Lu Thai Textile Co., Ltd. Interim Report 2020 LU THAI TEXTILE CO., LTD. INTERIM REPORT 2020 August 2020 1 Lu Thai Textile Co., Ltd. Interim Report 2020 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 Lu Thai Textile Co., Ltd. (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. Liu Zibin, the Company’s legal representative, Zhang Hongmei, the Company’s Chief Accountant, and Zhang Keming, the Company’s Financial Manager 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. The Company has described in detail in this Report the possible risks facing it. Please refer to the section headed “Risks Facing the Company and Countermeasures” of “Part IV Operating Performance Discussion and Analysis” of this Report. The Company has no interim dividend plan, either in the form of cash or stock. 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 Lu Thai Textile Co., Ltd. Interim Report 2020 Table of Contents Interim Report 2020........................................................................................................................... 1 Part I Important Notes, Table of Contents and Definitions ........................................................... 2 Part II Corporate Information and Key Financial Information ................................................... 5 Part III Business Summary ............................................................................................................... 8 Part IV Operating Performance Discussion and Analysis ........................................................... 11 Part V Significant Events ................................................................................................................ 22 Part VI Share Changes and Shareholder Information ................................................................. 38 Part VII Preferred Shares ............................................................................................................... 43 Part VIII Convertible Corporate Bonds ........................................................................................ 44 Part IX Directors, Supervisors and Senior Management ............................................................. 47 Part X Corporate Bonds .................................................................................................................. 50 Part XI Financial Statements .......................................................................................................... 51 Part XII Documents Available for Reference .............................................................................. 167 3 Lu Thai Textile Co., Ltd. Interim Report 2020 Definitions Term Definition Lu Thai Textile Co., Ltd. and its consolidated subsidiaries, except where the The “Company”, “LTTC”, “Issuer” or “we” context otherwise requires The Board of Directors The Board of Directors of Lu Thai Textile Co., Ltd. The Supervisory Committee The Supervisory Committee of Lu Thai Textile Co., Ltd. CSRC The China Securities Regulatory Commission Expressed in the Chinese currency of Renminbi, expressed in tens of thousands RMB, RMB’0,000 of Renminbi The “Company Law” The “Company Law of the People‘s Republic of China” The “Securities Law” The “Securities Law of the People‘s Republic of China” The “Reporting Period” or “Current Period” The period from 1 January 2020 to 30 June 2020 4 Lu Thai Textile Co., Ltd. Interim Report 2020 Part II Corporate Information and Key Financial Information I Corporate Information Stock name LTTC, LTTC-B Stock code 000726, 200726 Changed stock name (if any) N/A Stock exchange for stock Shenzhen Stock Exchange listing Company name in Chinese 鲁泰纺织股份有限公司 Abbr. (if any) 鲁泰纺织 Company name in English (if LU THAI TEXTILE CO.,LTD any) Abbr. (if any) LTTC Legal representative Liu Zibin II Contact Information Board Secretary Securities Representative Name Zhang Keming Zheng Weiyin and Li Kun No. 81, Songling East Road, Zichuan No. 81, Songling East Road, Zichuan Address District, Zibo, Shandong, P.R.China District, Zibo, Shandong, P.R.China Tel. 0533-5277008 0533-5285166 Fax 0533-5418805 0533-5418805 Email address zhangkeming@lttc.com.cn wyzheng@lttc.com.cn,likun@lttc.com.cn III Other Information 1. Contact Information of the Company Indicate by tick mark whether any change occurred to the registered address, office address and their zip codes, website address and email address of the Company in the Reporting Period. □ Applicable √ Not applicable No change occurred to the said information in the Reporting Period, which can be found in the 2019 Annual Report. 5 Lu Thai Textile Co., Ltd. Interim Report 2020 2. Media for Information Disclosure and Place where this Report is Lodged Indicate by tick mark whether any change occurred to the information disclosure media and the place for lodging the Company’s periodic reports in the Reporting Period. □ Applicable √ Not applicable The newspapers designated by the Company for information disclosure, the website designated by the CSRC for disclosing the Company’s periodic reports and the place for lodging such reports did not change in the Reporting Period. The said information can be found in the 2019 Annual Report. IV Key Financial Information Indicate by tick mark whether there is any retrospectively restated datum in the table below. □ Yes √ No H1 2020 H1 2019 Change (%) Operating revenue (RMB) 2,286,744,080.79 3,185,448,344.01 -28.21% Net profit attributable to the listed company’s shareholders 144,119,579.22 411,446,216.59 -64.97% (RMB) Net profit attributable to the listed company’s shareholders 108,105,593.17 376,816,535.93 -71.31% before exceptional gains and losses (RMB) Net cash generated from/used in operating activities (RMB) 209,392,265.69 119,717,062.57 74.91% Basic earnings per share (RMB/share) 0.17 0.480 -64.58% Diluted earnings per share (RMB/share) 0.16 0.480 -66.67% Weighted average return on equity (%) 1.85% 5.70% -3.85% 30 June 2020 31 December 2019 Change (%) Total assets (RMB) 12,863,406,129.65 11,885,431,553.08 8.23% Equity attributable to the listed company’s shareholders 7,848,129,418.22 7,697,135,324.92 1.96% (RMB) V 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 such differences for the Reporting Period. 6 Lu Thai Textile Co., Ltd. Interim Report 2020 2. Net Profit and Equity Differences under CAS and Foreign Accounting Standards □ Applicable √ Not applicable No such differences for the Reporting Period. XI Exceptional Gains and Losses √ Applicable □ Not applicable Unit: RMB Item Amount Note Gain or loss on disposal of non-current assets (inclusive of -503,782.07 impairment allowance write-offs) Government subsidies charged to current profit or loss (exclusive of government subsidies given in the Company’s ordinary course 37,754,439.82 of business at fixed quotas or amounts as per the government’s uniform standards) Gain or loss on fair-value changes in trading and derivative financial assets and liabilities & income from disposal of trading and derivative financial assets and liabilities and investments in 9,613,583.08 other debt obligations (exclusive of the effective portion of hedges that arise in the Company’s ordinary course of business) Non-operating income and expense other than the above -108,188.60 Less: Income tax effects 7,325,580.81 Non-controlling interests effects (net of tax) 3,416,485.37 Total 36,013,986.05 -- Explanation of why the Company reclassifies as recurrent an exceptional gain/loss item defined or 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. 7 Lu Thai Textile Co., Ltd. Interim Report 2020 Part III Business Summary I Principal Activity of the Company in the Reporting Period No changes occurred to the Company’s core businesses, primary products, business models and major growth drivers in the Reporting Period. Lu Thai has always adhered to its mission of “creating wealth, contributing to the society, clothing the world and weaving our way to every corner of the globe”, as well as to its values of “people foremost policy, rigorous scientific attitude, client oriented principle and integrity for win-win outcome” for a long time. It is devoted to improving and expanding its industrial chain, making it a renowned textile and garment business group combing spinning, bleaching and dyeing, neatening, testing, garment making and marketing. Lu Thai produces and sells middle and high-grade yarn-dyed fabric and dyeing fabric for shirts and garment. It claimed its fame for its comprehensive management, R&D ability, advanced technology, international development plan and stable quality. Moreover, it also attaches great importance to improve the added value of its products, explore the emerging market and renew its service philosophy. With natural fabric as its flagship, multi-component functional fiber fabric as its spearhead and wash-and-wear non-ironing technology as its core competency, the Company kept a watchful eye on the latest consumption trend. Great attention was paid to improve its healthy product series so as to satisfy the needs from the diversified and personalized market. Lu Thai has become the world’s largest high-grade yarn dyed fabric producer and a world-class premium shirt provider. It had paved its development pattern featured in going green, low-carbon growth, science and technology and humanism. II Significant Changes in Major Assets 1. Significant Changes in Major Assets Not applicable 2. Major Assets Overseas √ Applicable □ Not applicable As % of the Material Control measures Return Asset value Managem Company’s impairme Asset Source Location to protect asset generated (RMB) ent model net asset nt risk safety (RMB) value (yes/no) Main management Lu Thai (Hong Kong) Incorp Hong Marketin 193,525,344.88 personnel sent by 5,031,239.90 2.29% No Textile Co., Ltd. orated Kong g the Company as the parent Main Lu Thai (America) Textile Incorp Marketin 12,942,380.98 New York management 76,768.01 0.15% No Co., Ltd. orated g personnel sent by 8 Lu Thai Textile Co., Ltd. Interim Report 2020 the Company as the parent Main management Lu Thai (Cambodia) Incorp Svay Manufact 194,741,122.06 personnel sent by 6,922,869.29 2.30% No Textile Co., Ltd. orated Rieng uring the Company as the parent Main management Lu Thai (Burma) Textile Incorp Manufact 91,676,813.06 Rangoon personnel sent by 4,129,974.69 1.08% No Co., Ltd. orated uring the Company as the parent Main management Lu Thai (Vietnam) Textile Incorp Manufact 2,669,422,156.25 Tay Ninh personnel sent by 3,137,289.96 31.58% No Co., Ltd. orated uring the Company as the parent Main management Incorp Anjiang, Manufact Lu An Garments Co., Ltd. 189,250,696.08 personnel sent by 8,202,957.22 2.24% No orated Vietnam uring the Company as the parent III Core Competitiveness Analysis 1. The Company has a comprehensive vertical industrial chain and internationalized layout. As the Company possesses the whole industrial chain integrating spinning, bleaching and dyeing, neatening, testing, and garment making, it has corresponding cost advantage covering various links of the production of high-end yarn-dyed fabrics. In order to take full advantage of its international resources, realize the internationalized industrial distribution and reinforce the leading international status in manufacturing the yarn-dyed fabrics, the Company has built various production bases in Cambodia, Burma and Vietnam etc., and established the design agency in Italy, and the market service offices in the U.S.A, Japan and India. 2. The Company has better integrated management capability and high-level management system architecture. Since 1995, the Company has successively passed the certification of ISO9000 quality management system, ISO14000 environmental management system, OHSAS18000 Occupation Health Safety Management System, SA8000 Social Responsibility Management System, The Worldwide Responsible Apparel Production Standard (WRAP), Sustainable Textile Production (STeP), Global Organic Textile Standard (GOTS), Global Recycle Standard (GRS) and China National Accreditation Service for Conformity Assessment (CNAS), and realized the internationalization, standardization and normalization of the corporate management. In order to make outstanding achievement in its operating management, better improve the Company’s business performance and capabilities, the Company has introduced the GB/T19580 Criteria for Performance Excellence step by step, set up the “big quality” system, promoted the management innovation and guaranteed the management quality. 3. The Company establishes its high-level technical cooperation platform by virtue of strong R&D capability. In fact, the Company always insists on the independent innovation, enhances its technical cooperation with various research institutes, colleges and universities, strategic clients and important suppliers by relying on various technical platforms including the national enterprise 9 Lu Thai Textile Co., Ltd. Interim Report 2020 technical center, the national industrial design center, the national demonstration base for introducing talents, the national post-doctoral scientific research station and Shandong Provincial Engineering Technology Research Center, dedicates itself to the cutting-edge technical research, and gradually transforms from technology research to integrated product development. Besides, the Company will also transform from the overcoming of key technical difficulties to the mastery of technical principles and the formulation of industrial standards, and from the focus on technical innovation to the dynamic integration of new technique exploration with model innovation, improve the low-carbon, green and sustainable development, enhance the impetus and vigor for the enterprise development, promote the contribution of scientific and technological progress to the industrial development and propel the industrial upgrading. 