 For business combination not under common control, the assets paid, liabilities incurred or assumed and the fair value of equity securities issued to obtain the control of the acquiree at the acquisition date shall be determined as the cost of the business combination and recognised as the initial cost of the long-term equity investment. The audit, legal, valuation and advisory fees, other intermediary fees, and other relevant general administrative costs incurred for the business combination, shall be recognised in profit or loss as incurred. 3.15.2.2 Long-term equity investments not arising from business combination 3.15.2.2.1 For long-term equity investments acquired by payments in cash, the initial cost is the actually paid purchase cost, including the expenses, taxes and other necessary expenditures directly related to the acquisition of long-term equity investments. 3.15.2.2.2 For long-term equity investments acquired through issuance of equity securities, the initial cost is the fair value of the issued equity securities. 3.15.2.2.3 For the long-term equity investments obtained through exchange of non-monetary assets, if the exchange has commercial substance, and the fair values of assets traded out and traded in can be measured reliably, the initial cost of long-term equity investment traded in with non-monetary assets are determined based on the fair values of the assets traded out together with relevant taxes. Difference between fair value and book value of the assets traded out is recorded in current profit or loss. If the exchange of non-monetary assets does not meet the above criterion, the book value of the assets traded out and relevant taxes are recognised as the initial investment cost. 150 Annual Report 2021 3.15.2.2.4 For long-term equity investment acquired through debt restructuring, the initial cost is measured at the fair value of the equity investment obtained. Difference between the fair value of the equity investment obtained and the book value of the debt given away is recognised in current profit or loss. 3.15.3 Subsequent measurement and recognition of profit or loss Long-term equity investment to an entity over which the Company has ability of control shall be accounted for at cost method. Long-term equity investment to a joint venture or an associate shall be accounted for at equity method. 3.15.3.1 Cost method For Long-term equity investment at cost method, cost of the long-term equity investment shall be adjusted when additional amount is invested or a part of it is withdrawn. The Company recognises its share of cash dividends or profits which have been declared to distribute by the investee as current investment income. 3.15.3.2 Equity method If the initial cost of the investment is in excess of the share of the fair value of the net identifiable assets in the investee at the date of investment, the difference shall not be adjusted to the initial cost of long-term equity investment; if the initial cost of the investment is in short of the share of the fair value of the net identifiable assets in the investee at the date investment, the difference shall be included in the current profit or loss and the initial cost of the long-term equity investment shall be adjusted accordingly. The Company recognises the share of the investee’s net profits or losses, as well as its share of the investee’s other comprehensive income, as investment income or losses and other comprehensive income respectively, and adjusts the carrying amount of the investment accordingly. The carrying amount of the investment shall be reduced by the share of any profit or cash dividends declared to distribute by the investee. The investor’s share of the investee’s owners’ equity changes, other than those arising from the investee’s net profit or loss, other comprehensive income or profit distribution, shall be recognised in the investor’s equity, and the carrying amount of the long-term equity investment shall be adjusted accordingly. The Company recognises its share of the investee’s net profits or losses after making appropriate adjustments of investee’s net profit based on the fair values of the investee’s identifiable net assets at the investment date. If the accounting policy and accounting period adopted by the investee is not in consistency with the Company, the financial statements of the investee shall be adjusted according to the Company’s accounting policies and accounting period, based on which, investment income or loss and other comprehensive income, etc., shall be adjusted. The 151 Annual Report 2021 unrealized profits or losses resulting from inter-company transactions between the company and its associate or joint venture are eliminated in proportion to the company’s equity interest in the investee, based on which investment income or losses shall be recognised. Any losses resulting from inter-company transactions between the investor and the investee, which belong to asset impairment, shall be recognised in full. Where the Company obtains the power of joint control or significant influence, but not control, over the investee, due to additional investment or other reason, the relevant long-term equity investment shall be accounted for by using the equity method, initial cost of which shall be the fair value of the original investment plus the additional investment. Where the original investment is classified as other equity investment, difference between its fair value and the carrying value, in addition to the cumulative gain or loss previously recorded in other comprehensive income, shall be recogised into current profit or loss at the time when the equity method becomes applicable. If the Company loses the joint control or significant influence of the investee for some reasons such as disposal of equity investment, the retained interest shall be measured at fair value and the difference between the carrying amount and the fair value at the date of loss the joint control or significant influence shall be recognised in profit or loss. When the Company discontinues the use of the equity method, the Company shall account for all amounts previously recognised in other comprehensive income under equity method in relation to that investment on the same basis as would have been required if the investee had directly disposed of the related assets or liabilities. 3.15.4 Held-for-sale equity investments The remaining equity investment after partial disposal, which is not classified as held-for-sale, is accounted for by the equity method. If a held-for-sale equity investment no longer satisfies the conditions for classifying as held-for-sale, it is retrospectively adjusted from the date on which it was classified as held-for-sale using the equity method. The financial statements for the period during which the investment was classified as held-for-sale are respectively restated. 3.15.5 Impairment of long-term equity investments See Note 3.22 for details. 3.16 Investment properties 3.16.1 Classification Investment properties are properties to earn rentals or for capital appreciation or both, including: I. Land use right leased out; 152 Annual Report 2021 II. Land held for transfer upon appreciation; III. Buildings leased out. 3.16.2 Measurement Investment properties are subsequently measured by the cost method. See Note 3.22 for impairment of investment properties. The residual after deducting the scrap value and cumulative impairment from the historical cost of an item of investment properties is depreciated or amortised using the straight-line method. 3.17 Fixed assets Fixed assets refer to the tangible assets with higher unit price held for the purpose of producing commodities, rendering services, renting or business management with useful lives exceeding one year. 3.17.1 Recognition Fixed assets will only be recognised at the actual cost paid when obtaining as all the following criteria are satisfied: I. It is probable that the economic benefits relating to the fixed assets will flow into the Company; II. The costs of the fixed assets can be measured reliably. Subsequent expenditure for fixed assets shall be recorded in cost of fixed assets, if recognition criteria of fixed assets are satisfied, otherwise the expenditure shall be recorded in current profit or loss when incurred. 3.17.2 Depreciation The Company begins to depreciate the fixed asset from the next month after it is available for intended use using the straight-line-method. The estimated useful life and annual depreciation rates which are determined according to the categories. The estimated economic useful lives and estimated net residual rates of fixed assets are listed as followings: Depreciation Annual depreciation Category Useful life in years Scrap value rate (%) method rate (%) Houses and buildings Straight line 8.00-35.00 3.00-5.00 2.70-12.10 Machinery Straight line 5.00-10.00 3.00-5.00 9.50-19.40 Transportation Straight line 4.00 3.00 24.25 vehicles Administrative and Straight line 4.00 3.00 32.33 other devices For the fixed assets with impairment provided, the impairment provision should be excluded from the cost when calculating depreciation. 153 Annual Report 2021 At the end of reporting period, the Company shall review the useful life, estimated net residual value and depreciation method of the fixed assets. Estimated useful life of the fixed assets shall be adjusted if it is changed compared to the original estimation. 3.17.3 Fixed assets acquired through financial lease Where a leasing arrangement transfers substantially all risks and rewards associated with the leased item to the Group, the lease is regarded as a finance lease and the leased item is recognised as an item of fixed assets. An item of fixed asset obtained from a finance lease is measured upon recognition at the lower of the fair value of the leased item and the present value of the minimum lease payment as of the lease inception date. An item of fixed asset obtained through a finance lease is depreciated in accordance with the depreciation method applicable to the category of fixed assets to which the lease item belongs. If it is reasonably certain that ownership of the lease item will transfer to the Group upon expiry of the lease, the leased item is depreciated over its useful life; if, however, transfer of ownership of the leased item upon expiry of the lease to the Group cannot be reasonably expected, the leased item is depreciated over the shorter of its useful life and the lease term. 3.18 Construction in progress 3.18.1 Construction in progress is measured on an individual project basis. 3.18.2 Transfer to fixed assets The initial book values of the fixed assets are stated at total expenditures incurred before they are ready for their intended use, including construction costs, original price of machinery equipment, other necessary expenses incurred to bring the construction in progress to get ready for its intended use and borrowing costs of the specific loan for the construction or the proportion of the general loan used for the constructions incurred before they are ready for their intended use. The construction in progress shall be transferred to fixed asset when the installation or construction is ready for the intended use. For construction in progress that has been ready for their intended use but relevant budgets for the completion of projects have not been completed, the estimated values of project budgets, prices, or actual costs should be included in the costs of relevant fixed assets, and depreciation should be provided according to relevant policies of the Company when the fixed assets are ready for intended use. After the completion of budgets needed for the completion of projects, the estimated values should be substituted by actual costs, but depreciation already provided is not adjusted. 3.19 Right-of-use assets At the lease commencement date, a right-of-use asset is measured at cost. The cost of a 154 Annual Report 2021 right-of-use asset comprise: I. the amount of the initial measurement of the lease liability; II. any lease payments made at or before the commencement date, less any lease incentives received; III. any initial direct costs incurred by the Group; and IV. an estimate of costs to be incurred by the Group in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories. A right-of-use asset is subsequently measured at cost. If it is reasonably certain that ownership of the lease item will transfer to the Group upon expiry of the lease, the leased item is depreciated over its useful life; if, however, transfer of ownership of the leased item upon expiry of the lease to the Group cannot be reasonably expected, the leased item is depreciated over the shorter of its useful life and the lease term. Where a leased item has recorded impairment, its residual value after deducting the impairment allowance is depreciated in accordance the principle described in this paragraph. 3.20 Borrowing costs 3.20.1 Capitalisation The Company shall capitalize the borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets when meet the following conditions: I. Expenditures for the asset are being incurred; II. Borrowing costs are being incurred, and; III. Acquisition, construction or production activities that are necessary to prepare the assets for their intended use or sale are in progress. Other borrowing cost, discounts or premiums on borrowings and exchange differences on foreign currency borrowings shall be recognized into current profit or loss when incurred. Capitalization of borrowing costs is suspended during periods in which the acquisition, construction or production of a qualifying asset is interrupted abnormally and the interruption is for a continuous period of more than 3 months. Capitalization of such borrowing costs ceases when the qualifying assets being acquired, constructed or produced become ready for their intended use or sale. The expenditure incurred subsequently shall be recognised as expenses when incurred. 3.20.2 Capitalisation rate and capitalised amount When funds are borrowed specifically for purchase, construction or manufacturing of 155 Annual Report 2021 assets eligible for capitalization, the Company shall determine the amount of borrowing costs eligible for capitalisation as the actual borrowing costs incurred on that borrowing during the period less any interest income on bank deposit or investment income on the temporary investment of those borrowings. Where funds allocated for purchase, construction or manufacturing of assets eligible for capitalisation are part of a general borrowing, the eligible amounts are determined by the weighted-average of the cumulative capital expenditures in excess of the specific borrowing multiplied by the general borrowing capitalization rate. The capitalization rate will be the weighted average of the borrowing costs applicable to the general borrowing. 3.21 Intangible assets 3.21.1 Initial measurement An intangible assets is initial measured at the actual cost of acquisition 3.21.2 Useful lives 3.21.2.1 Intangible assets with define useful lives Category Useful life in years Basis for useful life determination Land use rights 50 Legal right to use Patents 10 Period that the asset can generate economic benefits Software 3-5 Period that the asset can generate economic benefits Trademarks 10 Period that the asset can generate economic benefits For intangible assets with finite useful life, the estimated useful life and amortisation method are reviewed annually at the end of each reporting period and adjusted when necessary. No change incur in current year in the estimated useful life and amortisation method upon review. 3.21.2.2 Assets of which the period to bring economic benefits to the Company are unforeseeable are regarded as intangible assets with indefinite useful lives. The Company reassesses the useful lives of those assets at every year end. If the useful lives of those assets are still indefinite, impairment test should be performed on those assets at the balance sheet date. 3.21.2.3 Amortisation For intangible assets with finite useful lives, their useful lives should be determined upon their acquisition and systematically amortised on a straight-line basis [units of production method] over the useful life. The amortisation amount shall be recognized into current profit or loss according to the beneficial items. The amount to be amortised is cost deducting residual value. For intangible assets which has impaired, the cumulative impairment provision shall be deducted as well. The residual value of an intangible asset 156 Annual Report 2021 with a finite useful life shall be assumed to be zero unless: there is a commitment by a third party to purchase the asset at the end of its useful life; or there is an active market for the asset and residual value can be determined by reference to that market; and it is probable that such a market will exist at the end of the asset’s useful life. Intangible assets with indefinite useful lives shall not be amortised. The Company reassesses the useful lives of those assets at every year end. If there is evidence to indicate that the useful lives of those assets become finite, the useful lives shall be estimated and the intangible assets shall be amortised systematically and reasonably within the estimated useful lives. 3.21.3 Research and development expenditure 3.21.3.1 Preparation activities related to materials and other relevant aspects undertaken by the Company for the purpose of further development shall be treated as research phase. Expenditures incurred during the research phase of internal research and development projects shall be recognised in profit or loss when incurred. 3.21.3.2 Development activities after the research phase of the Company shall be treated as development phase. 3.21.4 Capitalisation of research and development expenditure Expenditures arising from development phase on internal research and development projects shall be recognised as intangible assets only if all of the following conditions have been met: I. Technical feasibility of completing the intangible assets so that they will be available for use or sale; II. Its intention to complete the intangible asset and use or sell it; III. The method that the intangible assets generate economic benefits, including the Company can demonstrate the existence of a market for the output of the intangible assets or the intangible assets themselves or, if it is to be used internally, the usefulness of the intangible assets; IV. The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and V. Its ability to measure reliably the expenditure attributable to the intangible asset. 