10 Lu Thai Textile Co., Ltd. Interim Report 2020 Part IV Operating Performance Discussion and Analysis I Overview The COVID-19 pandemic had an enormous impact on China’s foreign trade sector in the first half of 2020. In face of a slowing down macro-economy and declining demand both at home and abroad, the Company adhered to its own development philosophy and the customer-oriented principle, overcame difficulties, resumed production and explored new products and markets. However, the pandemic still adversely affected the Company’s production and operation to some degree. For the Reporting Period, the Company recorded operating revenue of RMB2,287 million, an operating profit of RMB175 million, a net profit attributable to the listed company’s shareholders of RMB144 million and a net profit attributable to the listed company’s shareholders before exceptional gains and losses of RMB108 million, down 28.21%, 64.56%, 64.97% and 71.31% respectively from the same period of last year. During the Reporting Period, there was no change to the Company’s main businesses or major profit sources and components. As an advantaged enterprise in the textile manufacturing industry, the Company was granted with the titles of “Top 100 Private Enterprises with the Highest Brand Value of Shandong Province of 2020” by Shandong Council for Brand Development and “High-End Brand Builders in the Manufacturing Sector of Shandong Province” by Shandong Administration for Market Regulation. During the Reporting Period, the Company carried out a series of work in developing new products, expanding markets and improving staff competencies. 1. Proactively developing new products, new markets and new channels During the Reporting Period, the Company took measures to ensure normal businesses with traditional customers, strengthened the development of products and customers, closely followed the actual demands of customers, and positively addressed the challenge of business decline oriented by “new products and new markets”. Based on the epidemic development in the places where major foreign customers are located, the Company developed and introduced protective products to overseas customers, particularly on Japan’s market, satisfying their product demands for basic protection, environmental protection and reusability and gaining market recognition. Subsequently, the Company will continue to provide related countries and markets with protective products that meet their demands. As the pandemic developed in foreign countries, the Company experienced increasing impact on its overseas business. By adjusting the focus of its sale, the Company proactively developed potential domestic and foreign markets and customers and exhibited the new products of its fabric exhibition hall via its official TikTok account. It launched its “NARCISU” shirt customization service on “Biyao Mall”, with good effect achieved. 2. Continuing to strengthen product development and implementing measures to reduce costs and enhance efficiency During the Reporting Period, the Company implemented 31 corporate-level product development projects and promoted process upgrading, energy conservation and reduction of energy consumption. Meanwhile, it launched the customized development of fabrics targeting strategic and key accounts. The Company focused its investment in the development of projects concerning ecological non-iron fabrics, four-sided elastic fabrics, renewable and degradable fabrics, and anti-virus and protective fabrics and clothing, and made smooth progress in the projects. During the Reporting Period, the Company was granted with 16 patents, with the “Textile Fabric Color Digitization Key Technology and Industrialization” project winning the title of “Shandong Textile and Apparel Industrial New Technology (Achievement)” by the Department of Industry and Information Technology of Shandong Province. 3. Enhancing the professional skills of staff as part of the effort to improve its internal competitiveness During the Reporting Period, the Company organized all its employees to hold the “100-Day Competition” activity. By advancing the activity in four stages, namely, mobilization, planning, implementation and appraisal, the Company aimed to improve the expertise 11 Lu Thai Textile Co., Ltd. Interim Report 2020 and professional skills of all its employees in their respective areas, and successfully held the 30 th session of technology competition activity on schedule. By carrying out the above various activities, the Company enabled its staff to maintain their enthusiasm for continuously learning new skills, and competing with, catching up with, helping and outperforming others, laying a technological and professional foundation for future business. In the second half year of 2020, the Company will continue to implement the annual development plan, deepen its business reforms, make effort in developing products, channels and markets, and cultivate new opportunities for its future development. II Core Business Analysis Overview: For the Reporting Period, the Company recorded operating revenue of RMB2,287 million (a 28.21% year-on-year decrease); cost of sales of RMB1,684 million (a 23.84% year-on-year decrease), including selling expense of RMB82 million (a 5.01% year-on-year rise) and administrative expense of RMB178 million (a 6.96% year-on-year decrease); research and development expense of RMB123 million (a 23.77% year-on-year drop); and net cash generated from operating activities of RMB209 million (a 74.91% year-on-year increase). Year-on-year changes in key financial data: Unit: RMB Change H1 2020 H1 2019 Main reason for change (%) Operating revenue 2,286,744,080.79 3,185,448,344.01 -28.21% Cost of sales 1,683,752,331.27 2,210,886,955.53 -23.84% Selling expense 81,739,905.59 77,836,942.94 5.01% Administrative expense 177,893,599.47 191,205,597.74 -6.96% Increase in interest income and Finance costs 25,207,309.68 52,554,570.05 -52.04% decrease in exchange loss Income tax expense 27,067,833.69 74,839,232.29 -63.83% Decrease in profit before tax R&D investments 123,441,723.06 161,939,039.23 -23.77% Net cash generated from/used in Decrease in taxes paid and payments 209,392,265.69 119,717,062.57 74.91% operating activities to and for employees Net cash generated from/used in Increase in income from disposal of -129,138,967.68 -346,327,704.43 62.71% investing activities held-for-trading financial assets Increase in borrowings obtained as a Net cash generated from/used in 1,059,376,072.72 315,262,989.36 236.03% result of the offering of convertible financing activities corporate bonds in the current period Net increase in cash and cash 1,189.35 Offering of convertible corporate 1,140,089,624.57 88,423,644.38 equivalents % bonds in the current period Significant changes to the profit structure or sources of the Company in the Reporting Period: □ Applicable √ Not applicable No such changes in the Reporting Period. 12 Lu Thai Textile Co., Ltd. Interim Report 2020 Breakdown of operating revenue: Unit: RMB H1 2020 H1 2019 As % of total As % of total Change (%) Operating revenue operating revenue Operating revenue operating revenue (%) (%) Total 2,286,744,080.79 100% 3,185,448,344.01 100% -28.21% By operating division Textile and apparel 2,030,174,545.12 88.78% 2,934,448,827.78 92.12% -30.82% Personal protective 75,350,026.50 3.30% 100.00% equipment (PPE) Cotton 1,943,648.71 0.08% 6,856,226.38 0.22% -71.65% Electricity and steam 107,378,501.63 4.70% 99,820,071.53 3.13% 7.57% Others 71,897,358.83 3.14% 144,323,218.32 4.53% -50.18% By product category Fabric products 1,612,566,391.94 70.52% 2,334,195,650.45 73.28% -30.92% Shirts 417,608,153.18 18.26% 600,253,177.33 18.84% -30.43% Personal protective 75,350,026.50 3.30% 100.00% equipment (PPE) Cotton 1,943,648.71 0.08% 6,856,226.38 0.22% -71.65% Electricity and steam 107,378,501.63 4.70% 99,820,071.53 3.13% 7.57% Others 71,897,358.83 3.14% 144,323,218.32 4.53% -50.18% By operating segment Hong Kong 116,864,760.52 5.11% 193,620,677.72 6.08% -39.64% Japan And South 200,810,815.94 8.78% 227,171,179.04 7.13% -11.60% Korea Southeast Asia 598,894,637.52 26.19% 853,969,711.97 26.81% -29.87% Europe and America 299,568,719.70 13.10% 579,841,115.57 18.20% -48.34% Others 216,712,978.98 9.48% 267,533,852.91 8.40% -19.00% Mainland China 853,892,168.13 37.34% 1,063,311,806.80 33.38% -19.70% Operating division, product category or operating segment contributing over 10% of operating revenue or operating profit: √ Applicable □ Not applicable Unit: RMB YoY change in YoY change in Operating Gross profit YoY change in Cost of sales operating revenue gross profit revenue margin cost of sales (%) (%) margin (%) 13 Lu Thai Textile Co., Ltd. Interim Report 2020 By operating division Textile and 2,030,174,545.12 1,478,461,157.09 27.18% -30.82% -26.37% -4.40% apparel Personal protective 75,350,026.50 50,271,228.30 33.28% 100.00% 100.00% 33.28% equipment (PPE) By product category Fabric products 1,612,566,391.94 1,174,569,458.23 27.16% -30.92% -25.97% -4.87% Shirts 417,608,153.18 303,891,698.86 27.23% -30.43% -27.86% -2.59% Personal protective 75,350,026.50 50,271,228.30 33.28% 100.00% 100.00% 33.28% equipment (PPE) By operating segment Southeast Asia 598,894,637.52 436,144,963.42 27.18% -29.87% -24.92% -4.80% Europe and 299,568,719.70 216,150,609.49 27.85% -48.34% -45.98% -3.14% America Mainland China 853,892,168.13 644,110,531.75 24.57% -19.70% -15.02% -2.92% Core business data of the prior year restated according to the changed statistical caliber for the Reporting Period: □ Applicable √ Not applicable Any over 30% YoY movements in the data above and why: √ Applicable □ Not applicable 1. The changes in sales revenue from textile and apparel and from Europe and America were primarily attributed to decreased unit sales due to the global pandemic of COVID-19. 2. The change in respect of sales revenue from PPE was primarily attributed to the new business of PPE production and marketing in the current period. III Analysis of Non-Core Businesses √ Applicable □ Not applicable Unit: RMB As % of profit Exceptional or Amount Source/Reason before tax recurrent Gains from disposal of held-for-trading financial Investment income 150,730,013.89 86.11% No assets Gain/loss on Gains on variation recognized of fair value reversed changes in fair -144,695,954.16 -82.66% No from disposal of held-for-trading financial assets value Asset impairments -24,613,079.38 -14.06% Withdrawal of inventory impairment provision No 14 Lu Thai Textile Co., Ltd. Interim Report 2020 Non-operating 2,125,819.41 1.21% Income of non-operating compensation, etc No income Non-operating 2,383,926.90 1.36% Non-operating donations and compensation, etc. No expense IV Analysis of Assets and Liabilities 1. Material Changes in Asset Composition Unit: RMB 30 June 2020 30 June 2019 Reason Change in for any percentage Amount As % of total assets Amount As % of total assets material (%) change Monetary assets 2,028,297,550.15 15.77% 623,926,353.74 5.57% 10.20% Accounts 390,917,955.82 3.04% 381,453,061.31 3.41% -0.37% receivable Inventories 2,595,135,869.67 20.17% 2,338,090,631.11 20.87% -0.70% Investment 44,888,691.70 0.35% 38,718,468.86 0.35% property Long-term equity 149,646,776.65 1.16% 100,637,911.44 0.90% 0.26% investments Fixed assets 5,911,198,566.20 45.95% 5,729,951,131.93 51.15% -5.20% Construction in 543,763,930.47 4.23% 460,389,887.15 4.11% 0.12% progress Short-term 1,881,237,261.83 14.62% 2,137,653,250.29 19.08% -4.46% borrowings Long-term 14,159,000.00 0.11% 0.11% borrowings 2. Assets and Liabilities at Fair Value √ Applicable □ Not applicable Unit: RMB Gain/loss on Impairm Cumulative fair-value ent fair-value Purchased in Sold in the Beginning changes in allowanc Ending Item changes the Reporting Reporting Item amount the e for the amount charged to Period Period Reporting Reportin equity Period g Period 15 Lu Thai Textile Co., Ltd. Interim Report 2020 Financial assets 1. Held-for-tradi ng financial assets 330,505,598.85 2,000,000.00 193,985,718.44 138,519,880.41 (exclusive of derivative financial assets) Subtotal of financial 330,505,598.85 2,000,000.00 193,985,718.44 138,519,880.41 assets Accounts receivable 26,963,818.87 -12,156,275.76 14,807,543.11 financing Total of the 357,469,417.72 2,000,000.00 193,985,718.44 -12,156,275.76 153,327,423.52 above Financial 0.00 -841,402.78 841,402.78 liabilities Content of other change Caused by changes in amount of accounts receivable financing 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 For details, see Part XI-VII. 61. Assets with restricted ownership and using right in this Report. V Investments Made 1. Total Investments Made □ Applicable √ Not applicable 2. Major Equity Investments Made in the Reporting Period □ Applicable √ Not applicable 16 Lu Thai Textile Co., Ltd. Interim Report 2020 3. Major Non-Equity Investments Ongoing in the Reporting Period □ Applicable √ Not applicable 4. Financial Assets Measured by Fair Value □ Applicable √ Not applicable 4. Financial Investments (1) Securities Investments □ Applicable √ Not applicable No such cases in the Reporting Period. (2) Investments in Derivative Financial Instruments √ Applicable □ Not applicable RMB’0,000 Be Proporti gi on of nn ending in Relati Rela investme g Impairm Actual onship ted-p Purchased in nt Initial in Sold in the ent Ending gain/loss Operat with arty Type of Starting Ending the amount investment ve Reporting provisio investment in the or the trans derivative date date Reporting in the amount st Period n (if amount Reportin Comp actio Period Compan me any) g Period any n y’s nt ending am net ou assets nt Comm Forward 21 31 Non-re ercial No exchange 39,398.69 January March 0 39,398.69 39,398.69 0 0 228.05 lated bank settlement 2020 2020 Comm Foreign 19 25 Non-re ercial No exchange 68,951.65 March Decemb 0 68,951.65 34,151.65 0 34,800 4.11% 598.57 lated bank option 2020 er 2020 Forward 17 Comm Non-re exchange 9 March Septem ercial No 15,471.23 0 15,471.23 112.81 0 15,358.42 1.82% 2.8 lated transaction 2020 ber bank s 2020 Total 123,821.57 -- -- 0 123,821.57 73,663.15 0 50,158.42 5.93% 829.42 17 Lu Thai Textile Co., Ltd. Interim Report 2020 Capital source for derivative The Company’s own money investment Lawsuit (if applicable) N/A Disclosure date of board of directors announcement on 30 April 2019 approval of derivative investment (if any) Disclosure date of general meeting of shareholders announcement on approval of derivative investment (if any) The Company conducted derivatives products transaction in order for hedging. And the forward settlement hedging was operated by installments, with the relevant amount not more than the planned derivatives products transactions. And all derivatives products transaction was zero-deposit. Meanwhile, the Company had a complete risk control system for sufficient analysis and prevention of possible risks such as market risk, liquidity risk and credit risk, operation risk and risk of laws and regulation. 1. Market risk: when the international and domestic economic situations change, the corresponding changes in exchange rates and interest rates may have an adverse impact on the financial derivatives transactions of the Company. Precautionary measures to be taken include: the Company chooses risk-controlled financial derivative tools with simple structure and good liquidity to carry out the hedging business, strictly controls the scale of financial derivatives trading by staged operations, and adjusts the strategy according to market changes in a timely manner. Analysis on risks and control 2. Liquidity risk and credit risk: a credit risk arising from failure of the contractually due Company or measures of derivative products counterparty in performing the contract due to liquidity or factors other than liquidity. Precautionary held in the Reporting Period measures to be taken include: the Company determines the upper limit of derivatives transaction (including but not limited to amounts according to production and operation scale as well as foreign exchange income, and conducts market risk, liquidity risk, credit operations by stage according to the budget of future collections and disbursement. The derivative risk, operation risk, law risk, trades are free of guarantee deposit and can still be guaranteed in performance after the contract expires etc.) by means of extension and balance settlement etc. to prevent the Company from credit damages due to lack of liquidity. The Company selects financial institutions with strong capability and good reputation as a counterparty and signs standard derivative trading contracts to strictly control credit risk of the counterparty. 3. Operation risk: The derivatives had high specialty and complexity, so imperfect internal operation procedures, staffs and external events would make the Company to undertake risks during the transaction. Risk control measures: The Company promulgated strict authorization and approval system and perfect regulatory mechanism, fixed the operation procedures and approval procedures system to conduct derivative products transaction, implemented strict authorization and post checks and balances system, meanwhile, it improved the overall quality of relevant personnel through strengthening the professional ethics education and business training for them. Besides, it established the System of Reporting the Abnormal Situation Timely so as to ensure to lower the operation risks to the maximum. 18 Lu Thai Textile Co., Ltd. Interim Report 2020 4. Risk of laws and regulation: The Company conducted derivatives products transaction in strict accordance with relevant laws and rules. If there were no standard operation procedures and strict approval procedures, it was easy to cause compliant and regulatory risks existing in the validity and feasibility of contract, commitments and other legal documents signed. Risk control measures: The Company carefully studied and mastered laws, regulations and policies relevant to derivative products transaction, formulated internal control rules for the forward settlement hedging business, standardized the operation procedures. And strengthened the compliant examination on derivative products transaction business. The Company conducted derivative transaction business according to the relevant approval procedure, which was in line with relevant laws, regulations, the Company’s Articles of Association, the Management Rules for Derivative Transaction of Lu Thai Textile Co., Ltd., and the Proposal on the Plan of Lu Thai Textile Co., Ltd. for Derivative Transactions approved at the 26th Meeting of the 8th Board of Directors on 29 April 2019, and performed relevant information disclosure responsibilities. 1. As of 30 June 2020, the Company held 13 undue financial derivatives contracts, totaling USD80 million, among which 8 contracts were the forward exchange option portfolio, totaling USD58 million, and 5 contracts were forward exchange transactions, totaling USD22 million. Changes of market prices or fair 2. In January - June 2020, the amount of maturing financial derivatives of the Company amounted values in the Reporting Period to USD104.6616 million which was executed as per the contract in full, which generated gains of of the invested derivatives. And RMB8.2942 million. The amount of delivered settlements of forward exchange was USD56.5 the analysis on the fair value of million, the derivatives should include which generated the gain of RMB2.2805 million. The amount of delivered foreign exchange the specific use methods and the options relevant assumptions and parameters. was USD48 million, which generated the gain of RMB5.9857 million. The amount of delivered foreign exchange transactions was USD161,600, which generated the gain of RMB28, 000. Whether significant changes occurred to the Company’s accounting policy and specific accounting principles of No significant changes derivatives in the Reporting Period compared to the previous Reporting Period The Company’s independent directors Zhou Zhiji, Bi Xiuli, Pan Ailing, Wang Xinyu and Qu Dongmei expressed the following professional opinions on the Company’s engagement in the transaction of derivatives: In our opinions, the Company engaged in the transaction of derivatives strictly in Specific opinion from accordance with related laws and regulations, the Articles of Incorporation and the Management Policy independent directors on the of Lu Thai for the Transaction of Derivatives during the Reporting Period, which complied with the Company’s derivatives derivative transaction plan considered and approved by the Board of Directors, with the operation investment and risk control process complying with laws and regulations. While ensuring its normal production and operations, the Company may use the transaction of derivatives dominated by forward settlement and sale of foreign exchange as an effective instrument to avert exchange rate risks. By strengthening internal control and 19 Lu Thai Textile Co., Ltd. Interim Report 2020 implementing measures to prevent losses and risks, the risks of derivative transactions are relatively controllable and thus, such transactions will help to improve the Company’s ability to defense against exchange rate fluctuations, and will not harm the rights and interests of the Company and its shareholders. VI 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 VII Major Subsidiaries √ Applicable □ Not applicable Major fully/majority-owned subsidiaries and those minority-owned subsidiaries with an over 10% effect on the Company’s net profit: Unit: RMB Relatio nship Principal Registered Operating Operating Name with the activity Total assets Net assets Net profit capital revenue profit Compa ny Lufeng Weaving & Subsidi Fabric 706,160,000 1,624,995,663.61 1,265,703,463.70 606,784,342.44 37,575,760.82 30,732,000.50 Dyeing Co., Ltd. ary Subsidiaries obtained or disposed in the Reporting Period: □ Applicable √ Not applicable Information about major majority- and minority-owned subsidiaries: Lufeng Weaving & Dyeing Co., Ltd. (hereinafter called “Lufeng Weaving & Dyeing”) is the holding subsidiary corporation of the Company. Registration place: Zibo, Shandong; registered capital: RMB706.160 million. It was authenticated to be high-tech enterprise in October 2014, and authenticated to be high-tech enterprise again for re-evaluation in 2017, mainly manufacturing and selling textile printing and dyeing products and the products of clothing and garments. During the Reporting Period, Lufeng Weaving & Dyeing actively made adjustment to address the changes in market demands under the impact of COVID-19. By upholding the business concept of standard operations, environmental protection and sustainable development, it continued to increase R&D and innovation spending, further enhanced the added value of products, and achieved operating revenue of RMB 607 million, down 24.68% year on-year and net profit of RMB30.73 million, down 41.88% year-on-year. VIII Structured Bodies Controlled by the Company □ Applicable √ Not applicable 20 Lu Thai Textile Co., Ltd. Interim Report 2020 IX Performance Forecast for January-September 2020 Warning of possible loss or considerable YoY change in the accumulative net profit made during the period-beginning to the end of the next reporting period, as well as the reasons: □ Applicable √ Not applicable X Risks Facing the Company and Countermeasures (1) Impacts generated by the economic environment: Currently there is an increasing risk in the uncertainties brought by the economic policies, in particular the trade policies of global major economies. In the coming period of the year, coupled with the impact of the global pandemic, the Company will be subject togreat uncertainties. At the same time, as China’s economy is facing the downward pressure in the period recovery from the epidemic, the Company will continue to strictly implement the anti-epidemic measures, ensure the resumption of work and production, strive to coordinate various resources, and make use of the crisis to improve its capabilities. It will be geared to greater post-epidemic development opportunities on the basis of stabilizing production and operations. (2) Fluctuations in raw material prices: the raw cotton used by the Company is long-staple cotton, whose price is affected by many factors such as market supply and demand, climate, policies, exchange rates and quotas. Therefore, the Company must study the market dynamics to reduce the cost fluctuations due to changes in raw cotton price. (3) Exchange rate changes: With the operations of its overseas production bases, the Company will continue to have a big proportion of sales from international markets for long time in the future, with US dollars accounting for a great proportion of the export revenue. In addition, major machinery and equipment and some raw materials used by the Company are imported and paid in US dollars and other currencies. Therefore, the Company will remain sensitive to changes in the US exchange rates. In order to reduce adverse influence of exchange rate fluctuation, the Company adopted the following measures: firstly, the Company conducted foreign exchange hedging, using forward FX sales and purchase, forward foreign exchange trading and option portfolios to avoid some risks Secondly, the Company made reasonable arrangement on settlement day and currency structure and conclusion of agreements on fixed foreign exchange rate to avoid exchange rate-related risks. Thirdly, the Company adjusted the Renminbi and foreign-currency liabilities structure to control financial costs. Fourthly, according to the fluctuation trend of exchange rates, the Company properly adjusted imports of raw and auxiliary materials to partially offset the influence of exchange rate fluctuations on the Company. 21 Lu Thai Textile Co., Ltd. Interim Report 2020 Part V Significant Events I Annual and Extraordinary General Meeting Convened during the Reporting Period 1. General Meeting Convened during the Reporting Period Investor Meeting Type Convened date Disclosure date Index to disclosed information participation ratio Announcement of Resolution (No. The 1st 2020-042) published on Securities Times, Extraordinary Extraordinary China Securities Journal, Shanghai General 40.82% 8 May 2020 9 May 2020 General Meeting Securities News, and Hong Kong Ta Kung Meeting of Pao and http://www.cninfo.co on 9 May 2020 2020 Announcement of Resolution (No. The 2019 2020-047) published on Securities Times, Annual Annual General China Securities Journal, Shanghai 42.79% 21 May 2020 22 May 2020 General Meeting Securities News, and Hong Kong Ta Kung Meeting Pao and http://www.cninfo.co on 22 May 2020 2. Extraordinary General Meeting Convened at Request of Preference Shareholders with Resumed Voting Rights □ Applicable √ Not applicable II Interim Dividend Plan for the Reporting Period □ Applicable √ Not applicable The Company has no interim dividend plan. III Commitments of the Company’s Actual Controller, Shareholders, Connected Parties and Acquirer, as well as the Company and Other Commitment Makers, Fulfilled in the Reporting Period or still Ongoing at Period-End √ Applicable □ Not applicable Date of Type of commit Term of Fulfill Commitment Promisor Details of commitment commitment ment commitment ment making 22 Lu Thai Textile Co., Ltd. Interim Report 2020 Commitments made in share reform Commitments made in acquisition documents or shareholding alteration documents Commitments made in time of asset restructuring 1. Not intervene the Company’s operation and management beyond the authority and not occupy the Company’s interests. 