3.22 Impairment of long-term assets Impairment loss of long-term equity investment in subsidiaries, associates and joint ventures, investment properties, fixed assets, constructions in progress, and intangible assets subsequently measured at cost shall be determined according to following method: The Company shall assess at the end of each reporting period whether there is any 157 Annual Report 2021 indication that an asset may be impaired. If any such indication exists, the Company shall estimate the recoverable amount of the asset and test for impairment. Irrespective of whether there is any indication of impairment, the Company shall test for impairment of goodwill acquired in a business combination, intangible assets with an indefinite useful life or intangible assets not yet available for use annually. The recoverable amounts of the long-term assets are the higher of their fair values less costs to dispose and the present values of the estimated future cash flows of the long-term assets. The Company estimate the recoverable amounts on an individual basis. If it is difficult to estimate the recoverable amount of the individual asset, the Company estimates the recoverable amount of the groups of assets that the individual asset belongs to. Identification of an group of asset is based on whether the cash inflows from it are largely independent of the cash inflows from other assets or groups of assets. If, and only if, the recoverable amount of an asset or a group of assets is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount and the provision for impairment loss shall be recognised accordingly. For the purpose of impairment testing, goodwill acquired in a business combination shall, from the acquisition date, be allocated to relevant group of assets based on reasonable method; if it is difficult to allocate to relevant group of assets, good will shall be allocated to relevant combination of asset groups. The relevant group of assets or combination of asset groups is a group of assets or combination of asset groups that is benefit from the synergies of the business combination and is not larger than the reporting segment determined by the Company. When test for impairment, if there is an indication that relevant group of assets or combination of asset groups may be impaired, impairment testing for group of assets or combination of asset groups excluding goodwill shall be conducted first, and calculate the recoverable amount and recognize the impairment loss. Then the group of assets or combination of asset groups including goodwill shall be tested for impairment, by comparing the carrying amount with its recoverable amount. If the recoverable amount is less than the carrying amount, the Company shall recognise the impairment loss. The mentioned impairment loss will not be reversed in subsequent accounting period once it had been recognised. 3.23 Long-term deferred expenses Long-term deferred expenses are various expenses already incurred, which shall be amortised over current and subsequent periods with the amortisation period exceeding one year. Long-term deferred expenses are evenly amortised over the beneficial period. 158 Annual Report 2021 3.24 Employee benefits Employee benefits refer to all forms of consideration or compensation given by the Company in exchange for service rendered by employees or for the termination of employment relationship. Employee benefits include short-term employee benefits, post-employment benefits, termination benefits and other long-term employee benefits. Benefits provided to an employee's spouse, children, dependents, family members of decreased employees, or other beneficiaries are also employee benefits. According to liquidity, employee benefits are presented in the statement of financial position as “Employee benefits payable” and “Long-term employee benefits payable”. 3.24.1 Short-term employee benefits 3.24.1.1 Salaries, wages, allowances and subsidies The Company recognises, in the accounting period in which an employee provides service, actually occurred short-term employee benefits as a liability, with a corresponding charge to current profit except for those recognised as capital expenditure based on the requirement of accounting standards. 3.24.1.2 Welfare The Company shall recognise the employee welfare based on actual amount when incurred into current profit or loss or related capital expenditure. Employee welfare shall be measured at fair value as it is a non-monetary benefits. 3.24.1.3 Social securities such as medical insurance and work-place injury insurance, housing funds, labor union fund and employee education fund Payments made by the Company of social insurance for employees, such as medical insurance and work-place injury insurance, payments of housing funds, and labor union fund and employee education fund accrued in accordance with relevant requirements, in the accounting period in which employees provide services, is calculated according to required accrual bases and accrual ratio in determining the amount of employee benefits and the related liabilities, which shall be recognised in current profit or loss or the cost of relevant asset. 3.24.1.4 Short-term paid absences The company shall recognise the related employee benefits arising from accumulating paid absences when the employees render service that increases their entitlement to future paid absences. The additional payable amounts shall be measured at the expected additional payments as a result of the unused entitlement that has accumulated. The Company shall recognise relevant employee benefit of non-accumulating paid absences when the absences actually occurred. 159 Annual Report 2021 3.24.1.5 Short-term profit-sharing plan The Company shall recognise the related employee benefits payable under a profit-sharing plan when all of the following conditions are satisfied: I. The Company has a present legal or constructive obligation to make such payments as a result of past events; and II. A reliable estimate of the amounts of employee benefits obligation arising from the profit- sharing plan can be made. 3.24.2 Post-employement benefits 3.24.2.1 Defined contribution plans The Company shall recognise, in the accounting period in which an employee provides service, the contribution payable to a defined contribution plan as a liability, with a corresponding charge to the current profit or loss or the cost of a relevant asset. When contributions to a defined contribution plan are not expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service, they shall be discounted using relevant discount rate (market yields at the end of the reporting period on high quality corporate bonds in active market or government bonds with the currency and term which shall be consistent with the currency and estimated term of the defined contribution obligations) to measure employee benefits payable. 3.24.2.2 Defined benefit plans I. Present value of defined benefit obligation and current service costs Based on the expected accumulative welfare unit method, the Company shall make estimates about demographic variables and financial variables in adopting the unbiased and consistent actuarial assumptions and measure defined benefit obligation, and determine the obligation period. The Company shall discount the obligation arising from defined benefit plan using relevant discount rate (market yields at the end of the reporting period on high quality corporate bonds in active market or government bonds with the currency and term which shall be consistent with the currency and estimated term of the defined benefit obligations) in order to determine the present value of the defined benefit obligation and the current service cost. II. Net assets or liabilities of a defined benefit plan The net defined benefit liability (asset) is the deficit or surplus recognised as the present value of the defined benefit obligation less the fair value of plan assets (if any). When the Company has a surplus in a defined benefit plan, it shall measure the net defined benefit asset at the lower of the surplus in the defined benefit plan and the 160 Annual Report 2021 asset ceiling. III. Amount recognised as plan assets or charged to the current profit or loss Service cost comprises current service cost, past service cost and any gain or loss on settlement. Other service cost shall be recognised in profit or loss unless accounting standards require or allow the inclusion of current service cost within the cost of assets. Net interest on the net defined benefit liability (asset) comprising interest income on plan assets, interest cost on the defined benefit obligation and interest on the effect of the asset ceiling, shall be included in profit or loss. IV. Amount recognised in other comprehensive income Changes in the net liability or asset of the defined benefit plan resulting from the remeasurements including: i. Actuarial gains and losses, the changes in the present value of the defined benefit obligation resulting from experience adjustments or the effects of changes in actuarial assumptions; ii. Return on plan assets, excluding amounts included in net interest on the net defined benefit liability or asset; iii. Any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset). Remeasurements of the net defined benefit liability (asset) recognised in other comprehensive income shall not be reclassified to profit or loss in a subsequent period. However, the Company may transfer those amounts recognised in other comprehensive income within equity. 3.24.3 Termination benefits The Company providing termination benefits to employees shall recognise an employee benefits liability for termination benefits, with a corresponding charge to the profit or loss of the reporting period, at the earlier of the following dates: I. When the Company cannot unilaterally withdraw the offer of termination benefits because of an employment termination plan or a curtailment proposal; or II. When the Company recognises costs or expenses related to a restructuring that involves the payment of termination benefits. If the termination benefits are not expected to be settled wholly before twelve months after the end of the annual reporting period, the Company shall discount the termination benefits using relevant discount rate (market yields at the end of the reporting period on high quality corporate bonds in active market or government bonds with the currency and 161 Annual Report 2021 term which shall be consistent with the currency and estimated term of the defined benefit obligations) to measure the employee benefits. 3.24.4 Other long-term employee benefits 3.24.4.1 Other long-term employee beneifts satisfying the recognition conditions applicable to defined contribution plans When other long-term employee benefits provided by the Company to the employees satisfies the conditions for classifying as a defined contribution plan, all those benefits payable shall be accounted for as employee benefits payable at their discounted value. 3.24.4.2 Other long-term employee benefits satisfying the recognition conditions applicable to defined benefit plans At the end of the reporting period, the Company recognised the cost of employee benefit from other long-term employee benefits as the following components: I. Service costs; II. Net interest cost for net liability or asset of other long-term employee benefits; III. Changes resulting from the remeasurements of the net liability or asset of other long-term employee benefits. In order to simplify the accounting treatment, the net amount of above items shall be recognised in profit or loss or relevant cost of assets. 3.25 Lease liabilities At the commencement date, the Group measures the lease liability at the present value of the lease payments that are not paid at that date. The lease payments comprise: I. fixed payments, or in-substance fixed payments, less any lease incentives receivable; II. variable lease payments that depend on an index or a rate; III. the exercise price of a purchase option if the Group is reasonably certain to exercise that option; IV. payments of penalties for terminating the lease, if the lease term reflects the Group exercising an option to terminate the lease; and V. amounts expected to be payable by the Group under residual value guarantees. The lease payments shall be discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the lessee shall use the lessee’s incremental borrowing rate. The excess of the lease payments over its present value is amortised over the lease term as interest expenses using the discount rate. A variable lease payment which is not included in the initial measurement of the lease liability is recognised in profit or loss when incurred. 162 Annual Report 2021 3.26 Provisions 3.26.1 Recognition A provision is recognised for an obligation associated with a contingent event when the following conditions are satisfied: I. The obligation is a present obligation assumed by the entity; II. It is probable that fulfillment of the obligation will result in outflows of economic benefits from the entity; III. The amount of the obligation can be reliably measured. 3.26.2 Measurement A provision is initially measured at the best estimate of expenses required for the performance of relevant present obligations. The Company, when determining the best estimate, has had a comprehensive consideration of risks with respect to contingencies, uncertainties and the time value of money. The carrying amount of the provision shall be reviewed at the end of every reporting period. If conclusive evidences indicate that the carrying amount fails to be the best estimate of the provision, the carrying amount shall be adjusted based on the updated best estimate. 3.27 Revenue Effective on 1 January 2020 3.27.1 General policy Revenue is total economic inflows arising from the Company’s daily operation which result in increases in equity, other than those relating to contributions from holders of equity claims. The Company recognises revenue when (or as) the Company satisfies a performance obligation by transferring a promised good or service (ie an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset. A customer has control of an asset when (or as) the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. Where a contract include two or more performance obligations, the Company allocate the transaction price, upon inception of the contract, to each performance obligation identified in the contract on a relative stand-alone selling price basis, revenue associated with each performance obligation is measured at the allocated price. The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. If the consideration promised in 163 Annual Report 2021 a contract includes a variable amount, the Company estimates the amount of consideration to which the Company will be entitled in exchange for transferring the promised goods or services to a customer to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Where a contract contains a significant financing component, the Company recognises revenue at an amount that reflects the price that a customer would have paid for the promised goods or services if the customer had paid cash for those goods or services when (or as) they transfer to the customer (ie the cash selling price); the difference between the amount of promised consideration and the cash selling price of the promised goods or services is amortised over the life of the contract using the effective interest rate method. The Company does not adjust the promised amount of consideration for the effects of a significant financing component if the Comopany expects, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. The Company transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognises revenue over time, if one of the following criteria is met: I. the customer simultaneously receives and consumes the benefits provided by the Company’s performance as the entity performs; II. the Company’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or III. the Company’s performance does not create an asset with an alternative use to the Company and the Company has an enforceable right to payment for performance completed to date. For each performance obligation satisfied over time, the Company recognises revenue over time by measuring the progress towards complete satisfaction of that performance obligation, unless the progress towards complete satisfaction cannot be reliably measured. The Company uses either the input method or output method to measure the progress towards complete satisfaction of a performance obligation. When the progress towards complete satisfaction of a performance obligation cannot be reliably measured, the Company recognises revenue only to the extent of the costs incurred until such time that it can reasonably measure the outcome of the performance obligation. Where a performance obligation is satisfied at a point in time, the Company recognises revenue when (or as) the customer obtains control of the transferred asset (either goods 164 Annual Report 2021 or service). To determine the point in time at which a customer obtains control of a promised asset, the Company considers the following indicators: I. The Company has a present right to payment for the asset, ie. the customer has the present obligation to pay for the asset. II. The legal title to the asset has been transferred to the customer, ie. the customer has the legal title to the asset. III. The Company has transferred physical possession of the asset, ie. the customer has physical possession of the asset. IV. The significant risks and rewards of ownership of the asset has been transferred to the customer, ie. the customer has obtained the significant risks and rewards of ownership of the asset. V. The customer has accepted the asset. VI. Other indication that the customer has obtained control over the asset. 3.27.2 Specific policies 3.27.2.1 Revenue from sales of goods Revenue from sales of goods is recognised if all of following conditions are satisfied: I. Substantially all risks and rewards associated with the ownership of the goods are transferred to the customer. II. The Company retains neither continuous management associated with the ownership of the goods nor effective control over the goods. III. Revenue from the sales can be realiably measured. IV. It is probable that the associated economic benefits will flow to the Company. V. Costs incurred and expected to be incurred can be realiably measured. With regards to domestic sales, revenue is recognised upon dispatch of the goods and delivery of the goods to the customer if all of following conditions are satisfied: I. Substantially all risks and rewards associated with the ownership of the goods are transferred to the customer. II. The Company retains neither continuous management associated with the ownership of the goods nor effective control over the goods. III. Revenue from the sales can be realiably measured. IV. It is probable that the associated economic benefits will flow to the Company. V. Costs incurred and expected to be incurred can be realiably measured. With regards to export sales, revenue is recognised upon the presence of the respective bill of lading and custom clearance. 3.27.2.2 Revenue from rendering of services 165 Annual Report 2021 Where the outcome of a service rendered by the Company can be reliably estimated on a statement date, revenue arising from the rendering of the service is recognised using the percentage of completion method. The outcome of a service rendered by the Company can be reliably estimated if all of the following conditions are satisfied: I. The revenue can be reliably measured. II. It is probable that the associated economic benefits will flow to the Company. III. The percentage of completion can be reliably determined. IV. Costs incurred and expected to be incurred can be realiably measured. Total revenue of a service rendered is determined by the respective contract price, unless the contract price is not fair. Revenue from a service rendered recognised for a particular period is computed as the residual after deducting revenue from that service cumulatively recognised in prior periods from the product of multiplying the service’s total revenue with the percentage of completion as of the statement date. Costs for a service rendered recognised for a particular period are computed as the residual after deducting costs for that service cumulatively recognised in prior periods from the product of multiplying the service’s total budgeted costs with the percentage of completion as of the statement date. Where the outcome of a service rendered by the Company can not be reliably estimated on a statement date, costs incurred are recognised in profit or loss upon occurrence and revenue is recognised to the extent that costs incurred can be recovered. 