2. From the issuance date of this commitment to the completion of the implementation of the Company's public offering of A-share convertible corporate bonds, if the CSRC makes other new regulatory provisions on remedial measures for Dilution of at returns and the sight returns commitment, and the Controlling on public above commitment fails to From 23 May Commitments made in time of IPO or shareholder, offering 23 May On-goi meet the requirements of 2019 to 8 refinancing actual A-share 2019 ng the CSRC, the company / I April 2026 controller convertible promise to issue corporate supplementary bonds commitment then in accordance with the latest regulations of CSRC. 3. Commitment is made to fulfill the Company's relevant remedial measures for returns and any commitment made herein by the company / me. If the company / I violate(s) such commitment and cause(s) losses to the Company or investors, the company / I will bear the compensation 23 Lu Thai Textile Co., Ltd. Interim Report 2020 responsibility to the Company or investors in accordance with the law. 1. Commitment is made not to transfer benefits to other units or individuals free of charge or under unfair conditions, and no other ways damaging the interests of the Company will be taken. 2. I will strictly abide by the budget management of the Company, and accept the strict supervision and management of the Company to avoid waste or excessive consumption. Any position-related Dilution of at consumption behaviors of sight returns Directors and myself will occur within on public senior the scope necessary for the From 23 May offering 23 May On-goi management performance of my duties. 2019 to 8 A-share 2019 ng of the 3. Commitment is made April 2026 convertible Company not to use the Company's corporate assets to engage in bonds investment and consumption activities unrelated to the performance of duties. 4. Commitment is made that the remuneration system developed by the Board of Directors or the Remuneration Committee is linked to the implementation of the Company's remedial measures for returns. 5. Commitment is made that the conditions for exercising the Equity Incentive Plan to be issued 24 Lu Thai Textile Co., Ltd. Interim Report 2020 in the future will be linked to the implementation of the Company's remedial measures for returns. 6. From the issuance date of this commitment to the completion of the implementation of the Company's public offering of A-share convertible corporate bonds, if the CSRC makes other new regulatory provisions on remedial measures for returns and the commitment, and the above commitment fails to meet the requirements of the CSRC, I promise to issue supplementary commitment then in accordance with the latest regulations of CSRC. 7. Commitment is made to fulfill the Company's relevant remedial measures for returns and any commitment made herein by me. If I violate such commitment and causes losses to the Company or investors, I will bear the compensation responsibility to the Company or investors in accordance with the law. Equity incentive commitments Other commitments made to minority interests Executed on time or not Yes 25 Lu Thai Textile Co., Ltd. Interim Report 2020 IV Engagement and Disengagement of CPAs Firm Has the Interim financial report been audited? □Yes √ No This Interim Report is unaudited. V Explanations Given by Board of Directors and Supervisory Committee Regarding “Modified Auditor’s Report” Issued by CPAs Firm for the Reporting Period □ Applicable √ Not applicable VI Explanations Given by Board of Directors Regarding “Modified Auditor’s Report” Issued for Last Year □ Applicable √ Not applicable VII Bankruptcy and Restructuring □ Applicable √ Not applicable No such cases in the Reporting Period. VIII Legal Matters Significant lawsuits or arbitrations: □ Applicable √ Not applicable No such cases in the Reporting Period. Other legal matters: □ Applicable √ Not applicable IX Media Query □ Applicable √ Not applicable No such cases in the Reporting Period. X Punishments and Rectifications □ Applicable √ Not applicable No such cases in the Reporting Period. XI Credit Conditions of the Company as well as its Controlling Shareholder and Actual Controller □ Applicable √ Not applicable 26 Lu Thai Textile Co., Ltd. Interim Report 2020 XII Equity Incentive Plans, Employee Stock Ownership Plans or Other Incentive Measures for Employees □ Applicable √ Not applicable No such cases in the Reporting Period. XIII Significant Related-party Transactions 1. Continuing Related-Party Transactions □ Applicable √ Not applicable No such cases in the Reporting Period. 2. Related-Party Transactions Regarding Purchase or Sales of Assets or Equity Interests □ Applicable √ Not applicable No such cases in the Reporting Period. 3. Related Transactions Regarding Joint Investments in Third Parties □ Applicable √ Not applicable No such cases in the Reporting Period. 4. Credits and Liabilities with Related Parties √Applicable □ Not applicable Indicate by tick mark whether there were any credits and liabilities with related parties for non-operating purposes. √ Yes □ No Liabilities of related parties to account payable: Amount Relation Amount Beginning newly added Current Ending with the Formation returned in Related party balance in current Interest rate interest balance Compan reason current period (RMB’0,000) period (RMB’0,000) (RMB’0,000) y (RMB’0,000) (RMB’0,000) The Zibo Lucheng Compan Currencies Textile Investment 0 16,000 16,000 4.35% 131.23 0 y as the deposit Co., Ltd parent Influences from liabilities of parties related on operating No results and financial situations of the Company 27 Lu Thai Textile Co., Ltd. Interim Report 2020 5. Other Major Related-Party Transactions □ Applicable √ Not applicable No such cases in the Reporting Period. XIV Particulars about the Non-operating Occupation of Funds by the Controlling Shareholder and Other Related Parties of the Company □ Applicable √ Not applicable No such cases in the Reporting Period. XV Major Contracts and Execution thereof 1. Entrustment, Contracting and Leases (1) Entrustment □ Applicable √ Not applicable No such cases in the Reporting Period. (2) Contracting □ Applicable √ Not applicable No such cases in the Reporting Period. (3) Leases □ Applicable √ Not applicable No such cases in the Reporting Period. 2. Major guarantees √ Applicable □ Not applicable (1) Guarantees Unit: RMB'0,000 Guarantees provided by the Company as the parent for its subsidiaries Havin Guarant Disclosure date of Actual occurrence Actual g ee for a Line of Type of Obligor the guarantee line date (date of guarantee Term of guarantee expire related guarantee guarantee announcement agreement signing) amount d or party or not not 28 Lu Thai Textile Co., Ltd. Interim Report 2020 Lu Thai Five years since (Vietnam) the approval of the 25 January 2017 11,327.2 20 January 2017 0 Joint-liability No Yes Textile Co., board of the Ltd. Company Lu Thai Five years since (Vietnam) the approval of the 25 January 2017 19,468.63 20 January 2017 8,506.93 Joint-liability No Yes Textile Co., board of the Ltd. Company Lu Thai Five years since (Vietnam) the approval of the 27 October 2017 29,733.9 25 October 2017 7,186.78 Joint-liability No Yes Textile Co., board of the Ltd. Company Lu Thai Three years since (Vietnam) the approval of the 22 August 2018 7,787.45 20 August 2018 4,492.83 Joint-liability No Yes Textile Co., board of the Ltd. Company Lu Thai Three years since (Vietnam) the approval of the 29 March 2019 4,247.7 27 March 2019 0 Joint-liability No Yes Textile Co., board of the Ltd. Company Lu Thai Two years since (Vietnam) the approval of the 22 August 2018 2,831.8 20 August 2018 0 Joint-liability No Yes Textile Co., board of the Ltd. Company Lu Thai Two years since (Vietnam) the approval of the 29 March 2019 10,619.25 27 March 2019 0 Joint-liability No Yes Textile Co., board of the Ltd. Company Lu Thai Two years since (Vietnam) the approval of the 29 March 2019 31,857.75 27 March 2019 25,840.18 Joint-liability No Yes Textile Co., board of the Ltd. Company Lu Thai Two years since (Vietnam) the approval of the 29 March 2019 5,592.81 27 March 2019 0 Joint-liability No Yes Textile Co., board of the Ltd. Company Lu Thai Three years since (Vietnam) the approval of the Textile Co., 28 September 2019 8,141.43 27 September 2019 5,578.52 No Yes board of the Ltd./ Lu Company Thai (Tan 29 Lu Thai Textile Co., Ltd. Interim Report 2020 Chau) Textile Co., Ltd. Lu Thai Three years since (Tan Chau) the approval of the 28 September 2019 7,079.5 27 September 2019 7,079.5 No Yes Textile Co., board of the Ltd. Company Lu Thai Three years since (Vietnam) the approval of the 28 September 2019 12,035.15 27 September 2019 9,911.3 No Yes Textile Co., board of the Ltd. Company Lu Thai Three years since (Vietnam) the approval of the 28 September 2019 3,185.78 27 September 2019 0 No Yes Textile Co., board of the Ltd. Company Total approved line for such Total actual amount of such guarantees in the Reporting 0 guarantees in the Reporting 53,138.51 Period (B1) Period (B2) Total approved line for such Total actual balance of such guarantees at the end of the 153,908.35 guarantees at the end of the 68,596.04 Reporting Period (B3) Reporting Period (B4) Guarantees provided between subsidiaries Disclosure Actual Guarante date of the occurrence date Actual Having e for a guarantee Line of Type of Term of Obligor (date of guarantee expired or related line guarantee guarantee guarantee agreement amount not party or announcem signing) not ent Total guarantee amount (total of the three kinds of guarantees above) Total guarantee line approved in Total actual guarantee amount the Reporting Period 0 in the Reporting Period 53,138.51 (A1+B1+C1) (A2+B2+C2) Total approved guarantee line at Total actual guarantee balance the end of the Reporting Period 153,908.35 at the end of the Reporting 68,596.04 (A3+B3+C3) Period (A4+B4+C4) Total actual guarantee amount (A4+B4+C4) as % of the 8.74% Company’s net assets Of which: Balance of guarantees provided for shareholders, actual 0 controller and their related parties (D) 30 Lu Thai Textile Co., Ltd. Interim Report 2020 Balance of debt guarantees provided directly or indirectly for 0 obligors with an over 70% debt/asset ratio (E) Amount by which the total guarantee amount exceeds 50% of 0 the Company’s net assets (F) Total of the three amounts above (D+E+F) 0 Explanations about joint and several liability for repayment in Naught respect of undue guarantee (if any) Explanation about external guarantee violating established The Company never provided guarantees for companies except procedure (if any) controlling subsidiaries. Compound guarantees: (2) Irregularities in Provision of Guarantees □ Applicable √ Not applicable No such cases in the Reporting Period. 3. Cash Entrusted for Wealth Management √ Applicable □ Not applicable RMB’0,000 Specific type Capital resources Amount incurred Undue Balance Overdue amount Trusted financial Self-owned funds 5,000 0 0 products Total 5,000 0 0 Particulars of entrusted cash management with single significant amount or low security, bad liquidity, and no capital preservation √ Applicable □ Not applicable RMB’0,000 Amou Actual Overvie Amou Whether nt of recove w of the nt Wheth there is Metho actual ry of item and Annua Estima withdr er go wealth d of profits profits the Name Type Type Resou l yield te awn throug manage Amou Initial Ended Use of payme or or related of the of the of the rce of for profit impair h ment nt date Date fund nt losses losses index trustee trustee product funds refere (if ment stator entrustm determ in in for nce any) provis proced ent plan ination Report Report inquirin ion (if ures in future ing ing g (if any) or not Period Period any) AVIC Trust Consta Self-o Self-o 7 9 No Timel Trust compa nt 5,000 wned wned March March fixed 8.00% 400 402.19 y 0 Yes Not yet Co., ny return funds funds 2019 2020 directi recove 31 Lu Thai Textile Co., Ltd. Interim Report 2020 Ltd on ry Total 5,000 -- -- -- -- -- -- 400 402.19 -- 0 -- -- -- Whether there is the case where the principal cannot be recovered at maturity or other case which may cause impairment for entrusted asset management □ Applicable √ Not applicable 4. Other Significant Contracts □ Applicable √ Not applicable No such cases in the Reporting Period. XVI Social Responsibilities 1. Significant Environment Protection Indicate by tick mark whether the Company or any of its subsidiaries is identified as a major polluter by the environmental protection authorities. Yes Numb er of Excessi Name of Distribution Discharge Approved Name of Way of discha Discharge Total ve major of discharge standards total polluter discharge rge concentration discharge dischar pollutants outlets implemented discharge outlet ge s Emission standard of water pollutants in Huangjiapu COD textile dyeing COD Industrial is198.717t Lu Thai COD and COD≤140mg/L; and finishing is1495.08t; Continuous Park; East and Textile Co., ammonia 2 ammonia industry GB ammonia No discharge Zone ammonia Ltd nitrogen nitrogen≤5mg/L 4287-2012 nitrogen is Industrial nitrogen is COD: 149.51t Park 4.045t. 200mg/L, ammonia nitrogen: 20mg/L Emission COD is COD is standard of Lu Thai COD and Lufeng chief COD≤140mg/L; 140.358t; 575.985t; Continuous water Textile Co., ammonia 1 discharge ammonia ammonia ammonia No discharge pollutants in Ltd nitrogen outlet nitrogen≤6mg/L nitrogen is nitrogen is textile dyeing 4.504t 57.6t and finishing 32 Lu Thai Textile Co., Ltd. Interim Report 2020 industry GB 4287-2012 COD: 200mg/L, ammonia nitrogen: 20mg/L Emission standard of SO2 is Zibo Production air pollutants of SO2 is SO2:≤35mg/m3, 259.09t, Xinsheng plant of Thermal Power 24.14t, NQx SO2, NQx, Continuous NQx:≤ 50 NQx is Thermal 4 Xinsheng Plant in is 67.55t, No and smoke discharge mg/m3, 740.25t, and Power Co., Thermal Shandong and smoke smoke:≤5mg/m3 smoke is Ltd. Power Province is 2.424t. 74.03t. DB37/664-201 9 Discharge into the Lu Thai COD≤52mg/L; ecological Sewage (Vietnam) Beside ammonia QCVN40: Sewage pond in the 1 discharge is / No Textile Co., sewage plant nitrogen≤1.5mg/ 2011/BTNMT park district 517,000 t. Ltd. L after treatment Lu Thai Direct Gas (Vietnam) discharge Beside QCVN19: emission is Exhaust gas 4 / / No Textile Co., after boiler room 2009/BTNMT 105 million Ltd. treatment m3. Construction of pollution prevention equipment and operation condition Lu Thai Textile Co., Ltd. and its majority-owned subsidiary Lufeng Weaving & Dyeing Co., Ltd. strictly implement the “Three Simultaneous” management system for environmental protection in project constructions. The companies are equipped with complete facilities for waste gas and waste water treatment. Lu Thai Textile Co., Ltd. and its majority-owned subsidiary Lufeng Weaving & Dyeing Co., Ltd. carried out the waste water treatment system transformation project to improve the treated water quality by systematic and comprehensive reform, further improving the river water quality and local ecological environment. In May 2020, Lu Thai Textile Co., Ltd. and its majority-owned subsidiary Lufeng Weaving & Dyeing Co., Ltd. uploaded the emission data of VOCs to the government environmental monitoring system so as to monitor the emission data of VOCs comprehensively. Support teams were set up to be responsible for daily operation maintenance and inspection to guarantee the normal operation of facilities. Both the exhaust emission and waste water discharge meet the emission standards. The wholly-owned subsidiary Zibo Xinsheng Thermal Power Co., Ltd. enforces the “Three Simultaneous” management system for environmental protection in extension project construction in accordance with the government requirements, and adopts the “limestone-gypsum method” to reduce emission concentration of sulfur dioxide, the “Low-nitrogen combustion + SNCR” and “SNCR+SCR method” to reduce emission concentration of nitrogen oxides, and the “electric-bag electrostatic precipitator + wet electrostatic precipitator” to reduce soot emission concentration. The overall system works well. The waste water treatment project of the wholly-owned subsidiary Lu Thai (Vietnam) Textile Co., Ltd. is designed to treat 6,500 tons 33 Lu Thai Textile Co., Ltd. Interim Report 2020 of sewage water daily, among which, sewage plan I is designed to treat 3,000 tons of sewage water daily, and the sewage plant II is designed to treat 3,500 tons of sewage water daily. The Company adopts a comprehensive treatment process of “pre-materialization + A2O biochemistry + post-materialization + ozone oxidation+ active sand filtration” for waste water treatment, and the treated water quality is better than the QCVN 40: 2011/BTNMT A-level emission standards stipulated by the Vietnam government. The treated waste water is all discharged to the ecological pond in the park. Treated water quality analysis for the first half year of 2020: The COD (mean value) was 50.7 mg/L, the chrominance (mean value) was 27, the ammonia nitrogen (mean value) was 0.65 mg/L, and the total phosphorus (mean value) was 0.35 mg/L. All the parameters met the A-level emission standards set in the “Regulations on Parameters of Industrial Drainage in Vietnam” (QCVN40: 2011/BTNMT). Waste water discharge in the whole year met the standards without violation. The total amount of waste water discharged in the first half year of 2020 was 517,000 tons, among which, the chemical oxygen demand (COD) was 26.96 tons, ammonia nitrogen (NH3-N) was 0.28 tons and total phosphorus (TP) was 0.17 ton. The Company is equipped with multi-pipe and water film dust-separation devices to process the exhaust gas discharged from boilers of the Company. In the first half year of 2020, all the equipment was in normal operation, and the exhaust gas inspection parameters were lower than the QCVN19: 2009/BTNMT emission standards set by Vietnam government. In the first half year of 2020, the total amount of sulfur dioxide emissions was 21.6 tons, and the total amount of nitrogen oxides emissions was 17.7 tons. Project Environmental Impact Assessment and Other Administrative Permission for Environmental Protection In 2020, the main part of “Lu Thai Textile Co., Ltd. High-Concentration PVA Wastewater Treatment and Sewage Comprehensive Upgrading Project (1)” has been completed and entered the commissioning stage; the “Lu Thai Textile Co., Ltd. Intelligent Technology Upgrading Project of 25 million-meter High-grade Fabric Production Line” has been approved and is under construction; the “Engineering Technology Research Institute Project” has been established and entered the stage of preparing the environmental assessment report; the “Technology Upgrading Project of Regenerated Fibre Production Line and Colored Spun Yarn” has been established and entered the stage of preparing the environmental assessment report; the “Lufeng Weaving and Dyeing Co., Ltd. High-end Printing and Dyeing Fabric Production Line Project” of the holding subsidiary Lufeng Weaving and Dyeing Co., Ltd. has been approved and is under construction.The wholly-owned subsidiary Zibo Xinsheng Thermal Power Co., Ltd. obtained the “Response of the Environmental Impact Report of the Shandong Provincial Department of Environmental Protection on the Extension Project of Zibo Xinsheng Thermal Power Co., Ltd.” (Luhuanjian [2015] No. 241), expansion project II The period is under construction. The wholly-owned subsidiary Lu Thai (Vietnam) Co., Ltd. Spinning Phase I and Dyeing Park Phase I environmental protection projects have been completed and accepted for confirmation. The spinning phase II and yarn dyeing park Phase II environmental assessment reports have been approved. Emergency plan for environmental incidents Lu Thai Textile Co., Ltd. and its majority-owned subsidiary Lufeng Weaving & Dyeing Co., Ltd. prepared the Emergency Plan for Environmental Incidents, which was filed with Zibo Environmental Protection Bureau Xichuan Branch. The wholly-owned subsidiary Zibo Xinsheng Thermal Power Co., Ltd. has formulated the “Emergency Plan for Environmental Incidents” and filed it with the environmental protection management department. The identification and risk assessment of environmental risk sources, prevention and early warning mechanisms, emergency protection and supervision and management were included in the plan. The wholly-owned subsidiary Lu Thai (Vietnam) Co., Ltd. has prepared emergency plans for different environmental incidents to reduce their impacts. Environmental self-monitoring program Lu Thai Textile Co., Ltd. and its majority-owned subsidiary Lufeng Weaving & Dyeing Co., Ltd. observed the requirements of the competent environment authorities to install online monitoring devices to monitor sewage and waste gas. They established environmental self-test plans strictly in accordance with the “Guidance for Pollutant Discharge Units on Self-monitoring Technology - Textile and Dyeing Industry”. In addition, they invited a qualified testing institution to conduct tests on sewage and waste gas according to the frequency requirement in the self-monitoring plan, duly disclosed the monitoring data to the Shandong Pollution Source Self-monitoring Sharing System, and submitted the test reports to the competent environment authorities. The wholly-owned subsidiary Zibo Xinsheng Thermal Power Co., Ltd. has implemented online real-time monitoring of environmental data in 34 Lu Thai Textile Co., Ltd. Interim Report 2020 accordance with the requirements of the superior environmental protection department, and has achieved emission standards. The wholly-owned subsidiary Lu Thai (Vietnam) Co., Ltd. installs automatic sewage sampling and water quality automatic online monitoring devices, real-time automatic sampling and online monitoring of sewage effluent water quality; the company invites external qualified testing institutions to conduct sewage, sludge and exhaust gas quarterly Test and submit the test report to the environmental supervision department. Other environment information that should be disclosed No Other related environment protection information No 2. Measures Taken for Targeted Poverty Alleviation (1) Plans The Company assumes social responsibilities by carrying out poverty alleviation. The Company helps poor people to find jobs and peasants financially in the areas where majority-owned subsidiaries locate to maintain their basic livelihood. (2) Summary of the Related Work Done in the Reporting Period The Company assumes social responsibilities by carrying out poverty alleviation. The Company helps poor people to find jobs and peasants financially in the areas where majority-owned subsidiaries locate to maintain their basic livelihood. (3) Results Measurement Indicator Quantity/Progress unit I. General results —— —— Of which: 1.1 Funds Ten thousand 20.58 1.3. Number of people out of poverty being helped to Person 31 establish archival cards II. Itemized results —— —— 1. Out of poverty by industrial development —— —— 2. Out of poverty by transferring employment —— —— 2.3 Number of poverty-stricken family in employment being Person 31 helped to establish archival cards 3. Out of poverty by relocation —— —— 4. Out of poverty by education —— —— 5. Out of poverty by improving health —— —— 6. Out of poverty by protecting ecological environment —— —— 7. Subsidy for the poorest —— —— 35 Lu Thai Textile Co., Ltd. Interim Report 2020 8. Social poverty alleviation —— —— 9. Other items —— —— 9.2 Amount of input Ten thousand 20.58 III. Accolades received (for what and at what level) —— —— (4) Subsequent Plans None XVII Other Significant Events √ Applicable □ Not applicable The Company reviewed and approved various proposals including the Proposal of the Company’s Plan for the Public Issue of A Share Convertible Bonds during the 28th Meeting of the 8th Board of Directors and the 3rd Extraordinary Shareholders Meeting in 2019. Please refer to relevant announcements (No.: 2019-039, 2019-041, 2019-042, 2019-043, 2019-044, 2019-045 and 2019-059) respectively issued on 24 May 2019 and 17 September 2019 via www.cninfo.com.cn for details. The Company received the CSRC Administrative License Application Acceptance Notice on 15 October 2019 and the Notice on First Feedback of CSRC Administrative License Project Review on 19 November 2019. Please refer to relevant announcements (No.: 2019-064 and 2019-068) respectively issued on 16 October 2019 and 20 November 2019 via www.cninfo.com.cn for details. On 27 November 2019, the Company held the 7th Meeting of the 9th Board of Directors, and reviewed and approved five proposals including the Proposal of Adjusting the Fund-raising Scale of A Share Convertible Bonds to Be Publicly Issued by the Company. Please refer to relevant announcements (No.: 2019-074, 2019-075, 2019-076, 2019-077 and 2019-078) issued on 28 November 2019 via www.cninfo.com.cn for details. On 29 November 2019, the Company disclosed the Reply on the First Feedback of A Share Convertible Bonds Public Issue Application Documents of Lu Thai Textile (Announcement No.: 2019-079); on 2 January 2020, the Company received the Notice on Making Preparations for the Lu Thai Textiles’ Convertible Bonds Public Issue IEC Meeting and replied. Please refer to relevant announcement (No.: 2020-001) and the Reply on the Notice on Making Preparations for the Lu Thai Textiles’ Convertible Bonds Public Issue IEC Meeting issued on 3 January 2020 via www.cninfo.com.cn for details. On 9 January 2020, the Company’s application for the public issue of A Share convertible bonds was approved by the Issuance Examination Committee (IEC) of CSRC. On 6 March 2020, the Company received the Reply on Approving the Public Issue of Convertible Bonds by Lu Thai Textile Co., Ltd. (ZJXK [2020] No. 299) issued by CSRC. Please refer to relevant announcements (No.: 2020-002 and 2020-010) respectively issued on 10 January 2020 and 7 March 2020 via www.cninfo.com.cn for details. On 3 April 2020, the Company held the 10th Meeting of the 9th Board of Directors. In the meeting, the Company reviewed and approved the Proposal of Further Establishing the Concrete Scheme for the Company’s Public Issue of A Share Convertible Bonds, the Proposal of the Listing of the Company’s Public Issue of A Share Convertible Bonds and the Proposal of Opening A Special Account for the Funds Raised for the Company’s Public Issue of A Share Convertible Bonds and Signing the Raised Fund Supervision Agreement, and disclosed the Prospectus and Summary for the Public Issue of A Share Convertible Bonds via www.cninfo.com.cn. Please refer to relevant announcements and documents (No.: 2020-011, 2020-013 and 2020-014) for details. The Company issued the Prompt Notice on the Public Issue of A Share Convertible Bonds, Announcement on the DTOR for the Public Issue of A Share Convertible Bonds and the Placement Priority Result, Announcement on the Online Lot-winning Result of the Public Issue of A Share Convertible Bonds and Announcement on the Result of the Public Issue of A Share Convertible Bonds respectively on 9 April, 10 April, 13 April and 15 April in 2020. Please refer to relevant announcements (No.: 2020-017, 2020-018, 2020-020 and 2020-022) issued via www.cninfo.com.cn for details. 