3.27.2.3 Revenue from usage of assets Revenue from usage of the Group’s assets is recognised if the revenue can be reliably measured and it is probable that the associated economic benefits will flow to the Group. Interest income is measured using the effective interest rate method on the basis of the period during which the Group monetary funds are used by the user. Royalty income is measured in accordance with the method determined by the respective contracts. 3.28 Government grants 3.28.1 Recognition A government grant shall not be recgonised until there is reasonable assurance that: I. The Company will comply with the conditions attaching to them; and II. The grants will be received. 3.28.2 Measurement Monetary grants from the government shall be measured at amount received or receivable, and non-monetary grants from the government shall be measured at their fair value or at a 166 Annual Report 2021 nominal value of CNY 1.00 when reliable fair value is not available. 3.28.3 Accounting for government grant 3.28.3.1 Asset-related government grants Government grants pertinent to assets mean the government grants that are obtained by the Company used for purchase or construction, or forming the long-term assets by other ways. Government grants pertinent to assets shall be recognised as deferred income, and should be recognised in profit or loss on a systematic basis over the useful lives of the relevant assets. Grants measured at their nominal value shall be directly recognised in profit or loss of the period when the grants are received. When the relevant assets are sold, transferred, written off or damaged before the assets are terminated, the remaining deferred income shall be transferred into profit or loss of the period of disposing relevant assets. 3.28.3.2 Income-related government grants Government grants other than related to assets are classified as government grants related to income. Government grants related to income are accounted for in accordance with the following principles: If the government grants related to income are used to compensate the enterprise’s relevant expenses or losses in future periods, such government grants shall be recognised as deferred income and included into profit or loss in the same period as the relevant expenses or losses are recognised; If the government grants related to income are used to compensate the enterprise’s relevant expenses or losses incurred, such government grants are directly recognised into current profit or loss. For government grants comprised of part related to assets as well as part related to income, each part is accounted for separately; if it is difficult to identify different part, the government grants are accounted for as government grants related to income as a whole. Government grants related to daily operation activities are recognised in other income in accordance with the nature of the activities, and government grants irrelevant to daily operation activities are recognised in non-operating income. 3.28.3.3 Loan interest subsidies When loan interest subsidy is allocated to the bank, and the bank provides a loan at lower-market rate of interest to the Company, the loan is recognised at the actual received amount, and the interest expense is calculated based on the principal of the loan and the lower-market rate of interest. When loan interest subsidy is directly allocated to the Company, the subsidy shall be 167 Annual Report 2021 recognised as offsetting the relevant borrowing cost. 3.28.3.4 Repayment of government grants Repayment of the government grants shall be recorded by increasing the carrying amount of the asset if the book value of the asset has been written down, or reducing the balance of relevant deferred income if deferred income balance exists, any excess will be recognised into current profit or loss; or directly recognised into current profit or loss for other circumstances. 3.29 Deferred tax assets and deferred tax liabilities Temporary differences are differences between the carrying amount of an asset or liability in the statement of financial position and its tax base at the balance sheet date. The Company recognises and measures the effect of taxable temporary differences and deductible temporary differences on income tax as deferred tax liabilities or deferred tax assets using liability method. Deferred tax assets and deferred tax liabilities shall not be discounted. 3.29.1 Recognition of deferred tax assets Deferred tax assets should be recognised for deductible temporary differences, the carryforward of unused tax losses and the carryforward of unused tax credits to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, the carryforward of unused tax losses and the carryforward of unused tax credits can be utilised at the tax rates that are expected to apply to the period when the asset is realised, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that: I. is not a business combination; and II. at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). The Company shall recognise a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries, associates and joint ventures, only to the extent that, it is probable that: I. the temporary difference will reverse in the foreseeable future; and II. taxable profit will be available against which the deductible temporary difference can be utilised. At the end of each reporting period, if there is sufficient evidence that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized, the Company recognises a previously unrecognised deferred tax asset. The carrying amount of a deferred tax asset shall be reviewed at the end of each reporting 168 Annual Report 2021 period. The Company shall reduce the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilised. Any such reduction shall be reversed to the extent that it becomes probable that sufficient taxable profit will be available. 3.29.2 Recognition of deferred tax liabilities A deferred tax liability shall be recognised for all taxable temporary differences at the tax rate that are expected to apply to the period when the liability is settled. No deferred tax liability shall be recognised for taxable temporary differences arising from: I. the initial recognition of goodwill; or II. the initial recognition of an asset or liability in a transaction which: is not a business combination; and at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss) An entity shall recognise a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, and joint ventures, except to the extent that both of the following conditions are satisfied: I. the Company is able to control the timing of the reversal of the temporary difference; and II. it is probable that the temporary difference will not reverse in the foreseeable future. 3.29.3 Recognition of deferred tax liabilities or assets involved in special transactions or events 3.29.3.1 Deferred tax liabilities or assets related to business combination For the taxable temporary difference or deductible temporary difference arising from a business combination not under common control, a deferred tax liability or a deferred tax asset shall be recognised, and simultaneously, goodwill recognised in the business combination shall be adjusted based on relevant deferred tax expense (income). 3.29.3.2 Items directly recognised in equity Current tax and deferred tax related to items that are recognised directly in equity shall be recognised in equity. Such items include: other comprehensive income generated from fair value fluctuation of other debt investments; an adjustment to the opening balance of retained earnings resulting from either a change in accounting policy that is applied retrospectively or the correction of a prior period (significant) error; amounts arising on initial recognition of the equity component of a compound financial instrument that contains both liability and equity component. 169 Annual Report 2021 3.29.3.3 Unused tax losses and unused tax credits 3.29.3.3.1 Unsused tax losses and unused tax credits generated from daily operation of the Company itself Deductible loss refers to the loss calculated and permitted according to the requirement of tax law that can be offset against taxable income in future periods. The criteria for recognising deferred tax assets arising from the carryforward of unused tax losses and tax credits are the same as the criteria for recognising deferred tax assets arising from deductible temporary differences. The Company recognises a deferred tax asset arising from unused tax losses or tax credits only to the extent that there is convincing other evidence that sufficient taxable profit will be available against which the unused tax losses or unused tax credits can be utilised by the Company. Income taxes in current profit or loss shall be deducted as well. 3.29.3.3.2 Unsused tax losses and unused tax credits arising from a business combination Under a business combination, the acquiree’s deductible temporary differences which do not satisfy the criteria at the acquisition date for recognition of deferred tax asset shall not be recognised. Within 12 months after the acquisition date, if new information regarding the facts and circumstances exists at the acquisition date and the economic benefit of the acquiree’s deductible temporary differences at the acquisition is expected to be realised, the Company shall recognise acquired deferred tax benefits and reduce the carrying amount of any goodwill related to this acquisition. If goodwill is reduced to zero, any remaining deferred tax benefits shall be recognised in profit or loss. All other acquired deferred tax benefits realised shall be recognised in profit or loss. 3.29.3.4 Temporary difference generated in consolidation elimination When preparing consolidated financial statements, if temporary difference between carrying value of the assets and liabilities in the consolidated financial statements and their taxable bases is generated from elimination of inter-company unrealized profit or loss, deferred tax assets or deferred tax liabilities shall be recognised in the consolidated financial statements, and income taxes expense in current profit or loss shall be adjusted as well except for deferred tax related to transactions or events recognised directly in equity and business combination. 3.29.3.5 Share-based payment settled by equity If tax authority permits tax deduction that relates to share-based payment, during the period in which the expenses are recognised according to the accounting standards, the Company estimates the tax base in accordance with available information at the end of the accounting period and the temporary difference arising from it. Deferred tax shall be 170 Annual Report 2021 recognised when criteria of recognition are satisfied. If the amount of estimated future tax deduction exceeds the amount of the cumulative expenses related to share-based payment recognised according to the accounting standards, the tax effect of the excess amount shall be recognised directly in equity. 3.30 Leases 3.30.1 Identifying a lease contract Upon contract inception, the Company assesses whether a contract is a lease contract or a contract with embedded leasing arrangement. Where a party to a contract transfers the use right of one or more identified asset over a period for consideration, the contract is either a lease contract or a contract with embedded leasing arrangement. A party to a contract transfers the use right of one or more identified asset over a period when the two conditions as follow are present: I. the counter party is entitled to obtain substantially all economic benefits arising from the use of the identified asset over the period specified by the contact; and II. the counter party is entitled to direct the use of the identified asset during the period period specified by the contract. 3.30.2 Identifying individual leases Where a contract comprises multiple leases, the contract is separated and each lease is accounted for separately. A leasing arrangement in a contract is a separately identifiable lease if: I. the leasee can obtain economic benefits by using the assets covered by the leasing arrangement alone or in combination with other resources obtainable by the leasee; and II. the assets covered by the leasing arrangement has no close dependence on or close connection to other assets specified by the contract. 3.30.3 Accounting for a lease as the lessee A lease which has a lease term of 12 months or less at the commencement date is a short-term lease. A lease for which the underlying asset is of low value when it is new is a low-value lease. Where an asset of low value when it is new obtained from a lease is intended to be subleased, the lease for which such asset is not a low-value lease. A right to use asset and lease liability is recognised for a lease, which is neither a short-term lease nor a low-value lease, at its commencement. 3.30.4 Accounting for a lease as the lessor A lease which substantially transfers all the risks and rewards incidental to ownership of an underlying asset is classified as a finance lease at its commencement; a lease which is not a 171 Annual Report 2021 finance lease is classified as an operating lease at it commencement. 3.30.4.1 Operating lease When the Company as a lessor, lease income should be recognised over the lease terms on a straight-line basis. Where the Company offers rental-free period in a lease, the amortisation period is the lease term inclusive of the rental free period. Where certain costs incurred by the lessee are reimbursed by the Company, rental income recognised is reduced proportionately by the reimbursement. Substantial initial direct costs relating to lease transactions incurred by the Company shall be capitalised and amortised over the lease terms on the same basis as the recognition of lease income. Contingent rental, if included in the lease contract, shall be recognised into profit or loss upon occurrence. 3.30.4.2 Finance lease The sum of initial direct costs and minimum lease rentals receivable is recognised as lease rentals receivable at the commencement date. The excess of the sum of unguaranteed residual value of the leased item, intial direct costs and minimum lease rentals receivable over the present value of the sum is reocgnised as unrealised financing gain at the commencement date and subsequently amortised using the effective interest rate method. 3.31 Change of significant accounting policies and significant accounting estimates 3.31.1 Change of significant accounting policies ASBE 21 – Leases (Revised in 2018) (ASBE 21 (2018)) was issued by the Ministry of Finance on 7 December 2018 through CaiKuai [2018] No. 35. Companies with both domestic and foreign listing which prepare the financial statements in accordance with either the International Financial Reporting Standards or ASBEs shall adopt ASBE 21 (2018) on 1 January 2019. Other companies which prepare the financial statements in accordance with ASBEs shall adopt ASBE 21 (2018) on 1 January 2021. In accordance with ASBE 21 (2018): I. A lessee shall recognise a right-of-use asset and lease liability for a lease except in the case that the lease in question is either a short-term lease or low-value lease. II. A right-of-use asset shall be depreciated over the useful life of the underlying asset if it is reasonably certain that the ownership of the underlying asset will transfer to the lessee upon lease expiry; it shall be depreciated over the shorter of the useful life of the underlying asset and the lease term if transfer of ownership of the underlying asset to the lessee upon lease expiry is not reasonably certain. A right-of-use asset is subject is impairment assessment and impairment, is any, shall be properly accounted 172 Annual Report 2021 for. III. A lessee shall establish interest expense in connection with the lease liability applicable to each period within the lease term and recognise the interest expense in profit or loss for the respective period. IV. A lessee may elect not to recognise a right-of-use asset and lease liability for a short-term lease or low-value lease. In such case, the lease rental of the short-term lease or low value lease shall be recognised in profit or loss or as part of the cost of the respective asset using the straight-line method or another reasonable systematic method. Resulting from the adoption of ASBE 21 (2018), the following adjustments were made to the Company’s consolidated statement of financial position as of 1 January 2021: increase of right-of-use assets at CNY 57.4 million, increase of lease liabilities at CNY 53.2 million, and decrease of prepayments at CNY 4.2 million. These adjustments had no impact on the Company’s consolidated equity attributable to shareholders of the Company; nor did they have impact on the Company’s consolidated surplus reserves or consolidated retained earnings. These adjustments had no impact on the Company’s consolidated non-controlling interests. The following adjustments were made to the Company’s statement of financial position as of 1 January 2021: increase of right-of-use assets at CNY 52.7 million, increase of lease liabilities at CNY 48.6 million, and decrease of prepayments at CNY 4.2 million. These adjustments had no impact on the Company’s equity; nor did they have impact on the Company’s surplus reserves or retained earnings. See Note 3.31.2 for further information. 3.31.2 Impact on the financial statements as a result of adoption of ASBE 21 (2018) Consolidated Statement of Financial Position Currency unit: CNY million Affected line item 31/12/2020 1/1/2021 Adjustment Right-of-use assets 0.00 57.4 57.4 Lease liabilities 0.00 53.2 53.2 Prepayments 55.6 51.4 -4.2 Statement of Financial Position Currency unit: CNY million Affected line item 31/12/2020 1/1/2021 Adjustment Right-of-use assets 0.00 52.7 52.7 Lease liabilities 0.00 48.6 48.6 173 Annual Report 2021 Affected line item 31/12/2020 1/1/2021 Adjustment Prepayments 11.7 7.6 -4.1 3.31.3 Change of significant accounting estimates There is no change of significant accounting estimates in the current period. Note 4 Taxes 4.1 Major taxes and tax rates Tax Tax base Tax rate Valur added in the course of Value added tax (VAT) sales of goods and rendering 13%, 9%, 6% of services Tax by quantity: CNY 1.00 per kilogram or litre of distrilled wine sold; Consumption duty Taxable revnue Tax by revenue: 20% on taxable revenue from sale of distrilled wine Urban maintenance and Transaction tax payable 7%, 5% construction tax Education surcharge Transaction tax payable 3% Local education surcharge Transaction tax payable 2% Corporate income tax (CIT) Taxable income 25% The CIT rate applicable to the Company is 25%. The CIT rates applicable to certain subsidiaries are presented below. Entity CIT rate Longrui Glass 15.00% Ruisi Weier 15.00% Runan Xinke 15.00% Yashibo 2.5% GJ Guest House 2.5% Taxable income up to CNY 1 million: 2.5% Junlou Culture Taxable income between CNY 1 million and CNY 3 million: 10% HHL Beverage 2.5% Taxable income up to CNY 1 million: 2.5% Xinjia Testing Taxable income between CNY 1 million and CNY 3 million: 10% Jiuan Electric 2.5% 4.2 Preferential tax treatments 4.2.1 Longrui Glass’s High-Tech Enterprise Status was jointly approved by the Anhui Science and Technology Department (Anhui STD), Anhui Finance Department (Anhui FiD) and Anhui Tax Office (Anhui PAT) through GuoKeHuoZi [2019] No. 216 and was issued the High-Tech Enterprise Certificate (GR201934001625) with the validity term of 3 years. In accordance with the Corporate Income Tax Law of the People’s Republic of China, the CIT rate 174 Annual Report 2021 applicable to Longrui Glass for the period from 1 January 2019 to 31 Decmeber 2021 is 15%. 