36 Lu Thai Textile Co., Ltd. Interim Report 2020 On 12 May 2020, the Company published the “Announcement on the Listing of A-Share Convertible Corporate Bonds through Public Offering”. On 13 May 2020, Lu Thai’s convertible corporate bonds were listed on Shenzhen Stock Exchange for trading. The duration of the bonds was set from 9 April 2020 to 8 April 2026. The period for converting into shares will be from 15 October 2020 to 8 April 2026. For more detail, refer to the announcement (No.: 2020-043) on www.cninfo.com.cn. On 2 July 2020, the Company published the “Announcement on the Adjustment to the Price for Converting Convertible Corporate Bonds into Shares”. According to the “Proposal on the Company’s Profit Distribution Plan for 2019”, which was considered and approved at the Company’s Annual General Meeting of 2019 held on 21 May 2020, a cash amount of RMB 1.00 (inclusive of tax) would be distributed to every 10 shares, with the 858,121,541 shares of share capital on 31 December 2019 as the base. The share registration date for the Company’s equity distribution of 2019 was 8 July 2020 and the ex-rights and ex-dividend date was 9 July 2020. Therefore, the share conversion price of “Lu Thai Convertible Bonds” was adjusted from RMB 9.01 per share to RMB 8.91 per share, and the new price after the adjustment took effect on and as of 9 July 2020 (the ex-rights and ex-dividend date). For more detail, refer to the announcement (No.: 2020-054) on www.cninfo.com.cn. XVIII Significant Events of Subsidiaries □ Applicable √ Not applicable 37 Lu Thai Textile Co., Ltd. Interim Report 2020 Part VI Share Changes and Shareholder Information I. Share Changes 1. Share Changes Unit: share Before Increase/decrease (+/-) After Bonus Percentage New Bonus Percenta Number issue from Other Subtotal Number (%) issues shares ge (%) profit 1. Restricted shares 119,038,937 13.87% 8,438 8,438 119,047,375 13.87% 1.3 Shares held by other 806,537 0.09% 8,438 8,438 814,975 0.09% domestic investors Shares held by domestic 806,537 0.09% 8,438 8,438 814,975 0.09% natural person 1.4 Oversea shareholdings 118,232,400 13.78% 118,232,400 13.78% Among which: shares held 118,232,400 13.78% 118,232,400 13.78% by oversea legal person Shares held by oversea 0 natural person 2. Unrestricted shares 739,082,604 86.13% -8,438 -8,438 739,074,166 86.13% 2.1 RMB ordinary shares 561,264,288 65.41% -8,438 -8,438 561,255,850 65.41% 2.2 Domestically listed 177,818,316 20.72% 177,818,316 20.72% foreign shares 3. Total shares 858,121,541 100.00% 0 0 858,121,541 100.00% Reasons for the share changes √ Applicable □ Not applicable Due to the demission of Senior Executive, China Securities Depository and Clearing Co., Ltd. Shenzhen Branch adjusted the number of lock-up shares held by Senior Executive. Approval of share changes: √ Applicable □ Not applicable The foreign sponsor shareholder of the Company, Tailun (Thailand) Textile Co., Ltd. holds 118,232,400 non-listed foreign shares, which have changed the registration to be restricted tradable B-shares with 1 year restricted period at China Securities Depository and Clearing Co., Ltd. Shenzhen Branch 30 June 2020, and the restriction shall be unlocked on 1 July 2021. Transfer of share ownership: □ Applicable √ Not applicable Progress on any share repurchases: 38 Lu Thai Textile Co., Ltd. Interim Report 2020 □ Applicable √ Not applicable Progress on reducing the repurchased shares by means of centralized bidding: □ Applicable √ Not applicable 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 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 Name of Beginning Increased in Unlocked in Ending restricted Reason for shareholde Date of unlocking restricted shares Reporting Period Reporting Period shares restriction r Locked the 6 months after the Lyu shareholding of 25,312 8,438 33,750 expiration of the Yongchen the Senior original term Executives Total 25,312 0 8,438 33,750 -- -- II Issuance and Listing of Securities √ Applicable □ Not applicable Number of Name of Issue price listed Index to stocks and Termination Disclosur Issued date (or interest Number Listing date transaction disclosed derivative date e date rate) with information securities approval Stock Convertible bonds, separate bargaining convertible bonds and corporate bonds Announcement of Resolution (No. 2020-013) Lu Thai published on 7 April convertible 9 April 2020 100 14,000,000 13 May 2020 14,000,000 8 April 2026 Securities Times, 2020 bond China Securities Journal, Shanghai Securities News, and Hong Kong 39 Lu Thai Textile Co., Ltd. Interim Report 2020 Ta Kung Pao and http://www.cninf o.co on 7 April 2020 Other derivative securities Notes to securities issuance during the Reporting Period: On 9, 10, 13 and 15 April 2020, the Company published the “Suggestive Announcement on the Issue of A-Share Convertible Corporate Bonds through Public Offering”, the “Announcement on the Online Winning Rate and Priority Allotment Result of the Public Offering of A-Share Convertible Corporate Bonds”, the “Announcement on the Online Winning Result of the Public Offering of A-Share Convertible Corporate Bonds”, and the “Announcement on the Result of the Issue of A-Share Convertible Corporate Bonds through Public Offering”. For more detail, refer to the related announcements (No: 2020-017, 2020-018, 2020-020 and 2020-022) on www.cninfo.com.cn. On 9 April, the Company issued convertible corporate bonds of RMB 1.4 billion (14 million bonds) on Shenzhen Stock Exchange under the short name of Lu Thai Convertible Bonds with the bond code of 127016. On 12 May 2020, the Company published the “Announcement on the Listing of A-Share Convertible Corporate Bonds through Public Offering”. On 13 May 2020, Lu Thai’s convertible corporate bonds were listed on Shenzhen Stock Exchange for trading. The duration of the bonds was set from 9 April 2020 to 8 April 2026. The period for converting into shares will be from 15 October 2020 to 8 April 2026. For more detail, refer to the announcement (No.: 2020-043) on www.cninfo.com.cn. On 2 July 2020, the Company published the “Announcement on the Adjustment to the Price for Converting Convertible Corporate Bonds into Shares”. According to the “Proposal on the Company’s Profit Distribution Plan for 2019”, which was considered and approved at the Company’s Annual General Meeting of 2019 held on 21 May 2020, a cash amount of RMB 1.00 (inclusive of tax) would be distributed to every 10 shares, with the 858,121,541 shares of share capital on 31 December 2019 as the base. The share registration date for the Company’s equity distribution of 2019 was 8 July 2020 and the ex-rights and ex-dividend date was 9 July 2020. Therefore, the share conversion price of “Lu Thai Convertible Bonds” was adjusted from RMB 9.01 per share to RMB 8.91 per share, and the new price after the adjustment took effect on and as of 9 July 2020 (the ex-rights and ex-dividend date). For more detail, refer to the announcement (No.: 2020-054) on www.cninfo.com.cn. III Total Number of Shareholders and Their Shareholdings Unit: share Total number of preference Total number of ordinary shareholders with resumed voting 58,376 0 shareholders at the period-end rights at the period-end (if any) (see Note 8) 5% or greater ordinary shareholders or the top 10 ordinary shareholders Increase/d Pledged or frozen Sharehol Number of Total shares ecrease Number of shares Nature of ding non-restricte Name of shareholder held at the during the restricted shareholder percenta d shares Num period-end Reporting shares held Status ge (%) held ber Period Domestic Zibo Lucheng Textile non-state-owned 16.36% 140,353,583 0 0 140,353,583 Investment Co., Ltd. legal person 40 Lu Thai Textile Co., Ltd. Interim Report 2020 Tailun (Thailand) Textile Co., Foreign legal 13.78% 118,232,400 0 118,232,400 Ltd. person Hong Kong Securities Foreign legal 2.70% 23,180,137 -2,520,512 23,180,137 Clearing Co. Ltd person Central Huijin Assets State-owned legal 2.37% 20,315,300 0 20,315,300 Management Co., Ltd. person Domestic China Securities Finance non-state-owned 2.13% 18,313,391 0 18,313,391 Corporation Limited legal person T.ROWE PRICE INTL Foreign legal 1.71% 14,712,012 -5,236,207 14,712,012 DISCOVERY FUND person Hong Kong Monetary Foreign legal 1.49% 12,754,384 -1,287,500 12,754,384 Authority-self-owned funds person Domestic National Social Security Fund non-state-owned 1.09% 9,360,051 1,050,000 9,360,051 Portfolio 413 legal person First State Investment Management (Britain) Co., Foreign legal 1.02% 8,764,322 3,350,322 8,764,322 Ltd.- First State China A person Share Fund Domestic Generali China Life Insurance non-state-owned 0.63% 5,385,759 -1,279,200 5,385,759 Co., Ltd.-Dividend product 2 legal person Strategic investors or general corporations becoming top-ten shareholders due to placing of Naught new shares (if any) (see Note 3) Zibo Lucheng Textile Investment Co., Ltd. is the largest shareholder and the actual controller of the Company. Tailun (Thailand) Textile Co., Ltd. is the second largest Related or acting-in-concert parties among the shareholder and the foreign sponsor of the Company. All the other shareholders shareholders above are holding tradable A-shares or B-shares. And it is unknown whether there is any related party or acting-in-concert party among them. Shareholdings of the top ten non-restricted ordinary shareholders Number of Type of shares Name of shareholder non-restricted shares Type Shares held at the period-end RMB ordinary Zibo Lucheng Textile Investment Co., Ltd. 140,353,583 140,353,583 share RMB ordinary Hong Kong Securities Clearing Co. Ltd 23,180,137 23,180,137 share Central Huijin Assets Management Co., Ltd. 20,315,300 RMB ordinary 20,315,300 41 Lu Thai Textile Co., Ltd. Interim Report 2020 share RMB ordinary China Securities Finance Corporation Limited 18,313,391 18,313,391 share Domestically T.ROWE PRICE INTL DISCOVERY FUND 14,712,012 listed foreign 14,712,012 share RMB ordinary Hong Kong Monetary Authority-self-owned funds 12,754,384 12,754,384 share RMB ordinary National Social Security Fund Portfolio 413 9,360,051 9,360,051 share First State Investment Management (Britain) Co., Ltd.- First State China A RMB ordinary 8,764,322 8,764,322 Share Fund share RMB ordinary Generali China Life Insurance Co., Ltd.-Dividend Product 2 5,385,759 5,385,759 share Industrial and Commercial Bank of China- Fullgoal CSI Dividend Index RMB ordinary 5,270,243 5,270,243 Enhanced Securities Investment Funds share Zibo Lucheng Textile Investment Co., Ltd. is the largest shareholder and the actual controller of the Company. Explanation on connected relationship among the top ten shareholders of Tailun (Thailand) Textile Co., Ltd. is the second largest tradable share not subject to trading moratorium, as well as among the top shareholder and the foreign sponsor of the Company. All ten shareholders of tradable share not subject to trading moratorium and top the other shareholders are holding tradable A-shares or ten shareholders, or explanation on acting-in-concert B-shares. And it is unknown whether there is any related party or acting-in-concert party among them. Particular about shareholder participate in the securities lending and Naught borrowing business (if any) (note 4) 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. □ Yea √ No No such cases in the Reporting Period. IV Change of the Controlling Shareholder or the Actual Controller Change of the controlling shareholder in the Reporting Period: □ Applicable √ Not applicable No such cases in the Reporting Period. Change of the actual controller during the Reporting Period: □ Applicable √ Not applicable No such cases in the Reporting Period. 42 Lu Thai Textile Co., Ltd. Interim Report 2020 Part VII Preferred Shares □ Applicable √ Not applicable No such cases in the Reporting Period. 43 Lu Thai Textile Co., Ltd. Interim Report 2020 Part VIII Convertible Corporate Bonds √ Applicable □ Not applicable I Previous Adjustments of Conversion Price On 9 April 2020, the Company publicly issued 14 million A-share convertible corporate bonds (short name: Lu Thai Convertible Bonds, bond code: 127016) on Shenzhen Stock Exchange with an issue price of RMB100 per share and a share conversion price of RMB9.01 per share. The bonds were listed on Shenzhen Stock Exchange on 13 May 2020. In accordance with related terms of the “Prospectus for the Public Offering of A-Share Convertible Corporate Bonds of Lu Thai Textile Co., Ltd.”, as well as the regulations of China Securities Regulatory Commission on the public offering of convertible corporate bonds, if the Company has any distribution of share dividends, conversion into share capital, additional issue of new shares (excluding share capital increase due to conversion into shares from the convertible corporate bonds issued this time), share allotment and distribution of cash dividends after the issue of “Lu Thai Convertible Bonds”, adjustment shall be made to the share conversion price. On 21 May 2020, the Company held the Annual General Meeting of 2019, where the “Proposal on the Company’s Profit Distribution Plan for 2019” was considered and approved. According to the Proposal, a cash amount of RMB 1.00 (inclusive of tax) would be distributed to every 10 shares, with the 858,121,541 shares of share capital on 31 December 2019 as the base. The share registration date for the Company’s equity distribution of 2019 was 8 July 2020 and the ex-rights and ex-dividend date was 9 July 2020. Therefore, the share conversion price of “Lu Thai Convertible Bonds” was adjusted from RMB9.01 per share to RMB8.91 per share, and the new price after the adjustment took effect on and as of 9 July 2020 (the ex-rights and ex-dividend date). II Accumulative Conversion □ Applicable √ Not applicable III Top 10 Convertible Bond Holders Unit: share As % of Number of Amount of convertible Nature of convertible bonds convertible bonds No. Name of holders bonds held at holders held at the held at the the period-end (share) period-end (RMB) period-end State-owned 1 Guosen Securities Co., Ltd. 1,600,001 160,000,100.00 11.43% legal person Domestic China Pacific Insurance (Group)Co., Ltd.-Dividend- non-state-o 2 637,716 63,771,600.00 4.56% Individual dividends wned legal person 3 Shanghai Pudong Development Bank-E Fund Domestic 512,435 51,243,500.00 3.66% 44 Lu Thai Textile Co., Ltd. Interim Report 2020 Yuxiang Return Bond Securities Investment Fund non-state-o wned legal person Domestic Industrial and Commercial Bank of China-Fullgoal non-state-o 4 467,938 46,793,800.00 3.34% TianLi Growth Bond Investment Fund wned legal person Domestic Industrial and Commercial Bank of China-China non-state-o 5 Universal Convertible Bond Securities Investment 445,714 44,571,400.00 3.18% wned legal Fund person Domestic non-state-o 6 National Social Security Fund Portfolio 005 425,369 42,536,900.00 3.04% wned legal person Domestic ICBC Credit Suisse Tainfeng Convertible Benefit non-state-o 7 409,986 40,998,600.00 2.93% Pension Product-Bank of China Limited wned legal person Domestic China Everbright Bank-E Fund Yujing Tianli non-state-o 8 6-month Regular Open Bond Securities Investment 356,534 35,653,400.00 2.55% wned legal Fund person State-owned 9 Essence Securities Co., Ltd. 277,400 27,740,000.00 1.98% legal person Domestic ICBC Credit Suisse Fund-China Minsheng Bank non-state-o 10 Corp. Ltd.-Jiangsu International Trust-Jiangsu 256,132 25,613,200.00 1.83% wned legal TrustMinsheng Wealth Single Fund Trust person IV Significant Changes in Profitability, Assets Condition and Credit Status of Guarantors □ Applicable √ Not applicable V The Company’s Liabilities, Credit Changes at the Period-end and Cash Arrangements to Repay Debts in Future Years 1. YoY changes of main financial index between the period-end and the end of last year (or the same reporting period as prior year) Item Period-end The end of last year Increase/decrease Current ratio 189.60% 132.78% 56.83% Asset-liability ratio 34.28% 30.17% 4.10% 45 Lu Thai Textile Co., Ltd. Interim Report 2020 Quick ratio 96.35% 56.78% 39.57% Reporting Period Same period of last year YoY increase/decrease EBITDA interest coverage ratio 10.66 16.49 -5.83 Rate of redemption 100% 100% - Interest coverage 100% 100% - Major reasons for more than 30% year-on-year changes in the aforementioned accounting data and financial indicators: the current ratio as at the end of this Reporting Period increased by 56.83% from the end of last year, which was mainly due to the increase in the monetary fund in current assets after the Company issued the convertible corporate bonds; the quick ratio as at the end of this Reporting Period increased by 39.57% from the end of last year, which was mainly due to the increase in the monetary fund in quick assets after the Company issued the convertible corporate bonds. 2. United Credit Ratings Co., Ltd. (hereinafter referred to as “Untied Ratings”), the credit ratings institution of the Company’s convertible bonds, issued the “Credit Ratings Report on the A-Share Convertible Corporate Bonds Publicly Issued by Lu Thai Textile Co., Ltd.” on 27 September 2019. According to the Report, the Company’s corporate credit rating was “AA+” with a rating outlook of “Stable”, and the bond credit rating was “AA+”. United Ratings will perform follow-up rating once every year during the duration of the corporate bonds. On 17 June 2020, United Ratings issued the “Follow-up Ratings Report of 2020 for the Convertible Corporate Bonds of Lu Thai Textile Co., Ltd.”. According to the Report, the Company’s corporate credit rating remained “AA+” and the bond credit rating remained “AA+”. Disclosure index: “Follow-up Ratings Report of 2020 for the Convertible Corporate Bonds of Lu Thai Textile Co., Ltd.” was disclosed on www.cninfo.com.cn on 19 June 2020. 46 Lu Thai Textile Co., Ltd. Interim Report 2020 Part IX Directors, Supervisors and Senior Management I Change in Shareholdings of Directors, Supervisors and Senior Management √ Applicable □ Not applicable Number of Number of Number of Increase in Decrease restricted Incu granted granted Beginning the in the Ending shares mbe restricted restricted Name Office title shareholdi Current Current shareholdi granted in nt/fo shares at the shares at the ng (share) Period Period ng (share) the Current rmer period-begin period-end (share) (share) Period (share) (share) (share) Incu Liu Chairman and GM mbe 148,290 148,290 Zibin nt Incu Xu Vice President mbe Zhinan nt Fujiwara Incu Hidetosh Director mbe i nt Incu Chen Director mbe Ruimou nt Incu Zeng Director mbe Facheng nt Wang Incu Director, Vice GM, and Fangshu mbe 146,753 146,753 Chief Engineer i nt Director, controller of Incu Liu Global Marketing mbe Deming Department nt Incu Qin Director mbe 126,542 126,542 Guiling nt Zhang Incu Director and Chief Hongme mbe 92,500 92,500 Accountant i nt 47 Lu Thai Textile Co., Ltd. Interim Report 2020 Incu Zhou Independent director mbe Zhiji nt Incu Bi Xiuli Independent Director mbe nt Incu Pan Independent Director mbe Ailing nt Incu Wang Independent Director mbe Xinyu nt Qu Incu Dongme Independent director mbe i nt Supervisory Committee Zhang Incu Chairman, Controller of Shougan mbe 73,100 73,100 Human Resources g nt Department Incu Liu Supervisor mbe 10,000 10,000 Zilong nt Supervisor, Manager of Incu Dong Logistics Management mbe 5,000 5,000 Shibing Department nt Vice president, Zhang Incu controller of Functional Jianxian mbe 52,150 52,150 Fabric Manufacturing g nt Center Vice president, Security Incu Wang Controller, Controller of mbe 83,700 83,700 Jiabin Yarn-dyed Fabric nt Manufacturing Center Vice president, Incu Zhang controller of Dyeing and mbe 80,300 80,300 Zhanqi Finishing Fabric nt Manufacturing Center Board Secretary, Incu Zhang controller of Financial mbe 77,700 77,700 Keming Management nt Department 48 Lu Thai Textile Co., Ltd. Interim Report 2020 Incu Li Wenji CIO mbe 10,000 10,000 nt Incu Zhang Controller of Strategy mbe Wei and Market Department nt Wang Vice controller of Incu Changzh Global Marketing mbe 22,500 22,500 ao Department nt Fujiwara Incu Matsuza GM of Japan Office mbe ka nt Yu Controller of Energy Incu Shouzhe and Environment mbe 83,100 83,100 ng Protection Department nt Shang Incu Controller of Garment Chengga mbe 30,000 30,000 Manufacturing Center ng nt Deputy chief engineer, Incu Du Executive Dean of Lu mbe Lixin Thai Engineering nt Technology Institute Incu Guo Manager of Business mbe Heng Management nt Lyu Non-director senior For Yongche 33,750 33,750 executive mer n Total -- -- 1,075,385 0 0 1,075,385 0 0 0 II Change of Directors, Supervisors and Senior Management √Applicable □ Not applicable Name Office title Type of change Date of change Reason for change Lyu Yongchen Non-director senior executive Former 2 March 2020 Left for personal reason 49 Lu Thai Textile Co., Ltd. Interim Report 2020 Part X Corporate Bonds Are there any corporate bonds publicly offered and listed on the stock exchange, which were undue before the approval date of this Report or were due but could not be redeemed in full? No 50 Lu Thai Textile Co., Ltd. Interim Report 2020 Part XI Financial Statements I Independent Auditor’s Report Are these interim financial statements audited by an independent auditor? □Yes √ No They are unaudited by such an auditor. II Financial Statements Currency unit for the financial statements and the notes thereto: RMB 1. Consolidated Balance Sheet Prepared by Lu Thai Textile Co., Ltd. 30 June 2020 Unit: RMB Item 30 June 2020 31 December 2019 Current assets: Monetary assets 2,028,297,550.15 924,322,008.17 Held-for-trading financial assets 52,356,098.85 Derivative financial assets Notes receivable 72,130,996.17 104,737,949.91 Accounts receivable 390,917,955.82 515,306,599.62 Accounts receivable financing 14,807,543.11 26,963,818.87 Prepayments 61,112,805.74 56,828,987.59 Other receivables 34,453,389.96 59,743,471.84 Including: Interest receivable Dividends receivable Financial assets purchased under resale agreements Inventories 2,595,135,869.67 2,421,500,259.30 Contract assets Assets held for sale Current portion of non-current assets Other current assets 79,489,297.56 68,788,674.10 51 Lu Thai Textile Co., Ltd. Interim Report 2020 Total current assets 5,276,345,408.18 4,230,547,868.25 Non-current assets: Long-term receivables 7,080,682.04 7,058,233.71 Long-term equity investment 149,646,776.65 103,226,300.00 Other equity instrument investment Other non-current financial assets 138,519,880.41 278,149,500.00 Investment property 44,888,691.70 45,896,747.87 Fixed assets 5,911,198,566.20 6,012,094,104.67 Construction in progress 543,763,930.47 400,235,070.01 Intangible assets 508,639,397.75 516,479,519.15 Development costs Goodwill 20,563,803.29 20,563,803.29 Long-term deferred expenses 157,331,360.54 153,031,253.79 Deferred income tax assets 97,673,474.64 99,307,233.72 Other non-current assets 7,754,157.78 18,841,918.62 Total non-current assets 7,587,060,721.47 7,654,883,684.83 Total assets 12,863,406,129.65 11,885,431,553.08 Current liabilities: Short-term borrowings 1,881,237,261.83 2,120,154,330.61 Held-for-trading financial liabilities 841,402.78 Derivative financial liabilities Notes payable 3,233,148.00 85,219,724.63 Accounts payable 224,782,981.19 305,346,284.94 Advances from customers 108,783,148.03 Contract liabilities 111,405,604.38 Payroll payable 275,261,176.37 335,576,560.36 Taxes payable 33,128,004.92 25,051,630.06 Other payables 195,332,422.01 104,982,189.40 Including: Interest payable Dividends payable 86,253,267.74 441,113.64 Current portion of non-current liabilities 57,591,068.49 101,111,297.49 Other current liabilities Total current liabilities 2,782,813,069.97 3,186,225,165.52 Non-current liabilities: 52 Lu Thai Textile Co., Ltd. Interim Report 2020 Provision for insurance contracts Long-term borrowings 14,159,000.00 42,364,019.74 Bonds payable 1,324,932,419.54 Long-term payables Long-term payroll payable 52,317,084.85 105,589,249.56 Provisions Deferred income 162,647,704.62 157,668,211.41 Deferred income tax liabilities 70,536,666.51 92,440,358.41 Other non-current liabilities 1,840,000.00 1,840,000.00 Total non-current liabilities 1,626,432,875.52 399,901,839.12 Total liabilities 4,409,245,945.49 3,586,127,004.64 Owners’ equity: Share capital 858,121,541.00 858,121,541.00 Other equity instruments 71,391,357.42 Capital reserves 258,046,245.42 258,046,245.42 Less: Treasury stock Other comprehensive income 112,921,882.51 91,626,571.75 Specific reserve Surplus reserves 1,117,267,351.63 1,117,267,351.63 General reserve Retained earnings 5,430,381,040.24 5,372,073,615.12 Total equity attributable to owners of the Company as the parent 7,848,129,418.22 7,697,135,324.92 Non-controlling interests 606,030,765.94 602,169,223.52 Total owners’ equity 8,454,160,184.16 8,299,304,548.44 Total liabilities and owners’ equity 12,863,406,129.65 11,885,431,553.08 Legal representative: Liu Zibin Chief Accountant: Zhang Hongmei Financial Manager: Zhang Keming 2. Balance Sheet of the Company as the Parent Unit: RMB Item 30 June 2020 31 December 2019 Current assets: Monetary assets 1,357,902,448.38 259,320,863.08 53 Lu Thai Textile Co., Ltd. Interim Report 2020 Held-for-trading financial assets 52,356,098.85 Derivative financial assets Notes receivable 40,214,591.24 67,898,885.35 Accounts receivable 264,980,445.66 417,599,518.08 Accounts receivable financing 3,170,000.00 2,675,090.00 Prepayments 25,204,392.09 10,178,452.88 Other receivables 981,462,785.76 838,523,449.52 Including: Interest receivable Dividends receivable Inventories 1,359,654,442.14 1,280,620,296.02 Current portion of non-current assets Other current assets 1,707.49 5,780,635.28 Total current assets 4,032,590,812.76 2,934,953,289.06 Non-current assets: Investments in debt obligations Investments in other debt obligations Long-term receivables Long-term equity investments 2,713,239,081.49 2,510,868,604.84 Investments in other equity instruments Other non-current financial assets 126,519,880.41 266,149,500.00 Investment property 30,411,749.80 31,089,260.38 Fixed assets 2,535,355,316.06 2,603,258,003.94 Construction in progress 33,567,305.93 53,443,768.04 