4.2.2 Ruisi Weier’s High-Tech Enterprise Status was jointly approved by the Anhui STD, Anhui FiD and Anhui PAT through GuoKeHuoZi [2019] No. 216 and was issued the High-Tech Enterprise Certificate (GR201934000355) with the validity term of 3 years. In accordance with the Corporate Income Tax Law of the People’s Republic of China, the CIT rate applicable to Ruisi Weier for the period from 1 January 2019 to 31 Decmeber 2021 is 15%. 4.2.3 Runan Xinke’s High-Tech Enterprise Status was jointly approved by the Anhui STD, Anhui FiD and Anhui PAT through WanKeGaoMi [2022] No. 49 and was issued the High-Tech Enterprise Certificate (GR202134004920) with the validity term of 3 years. In accordance with the Corporate Income Tax Law of the People’s Republic of China, the CIT rate applicable to Runan Xinke for the period from 1 January 2021 to 31 Decmeber 2023 is 15%. 4.2.4 In accordance with MoF&SAT Announcement [2021] No. 12 jointly issued by the Ministry for Finance and State Administration of Taxation, 87.5% of the first CNY 1 million annual taxable income of a qualified small entreprise with small profit for the period from 1 January 2021 to 31 Dcember 2022 is exempted from CIT and the CIT rate applicable to the remaining 12.5% is 20%; 50% of the annual taxable income between CNY 1 million and CNY 3 million of a qualified small entreprise with small profit for the period from 1 January 2021 to 31 Dcember 2022 is exempted from CIT and the CIT rate applicable to the remaining 12.5% is 20%; GJ Guest House, Junlou Culture, HHL Beverage, Xinjia Testing, Jiuan Electric and Yashibo are eligible to this preferential tax treatment. Note 5 Notes to the consolidated financial statements 5.1 Monetary funds 31/12/2021 31/12/2020 Cash on hand 135,129.66 178,127.77 Cash at bank 11,891,283,646.58 5,936,406,199.84 Other monetary funds 33,503,995.52 34,628,242.05 Total 11,924,922,771.76 5,971,212,569.66 Cash at bank as of the statement date included fixed term deposits pledged for bank acceptance at CNY 100 million, deposits pledged for guarantee letters at CNY 4 million and structural deposits not eligible for early redemption at CNY 573 thousand; other monetary funds as of the statement date included margin deposits not eligible for early redemption 175 Annual Report 2021 at CNY 33.4 million. Except for the pre-mentioned, monetary funds as of the statement date was not subject to limitation on usage such as pledging or freezing or risk on recovery. 5.2 Financial assets held for trading 31/12/2021 31/12/2020 FVTPL 2,661,103,876.68 203,877,915.51 T/o: Structural financial products 2,457,565,232.32 - T/o: Fund investments 203,538,644.36 203,877,915.51 Total 2,661,103,876.68 203,877,915.51 Increase of financial assets held for trading for CNY 2,457 million, or 1,205.24% year over year was mainly due to the Company’s purchase of structural financial products close to the statement date. 5.3 Accounts receivable 5.3.1 Disclosure by age group Age group 31/12/2021 31/12/2020 Within 1 year 97,023,731.05 64,157,166.51 T/o: Within 6 months 92,114,086.85 61,367,773.81 T/o: 7 months to 1 years 4,909,644.20 2,789,392.70 1 to 2 years 883,133.28 4,953,687.55 2 to 3 years 137,464.27 142,796.00 Over 3 years 1,146,581.68 - Gross 99,190,910.28 69,253,650.06 Less: Impairment allowance 10,185,106.11 1,319,914.15 Net 89,005,804.17 67,933,735.91 5.3.2 Dislcosure by method of impairment 31/12/2021 Gross Impairment allowance Net Amount % of total Amount Impairment % Individual assessment 7,792,783.72 7.86 7,792,783.72 100.00 - Portfolio assessment 91,398,126.56 92.14 2,392,322.39 2.62 89,005,804.17 T/o: Group 1 T/o: Group 2 91,398,126.56 92.14 2,392,322.39 2.62 89,005,804.17 Total 99,190,910.28 100.00 10,185,106.11 10.27 89,005,804.17 (Continued) 31/12/2020 Gross Impairment allowance Net Amount % of total Amount Impairment % 176 Annual Report 2021 31/12/2020 Gross Impairment allowance Net Amount % of total Amount Impairment % Individual assessment - - - - - Portfolio assessment 69,253,650.06 100.00 1,319,914.15 1.91 67,933,735.91 T/o: Group 1 - - - - - T/o: Group 2 69,253,650.06 100.00 1,319,914.15 1.91 67,933,735.91 Total 69,253,650.06 100.00 1,319,914.15 1.91 67,933,735.91 Group 2 Receivables 31/12/2021 Age group Gross Impairment allowance Impairment % Within 1 year 89,230,947.33 1,088,695.25 1.22 T/o: Within 6 months 84,321,303.13 843,213.03 1.00 T/o: 7 months to 1 years 4,909,644.20 245,482.22 5.00 1 to 2 years 883,133.28 88,313.32 10.00 2 to 3 years 137,464.27 68,732.14 50.00 Over 3 years 1,146,581.68 1,146,581.68 100.00 Total 91,398,126.56 2,392,322.39 2.62 (Continued) 31/12/2020 Age group Gross Impairment allowance Impairment % Within 1 year 64,157,166.51 753,147.38 1.17 T/o: Within 6 months 61,367,773.81 613,677.74 1.00 T/o: 7 months to 1 years 2,789,392.70 139,469.64 5.00 1 to 2 years 4,953,687.55 495,368.77 10.00 2 to 3 years 142,796.00 71,398.00 50.00 Over 3 years - - - Total 69,253,650.06 1,319,914.15 1.91 See Note 3.10 for recognition and measurement of impairment by portfolio. 5.3.3 Movement of impairment allowance Movement 31/12/2020 Business combination not Provision under common control Individually significant receivables subject to 7,792,783.72 individual impairment assessment Individually insignificant receivables subject to individual impairment assessment Group 2 1,319,914.15 546,297.81 1,166,733.53 Total 1,319,914.15 8,339,081.53 1,166,733.53 (Continued) 177 Annual Report 2021 Movement Reversal or Release or 31/12/2021 recovery write-off Individually significant receivables subject to individual impairment assessment 7,792,783.72 Individually insignificant receivables subject to - individual impairment assessment Group 2 640,623.10 2,392,322.39 Total 640,623.10 10,185,106.11 5.3.4 Top-five accounts receivable as of the statement date Gross % of gross accounts receivable Impairment allowance Top 1 14,642,996.21 14.76 146,429.96 Top 2 13,949,950.50 14.06 139,499.51 Top 3 13,469,384.49 13.58 134,693.84 Top 4 7,792,783.72 7.86 7,792,783.72 Top 5 5,350,431.84 5.39 53,504.32 Total 55,205,546.76 55.65 8,266,911.35 5.3.5 Increase of accounts receivable for 31.02% year over year was mainly resulted from the increase of accounts receivable due to Tianlong Jindi. 5.4 Receivables held for factoring 5.4.1 General disclosure 31/12/2021 Type Gross Impairment allowance Net Bank acceptance 545,204,103.42 545,204,103.42 Commercial acceptance - - - Total 545,204,103.42 545,204,103.42 (Continued) 31/12/2020 Type Gross Impairment allowance Net Bank acceptance 1,673,510,794.51 - 1,673,510,794.51 Commercial acceptance - - - Total 1,673,510,794.51 - 1,673,510,794.51 5.4.2 Notes receivable transferred by endorsement or cashed by discount which are not matured as of the statement date Amount not Type Amount derecognised derecognised Bank acceptance 2,692,765,337.03 Notes receivable cashed with discount or transferred with endorsement were originally 178 Annual Report 2021 issued by banks with advanced credit rating. Due the credit rating of the issuing banks, credit risks and risks of delayed payment are relatively low and transferred from the Company upon cashing or transfer. These notes receivable were therefore derecognised upon cashing or transfer. 5.4.3 No accounts receivable were resulted from reclassification of notes receivables due to issuers’ default. 5.4.4 Dislcosure by method of impairment 31/12/2021 Gross Impairment allowance Net Amount % of total Amount Impairment % Individual assessment - - - - - Portfolio assessment 545,204,103.42 100.00 - - 545,204,103.42 T/o: Group 1 - T/o: Group 2 545,204,103.42 100.00 - - 545,204,103.42 Total 545,204,103.42 100.00 - - 545,204,103.42 (Continued) 31/12/2020 Gross Impairment allowance Net Amount % of total Amount Impairment % Individual assessment - - - - - Portfolio assessment 1,673,510,794.51 100.00 - - 1,673,510,794.51 T/o: Group 1 - - T/o: Group 2 1,673,510,794.51 100.00 - - 1,673,510,794.51 Total 1,673,510,794.51 100.00 - - 1,673,510,794.51 Note 1: No Group 1 receivable was subject to impairment assessment. Note 2: The Company assessed impairment for Group 2 receivables as of the statement date. Upon the assessment, the Company believed that Group 2 receivables were unlikely subject to loss resulted from the default by issuing banks or other issuers and therefore not subject to significant credit risk. 5.4.5 Movement of impairment allowance Not applicable. 179 Annual Report 2021 5.5 Prepayments 5.5.1 Disclosure by age group 31/12/2021 31/12/2020 Age group Amount % of total Amount % of total Within 1 year 156,395,547.90 99.89 55,069,897.85 99.09 1 to 2 years 173,426.53 0.11 505,645.36 0.91 2 to 3 years 1,996.56 - - - Over 3 years - - - - Total 156,570,970.99 100.00 55,575,543.21 100.00 5.5.2 Top-five venders as of the statement date by prepayment balance 31/12/2021 % of total Top 1 102,458,395.34 65.44 Top 2 14,684,191.29 9.38 Top 3 6,632,298.50 4.24 Top 4 6,214,000.00 3.97 Top 5 4,309,993.84 2.75 Total 134,298,878.97 85.78 5.6 Other receivables 5.6.1 General disclosure 31/12/2021 31/12/2020 Interests receivable - Dividends receivable - Other receivables 71,753,212.24 33,451,121.48 Total 71,753,212.24 33,451,121.48 5.6.2 Other receivables (1) Disclosure by age group Age group 31/12/2021 31/12/2020 Within 1 year 68,887,383.04 31,014,800.18 T/o: Within 6 months 62,942,239.54 29,186,461.60 T/o: 7 months to 1 years 5,945,143.50 1,828,338.58 1 to 2 years 2,808,217.47 2,842,287.06 2 to 3 years 2,530,226.11 523,089.00 Over 3 years 43,669,449.88 42,535,188.41 Gross 117,895,276.50 76,915,364.65 Less: Impairment allowance 46,142,064.26 43,464,243.17 180 Annual Report 2021 Age group 31/12/2021 31/12/2020 Net 71,753,212.24 33,451,121.48 (2) Disclosure by nature 31/12/2021 31/12/2020 Security investments 38,857,584.88 40,807,394.41 Margin deposits 8,788,917.25 5,266,477.91 Advanced travel expenses 1,219,958.15 795,646.51 Rentals and utilities receivable 7,910,881.41 8,962,876.17 Others 61,117,934.81 21,082,969.65 Gross 117,895,276.50 76,915,364.65 Less: Impairment allowance 46,142,064.26 43,464,243.17 Net 71,753,212.24 33,451,121.48 (3) Disclosure by method of impairment A. Disclosure by the 3-stage m odel as of the statement date Gross Impairment allowance Net Stage 1 79,037,691.62 7,284,479.38 71,753,212.24 Stage 2 Stage 3 38,857,584.88 38,857,584.88 - Total 117,895,276.50 46,142,064.26 71,753,212.24 Details of Stage 1 receivables as of the statement date Expected loss rate Impairment Gross for the next 12 Net allowance months in % Individual assessment Portfolio assessment 79,037,691.62 9.22 7,284,479.38 71,753,212.24 T/o: Group 1 T/o: Group 2 79,037,691.62 9.22 7,284,479.38 71,753,212.24 Total 79,037,691.62 9.22 7,284,479.38 71,753,212.24 Details of Group 2 receivables as of the statement date 31/12/2021 Age group Gross Impairment allowance Impairment % Within 1 year 68,887,383.04 926,679.58 1.35 T/o: Within 6 months 62,942,239.54 629,422.41 1.00 T/o: 7 months to 1 years 5,945,143.50 297,257.17 5.00 1 to 2 years 2,808,217.47 280,821.74 10.00 2 to 3 years 2,530,226.11 1,265,113.06 50.00 Over 3 years 4,811,865.00 4,811,865.00 100.00 181 Annual Report 2021 31/12/2021 Age group Gross Impairment allowance Impairment % Total 79,037,691.62 7,284,479.38 9.22 Details of Stage 3 receivables as of the statement date Expected loss rate Impairment Gross for the next 12 Net allowance months in % Individual assessment 38,857,584.88 100.00 38,857,584.88 Portfolio assessment T/o: Group 1 T/o: Group 2 Total 38,857,584.88 100.00 38,857,584.88 Details of receivables subject to individual assessment as of the statement date 31/12/2021 Impairment Reason for Gross Impairment % allowance impairment Hengxin Securities Co., Ltd. 28,966,894.41 28,966,894.41 100.00 In bankruptcy Jianqiao Securities Co., Ltd. 9,890,690.47 9,890,690.47 100.00 In bankruptcy Total 38,857,584.88 38,857,584.88 100.00 - B. Disclosure by the 3-stage model as of 31 December 2020 Gross Impairment allowance Net Stage 1 36,107,970.24 2,656,848.76 33,451,121.48 Stage 2 - - - Stage 3 40,807,394.41 40,807,394.41 - Total 76,915,364.65 43,464,243.17 33,451,121.48 Details of Stage 1 receivables as of 31 December 2020 Expected loss rate Impairment Gross for the next 12 Net allowance months in % Individual assessment - - - - Portfolio assessment 36,107,970.24 7.36 2,656,848.76 33,451,121.48 T/o: Group 1 - - - - T/o: Group 2 36,107,970.24 7.36 2,656,848.76 33,451,121.48 Total 36,107,970.24 7.36 2,656,848.76 33,451,121.48 Details of Group 2 receivables as of 31 December 2020 31/12/2020 Age group Gross Impairment allowance Impairment % Within 1 year 31,014,800.18 383,281.55 1.24 T/o: Within 6 months 29,186,461.60 291,864.62 1.00 182 Annual Report 2021 31/12/2020 Age group Gross Impairment allowance Impairment % T/o: 7 months to 1 years 1,828,338.58 91,416.93 5.00 1 to 2 years 2,842,287.06 284,228.71 10.00 2 to 3 years 523,089.00 261,544.50 50.00 Over 3 years 1,727,794.00 1,727,794.00 100.00 Total 36,107,970.24 2,656,848.76 7.36 Details of Stage 3 receivables as of 31 December 2020 Expected loss rate Impairment Gross for the next 12 Net allowance months in % Individual assessment 40,807,394.41 100.00 40,807,394.41 - Portfolio assessment - - - - T/o: Group 1 - - - - T/o: Group 2 - - - - Total 40,807,394.41 100.00 40,807,394.41 - Details of receivables subject to individual assessment as of 31 December 2020 31/12/2020 Impairment Reason for Gross Impairment % allowance impairment Hengxin Securities Co., 28,966,894.41 28,966,894.41 100.00 In bankruptcy Ltd. Jianqiao Securities Co., 11,840,500.00 11,840,500.00 100.00 In bankruptcy Ltd. Total 40,807,394.41 40,807,394.41 100.00 - (4) Movement of impairment allowance Movement Business 31/12/2020 combination Release 31/12/2021 Reversal or Provision not under or recovery common write-off control Individual 40,807,394.41 1,949,809.53 38,857,584.88 assessment Portfolio 2,656,848.76 1,392,920.96 3,883,438.08 648,728.42 7,284,479.38 assessment Total 43,464,243.17 1,392,920.96 3,883,438.08 2,598,537.95 46,142,064.26 (5) Top-five other receivables as of the statement date % of total gross Impairment Debtor Nature 31/12/2021 Age group other receivables allowance Top 1 Security investment 28,966,894.41 Over 3 years 24.57 28,966,894.41 Top 2 Other 18,255,567.00 Within 6 months 15.48 182,555.67 Top 3 Security investment 9,890,690.47 Over 3 years 8.39 9,890,690.47 183 Annual Report 2021 % of total gross Impairment Debtor Nature 31/12/2021 Age group other receivables allowance Top 4 Other 7,318,942.51 Within 1 year 6.21 97,193.84 Top 5 Other 6,499,462.17 Within 6 months 5.51 64,994.62 Total 70,931,556.56 60.16 39,202,329.01 5.6.3 Increase of other receivables for 114.50% year over year was mainly resulted from increase in prepaid expenses. 5.7 Inventories 5.7.1 General disclosure 31/12/2021 Impairment Gross Net allowance Raw materials and packaging 236,485,211.32 22,919,192.93 213,566,018.39 Semi-finished goods and work in progress 3,680,675,328.83 0.00 3,680,675,328.83 Merchandises 776,158,681.46 6,943,356.38 769,215,325.08 Total 4,693,319,221.61 29,862,549.31 4,663,456,672.30 (Continued) 31/12/2020 Impairment Gross Net allowance Raw materials and packaging 191,873,650.49 13,274,081.73 178,599,568.76 Semi-finished goods and work in 2,861,343,683.53 - 2,861,343,683.53 progress Merchandises 387,506,042.80 10,568,486.13 376,937,556.67 Total 3,440,723,376.82 23,842,567.86 3,416,880,808.96 5.7.2 Movement of impairment allowance Increase Decrease Business 31/12/2020 combination not Reversal and 31/12/2021 Provision Other under common release control Raw materials 13,274,081.73 11,527,075.19 8,134,202.39 10,016,166.38 - 22,919,192.93 and packaging Merchandises 10,568,486.13 5,331,142.92 2,607.59 8,958,880.26 - 6,943,356.38 Total 23,842,567.86 16,858,218.11 8,136,809.98 18,975,046.64 - 29,862,549.31 5.8 Other current assets 31/12/2021 31/12/2020 Loans securied by treasury bonds 76,205,000.00 - Interests on deposits 54,529,762.09 19,563,936.43 184 Annual Report 2021 31/12/2021 31/12/2020 Deductible taxes 47,487,460.47 77,848,744.83 Total 178,222,222.56 97,412,681.26 Increase of other current assets for 82.96% year over year was mainly resulted from increase in loans securied by treasury bonds and interests on deposits. 5.9 Long-term equity investments Movement Investee 31/12/2020 Investment Investment OCI Other equity Contribution income at withdrawal adjustment movement equity A. Associates - Beijing Guge Trading Co., Ltd. 4,915,575.83 397,024.95 (Guge Trading) Total 4,915,575.83 397,024.95 - - (Continued) Movement Dividend or Cumulative Investee Impairment 31/12/2021 impairment profit allowance Others allowance appropriation recognised declared A. Associates - Guge Trading - - - 5,312,600.78 - Total - - - 5,312,600.78 - 5.10 Other equity investments 31/12/2021 31/12/2020 Anhui Mingguang Village Commercial Bank 54,542,418.50 (Mingguang VCB) Total 54,542,418.50 Supplementary disclosure Dividend Reclassification income Cumulative Cumulative from OCI to Reason for designation recognised in gain loss retained as FVTOCI the period earnings On the basis of purpose Mingguang VCB 809,860.62 693,720.70 of investment 5.11 Investment properties Houses and buildings Land use rights Total A. Costs 1. 31/12/2020 8,680,555.75 2,644,592.00 11,325,147.75 2. Increase - - - 3. Decrease - - - 4. 31/12/2021 8,680,555.75 2,644,592.00 11,325,147.75 185 Annual Report 2021 Houses and buildings Land use rights Total B. Cumulative depreciation 1. 31/12/2020 6,176,477.79 755,726.42 6,932,204.21 2. Increase 261,115.92 56,026.56 317,142.48 (1) Recognition 261,115.92 56,026.56 317,142.48 3. Decrease - - - 4. 31/12/2021 6,437,593.71 811,752.98 7,249,346.69 C. Impairment allowance 1. 31/12/2020 - - - 2. Increase - - - 3. Decrease - - - 4. 31/12/2021 - - - D. Net value 1. As of the statement date 2,242,962.04 1,832,839.02 4,075,801.06 2. As of 31/12/2020 2,504,077.96 1,888,865.58 4,392,943.54 5.12 Fixed assets 5.12.1 Disclosure by category 31/12/2021 31/12/2020 Fixed assets 1,984,063,975.87 1,797,789,271.62 Fixed asset disposals - - Total 1,984,063,975.87 1,797,789,271.62 5.12.2 Fixed assets 5.12.2.1 General disclosure Houses and Transportation Administrative Machinery Total buildings vehicles and other devices A. Costs 1. 31/12/2020 2,110,023,036.54 1,137,831,234.61 63,055,889.31 202,211,609.80 3,513,121,770.26 2. Increase 180,129,304.08 225,064,092.92 13,431,756.86 81,405,165.78 500,030,319.64 (1) Purchase 12,028,973.66 23,895,869.67 5,082,033.26 19,273,732.23 60,280,608.82 (2) Reclassification from construction in progress 40,268,524.79 148,773,794.01 - 36,731,276.67 225,773,595.47 (3) Business combination 127,441,392.30 46,747,037.26 8,269,210.78 7,457,866.92 189,915,507.26 (4) Others 390,413.33 5,647,391.98 80,512.82 17,942,289.96 24,060,608.09 3. Decrease 62,328,761.51 31,975,682.30 5,254,418.05 14,647,711.05 114,206,572.91 (1) Disposal or scrap 50,289,570.30 20,561,493.46 5,254,418.05 8,274,628.89 84,380,110.70 (2) Others 12,039,191.21 11,414,188.84 - 6,373,082.16 29,826,462.21 4. 31/12/2021 2,227,823,579.11 1,330,919,645.23 71,233,228.12 268,969,064.53 3,898,945,516.99 B. Cumulative depreciation 186 Annual Report 2021 Houses and Transportation Administrative Machinery Total buildings vehicles and other devices 1. 31/12/2020 887,885,451.17 652,893,081.63 54,246,302.02 115,239,124.54 1,710,263,959.36 2. Increase 100,743,005.66 127,047,360.43 11,938,113.54 47,675,329.27 287,403,808.90 (1) Recognition 82,594,638.72 106,147,587.41 5,614,356.78 30,141,917.34 224,498,500.25 (2) Business combination 17,769,678.01 15,507,216.88 6,249,135.23 4,805,171.31 44,331,201.43 (3) Others 378,688.93 5,392,556.14 74,621.53 12,728,240.62 18,574,107.22 3. Decrease 48,672,755.95 23,688,674.55 4,797,006.03 10,598,210.13 87,756,646.66 (1) Disposal or scrap 44,602,165.53 15,272,988.76 4,797,006.03 4,510,379.11 69,182,539.43 (2) Others 4,070,590.42 8,415,685.79 - 6,087,831.02 18,574,107.23 4. 31/12/2021 939,955,700.88 756,251,767.51 61,387,409.53 152,316,243.68 1,909,911,121.60 C. Impairment allowance 1. 31/12/2020 2,804,324.86 1,674,420.09 7,047.07 582,747.26 5,068,539.28 2. Increase 611,808.94 - - - 611,808.94 (1) Recognition 611,808.94 - - - 611,808.94 3. Decrease 299,539.41 403,328.74 7,047.07 13.48 709,928.70 (1) Disposal or scrap 299,539.41 403,328.74 7,047.07 13.48 709,928.70 4. 31/12/2021 3,116,594.39 1,271,091.35 - 582,733.78 4,970,419.52 D. Net value 1. As of the statement date 1,284,751,283.84 573,396,786.37 9,845,818.59 116,070,087.07 1,984,063,975.87 2. As of 31/12/2020 1,219,333,260.51 483,263,732.89 8,802,540.22 86,389,738.00 1,797,789,271.62 5.12.2.2 Temporarily idle fixed assets Cumulative Cumulative Cost impairment Net value Note depreciation allowance Houses and 10,582,609.55 7,282,125.83 3,116,594.39 183,889.33 buildings Machinery 9,002,312.33 7,610,219.08 1,271,091.35 121,001.90 Transportation - - - - vehicles Administrative and 874,608.18 265,657.69 582,733.78 26,216.71 other devices Total 20,459,530.06 15,158,002.60 4,970,419.52 331,107.94 5.12.2.3 Fixed assets with uncompleted ownership registration Net value Remark Houses and buildings 638,158,624.34 Registration in progress Total 638,158,624.34 —— 5.12.2.4 Fixed assets with restriction as of the statement date Cumulative Cumulative Cost impairment Net value Note depreciation allowance 187 Annual Report 2021 Cumulative Cumulative Cost impairment Net value Note depreciation allowance Houses and 8,982,726.64 4,756,988.19 - 4,225,738.45 buildings Total 8,982,726.64 4,756,988.19 - 4,225,738.45 5.13 Construction in progress 5.13.1 Disclosure by category 31/12/2021 31/12/2020 Construction in progress 1,064,134,904.21 279,169,201.60 Materials held for construction - - Total 1,064,134,904.21 279,169,201.60 5.13.2 Construction in progress 5.13.2.1 General disclosure 31/12/2021 31/12/2020 Impairment Impairment Gross Net Gross Net allowance allowance Smart Zone 700,794,613.29 - 700,794,613.29 54,494,827.90 - 54,494,827.90 Theme Hotel 61,431,126.99 - 61,431,126.99 5,538,005.31 - 5,538,005.31 Automated Brewery 0.00 - 0.00 42,832,649.99 - 42,832,649.99 Automated Bottling System 0.00 - 0.00 14,835,486.72 - 14,835,486.72 Renovation GJ Plant #11 Wine Cellar - - - 11,166,144.14 - 11,166,144.14 GJ Plant #12 Wine Cellar 10,666,666.95 - 10,666,666.95 - Experience Centre - - - 8,064,287.27 - 8,064,287.27 Suizhou Plant 266,102,852.17 - 266,102,852.17 135,930,812.66 - 135,930,812.66 Other projects 25,139,644.81 - 25,139,644.81 6,306,987.61 - 6,306,987.61 Total 1,064,134,904.21 - 1,064,134,904.21 279,169,201.60 - 279,169,201.60 5.13.2.2 Detailed disclosure Budget CNY million 31/12/2020 Increase Smart Zone 8,289.66 54,494,827.90 648,404,140.96 Theme Hotel 499.00 5,538,005.31 55,893,121.68 Automated Brewery 274.30 42,832,649.99 77,555,002.43 Automated Bottling System Renovation 40.00 14,835,486.72 15,164,247.79 GJ Plant #11 Wine Cellar 90.00 11,166,144.14 48,281,006.51 GJ Plant #12 Wine Cellar 162.50 - 10,666,666.95 Experience Centre 29.50 8,064,287.27 9,544,855.31 Suizhou Plant 600.00 135,930,812.66 130,320,712.07 Other projects 51.71 6,306,987.61 39,649,557.36 188 Annual Report 2021 Budget CNY million 31/12/2020 Increase Total 10,036.67 279,169,201.60 1,035,479,311.06 (Continued) Reclassification to Other decrease 31/12/2021 fixed assets Smart Zone 2,104,355.57 - 700,794,613.29 Theme Hotel - - 61,431,126.99 Automated Brewery 120,387,652.42 - - Automated Bottling System Renovation 29,999,734.51 - 0.00 GJ Plant #11 Wine Cellar 59,447,150.65 - - GJ Plant #12 Wine Cellar 10,666,666.95 Experience Centre - 17,609,142.58 - Suizhou Plant 148,672.56 - 266,102,852.17 Other projects 13,686,029.76 7,130,870.40 25,139,644.81 Total 225,773,595.47 24,740,012.98 1,064,134,904.21 (Continued) Cumulative T/o: Borrowing % of capitalisation costs % of budget completion of borrowing capitalised in costs the period Smart Zone 8.48 11.22 - - Theme Hotel 12.31 24.37 - - Automated Brewery 95.85 100.00 - - Automated Bottling System Renovation 76.74 100.00 - - GJ Plant #11 Wine Cellar 66.05 100.00 - - GJ Plant #12 Wine Cellar 6.56 6.56 - - Experience Centre 86.93 100.00 Suizhou Plant 44.38 44.38 2,527,982.73 2,527,982.73 Other projects 88.87 88.87 - - Total 2,527,982.73 2,527,982.73 (Continued) Current period Source of funding capitalisation rate Smart Zone - Self-funded, public financing Theme Hotel - Self-funded Automated Brewery - Self-funded Automated Bottling System Renovation - Self-funded GJ Plant #11 Wine Cellar - Self-funded GJ Plant #12 Wine Cellar - Self-funded Experience Centre Self-funded 189 Annual Report 2021 Current period Source of funding capitalisation rate Suizhou Plant 3.45 Self-funded, loans Other projects - Self-funded Total - Increase of construction in progress for 281.18% year over year was mainly resulted from investment in Smart Zone and Suizhou Plant in the period. 5.14 Right-of-use assets Houses and buildings Machinery Total A. Costs - 1. 31/12/2020 - Change of accounting policies - 1/1/2021 56,071,482.96 1,330,929.57 57,402,412.53 2. Increase 978,998.78 978,998.78 3. Decrease - - - 4. 31/12/2021 57,050,481.74 1,330,929.57 58,381,411.31 B. Cumulative depreciation - 1. 31/12/2020 - Change of accounting policies - 1/1/2021 - - - 2. Increase 14,010,539.12 443,643.22 14,454,182.34 3. Decrease - - - 4. 31/12/2021 14,010,539.12 443,643.22 14,454,182.34 C. Impairment allowance - 1. 31/12/2020 - Change of accounting policies - 1/1/2021 - 2. Increase - 3. Decrease - 4. 31/12/2021 - - - D. Net value - 1. As of the statement date 43,039,942.62 887,286.35 43,927,228.97 2. As of 01/01/2021 56,071,482.96 1,330,929.57 57,402,412.53 5.15 Intangible assets 5.15.1 General disclosure Patents and Land use rights Software Total trademarks A. Costs 1. 31/12/2020 846,743,730.35 125,206,832.57 215,006,066.19 1,186,956,629.11 2. Increase 155,302,466.40 5,495,369.70 38,039,080.00 198,836,916.10 190 Annual Report 2021 Patents and Land use rights Software Total trademarks (1) Purchase 103,066,353.81 2,201,787.53 26,992.33 105,295,133.67 (2) Internal development - - - - (3) Reclassification from - 3,293,582.17 - 3,293,582.17 construction in progress (4) Business combination 52,236,112.59 - 38,012,087.67 90,248,200.26 3. Decrease 282,456.00 1,451,037.06 - 1,733,493.06 (1) Disposal 282,456.00 1,451,037.06 - 1,733,493.06 4. 31/12/2021 1,001,763,740.75 129,251,165.21 253,045,146.19 1,384,060,052.15 B. Cumulative amortisation - - 1. 31/12/2020 158,016,689.40 48,008,475.16 46,219,486.76 252,244,651.32 2. Increase 23,935,548.47 22,301,486.24 23,335,984.15 69,573,018.86 (1) Recognition 19,804,993.98 22,301,486.24 46,904.15 42,153,384.37 (2) Business combination 4,130,554.49 - 23,289,080.00 27,419,634.49 3. Decrease 282,456.00 944,004.64 - 1,226,460.64 (1) Disposal 282,456.00 944,004.64 1,226,460.64 4. 31/12/2021 181,669,781.87 69,365,956.76 69,555,470.91 320,591,209.54 C. Impairment allowance - - 1. 31/12/2020 - - - - 2. Increase - - - - 3. Decrease - - - - 4. 31/12/2021 - - - - D. Net value - - 1. As of the statement date 820,093,958.88 59,885,208.45 183,489,675.28 1,063,468,842.61 2. As of 31/12/2020 688,727,040.95 77,198,357.41 168,786,579.43 934,711,977.79 5.15.2 Intangible assets pledged as of the statement date Cumulative Impairment Cost Net value Note amortisation allowance Land use rights 4,029,919.10 1,249,274.92 2,780,644.18 Total 4,029,919.10 1,249,274.92 2,780,644.18 5.15.3 No intangible assets as of the statement date was with pending ownership registration. 191 Annual Report 2021 5.16 Goodwill 5.16.1 General disclosure Increase Decrease Investee 31/12/2020 Business 31/12/2021 Other Disposal Other combination HHL Distillery 478,283,495.29 478,283,495.29 Mingguang - 60,686,182.07 60,686,182.07 Distillery Treasure - 22,394,707.65 22,394,707.65 Distillery Total 478,283,495.29 83,080,889.72 561,364,385.01 5.16.2 Asset groups associated with goodwill Asset group CNY million Unrecognis Chang Composition Alloca ed goodwill e in Investee of asset Book ted attributable Determination Total the group value good to period will non-control ling interest Active markets are available for the products Operating of the asset group to which HHL assets of 974.0 478.2 1,91 goodwill is allocated and 459.53 No Distillery HHL 8 8 1.89 hence the asset group is Distillery capable of generating identifiable separate cash flows. Active markets are available for the products Operating of the asset group to which Recog Mingguang assets of 187.1 288. goodwill is allocated and nition 60.68 40.46 Distillery Mingguang 3 27 hence the asset group is in the Distillery capable of generating period identifiable separate cash flows. Active markets are available for the products Operating of the asset group to which Recog Treasure assets of 107. goodwill is allocated and nition 69.85 22.39 14.93 Distillery Treasure 17 hence the asset group is in the Distillery capable of generating period identifiable separate cash flows. Note: The book value of HHL Distillery asset group did not include surplus assets and non-operating liabilities of HHL Distillery. 5.16.3 Impairment assessment The recoverable amounts of the asset groups were determined by the present value of their respective future cash flows. Detailed forecasted cash flows for the next 5 years and 192 Annual Report 2021 further forecasted cash flows for periods starting from the 6th year from the statement date applicable to each asset group was approved by the management of the Company. The discount rates adopted reflect the current time value of money and the specific risks of the asset groups. Key assumptions such revenue, cost of sales, growth rate and expenses were used in the forecast. These key assumptions had been developed by taking into consideration factors such as historical profitability, growth trend, sector conditions and management expection for future market development. Following the impairment test and with reference to the Appraisal Reports (HuayaZhengxinPingBaoZi [2022] No. A07-0006 and HuayaZhengxinPingBaoZi [2022] No. A07-0007) issued by Beijing Huaya Zhengxin Assets Appraisal Co., Ltd., the recoverable amounts of the asset groups were not lower than their respective value inclusive of goodwill as of the statement date. No impairment was identified upon the impairment test. 5.16.4 Impact of impairment assessment See Note 11.1 for further details. 5.17 Long-term deferred expenses 31/12/2020 Capitalisation Amortisation Other decrease 31/12/2021 Experience Centre 25,368,080.45 17,682,269.18 12,597,202.10 - 30,453,147.53 Waste Water Plant 2,844,754.10 - 922,622.95 - 1,922,131.15 HHL Winery and 7,937,278.72 - 3,466,982.03 - 4,470,296.69 Museum GJCCP Culture Centre 3,545,454.55 - 1,181,818.18 - 2,363,636.37 Yantai Distilled Wine 937,109.64 - 488,926.78 - 448,182.86 Culture Project Miscellaneous 23,959,256.19 7,357,775.48 15,066,088.24 - 16,250,943.43 Total 64,591,933.65 25,040,044.66 33,723,640.28 - 55,908,338.03 5.18 Deferred tax assets (DTAs) and deferred tax liabilities (DTLs) 5.18.1 DTAs before offset 31/12/2021 31/12/2020 Deductible temporary Deductible temporary DTA DTA difference difference Asset impairment 34,832,968.83 8,597,940.21 28,911,107.14 7,211,407.41 allowance Credit impairment 56,327,170.37 14,078,521.69 44,784,157.32 11,179,541.79 allowance Unrealised profit 89,880,690.08 22,470,172.52 31,616,173.72 7,904,043.43 Deferred income 91,101,512.05 22,355,416.63 75,111,997.53 18,270,618.94 Recoverable loss 3,275,424.29 235,799.84 43,272,801.87 10,777,899.23 Accrued employee 14,728,894.07 3,682,223.52 21,874,338.70 5,468,584.68 benefits Accrued expenses 845,357,525.22 211,333,743.87 144,731,955.22 36,160,326.47 193 Annual Report 2021 31/12/2021 31/12/2020 Deductible temporary Deductible temporary DTA DTA difference difference and rebates Fair value change or receivables held 4,296,727.84 1,074,181.96 for factoring Total 1,139,800,912.75 283,828,000.24 390,302,531.50 96,972,421.95 5.18.2 DTLs before offset 31/12/2021 31/12/2020 Taxable temporary Taxable temporary DTL DTL difference difference Fixed asset depreciation 74,959,073.18 18,739,768.30 73,753,668.04 18,438,417.01 Purchase price allocation 689,376,361.16 172,344,090.29 381,654,221.40 95,413,555.35 Fair value change of financial asset held for 11,103,876.68 2,775,969.16 3,877,915.51 969,478.88 trading Fair value change of other 693,720.70 173,430.18 equity investments Total 776,133,031.72 194,033,257.93 459,285,804.95 114,821,451.24 5.19 Other non-current assets 31/12/2021 31/12/2020 Prepayment for machinery 7,220,318.40 5,943,717.02 Total 7,220,318.40 5,943,717.02 5.20 Short-term borrowings 31/12/2021 31/12/2020 Credit loans 70,665,500.00 Loans with securities by physical assets 10,008,555.55 Loans with securities by intangible assets 20,026,583.34 Total 30,035,138.89 70,665,500.00 5.21 Notes payable 5.21.1 Disclosure by type Type 31/12/2021 31/12/2020 Bank acceptance 127,114,336.16 140,540,000.00 Commercial acceptance - 74,535.60 Total 127,114,336.16 140,614,535.60 5.21.2 No overdue note payable as of the statement date. 5.21.3 Decrease of notes payable for 9.60% year over year was mainly resulted from settlement of mature notes payable prior to the year end. 5.22 Accounts payable 194 Annual Report 2021 5.22.1 Disclosure by nature 31/12/2021 31/12/2020 Payable for goods 605,774,178.94 299,936,875.62 Payable for construction and machinery 253,893,258.27 135,720,442.04 Others 160,769,884.68 69,549,244.20 Total 1,020,437,321.89 505,206,561.86 5.22.2 Top-five venders as of the statement date by account payable balance 31/12/2021 Reason for remaining unsettled Top 1 505,111.19 Payable for goods Top 2 393,392.70 Tail payment for construction Top 3 348,350.03 Other Top 4 312,248.05 Tail payment for construction Top 5 244,906.28 Tail payment for construction Total 1,804,008.25 5.23 Contract liabilities 31/12/2021 31/12/2020 Advanced receipts for goods 1,825,447,705.85 1,206,573,886.26 Total 1,825,447,705.85 1,206,573,886.26 Increase of contract liabilities for 51.29% year over year was mainly resulted from increase of advanced receipts for goods by GJ Sales. 5.24 Employee benefits payable 5.24.1 General disclosure 31/12/2020 Accrual Decrease 31/12/2021 A. Short-term benefits 496,473,581.57 2,847,457,558.70 2,634,468,000.81 709,463,139.46 B. Post-employment benefits 1,655,533.19 127,559,816.28 129,006,701.19 208,648.28 –Defined comtribution plans C. Termination benefits - 1,111,573.22 1,111,573.22 - D. Other long-term benefits due - - - - within 1 year Total 498,129,114.76 2,976,128,948.20 2,764,586,275.22 709,671,787.74 5.24.2 Short-term benefits 31/12/2020 Accrual Decrease 31/12/2021 A. Salaries, wages allowances 418,034,813.69 2,502,957,312.68 2,290,212,301.09 630,779,825.28 and subsidies B. Welfare 101,477,123.04 101,477,123.04 - C. Social securities 486,019.58 57,776,560.68 57,817,118.04 445,462.22 T/o: Medical insurance 486,019.58 55,629,075.40 55,669,667.26 445,427.72 T/o: Work-place injury 2,147,485.28 2,147,450.78 34.50 insurance 195 Annual Report 2021 31/12/2020 Accrual Decrease 31/12/2021 D. Housing funds 4,342,621.32 82,964,882.88 81,654,033.80 5,653,470.40 E. Union fund and education 70,812,311.30 27,042,198.40 28,333,852.22 69,520,657.48 fund F. Annuity 2,797,815.68 75,239,481.02 74,973,572.62 3,063,724.08 Total 496,473,581.57 2,847,457,558.70 2,634,468,000.81 709,463,139.46 5.24.3 Post-employement benefits – Defined contribution plans 31/12/2020 Accrual Decrease 31/12/2021 A. Basic pension 1,655,533.19 123,493,690.55 124,940,575.46 208,648.28 B. Job-loss insurance - 4,066,125.73 4,066,125.73 - Total 1,655,533.19 127,559,816.28 129,006,701.19 208,648.28 5.25 Taxes and fees payable 31/12/2021 31/12/2020 VAT 154,597,583.14 93,836,793.23 Consumption duty 406,331,487.38 144,069,975.35 CIT 255,882,481.65 78,334,425.91 Individual income tax 2,674,057.91 2,966,503.37 Urban maintenance and construction tax 20,431,543.35 12,449,531.95 Stamp duty 2,882,861.65 909,983.20 Education surcharge 18,506,770.12 11,829,108.81 Others 11,964,201.51 4,746,370.28 Total 873,270,986.71 349,142,692.10 5.26 Other payables 5.26.1 General disclosure 31/12/2021 31/12/2020 Interests payable - Dividends payable - - Other payables 2,280,937,078.12 1,396,599,161.14 Total 2,280,937,078.12 1,396,599,161.14 5.26.2 Other payables 31/12/2021 31/12/2020 Margin deposits 1,845,795,843.02 1,280,042,883.26 Quality warranty 48,556,830.53 41,210,694.26 Withheld housing fund payable 4,722,066.45 4,342,621.32 Others 381,862,338.12 71,002,962.30 Total 2,280,937,078.12 1,396,599,161.14 Other payables aged over 1 year as of the statement date mainly comprised pre-mature margin deposits and quality warranty. 196 Annual Report 2021 5.27 Non-current liabilities due within 1 year 31/12/2021 31/12/2020 Lease liabilities due within 1 year 13,190,399.32 Total 13,190,399.32 5.28 Other current liabilities 31/12/2021 31/12/2020 Accruals 562,547,100.62 164,008,324.26 Pre-mature output VAT 236,975,461.98 156,784,058.77 Total 799,522,562.60 320,792,383.03 5.29 Long-term borrowings 31/12/2021 31/12/2020 Credit loans 60,000,000.00 60,000,000.00 Interests 176,255.83 117,638.89 Guaranteed loans 112,180,000.00 Total 172,356,255.83 60,117,638.89 5.30 Lease liabilities 31/12/2021 31/12/2020 Gross lease payments 45,436,263.46 Less: Unrecognised financing costs 4,138,640.96 Net 41,297,622.50 - T/o: Due within 1 year 13,190,399.32 T/o: Due after 1 year 28,107,223.18 - 5.31 Deferred income 5.31.1 General disclosure Reason for 31/12/2020 Increase Decrease 31/12/2021 recognition Receipt of Government grants 75,111,997.53 23,193,903.44 7,204,388.92 91,101,512.05 asset-related government grants Total 75,111,997.53 23,193,903.44 7,204,388.92 91,101,512.05 5.31.2 Government grants Reclassified Other 31/12/2020 Receipt to other 31/12/2021 Nature movement income Subsidy on Construction of 35,338,000.00 - - - 35,338,000.00 Asset-related Suizhou Plant Refund of Land Fee 22,032,186.60 22,208,000.00 1,539,876.31 - 42,700,310.29 Asset-related Fund for Clustered Development Base 2,375,360.02 - 622,719.96 - 1,752,640.06 Asset-related for Strategic Innovative Sectors 197 Annual Report 2021 Reclassified Other 31/12/2020 Receipt to other 31/12/2021 Nature movement income Subsidy Fund for Air 2,379,469.47 - 294,364.80 - 2,085,104.67 Asset-related Pollution Prevention Subsidy on Devices 1,681,178.20 - 401,472.41 - 1,279,705.79 Asset-related Subsidy of 2019 Leading Manufacturing Province and 1,558,837.69 - 308,654.28 - 1,250,183.41 Asset-related Non-state-owned Economy Development Anhui Innovation Subsidy for Development of 1,217,575.00 - 730,545.00 - 487,030.00 Asset-related Owned Innovation Capacity R&D Fund for Smart Distilling Yeast 1,130,000.00 - 1,130,000.00 - - Asset-related Fabrication Subsidy on Renovation of #2 981,481.48 - 222,222.24 - 759,259.24 Asset-related Furnace Subsidy on 795,911.83 - 127,004.59 - 668,907.24 Asset-related Equipments Renovation of GJ 787,708.47 - 47,499.96 - 740,208.51 Asset-related Zhangji Cellar Subsidy for Corporation on Key Technology of Key 600,000.00 - 600,000.00 - - Asset-related Food Isotope Authenticity Subsidy for Improvement of Food 551,724.25 - 137,931.00 - 413,793.25 Asset-related Safety Anhui Leading Capital 502,439.24 - 292,682.88 - 209,756.36 Asset-related for Service Sector Subsidy for Electricity Demand-side 372,000.00 - 144,000.00 - 228,000.00 Asset-related Adminsitration Full-time Online Supervision on Automated Blending 171,875.00 - 93,749.68 - 78,125.32 Asset-related Storage and Product Quality Energy Saving Renovation for 137,500.28 - 137,500.28 - 0.00 Asset-related Electric Motors and Furnaces 198 Annual Report 2021 Reclassified Other 31/12/2020 Receipt to other 31/12/2021 Nature movement income Technological Renovation for 2,410,208.51 - 229,487.88 - 2,180,720.63 Asset-related Distilling System Smart Fermentation 88,541.49 - 31,250.04 - 57,291.45 Asset-related Innovation Designated Fund for - 232,500.00 35,000.00 - 197,500.00 Asset-related Furnace Renovation Bonus for Technological - 631,049.92 78,427.61 - 552,622.31 Asset-related Improvement Investment Subsidy to the Technical and Quality - 122,353.52 - - 122,353.52 Asset-related Department Total 75,111,997.53 23,193,903.44 7,204,388.92 91,101,512.05 5.32 Share capital Movement 31/12/2020 Bonus Reserve Issue Others Total 31/12/2021 Qty issue conversion Qty. Qty. Qty. Qty. Qty Shares 503,600,000.00 25,000,000.00 - - - - 528,600,000.00 5.33 Capital reserves 31/12/2020 Increase Decrease 31/12/2021 Share premium 1,262,552,456.05 4,929,342,074.85 6,191,894,530.90 Other capital reserves 32,853,136.20 32,853,136.20 Total 1,295,405,592.25 4,929,342,074.85 6,224,747,667.10 5.34 Other comprehensive income (OCI) Movement 31/12/2020 Before tax Less: Income tax A. Not reclassifiable to profit or loss 693,720.70 173,430.18 Change in the fair value of other equity investments 693,720.70 173,430.18 B. Reclassifiable to profit or loss -4,296,727.84 -1,074,181.96 Gain from reclassification of financial assets -4,296,727.84 -1,074,181.96 Total -3,603,007.14 -900,751.78 (Continued) Movement After tax After tax attributable to attributable to 31/12/2021 shareholders of non-controlling the Company interests 199 Annual Report 2021 Movement After tax After tax attributable to attributable to 31/12/2021 shareholders of non-controlling the Company interests A. Not reclassifiable to profit or loss 312,174.31 208,116.21 312,174.31 Change in the fair value of other equity investments 312,174.31 208,116.21 312,174.31 B. Reclassifiable to profit or loss -3,047,232.50 -175,313.38 -3,047,232.50 Gain from reclassification of financial assets -3,047,232.50 -175,313.38 -3,047,232.50 Total -2,735,058.19 32,802.83 -2,735,058.19 5.35 Surplus reserves 31/12/2020 Increase Decrease 31/12/2021 Statutory reserve 256,902,260.27 12,500,000.00 269,402,260.27 Total 256,902,260.27 12,500,000.00 269,402,260.27 10% of the current year’s net profit was transferred to surplus reserves in accordance with the Company Law and the Company’s Article of Association. 5.36 Retained earnings Y/e 31/12/2021 Y/e 31/12/2020 As of 31/12/2020 7,987,380,161.21 6,888,203,911.92 Total adjustment of retained earnings brought forward - - As of 1/1/2021 7,987,380,161.21 6,888,203,911.92 Add: Net profit attributable to shareholders of the Company 2,297,894,413.25 1,854,576,249.29 Less: Transfer to statutory reserve 12,500,000.00 Less: Dividends on ordinary shares payable 755,400,000.00 755,400,000.00 As of 31/12/2021 9,517,374,574.46 7,987,380,161.21 5.37 Revenue and cost of sales Y/e 31/12/2021 Y/e 31/12/2020 Revenue Cost of sales Revenue Cost of sales Primary operation 13,180,706,416.64 3,271,880,424.79 10,236,883,038.46 2,522,906,977.56 Other operation 89,119,849.40 32,196,587.13 55,181,495.95 26,907,967.20 Total 13,269,826,266.04 3,304,077,011.92 10,292,064,534.41 2,549,814,944.76 5.38 Taxes and surcharges Y/e 31/12/2021 Y/e 31/12/2020 Consumption duty 1,669,063,914.39 1,343,748,348.14 Urban construction and maintenance tax and education surcharges 300,643,974.00 231,441,505.09 Urban land use tax 15,985,317.49 13,696,863.78 Property tax 18,286,057.72 17,123,738.65 200 Annual Report 2021 Y/e 31/12/2021 Y/e 31/12/2020 Stamp duty 11,749,843.93 8,853,581.53 Others 16,086,098.14 10,425,132.36 Total 2,031,815,205.67 1,625,289,169.55 5.39 Selling expenses Y/e 31/12/2021 Y/e 31/12/2020 Personnel costs 863,583,183.40 723,874,977.05 Travel 161,091,812.25 133,511,390.56 Advertisement 900,546,437.33 840,407,171.96 Comprehensive promotion 1,268,396,513.56 755,941,972.88 Services 705,368,563.00 578,401,082.92 Others 109,088,973.54 88,840,567.95 Total 4,008,075,483.08 3,120,977,163.32 5.40 Administrative expenses Y/e 31/12/2021 Y/e 31/12/2020 Personnel costs 647,493,344.01 507,634,459.19 Office costs 61,116,360.31 60,807,905.04 Repairs 59,205,451.47 46,267,736.17 Depreciation 76,054,616.50 67,142,270.79 Amortisation 34,799,459.54 31,267,096.32 Sewage 27,191,838.92 17,742,036.94 Travel 11,420,677.10 10,324,813.18 Utilities 11,157,257.56 7,613,501.49 Others 93,742,414.33 53,401,761.36 Total 1,022,181,419.74 802,201,580.48 5.41 R&D expenses Y/e 31/12/2021 Y/e 31/12/2020 Personnel costs 32,495,950.89 24,471,993.23 Direct costs 9,389,089.92 3,988,348.08 Depreciation 3,230,977.28 3,084,671.65 Overheads 6,333,457.27 9,045,123.50 Total 51,449,475.36 40,590,136.46 5.42 Financial costs Y/e 31/12/2021 Y/e 31/12/2020 Interest expenses 7,036,575.14 876,815.80 Less: Interest income 210,634,326.57 261,861,342.00 Net interest expenses -203,597,751.43 -260,984,526.20 201 Annual Report 2021 Y/e 31/12/2021 Y/e 31/12/2020 Net exchange loss -168,340.77 51,764.56 Bank charges and others -289,564.86 96,305.57 Total -204,055,657.06 -260,836,456.07 Increase of financial costs for 21.77% year over year was mainly resulted from reduction in interest income in the period. 5.43 Other income Y/e 31/12/2021 Y/e 31/12/2020 Nature Government grants T/o: Transfer from deferred income 7,204,388.92 5,548,440.39 Asset-related T/o: Government grants directly recognised in P&L 48,065,239.56 41,926,091.80 Revenue-related Total 55,269,628.48 47,474,532.19 Increase of other income for 16.42% year over year was mainly resulted from receipt of the Hubei University of Science and Technology Industrialisation Fund in the period. 5.44 Investment income Y/e 31/12/2021 Y/e 31/12/2020 Investment income from long-term equity investments at equity 397,024.95 237,293.59 Gain from disposal of FVTPLs 11,855,405.29 Gain from holding of debt instruments Gain from holding of other equity investments 809,860.62 Gain from disposal of FVTOCIs -23,271,118.08 -34,923,074.38 Gain from holding of financial assets held for trading 14,393,316.21 41,473,224.56 Others 507,890.16 Total 4,692,379.15 6,787,443.77 Decrease of investment income for 30.87% year over year was mainly resulted from reduction in Gain from holding of financial assets held for trading in the period. 5.45 Gain from fair value changes Y/e 31/12/2021 Y/e 31/12/2020 Financial assets held for trading 7,225,961.17 -19,983,181.51 T/o: Derivative financial assets - - Total 7,225,961.17 -19,983,181.51 5.46 Credit impairment loss Y/e 31/12/2021 Y/e 31/12/2020 Notes receivable - 34,938.37 Accounts receivable -7,698,458.43 -596,892.02 Other receivables 1,205,616.99 -371,799.19 202 Annual Report 2021 Y/e 31/12/2021 Y/e 31/12/2020 Total -6,492,841.44 -933,752.84 5.47 Asset impairment loss Y/e 31/12/2021 Y/e 31/12/2020 Inventories -16,126,347.91 -13,182,487.48 Fixed assets -611,808.94 -912,559.84 Total -16,738,156.85 -14,095,047.32 5.48 Gain from asset disposals Y/e 31/12/2021 Y/e 31/12/2020 Gain or loss from disposal of fixed assets, construction in 1,368,763.13 1,223,536.53 progress and intangible assets not classified as held for sale T/o: Fixed assets 1,368,763.13 1,223,536.53 Total 1,368,763.13 1,223,536.53 5.49 Non-operating income 5.49.1 General disclosure Current period Y/e 31/12/2021 Y/e 31/12/2020 non-recurring Damage and scrapping of non-current assets 12,541.54 178.25 12,541.54 Government grants not related to ordinary 4,873.94 150,000.00 4,873.94 operating activities Fine and compensation 43,776,517.37 34,815,119.51 43,776,517.37 Wastes 4,549,768.93 5,743,313.19 4,549,768.93 Release of payables 30,649,702.32 23,936,972.51 30,649,702.32 Others 1,364,754.10 1,951,704.61 1,364,754.10 Total 80,358,158.20 66,597,288.07 80,358,158.20 5.49.2 Government grants not related to ordinary operating activities Y/e 31/12/2021 Y/e 31/12/2020 Nature Other bonuses 4,873.94 150,000.00 Revenue related Total 4,873.94 150,000.00 - 5.50 Non-operating expenses Current period Y/e 31/12/2021 Y/e 31/12/2020 non-recurring Damage and scrapping of non-current assets 7,358,161.65 4,916,354.87 7,358,161.65 Donations 21,405,652.43 Others 3,315,122.96 940,840.78 3,315,122.96 Total 10,673,284.61 27,262,848.08 10,673,284.61 5.51 Income tax expenses 5.51.1 General disclosure 203 Annual Report 2021 Y/e 31/12/2021 Y/e 31/12/2020 Current income tax 903,705,314.91 636,476,576.50 Deferred income tax -106,743,019.82 -10,528,792.81 Total 796,962,295.09 625,947,783.69 5.51.2 Reconciliation of profit before tax and income tax expenses Y/e 31/12/2021 Profit before tax 3,171,293,934.56 Income tax calcuated by the applicable tax rate 792,823,483.64 Impact of different tax rates applicable to subsidiaries -10,694,115.33 Adjustment for prior period 28,428,411.94 Non-taxable income -2,437,521.86 Non-deductible costs, expenses and loss 1,328,323.89 Utilisation of prior period recoverable tax loss with no DTA recognised - Impact of current period recoverable tax loss and temporary differences - with no DTA recognised Progressive deduction for R&D expenses -12,486,287.19 Impact of tax rate changes - Exemption Income tax expenses 796,962,295.09 5.52 Notes to the consolidated cash flow statements 5.52.1 Other cash receipts in relation to operating activities Y/e 31/12/2021 Y/e 31/12/2020 Margin deposits and quality warranty 573,099,096.03 71,271,892.53 Government grants received 59,512,598.91 42,815,381.22 Bank interests received 175,668,500.91 244,206,194.38 Release of restricted cash 334,308,875.92 2,675,000,000.00 Others 11,742,422.18 70,984,823.65 Total 1,154,331,493.95 3,104,278,291.78 5.52.2 Other cash payments for operating activities Y/e 31/12/2021 Y/e 31/12/2020 Paid expenses 2,252,989,080.36 1,947,222,615.61 Margin deposits and quality warranty 7,522,439.34 7,848,981.62 Cash restricted for bank acceptance and guarantee 133,372,593.16 134,308,875.92 letters Structural desposits and fixed term deposits not 200,000,000.00 eligible for early redemption Others 63,271,489.74 88,165,064.00 Total 2,457,155,602.60 2,377,545,537.15 204 Annual Report 2021 5.52.3 Other cash receipts in relation to financing activities Y/e 31/12/2021 Y/e 31/12/2020 Financing costs paid 4,587,264.16 Rentals paid 15,430,214.16 Total 20,017,478.32 5.53 Supplemenatry information to the consolidated cash flow statement 5.53.1 Suppplementary information to the consolidated cash flow statement Y/e 31/12/2021 Y/e 31/12/2020 A. Reconciliation between net profit and net cash flows from operating activities Net profit 2,374,331,639.47 1,847,888,183.03 Add: Asset impairment loss 16,738,156.85 15,028,800.16 Add: Credit impairment loss 6,492,841.44 Add: Fixed asset depreciation and investment property depreciation 224,815,642.73 214,098,270.11 Add: Right-of-use asset depreciation 14,454,182.34 Add: Intangible asset amortisation 42,153,384.37 34,419,897.25 Add: Long-term deferred expense amortisation 33,723,640.28 23,731,383.35 Add: Loss from disposal of fixed assets, intangible assets and other -1,368,763.13 -1,223,536.53 long-term assets (gain with “–”) Add: Loss from scrapping of fixed assets (gain with “–”) 7,345,620.11 4,916,176.62 Add: Loss from fair value changes (gain with “–”) -7,225,961.17 19,983,181.51 Add: Financial costs (income with “–”) -47,493,186.95 928,580.36 Add: Investment loss (gain with “–”) -4,692,379.15 -6,787,443.77 Add: DTA decrease (increase with “–”) -186,855,578.29 -6,477,877.44 Add: DTL increase (decrease with “–”) 79,211,806.69 -4,050,915.37 Add: Inventory decrease (increase with “–”) -1,252,595,844.79 -415,011,334.66 Add: Operating receivable decrease (increase with “–”) 868,490,814.49 -548,002,635.36 Add: Operating payable increase (decrease with “–”) 2,752,473,236.58 104,411,672.19 Add: Others (Note) 334,308,875.92 2,340,691,124.08 Net cash flows from operating activities 5,254,308,127.79 3,624,543,525.53 B. Significant investing and financing activities not involving cash Debt-to-equity conversion - Corporate bonds convertible within 1 year - Fixed asset acquired through financial leasing - C. Movement of cash and cash equivalents Cash as of 31/12/2021 6,057,550,178.60 5,636,903,693.74 Less: Cash as of 31/12/2020 5,636,903,693.74 2,944,749,918.09 Add: Cash equivalents as of 31/12/2021 - Less: Cash equivalents as of 31/12/2020 - 205 Annual Report 2021 Y/e 31/12/2021 Y/e 31/12/2020 Net increase of cash and cash equivalents 420,646,484.86 2,692,153,775.65 Note: Others represented impact of restricted cash on the net cash flows from operating activities for the period. 5.53.2 Composition of cash and cash equivalents 31/12/2021 31/12/2020 A. Cash 6,057,550,178.60 5,636,903,693.74 T/o: Cash in hand 135,129.66 178,127.77 T/o: Cash at bank usable on demand 6,057,283,646.58 5,636,406,199.84 T/o: Other monetary funds usable on demand 131,402.36 319,366.13 B. Cash equivalents - - T/o: Investment in debt instruments mature in 3 months - - C. Cash and cash equivalents as of 31 December 6,057,550,178.60 5,636,903,693.74 T/o: Cash and cash equivalents held by group companies with - restriction on use 5.54 Assets with restriction on ownership or disposal Book value as of Restriction 31/12/2021 Structural deposits not eligible for early redemption and fixed term Notes receivable 5,867,372,593.16 deposits and margin deposits for bank acceptance Fixed assets 4,225,738.45 Securities for loans Intangible assets 2,780,644.18 Securities for loans Total 5,874,378,975.79 —— 5.55 Government grants 5.55.1 Asset related government grants Amount recognised in the income Income Balance statement Grant amount statement sheet item Y/e 31/12/2021 Y/e 31/12/2020 item Subsidy on Construction of Deferred 35,338,000.00 - - Other income Suizhou Plant income Deferred Refund of Land Fee 42,700,310.29 1,539,876.31 530,641.33 Other income income Fund for Clustered Deferred Development Base for 1,752,640.06 622,719.96 422,719.98 Other income income Strategic Innovative Sectors Subsidy Fund for Air Deferred 2,085,104.67 294,364.80 265,613.82 Other income Pollution Prevention income Deferred Subsidy on Devices 1,279,705.79 401,472.41 155,259.30 Other income income Subsidy of 2019 Leading Manufacturing Province Deferred 1,250,183.41 308,654.28 311,162.31 Other income and Non-state-owned income Economy Development 206 Annual Report 2021 Amount recognised in the income Income Balance statement Grant amount statement sheet item Y/e 31/12/2021 Y/e 31/12/2020 item Anhui Innovation Subsidy Deferred for Development of Owned 487,030.00 730,545.00 730,545.00 Other income income Innovation Capacity R&D Fund for Smart Deferred - 1,130,000.00 - Other income Distilling Yeast Fabrication income Subsidy on Renovation of Deferred 759,259.24 222,222.24 18,518.52 Other income #2 Furnace income Deferred Subsidy on Equipments 668,907.24 127,004.59 288,116.33 Other income income Renovation of GJ Zhangji Deferred 740,208.51 47,499.96 47,499.96 Other income Cellar income Subsidy for Corporation on Deferred Key Technology of Key Food - 600,000.00 - Other income income Isotope Authenticity Subsidy for Improvement Deferred 413,793.25 137,931.00 137,931.00 Other income of Food Safety income Anhui Leading Capital for Deferred 209,756.36 292,682.88 292,682.88 Other income Service Sector income Subsidy for Electricity Deferred Demand-side 228,000.00 144,000.00 144,000.00 Other income income Adminsitration Full-time Online Supervision on Automated Deferred 78,125.32 93,749.68 93,750.00 Other income Blending Storage and income Product Quality Energy Saving Renovation Deferred for Electric Motors and 0.00 137,500.28 137,499.96 Other income income Furnaces Technological Renovation Deferred 2,180,720.63 229,487.88 62,499.96 Other income for Distilling System income Smart Fermentation Deferred 57,291.45 31,250.04 31,250.04 Other income Innovation income Designated Fund for Deferred - - 22,500.00 Other income Company Development income Deferred IOT Souce Tracing System - - 1,856,250.00 Other income income Designated Fund for Deferred 197,500.00 35,000.00 Other income Furnace Renovation income Bonus for Technological Deferred 552,622.31 78,427.61 Other income Improvement Investment income Subsidy to the Technical Deferred 122,353.52 - Other income and Quality Department income Total 91,101,512.05 - 7,204,388.92 5,548,440.39 —— 5.55.2 Revenue related government grants Income Amount recognised in the income Income Grant amount statement statement statement item Y/e 31/12/2021 Y/e 31/12/2020 item Other Tax Refund 10,939,461.17 10,939,461.17 7,142,710.58 Other income income 207 Annual Report 2021 Income Amount recognised in the income Income Grant amount statement statement statement item Y/e 31/12/2021 Y/e 31/12/2020 item Hubei University of Other Science and Technology 9,541,000.00 9,541,000.00 2,180,000.00 Other income income Industrialisation Fund Subsidy for Suizhou Other Relocation and 6,946,300.00 6,946,300.00 Other income income Renovation Project Xianning Fiscal Incentive Other for 0 Fiscal Account 2,300,000.00 2,300,000.00 Other income income Balance Other Job-loss Insurance Refund 1,504,366.43 1,504,366.43 2,280,389.84 Other income income 2021 Training Subsidy for Other Workplace Skill 1,226,000.00 1,226,000.00 Other income income Improvement 2021 Substantial Fund for Other 1,200,000.00 1,200,000.00 Other income Innovative Province income 2020 Designated Fund for Provincial Manufacturing Other 1,000,000.00 1,000,000.00 Other income Development with High income Quality Fiscal Bonus for Digital Economy Development Other offered by Construction 1,000,000.00 1,000,000.00 Other income income Fund of Leading Manufacturing Province Subsidies by Local Other Finance Supervision 1,000,000.00 1,000,000.00 Other income income Authorities Bonus for Strategic Other 1,000,000.00 1,000,000.00 Other income Innovative Base income 2020 Construction Fund Other of Leading Manufacturing 5,160,000.00 Other income income Province 2020 Designated Fund for Development of Other 4,600,000.00 Other income Emerging Leading income Manufacturing City Fiscal Subsidy offered by Other Cashing Centre of Wuhan 2,364,000.00 Other income income Hanyang Treasury Subsidy for Wuhan Class A Scenic Site Free Other Entrance offered by 2,220,000.00 Other income income Wuhan Culture and Travel Bureau 208 Annual Report 2021 Income Amount recognised in the income Income Grant amount statement statement statement item Y/e 31/12/2021 Y/e 31/12/2020 item Subsidy for Air Pollution Prevention offered by Other 1,000,000.00 Other income Environmental Protection income Bureau AMR Bonus for Other 900,000.00 Other income Standardisation income Trademark Bonus by Other 895,000.00 Other income Bozhou Treasury income Other grants related to Other ordinary operating 10,408,111.96 10,408,111.96 13,183,991.38 Other income income activities Grants related to ordinary Non-operat Non-operating 4,873.94 4,873.94 150,000.00 operating activities ing income income Financial Interest subsidies 874,116.13 874,116.13 992,947.18 Financial costs costs Total 48,944,229.63 —— 48,944,229.63 43,069,038.98 —— Note 6 Change in the scope of consolidation 6.1 Business combination not under common control 6.1.1 General disclosure Revenue for Net profit for the period the period Determinati Date of Type of from the from the Subsidiar Purchase Shareholdi Combinatio on of acquisitio transactio combination combination y price ng acquired n date combination n n date to the date to the date statement statement date date Purchase price paid, transfer of Mingguan 2021.1.1 200,200,000. ownership of 295,308,911. -11,423,106. g 60% Purchase 2021.1.10 0 00 shares, 41 29 Distillery transfer of control over assets Additiona Completion Treasure 2021.9.1 224,723,400. l 60% 2021.9.15 of regulatory 0.00 -914,211.68 Distillery 5 00 investme registration nt 209 Annual Report 2021 6.1.2 Cost of acquisition and goodwill Mingguang Distillery Treasure Distillery Cost of acquisition Cash 200,200,000.00 224,723,400.00 Total cost of acquisition 200,200,000.00 224,723,400.00 Less: Fair value of net identifiable 139,513,817.93 202,328,692.35 assets acquired Goodwill 60,686,182.07 22,394,707.65 6.1.3 Net identifiable assets of the acquirees as of the combination dates Mingguang Distillery Fair value Book value Monetary funds 135,013,666.90 135,013,666.90 Accounts receivable 10,711,363.41 10,711,363.41 Prepayments 1,596,899.47 1,596,899.47 Other receivables 6,122,501.16 6,122,501.16 Inventories 281,633,786.01 211,852,592.58 Other current assets 2,546.37 2,546.37 Other equity investments 53,848,697.80 14,530,000.00 Fixed assets 119,631,918.83 72,638,969.35 Construction in progress 557,987.45 557,987.45 Intangible assets 56,327,165.76 9,123,081.42 Long-term deferred expenses 2,929,439.00 2,929,439.00 Deferred tax assets 3,498,516.13 3,498,516.13 Short-term borrowings 94,000,000.00 94,000,000.00 Accounts payable 43,654,530.85 43,654,530.85 Contract liabilities 46,956,781.25 46,956,781.25 Employee benefits payable 4,147,589.59 4,147,589.59 Taxes and fees payable 38,825,770.24 38,825,770.24 Other payables 141,767,461.40 141,767,461.40 Other current liabilities 18,104,381.56 18,104,381.56 Deferred income 807,082.92 807,082.92 Deferred tax liabilities 50,824,231.26 0.00 Net Assets 232,786,659.22 80,313,965.43 Less: Non-controlling interests 93,272,841.29 32,283,763.77 210 Annual Report 2021 Fair value Book value Net assets acquired 139,513,817.93 48,030,201.66 Treasure Distillery Fair value Book value Monetary funds 62,824.85 62,824.85 Accounts receivable 303,593.00 303,593.00 Other receivables 224,723,400.00 224,723,400.00 Inventories 162,938,624.00 28,256,221.73 Other current assets 2,970.29 2,970.29 Fixed assets 25,952,387.00 11,875,869.22 Intangible assets 6,501,400.00 5,962,094.20 Short-term borrowings 6,200,000.00 6,200,000.00 Taxes and fees payable 16,882.41 16,882.41 Other payables 39,729,273.01 39,729,273.01 Deferred tax liabilities 37,324,556.46 Net Assets 337,214,487.26 225,240,817.87 Less: Non-controlling interests 134,885,794.91 90,096,327.15 Net assets acquired 202,328,692.35 135,144,490.72 6.2 Other changes Jiuhao ChinaRail and Jiuan Electric were included in the Company’s scope of consolidation for the first time in the period as a result of incorporation. Waste Recycle was excluded from the Company’s scope of consolidation in the period as a result of dissolution. Note 7 Interests in other entities 7.1 Interests in subsidiaries 7.1.1 General disclosure Place of Shareholding in % Means of Place of Nature of Subsidiary primary control registration operation Direct Indirect operation acquisition Bozhou, Bozhou, GJ Sales Trading 100.00 —— Incorporation Anhui Anhui Bozhou, Bozhou, Longrui Glass Production 100.00 —— Incorporation Anhui Anhui Bozhou, Bozhou, Waste Waste Recycle 100.00 —— Incorporation Anhui Anhui recycling Bozhou, Bozhou, Machinery Jiuan Electric 100.00 —— Incorporation Anhui Anhui production Jinyunlai Hefei, Anhui Hefei, Anhui Advertising 100.00 —— Incorporation 211 Annual Report 2021 Place of Shareholding in % Means of Place of Nature of Subsidiary primary control registration operation Direct Indirect operation acquisition Bozhou, Bozhou, Ruisi Weier R&D 100.00 —— Incorporation Anhui Anhui Business Hotel combination Jinhao Hotel Shanghai Shanghai 100.00 —— management under common control Business Bozhou, Bozhou, Hotel combination GJ Guest House 100.00 —— Anhui Anhui operation under common control Bozhou, Bozhou, Sewage YQ Environment Protection 100.00 —— Incorporation Anhui Anhui processing GJ E-Commerce Hefei, Anhui Hefei, Anhui E-commerce 100.00 —— Incorporation Bozhou, Bozhou, Runan Xinke Food testing 100.00 —— Incorporation Anhui Anhui Jiudao Media Hefei, Anhui Hefei, Anhui Advertising 100.00 —— Incorporation Business combination Wuhan, Wuhan, HHL Distillery Production 51.00 not under Hubei Hubei common control Business combination Xianning, Xianning, HHL Xianning Production —— 51.00 not under Hubei Hubei common control Business combination Suizhou, Suizhou, HHL Suizhou Production —— 51.00 not under Hubei Hubei common control Business combination Wuhan, Wuhan, Junlou Culture Advertising —— 51.00 not under Hubei Hubei common control Xianning, Xianning, HHL Beverage Production —— 51.00 Incorporation Hubei Hubei Wuhan, Wuhan, Yashibo R&D —— 51.00 Incorporation Hubei Hubei 212 Annual Report 2021 Place of Shareholding in % Means of Place of Nature of Subsidiary primary control registration operation Direct Indirect operation acquisition Xianning, Xianning, Xinjia Testing Food testing —— 51.00 Incorporation Hubei Hubei Business combination Wuhan, Wuhan, Tianlong Jindi Trading —— 51.00 not under Hubei Hubei common control Business combination Xianning, Xianning, Xianning Junhe Trading —— 51.00 not under Hubei Hubei common control Wuhan, Wuhan, Junya Sales Trading —— 51.00 Incorporation Hubei Hubei Suizhou, Suizhou, Suizhou Junhe Trading —— 51.00 Incorporation Hubei Hubei Business combination Chuzhou, Mingguang, Mingguang Distillery Production 60.00 not under Anhui Anhui common control Business combination Chuzhou, Mingguang, Tiancheng Sales Trading 60.00 not under Anhui Anhui common control Business combination Chuzhou, Fengyang FY Xiaogangcun Production 42.00 not under Anhui Anhui common control Bozhou, Bozhou, Jiuhao ChinaRail Construction 52.00 Incorporation Anhui Anhui Bozhou, Bozhou, Zhenrui Construction Construction 52.00 Incorporation Anhui Anhui Business combination Renhuai, Renhuai, Treasure Distillery Production 60.00 not under Guizhou Guizhou common control 7.1.2 Significant partially owned subsidiaries 213 Annual Report 2021 Profit or loss attributable to Dividends declared Minority interest as Non-controlling Subsidiary minority for minority of the statement shareholding % shareholders for the shareholders date period HHL Distillery 49.00 81,338,863.48 486,726,322.76 7.1.3 Key Significant partially owned subsidiaries 31/12/2021 Subsidiary Non-current Current Non-current Current assets Total Total liabilities assets liabilities liabilities HHL 1,106,087,761.34 1,004,277,608.57 2,110,365,369.91 792,402,887.81 324,643,456.05 1,117,046,343.86 Distillery (Continue) 31/12/2020 Subsidiary Non-current Current Non-current Current assets Total Total liabilities assets liabilities liabilities HHL 633,542,317.24 868,332,173.16 1,501,874,490.40 482,603,067.57 191,592,294.97 674,195,362.54 Distillery (Continue) Y/e 31/12/2021 Subsidiary Total comprehensive Cash flows from Revenue Net profit income operating activities HHL Distillery 1,458,982,962.92 165,997,680.58 165,639,898.18 386,107,248.19 (Continue) Y/e 31/12/2020 Subsidiary Total comprehensive Cash flows from Revenue Net profit income operating activities HHL Distillery 516,045,801.88 -13,649,114.81 -13,649,114.81 -22,001,852.09 7.2 Significant joint ventures and associates The Company had no significant joint venture or associate. Note 8 Risks associated with financial instruments Risks related to the financial instruments of the Company arise from the recognition of various financial assets and financial liabilities during its operation, including credit risk, liquidity risk and market risk. Management of the Company is responsible for determining risk management objectives and policies related to financial instruments. Operational management is responsible for the daily risk management through functional departments (e.g. credit management department of the 214 Annual Report 2021 Company reviews each credit sale). Internal audit department is responsible for the daily supervision of implementation of the risk management policies and procedures, and report their findings to the audit committee in a timely manner. Overall risk management objective of the Company is to establish risk management policies to minimize the risks without unduly affecting the competitiveness and resilience of the Company. 8.1 Credit risk Credit risk is the risk of one party of the financial instrument face to a financial loss because the other party of the financial instrument fails to fulfill its obligation. The credit risk of the Company is related to monetary funds, notes receivable, accounts receivables, other receivables and long-term receivables. Credit risk of these financial assets is derived from the counterparty’s breach of contract. The maximum risk exposure is equal to the carrying amount of these financial instruments. Monetary funds of the Company has lower credit risk, as they are mainly deposited in financial institutions such as commercial banks, of which the Company believes with higher reputation and financial position. Notes receivable held by the Company mainly comprise bank acceptance which have relatively high liquidity. The Company has established necessary internal control policies that can ensure the safety of the maintenance and usage of notes and such policies have been implemented effectively. The Company believes that notes receivable have low credit risk. Accounts receivable mainly arising from sales. The Company makes sales only to customers with advanced credit worthiness and monitors accounts receivable on a continuous basis to ensure the occurrence of significant bad debts. The maximum risk exposure brought by financial instruments is their book value. The Company believes that the credit risk is relatively low. 8.2 Liquidity risk Liquidity risk is the risk of shortage of funds when fulfilling the obligation of settlement by delivering cash or other financial assets. The Company is responsible for the capital management of all of its subsidiaries, including short-term investment of cash surplus and dealing with forecasted cash demand by raising loans. The Company’s policy is to monitor the demand for short-term and long-term floating capital and whether the requirement of loan contracts is satisfied so as to ensure to maintain adequate cash and cash equivalents. 8.3 Market risk The market risk of a financial instrument refers to the risk on the fair value or future cash flows of the financial instrument brought by market factors. Market risk mainly comprises foreign exchange risk and interest risk. 215 Annual Report 2021 8.3.1 Foreign currency risk Foreign currency risk of the Company mainly arise from foreign currency assets and liabilities denominated in currency other than the Company’s functional currency. As the Company mainly operate in Mainland China with transactions mostly settled in CNY and very limited export activities, foreign currency risk is insignificant. 8.3.2 Interest risk Interest risk refers to the risk on the fair value or future cash flows of a financial instrument brought by the change of market interest rate. Interest risk mainly arises from bank loans. As of the statement date, the Company had no bank loan with a floating interest rate. 8.3.2 Other price risk Investments held for trading were measured at fair value. As such, these investments are subject to the risk brought by the change of security prices. The Company controls this risk to the acceptable level by utilising multiple investment mix. Note 9 Fair value disclosure The inputs used in the fair value measurement in its entirety are to be classified in the level of the hierarchy in which the lowest level input that is significant to the measurement is classified. Level 1: Inputs consist of unadjusted quoted prices in active markets for identical assets or liabilities Level 2: Inputs for the assets or liabilities (other than those included in Level 1) that are either directly or indirectly observable. Level 3: Inputs are unobservable inputs for the assets or liabilities 9.1 Fair value of assets and liabilities measured by fair value as of the statement date Fair value as of the statement date Level 1 Level 2 Level 3 Total Continously measured by fair value A. Financial assets held for trading 2,661,103,876.68 2,661,103,876.68 a. FATPLs 2,661,103,876.68 2,661,103,876.68 1. Debt instruments - 2. Structural financial products 2,457,565,232.32 2,457,565,232.32 3. Investment in funds - 203,538,644.36 203,538,644.36 B. FATOCIs 54,542,418.50 545,204,103.42 599,746,521.92 a. Receivables held for factoring - 545,204,103.42 545,204,103.42 b. Other equity investments 54,542,418.50 54,542,418.50 Total 2,715,646,295.18 545,204,103.42 3,260,850,398.60 216 Annual Report 2021 The fair value of financial instruments traded in an active market was based on quoted market prices at the reporting date. The fair value of financial instruments not traded in an active market was determined by using valuation techniques. Specific valuation techniques used to value the above financial instruments include discounted cash flow and market approach to comparable company model. Inputs in the valuation technique include risk-free interest rates, benchmark interest rates, exchange rates, credit spreads, liquidity premiums, discount for lack of liquidity. 9.2 Qualitative and quantitative information of key inputs and valuation methods applicable to Level 2 financial instruments continuously measured by fair value As of the statement date, the Company’s Level 3 financial instruments comprised mainly investment in funds and structural financial products. The fair value of investment in funds was determined by the valuation offered by the asset management companies. The fair value of structural financial products were computed in accordance with the terms of the respective contracts. 9.3 Qualitative and quantitative information of key inputs and valuation methods applicable to Level 3 financial instruments continuously measured by fair value As of the statement date, the Company’s Level 3 financial instruments comprised solely pre-mature notes receivable. Issuers of the notes had healthy credit worthiness. The fair value of these receivables as of the statement date was measured at the recoverable amount of these receivables as of the statement date, which was computed using the respective discount rates offered by banks for cashing. Note 10 Related parties An entity or individual is a related party to the Company if the entity or individual: a. is controlled or jointly controlled by the Company; b. over which the Company has significant influence; c. controls or jointly controls the Company; or d. is subject to the same control or joint control over the Company. 10.1 Controlling shareholder of the Company Shareholding in Voting right in Place of Nature of business Registered capital the Company the Company registration in % in % Production of beverage, construction GJ Group Bozhou, Anhui 1,000 million 51.34 51.34 materials, plastic products. The Company’s ultimate controller is the State-owned Asset Management Commission of the 217 Annual Report 2021 People's Government of Baozhou, Anhui 10.2 Subsidiaries See Note 7 for details. 10.3 Joint ventures and associates See Note 7 for details. 10.4 Other related parties of the Company Relationship to the Company Controlled by the Company's controlling Anhui Ruifuxiang Food Co., Ltd. (Ruifuxiang Food) shareholder or ultimate controller Controlled by the Company's controlling Anhui Ruijing Catering Co., Ltd. (Ruijing Catering) shareholder or ultimate controller Controlled by the Company's controlling Anhui Haochidian Catering Co., Ltd. (Haochidian Catering) shareholder or ultimate controller Controlled by the Company's controlling Shanghai Beihai Hotel Co., Ltd. (Beihai Hotel) shareholder or ultimate controller Controlled by the Company's controlling Anhui Ruijing Shanglv (Group) Co., Ltd. (RJSL Group) shareholder or ultimate controller Controlled by the Company's controlling Bozhou Guest House Co., Ltd. (Bozhou Guest House) shareholder or ultimate controller Dongfang Ruijing Enterprise Investment Co., Ltd. Controlled by the Company's controlling (Dongfang Ruijing) shareholder or ultimate controller Controlled by the Company's controlling Anhui Hengxin Pawnshop Co., Ltd. (Hengxin Pawnshop) shareholder or ultimate controller Anhui Ruijing Shanglv (Group) Co., Ltd. Hefei Gujing Holiday Inn (RJSL Controlled by the Company's controlling Holiday Inn) shareholder or ultimate controller Anhui Gujing Hotel Development Co., Ltd. Controlled by the Company's controlling (GJ Hotel Development) shareholder or ultimate controller Controlled by the Company's controlling Anhui Ruixin Pawnshop Co., Ltd. (Ruixin Pawnshop) shareholder or ultimate controller Anhui Zhongxin Financial Leasing Co., Ltd. Controlled by the Company's controlling (Zhongxin Financial Leasing) shareholder or ultimate controller Anhui Huixin Financial Investment Group Co., Ltd. Controlled by the Company's controlling (Huixin Financial Investment) shareholder or ultimate controller Hefei Longxin Corporate Management Advisory Co., Ltd. (Longxin Controlled by the Company's controlling Advisory) shareholder or ultimate controller Controlled by the Company's controlling Bozhou Anxin Small Loan Co., Ltd. (Anxin Small Loan) shareholder or ultimate controller Dazhongyuan Wine Valley Culture Travel Development Co., Ltd. Controlled by the Company's controlling (Dazhongyuan) shareholder or ultimate controller Controlled by the Company's controlling Anhui Youxin Financing Guarantee Co, Ltd. (Youxin Guarantee) shareholder or ultimate controller Controlled by the Company's controlling Anhui Lixin E-Commerce Co., Ltd. (Lixin E-Commerce) shareholder or ultimate controller Bozhou Gujing Huuishenglou Catering Co., Ltd. Controlled by the Company's controlling 218 Annual Report 2021 Relationship to the Company (GJ Huishenglou Catering) shareholder or ultimate controller Controlled by the Company's controlling Anhui Gujing Health Industry Co., Ltd. (Health Industry) shareholder or ultimate controller Controlled by the Company's controlling Anhui Lejiu Jiayuan Travel Management Co., Ltd. (Lejiu Jiayuan) shareholder or ultimate controller Controlled by the Company's controlling Anhui Shenglong Trading Co., Ltd. (Longsheng Trading) shareholder or ultimate controller Anhui Gujing International Development Co., Ltd. Controlled by the Company's controlling (GJ International) shareholder or ultimate controller Anhui Lvyuan Ecological Agriculture Development Co., Ltd. (Ecological Controlled by the Company's controlling Agriculture) shareholder or ultimate controller Anhui Jiuan Construction Management Advisory Co., Ltd. Controlled by the Company's controlling (Jiuan Advisory) shareholder or ultimate controller Nanjing Suning Property Development Co., Ltd. Controlled by ZHANG Guiping, the (Suning Property Development) non-executive director of the Company 10.5 Related party transactions 10.5.1 Goods and services Purchase of goods and services Related party Transaction Y/e 31/12/2021 Y/e 31/12/2020 Purchase of materials Haochidian Catering 16,752,135.81 22,586,183.13 and services GJ Group Houses and buildings - 9,608,025.00 Receiving catering and Bozhou Guest House 5,276,946.76 6,540,711.38 accommodation Receiving catering and GJ Huishenglou Catering 1,697,688.00 2,309,426.00 accommodation Receiving catering and Haochidian Catering 2,800,831.40 1,419,119.70 accommodation Receiving catering and GJ Hotel Development 1,195,369.24 1,124,539.94 accommodation RJSL Group Purchase of materials 96,890.00 623,966.45 Receiving catering and RJSL Group 658,611.03 24,820.00 accommodation Receiving catering and RJSL Holiday Inn 113,524.00 405,725.64 accommodation Purchase of materials RJSL Holiday Inn 871,614.88 653,730.07 and services Purchase of materials Dazhongyuan - 215,018.51 and services Purchase of materials Health Industry - 191,893.81 and services 219 Annual Report 2021 Related party Transaction Y/e 31/12/2021 Y/e 31/12/2020 GJ International Receiving services - 103,773.58 Lejiu Jiayuan Purchase of materials - 99,546.43 GJ Group Purchase of materials - 56,952.00 Youxin Guarantee Receiving services 49,504.95 47,169.81 Ruifuxiang Food Purchase of materials - 31,130.76 Purchase of materials Ecological Agriculture - 19,562.48 and services Purchase of materials GJ Hotel Development 2,735.85 3,413.21 and services Haochidian Catering Purchase of assets 135,398.23 - Jiuan Advisory Advisory and assurance 3,427,517.43 - Total —— 33,078,767.58 46,064,707.90 Sales of goods and rendering of services Related party Transaction Y/e 31/12/2021 Y/e 31/12/2020 Longsheng Trading Sales of distilled wine 1,506,569.89 1,456,440.72 RJSL Group Sales of distilled wine 1,125,056.17 649,884.96 GJ Hotel Development Provision of utilities 290,336.98 - Provision of catering and GJ Group 279,597.00 184,013.00 accommodation GJ Group Sales of small materials 223,523.11 94,174.07 GJ Hotel Development Sales of distilled wine 146,484.95 122,893.76 Provision of catering and RJSL Group 121,295.14 70,217.96 accommodation RJSL Holiday Inn Sales of distilled wine 81,451.34 30,265.48 Bozhou Guest House Sales of distilled wine 55,274.34 74,628.33 Huixin Financial Investment Sales of distilled wine 38,500.88 39,836.29 GJ Huishenglou Catering Sales of distilled wine 30,106.20 77,893.81 Anxin Small Loan Sales of distilled wine 19,656.64 15,330.09 Haochidian Catering Sales of distilled wine 19,115.04 71,283.20 Zhongxin Financial Leasing Sales of distilled wine 11,572.57 14,939.82 Hengxin Pawnshop Sales of distilled wine 11,405.32 11,207.09 Jiuan Advisory Sales of distilled wine 8,968.14 - Beihai Hotel Sales of distilled wine 8,601.77 17,203.54 Lejiu Jiayuan Sales of distilled wine 8,235.39 8,261.95 Provision of catering and Longsheng Trading 7,084.00 14,470.00 accommodation Lejiu Jiayuan Provision of utilities 6,545.75 56,413.97 220 Annual Report 2021 Related party Transaction Y/e 31/12/2021 Y/e 31/12/2020 Ruixin Pawnshop Sales of distilled wine 6,443.36 6,614.16 Youxin Guarantee Sales of distilled wine 3,082.30 4,983.18 Haochidian Catering Provision of services 2,547.17 - Bozhou Guest House Provision of services 707.55 - Provision of catering and Jiuan Advisory 2,230.00 - accommodation Longxin Advisory Sales of distilled wine 1,194.69 - Jiuan Advisory Sales of small materials 778.68 - GJ International Sales of distilled wine - 1,649,076.57 Health Industry Provision of services - 232,430.19 Bozhou Ruineng Thermal Electricity Co., Ltd. Sales of distilled wine - 74,150.45 Dazhongyuan Sales of distilled wine - 44,674.42 Lejiu Jiayuan Provision of services - 7,620.00 Lixin E-Commerce Sales of distilled wine - 7,461.93 GJ International Sales of small materials - 5,437.89 Dazhongyuan Provision of services - 2,889.91 Provision of catering and GJ International - 2,820.00 accommodation Dazhongyuan Sales of small materials - 2,631.13 Health Industry Sales of small materials - 1,314.60 Provision of catering and Health Industry - 1,250.00 accommodation Provision of catering and Dazhongyuan - 420.00 accommodation Health Industry Sales of distilled wine -797,129.56 5,254,234.43 Total —— 3,219,234.81 10,307,366.90 10.5.2 Leases The Company as the Lessor Rental income Rental income Lessee Leased item Y/e 31/12/2021 Y/e 31/12/2020 GJ Hotel Development Houses and buildings 1,379,517.44 670,730.21 Total —— 1,379,517.44 670,730.21 The Company as the Lessee Rental cost Rental cost Lessor Leased item Y/e 31/12/2021 Y/e 31/12/2020 GJ Group Houses and buildings 1,197,761.12 1,850,265.66 Suning Property Development Houses and buildings 2,050,000.00 1,583,333.32 221 Annual Report 2021 Total 3,247,761.12 3,433,598.98 10.5.3 Key management remuneration Y/e 31/12/2021 Y/e 31/12/2020 Key management remuneration 18.53 million 14.18 million 10.6 Related party balances - Liabilities Related party 31/12/2021 31/12/2020 Contract liabilities Health Industry 617,959.73 658,339.50 Contract liabilities RJSL Group 92.04 342,484.96 Contract liabilities GJ International 164,675.75 186,083.60 Contract liabilities GJ Huishenglou Catering 15,300.00 Accounts payable GJ Group 4,804,012.50 Accounts payable Haochidian Catering 2,479,131.69 Other payables GJ Group 1,050,004.75 Other payables RJSL Group 115,533.60 114,660.00 Other payables GJ Hotel Development 50,000.00 100,000.00 Note 11 Commitments and contingencies 11.1 Significant commitments In accordance with the agreement entered into by the Company, Wuhan Tianlong Investment Group Co., Ltd, and YAN Hongye on the transfer of the shareholding in HHL Distillery, the Company made a commitment for the tax inclusive revenue performance of HHL Distillery as follow: 2017 2018 2019 2020 2021 Committed 805.00 1,006.25 1,308.13 1,700.56 2,040.68 tax inclusive revenue million million million million million The Company also committed that in the five consecutive years following the year in which the ownership transaction is completed, the net profit ratio of HHL Distillery for each year shall not be less than 11.00%. If in any of the 5 consecutive year, the audited net profit ratio of HHL Distillery is less than 11.00%, the Company shall compensate the sellers the difference between the committed net profit and the actual net profit. If the audited net profit ratio for any 2 consecutive years with the 5-year period is lower than 11.00%, the sellers are entitled to repurchase all shareholding sold to the Company at the repurchase price of CNY 816.00 million. The operating performance of HHL Distillery for 2020, as reported by its financial statements for that period, is presented as below: % of Committed Actual Commited Difference performance Revenue (tax inclusive) 583.13 million 1,700.56 million -1,117.43 million 34.29% 222 Annual Report 2021 Net profit -11.72 million 165.54 million -177.26 million Loss Net profit ratio -2.27% 11.00% -13.27% Loss The operation of HHL Distillery was significant impacted by the COVID-19 pandemic. Upon mutual negotiation, the performance commitment was altered with 2020 excluded from the performance assessment period. 1) Committed before tax revenue for the assessment period 2017 2018 2019 2020 2021 2022 Committed 805.00 1,006.25 1,308.13 1,700.56 2,040.68 Excluded tax inclusive revenue million million million million million 2) The committed net profit ratio, net profit and estimated profit available for distribution as agreed by the orginal agreement for 2020 and 2021 become applicable for 2021 and 2022 respectively. 3) No party to the agreement shall have the right to demand reimbursement, compensation or other liabilities to any other party to the agreement on the basis of the performance of HHL Distillery for 2020. The operating performance of HHL Distillery for 2021, as reported by its financial statements for that period, is presented as below: % of Committed Actual Commited Difference performance Revenue (tax inclusive) 1,707.01 million 1,700.56 million 6.45 million 100.38% Net profit 171.06 million 165.54 million 5.52 million 103.33% Net profit ratio 11.32% 11.00% 0.32% 102.91% 11.2 Contingencies No contingency as of the statement date was required for disclosure. Note 12 Subsequent events Except for the matters described in Note 11, as of the date of these financial statements, no subsequent event is required for disclosure. Note 13 Other significant matters – Segment reporting In accordance with the Company’s internal management and reporting structure, segment reporting is not applicable. Note 14 Notes to the separate financial statements of the Company 14.1 Accounts receivable 14.1.1 Disclosure by age group Age group 31/12/2021 31/12/2020 Within 1 year 494,976.27 223 Annual Report 2021 Age group 31/12/2021 31/12/2020 T/o: Within 6 months 494,976.27 T/o: 7 months to 1 years - 1 to 2 years - 2 to 3 years - Over 3 years - Gross 494,976.27 Less: Impairment allowance 0.00 Net 494,976.27 14.1.2 Dislcosure by method of impairment 31/12/2021 Gross Impairment allowance Net Amount % of total Amount Impairment % Individual assessment - - - - - Portfolio assessment - - - - - T/o: Group 1 - - - - - T/o: Group 2 - - - - - Total - - - - - (Continued) 31/12/2020 Gross Impairment allowance Net Amount % of total Amount Impairment % Individual assessment - - - - - Portfolio assessment 494,976.27 100.00 - - 494,976.27 T/o: Group 1 494,976.27 100.00 - - 494,976.27 T/o: Group 2 - - - - - Total 494,976.27 100.00 - - 494,976.27 Group 1 Receivables as of 31 December 2020 31/12/2020 Gross Impairment allowance Impairment % Related parties within the scope of 494,976.27 - - consolidation Total 494,976.27 - - Group 2 Receivables had no balance as of 31 December 2020. 14.1.3 Impairment movement for the period was not applicable for accounts receivable. 14.1.4 No account receivable as of the statement date. 224 Annual Report 2021 14.2 Other receivables 14.2.1 General disclosure 31/12/2021 31/12/2020 Interests receivable - Dividends receivable - Other receivables 290,480,736.49 141,378,010.40 Total 290,480,736.49 141,378,010.40 14.2.2 Other receivables (1) Disclosure by age group Age group 31/12/2021 31/12/2020 Within 1 year 289,632,069.08 140,143,887.64 T/o: Within 6 months 289,213,314.37 139,805,782.01 T/o: 7 months to 1 years 418,754.71 338,105.63 1 to 2 years 763,921.03 1,322,306.20 2 to 3 years 797,227.20 244,089.00 Over 3 years 39,383,584.88 41,333,188.41 Gross 330,576,802.19 183,043,471.25 Less: Impairment allowance 40,096,065.70 41,665,460.85 Net 290,480,736.49 141,378,010.40 (2) Disclosure by nature 31/12/2021 31/12/2020 Due from related party within the 267,559,576.83 133,696,578.89 scope of consolidation Security investments 38,857,584.88 40,807,394.41 Margin deposits 3,330,794.09 1,879,230.29 Rentals and utilities receivable 472,547.89 1,275,238.93 Others 20,356,298.50 5,385,028.73 Total 330,576,802.19 183,043,471.25 (3) Disclosure by method of impairment A. Disclosure by the 3-stage m odel as of the statement date Gross Impairment allowance Net Stage 1 291,719,217.31 1,238,480.82 290,480,736.49 Stage 2 - Stage 3 38,857,584.88 38,857,584.88 - Total 330,576,802.19 40,096,065.70 290,480,736.49 Details of Stage 1 receivables as of the statement date 225 Annual Report 2021 Expected loss rate for Impairment Gross the next 12 months Net allowance in % Individual assessment Portfolio assessment 291,719,217.31 0.42 1,238,480.82 290,480,736.49 T/o: Group 1 267,559,576.83 - 267,559,576.83 T/o: Group 2 24,159,640.48 5.13 1,238,480.82 22,921,159.66 Total 291,719,217.31 0.42 1,238,480.82 290,480,736.49 Details of Group 2 receivables as of the statement date 31/12/2021 Age group Gross Impairment allowance Impairment % Within 1 year 22,072,492.25 237,475.12 1.08 T/o: Within 6 months 21,653,737.54 216,537.38 1.00 T/o: 7 months to 1 years 418,754.71 20,937.74 5.00 1 to 2 years 763,921.03 76,392.10 10.00 2 to 3 years 797,227.20 398,613.60 50.00 Over 3 years 526,000.00 526,000.00 100.00 Total 24,159,640.48 1,238,480.82 5.13 Details of Stage 3 receivables as of the statement date Expected loss rate for Impairment Gross the next 12 months Net allowance in % Individual assessment 38,857,584.88 100.00 38,857,584.88 - Portfolio assessment T/o: Group 1 T/o: Group 2 Total 38,857,584.88 100.00 38,857,584.88 - Details of receivables subject to individual assessment as of the statement date 31/12/2021 Impairment Reason for Gross Impairment % allowance impairment Hengxin Securities Co., Ltd. 28,966,894.41 28,966,894.41 100.00 In bankruptcy Jianqiao Securities Co., Ltd. 9,890,690.47 9,890,690.47 100.00 In bankruptcy Total 38,857,584.88 38,857,584.88 100.00 B. Disclosure by the 3-stage model as of 31 December 2020 Gross Impairment allowance Net Stage 1 142,236,076.84 858,066.44 141,378,010.40 Stage 2 - - - 226 Annual Report 2021 Gross Impairment allowance Net Stage 3 40,807,394.41 40,807,394.41 - Total 183,043,471.25 41,665,460.85 141,378,010.40 Details of Stage 1 receivables as of 31 December 2020 Expected loss rate for Impairment Gross the next 12 months Net allowance in % Individual assessment - - - - Portfolio assessment 142,236,076.84 0.60 858,066.44 141,378,010.40 T/o: Group 1 133,696,578.89 - - 133,696,578.89 T/o: Group 2 8,539,497.95 10.05 858,066.44 7,681,431.51 Total 142,236,076.84 0.60 858,066.44 141,378,010.40 Details of Group 2 receivables as of 31 December 2020 31/12/2020 Age group Gross Impairment allowance Impairment % Within 1 year 6,447,308.75 77,997.31 1.21 T/o: Within 6 months 6,109,203.12 61,092.03 1.00 T/o: 7 months to 1 years 338,105.63 16,905.28 5.00 1 to 2 years 1,322,306.20 132,230.63 10.00 2 to 3 years 244,089.00 122,044.50 50.00 Over 3 years 525,794.00 525,794.00 100.00 Total 8,539,497.95 858,066.44 10.05 Details of Stage 3 receivables as of 31 December 2020 Expected loss rate for Impairment Gross the next 12 months Net allowance in % Individual assessment 40,807,394.41 100.00 40,807,394.41 0.00 Portfolio assessment - - - - T/o: Group 1 - - - - T/o: Group 2 - - - - Total 40,807,394.41 100.00 40,807,394.41 0.00 Details of receivables subject to individual assessment as of 31 December 2020 31/12/2020 Impairment Reason for Gross Impairment % allowance impairment Hengxin Securities Co., Ltd. 28,966,894.41 28,966,894.41 100.00 In bankruptcy Jianqiao Securities Co., Ltd. 11,840,500.00 11,840,500.00 100.00 In bankruptcy Total 40,807,394.41 40,807,394.41 100.00 - (4) Movement of impairment allowance 227 Annual Report 2021 Movement 31/12/2020 Reversal or Release or 31/12/2021 Provision recovery write-off Individual assessment 40,807,394.41 1,949,809.53 38,857,584.88 Portfolio assessment 858,066.44 380,414.38 1,238,480.82 Total 41,665,460.85 380,414.38 1,949,809.53 40,096,065.70 (5) Top-five other receivables as of the statement date % of total gross Impairment Debtor Nature 31/12/2021 Age group other receivables allowance Due from related party Within 6 Top 1 within the scope of 97,207,352.12 29.41 - months consolidation Due from related party Within 6 Top 2 within the scope of 90,000,000.00 27.23 - months consolidation Due from related party Within 6 Top 3 within the scope of 78,961,561.36 23.89 - months consolidation Over 3 Top 4 Security investment 28,966,894.41 8.76 28,966,894.41 years Within 6 Top 5 Other 18,255,567.00 5.52 182,555.67 months Total 313,391,374.89 94.81 29,149,450.08 14.3 Long-term equity investments 14.3.1 General disclosure 31/12/2021 31/12/2020 Impairment Impairment Gross Impairment % Gross Impairment % allowance allowance Investment in 1,547,415,641.38 - 1,547,415,641.38 1,118,213,665.32 - 1,118,213,665.32 subsidiaries Total 1,547,415,641.38 - 1,547,415,641.38 1,118,213,665.32 - 1,118,213,665.32 14.3.2 Investment in subsidiaries Cumulative Impairment impairment Subsidiary 31/12/2020 Increase Decrease 31/12/2021 recognised as of in the period 31/12/2021 GJ Sales 68,949,286.89 - - 68,949,286.89 - - Longrui Glass 85,267,453.06 - 85,267,453.06 - - Jinhao Hotel 49,906,854.63 - - 49,906,854.63 - - 228 Annual Report 2021 Cumulative Impairment impairment Subsidiary 31/12/2020 Increase Decrease 31/12/2021 recognised as of in the period 31/12/2021 GJ Guest 648,646.80 - - 648,646.80 - - House Ruisi Weier 40,000,000.00 - - 40,000,000.00 - - YQ Environment 16,000,000.00 - - 16,000,000.00 Protection GJ 5,000,000.00 - - 5,000,000.00 - - E-Commerce Zhenrui 10,000,000.00 - 10,000,000.00 - - - Construction HHL Distillery 816,000,000.00 - - 816,000,000.00 - - Jinyunlai 15,000,000.00 - - 15,000,000.00 - - Waste 1,441,423.94 - 1,441,423.94 - - - Recycle Runan Xinke 10,000,000.00 - - 10,000,000.00 - - Jiuan Electric 10,000,000.00 - 10,000,000.00 - - Mingguang 200,200,000.00 200,200,000.00 Distillery Treasure 224,723,400.00 224,723,400.00 Distillery Jiuhao 5,720,000.00 5,720,000.00 ChinaRail Total 1,118,213,665.32 440,643,400.00 11,441,423.94 1,547,415,641.38 - - 14.4 Revenue and cost of sales Y/e 31/12/2021 Y/e 31/12/2020 Revenue Cost of sales Revenue Cost of sales Primary operation 6,756,444,863.19 2,623,827,961.16 5,806,187,227.99 2,359,384,925.04 Other operation 105,482,310.37 61,315,130.77 73,180,067.75 45,385,582.08 Total 6,861,927,173.56 2,685,143,091.93 5,879,367,295.74 2,404,770,507.12 14.5 Investment income Y/e 31/12/2021 Y/e 31/12/2020 Investment income from long-term equity investments at cost 737,875,260.92 707,487,107.56 Gain from disposal of long-term equity investments 2,670,112.66 Gain from disposal of FVTPLs 8,072,295.21 - 229 Annual Report 2021 Y/e 31/12/2021 Y/e 31/12/2020 Gain from holding of debt instruments - Gain from holding of other debt like investments - Gain from disposal of FVTOCIs -22,496,045.46 -34,762,044.63 Gain from holding of financial assets held for trading 14,393,316.21 30,570,930.80 Others 410,450.22 - Total 740,925,389.76 703,295,993.73 Note 15 Supplementary information 15.1 Non-recurring gain or loss Y/e 31/12/2021 Y/e 31/12/2020 Note Gain or loss from disposal of non-current assets -5,976,856.98 -3,692,640.09 Government grants included in current profit or loss (excluding government grants closely associated with the Company’s operation 55,274,502.42 48,617,479.37 and granted in accordance with national standard quota or quantity Gain or loss from changes in fair value of financial assets held for trading, derivative financial assets, financial liabilities held for trading and derivative financial liabilities and gain from disposal of financial assets held for trading, derivative financial assets, financial liabilities 34,792,433.45 21,490,043.05 held for trading, derivative financial liabilities and other debt-like investments, excluding instruments held for effective hedging associated with the Company’s operation Reversal of impairment allowance for accounts receivable previously 1,949,809.53 43,554.94 recognised upon individual assessment Non-operating income and non-operating expenses not included in 77,025,619.76 44,100,616.61 above categories Other items falling into the definition of non-recurring gain or loss - Total non-recurring gain or loss 163,065,508.18 110,559,053.88 Less: Impact on income tax 40,243,159.73 27,033,395.22 Total non-recurring gain or loss (net of income tax) 11,167,403.88 1,960,716.42 T/o: Attributable to non-controlling interests 111,654,944.57 81,564,942.24 15.2 Return on net assets (RONA) and earnings per share (EPS) 15.2.1 Year ened 31 December 2021 Weighted average EPS Net profit RONA in % Basic EPS Diluted EPS Net profit attributable to shareholders of the 21.25 4.45 4.45 Company Net profit post adjustment for non-recurring gain or loss attributable to shareholders of the 20.22 4.24 4.24 Company 230 Annual Report 2021 15.2.2 Year ened 31 December 2020 Weighted average EPS Net profit RONA in % Basic EPS Diluted EPS Net profit attributable to shareholders of the 19.53 3.68 3.68 Company Net profit post adjustment for non-recurring gain or loss attributable to shareholders of the 18.68 3.52 3.52 Company Anhui Gujing Distillery Company Limited 29 April 2022 Chairman of the Board: (Liang Jinhui) Anhui Gujing Distillery Company Limited 29 April 2022 231