Intangible assets 231,391,216.61 235,277,114.25 Development costs Goodwill Long-term deferred expenses Deferred income tax assets 61,185,242.93 60,974,304.57 Other non-current assets 2,328,457.86 Total non-current assets 5,733,998,251.09 5,761,060,556.02 Total assets 9,766,589,063.85 8,696,013,845.08 Current liabilities: Short-term borrowings 712,419,330.83 816,301,973.60 Held-for-trading financial liabilities 54 Lu Thai Textile Co., Ltd. Interim Report 2020 Derivative financial liabilities Notes payable 278,243,091.90 602,741,973.76 Accounts payable 145,727,979.94 105,588,631.54 Advances from customers 53,418,950.04 Contract liabilities 55,727,385.25 Payroll payable 213,270,291.86 242,300,723.41 Taxes payable 25,440,208.22 11,995,830.49 Other payables 159,757,664.88 149,255,207.79 Including: Interest payable Dividends payable 86,253,267.74 441,113.64 Liabilities held for sale Current portion of non-current liabilities 955,068.49 Other current liabilities Total current liabilities 1,591,541,021.37 1,981,603,290.63 Non-current liabilities: Long-term borrowings Bonds payable 1,324,932,419.54 Long-term payables Long-term payroll payable 52,317,084.85 105,589,249.56 Provisions Deferred income 115,087,900.64 112,187,678.66 Deferred income tax liabilities 48,867,677.05 70,445,859.76 Other non-current liabilities Total non-current liabilities 1,541,205,082.08 288,222,787.98 Total liabilities 3,132,746,103.45 2,269,826,078.61 Owners’ equity: Share capital 858,121,541.00 858,121,541.00 Other equity instruments 71,391,357.42 Capital reserves 317,206,232.47 317,206,232.47 Less: Treasury stock Other comprehensive income Specific reserve Surplus reserves 1,114,158,611.99 1,114,158,611.99 Retained earnings 4,272,965,217.52 4,136,701,381.01 55 Lu Thai Textile Co., Ltd. Interim Report 2020 Total owners’ equity 6,633,842,960.40 6,426,187,766.47 Total liabilities and owners’ equity 9,766,589,063.85 8,696,013,845.08 3. Consolidated Income Statement Unit: RMB Item H1 2020 H1 2019 1. Revenue 2,286,744,080.79 3,185,448,344.01 Including: Operating revenue 2,286,744,080.79 3,185,448,344.01 2. Costs and expenses 2,127,801,124.48 2,737,159,910.26 Including: Cost of sales 1,683,752,331.27 2,210,886,955.53 Taxes and surcharges 35,766,255.41 42,736,804.77 Selling expense 81,739,905.59 77,836,942.94 Administrative expense 177,893,599.47 191,205,597.74 Development cost 123,441,723.06 161,939,039.23 Finance costs 25,207,309.68 52,554,570.05 Including: Interest expense 38,659,705.45 47,316,465.76 Interest income 13,506,359.51 4,338,765.10 Add: Other income 36,850,705.82 32,226,225.91 Return on investment (“-” for loss) 150,730,013.89 10,417,475.41 Including: Share of profit or loss of joint ventures and -3,579,523.35 5,083,101.54 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 (“-” for loss) -144,695,954.16 5,282,600.00 Credit impairment loss (“-” for loss) -1,553,716.48 -530,951.31 Asset impairment loss (“-” for loss) -24,613,079.38 -1,543,199.38 Asset disposal income (“-” for loss) -353,863.18 513,490.00 3. Operating profit (“-” for loss) 175,307,062.82 494,654,074.38 Add: Non-operating income 2,125,819.41 3,097,024.44 Less: Non-operating expense 2,383,926.90 2,214,356.54 4. Profit before tax (“-” for loss) 175,048,955.33 495,536,742.28 Less: Income tax expense 27,067,833.69 74,839,232.29 5. Net profit (“-” for net loss) 147,981,121.64 420,697,509.99 56 Lu Thai Textile Co., Ltd. Interim Report 2020 5.1 By operating continuity 5.1.1 Net profit from continuing operations (“-” for net loss) 147,981,121.64 420,697,509.99 5.1.2 Net profit from discontinued operations (“-” for net loss) 5.2 By ownership 5.2.1 Net profit attributable to owners of the Company as the 144,119,579.22 411,446,216.59 parent 5.2.1 Net profit attributable to non-controlling interests 3,861,542.42 9,251,293.40 6. Other comprehensive income, net of tax 21,295,310.76 11,806,511.25 Attributable to owners of the Company as the parent 21,295,310.76 11,806,511.25 6.1 Items that will not be reclassified to profit or loss 6.1.1 Changes caused by re-measurements 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 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 profit or loss 21,295,310.76 11,806,511.25 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 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 21,295,310.76 11,806,511.25 currency-denominated financial statements 6.2.7 Other Attributable to non-controlling interests 7. Total comprehensive income 169,276,432.40 432,504,021.24 Attributable to owners of the Company as the parent 165,414,889.98 423,252,727.84 Attributable to non-controlling interests 3,861,542.42 9,251,293.40 8. Earnings per share 8.1 Basic earnings per share 0.17 0.480 57 Lu Thai Textile Co., Ltd. Interim Report 2020 8.2 Diluted earnings per share 0.16 0.480 Where business combinations under common control occurred in the current period, the net profit achieved by the acquirees before the combinations was RMB0, with the amount for the same period of last year being RMB0. Legal representative: Liu Zibin Chief Accountant: Zhang Hongmei Financial Manager: Zhang Keming 4. Income Statement of the Company as the Parent Unit: RMB Item H1 2020 H1 2019 1. Operating revenue 1,524,486,328.98 2,488,329,566.37 Less: Cost of sales 1,181,364,557.21 1,847,868,451.77 Taxes and surcharges 23,730,341.94 28,685,411.40 Selling expense 46,988,183.91 46,460,101.19 Administrative expense 111,338,619.84 115,345,994.08 R&D expense 82,599,289.44 111,017,731.29 Finance costs 5,664,248.42 12,593,818.90 Including: Interest expense 10,420,836.93 14,948,218.54 Interest income 3,879,751.58 1,707,105.18 Add: Other income 26,850,419.74 20,170,944.34 Return on investment (“-” for loss) 297,360,063.89 156,928,724.90 Including: Share of profit or loss of joint ventures and -3,579,523.35 5,083,101.54 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 (“-” for loss) -143,854,551.38 5,282,600.00 Credit impairment loss (“-” for loss) 1,110,012.04 -2,533,623.96 Asset impairment loss (“-” for loss) -20,100,921.17 Asset disposal income (“-” for loss) -414,285.87 593,665.89 2. Operating profit (“-” for loss) 233,751,825.47 506,800,368.91 Add: Non-operating income 1,982,724.35 2,310,510.04 Less: Non-operating expense 1,505,277.66 1,023,788.67 3. Profit before tax (“-” for loss) 234,229,272.16 508,087,090.28 Less: Income tax expense 12,153,281.55 56,933,685.54 58 Lu Thai Textile Co., Ltd. Interim Report 2020 4. Net profit (“-” for net loss) 222,075,990.61 451,153,404.74 4.1 Net profit from continuing operations (“-” for net loss) 222,075,990.61 451,153,404.74 4.2 Net profit from discontinued operations (“-” for net loss) 5. Other comprehensive income, net of tax 5.1 Items that will not be reclassified to profit or loss 5.1.1 Changes caused by re-measurements 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 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 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 222,075,990.61 451,153,404.74 7. Earnings per share 7.1 Basic earnings per share 0.26 0.53 7.2 Diluted earnings per share 0.26 0.53 5. Consolidated Cash Flow Statement Unit: RMB Item H1 2020 H1 2019 1. Cash flows from operating activities: Proceeds from sale of commodities and rendering of services 2,349,623,633.05 3,110,163,161.87 Tax rebates 88,289,716.37 95,975,203.98 59 Lu Thai Textile Co., Ltd. Interim Report 2020 Cash generated from other operating activities 55,602,212.50 46,482,650.58 Subtotal of cash generated from operating activities 2,493,515,561.92 3,252,621,016.43 Payments for commodities and services 1,263,252,180.21 1,987,264,167.92 Cash paid to and for employees 818,429,524.90 882,377,720.86 Taxes paid 98,517,829.70 171,428,644.27 Cash used in other operating activities 103,923,761.42 91,833,420.81 Subtotal of cash used in operating activities 2,284,123,296.23 3,132,903,953.86 Net cash generated from/used in operating activities 209,392,265.69 119,717,062.57 2. Cash flows from investing activities: Proceeds from disinvestment 50,131,167.06 30,000,000.00 Return on investment 146,015,342.75 2,402,138.74 Net proceeds from the disposal of fixed assets, intangible assets 2,828,220.00 2,599,510.60 and other long-lived assets Net proceeds from the disposal of subsidiaries and other business units Cash generated from other investing activities 46,094,785.79 9,836,798.66 Subtotal of cash generated from investing activities 245,069,515.60 44,838,448.00 Payments for the acquisition of fixed assets, intangible assets and 318,762,103.03 336,291,428.03 other long-lived assets Payments for investments 52,215,000.00 50,000,000.00 Net increase in pledged loans granted Net payments for the acquisition of subsidiaries and other business units Cash used in other investing activities 3,231,380.25 4,874,724.40 Subtotal of cash used in investing activities 374,208,483.28 391,166,152.43 Net cash generated from/used in investing activities -129,138,967.68 -346,327,704.43 3. Cash flows from financing activities: Capital contributions received 50,000,000.00 50,000,000.00 Including: Capital contributions by non-controlling interests to 50,000,000.00 50,000,000.00 subsidiaries Borrowings raised 2,152,485,725.20 2,583,222,673.24 Cash generated from other financing activities 174,000,000.00 19,000,000.00 Subtotal of cash generated from financing activities 2,376,485,725.20 2,652,222,673.24 Repayment of borrowings 1,075,621,432.55 1,801,353,379.40 Interest and dividends paid 81,488,219.93 514,442,200.45 Including: Dividends paid by subsidiaries to non-controlling 50,000,000.00 50,000,000.00 interests 60 Lu Thai Textile Co., Ltd. Interim Report 2020 Cash used in other financing activities 160,000,000.00 21,164,104.03 Subtotal of cash used in financing activities 1,317,109,652.48 2,336,959,683.88 Net cash generated from/used in financing activities 1,059,376,072.72 315,262,989.36 4. Effect of foreign exchange rates changes on cash and cash 460,253.84 -228,703.12 equivalents 5. Net increase in cash and cash equivalents 1,140,089,624.57 88,423,644.38 Add: Cash and cash equivalents, beginning of the period 878,559,018.92 535,134,772.90 6. Cash and cash equivalents, end of the period 2,018,648,643.49 623,558,417.28 6. Cash Flow Statement of the Company as the Parent Unit: RMB Item H1 2020 H1 2019 1. Cash flows from operating activities: Proceeds from sale of commodities and rendering of services 1,618,771,452.43 2,462,659,877.36 Tax rebates 36,161,757.59 61,662,415.98 Cash generated from other operating activities 32,417,593.75 21,521,514.73 Subtotal of cash generated from operating activities 1,687,350,803.77 2,545,843,808.07 Payments for commodities and services 1,120,352,074.73 1,310,008,487.94 Cash paid to and for employees 497,295,354.33 584,827,906.35 Taxes paid 43,095,322.48 111,246,694.11 Cash used in other operating activities 70,463,669.09 44,098,655.74 Subtotal of cash used in operating activities 1,731,206,420.63 2,050,181,744.14 Net cash generated from/used in operating activities -43,855,616.86 495,662,063.93 2. Cash flows from investing activities: Proceeds from disinvestment 50,131,167.06 30,000,000.00 Return on investment 296,015,342.75 152,402,138.74 Net proceeds from the disposal of fixed assets, intangible assets 9,912,775.89 2,577,416.61 and other long-lived assets Net proceeds from the disposal of subsidiaries and other business units Cash generated from other investing activities 411,047,820.90 71,873,773.84 Subtotal of cash generated from investing activities 767,107,106.60 256,853,329.19 Payments for the acquisition of fixed assets, intangible assets and 28,778,618.38 122,593,981.68 other long-lived assets Payments for investments 208,165,000.00 402,922,200.00 Net payments for the acquisition of subsidiaries and other 61 Lu Thai Textile Co., Ltd. Interim Report 2020 business units Cash used in other investing activities 535,327,516.63 240,578,744.40 Subtotal of cash used in investing activities 772,271,135.01 766,094,926.08 Net cash generated from/used in investing activities -5,164,028.41 -509,241,596.89 3. Cash flows from financing activities: Capital contributions received Borrowings raised 1,538,788,675.65 1,694,064,390.96 Cash generated from other financing activities 58,280,000.00 130,000,000.00 Subtotal of cash generated from financing activities 1,597,068,675.65 1,824,064,390.96 Repayment of borrowings 298,208,024.53 1,115,914,126.27 Interest and dividends paid 16,129,305.81 434,574,114.51 Cash used in other financing activities 135,072,100.00 196,713,504.03 Subtotal of cash used in financing activities 449,409,430.34 1,747,201,744.81 Net cash generated from/used in financing activities 1,147,659,245.31 76,862,646.15 4. Effect of foreign exchange rates changes on cash and cash -58,014.74 -1,121,122.58 equivalents 5. Net increase in cash and cash equivalents 1,098,581,585.30 62,161,990.61 Add: Cash and cash equivalents, beginning of the period 259,320,863.08 191,305,104.80 6. Cash and cash equivalents, end of the period 1,357,902,448.38 253,467,095.41 7. Consolidated Statements of Changes in Owners’ Equity 62 Lu Thai Textile Co., Ltd. Interim Report 2020 H1 2020 Unit: RMB H1 2020 Equity attributable to owners of the Company as the parent Other equity instruments Less Sp Item : eci Gen Other Non-controlling Total owners’ Pref Perp Trea fic eral Othe Share capital Capital reserves comprehensive Surplus reserves Retained earnings Subtotal interests equity erred etual Other sury res reser r shar bond income stoc er ve es s k ve 1. Balances as at the end of 858,121,541.00 258,046,245.42 91,626,571.75 1,117,267,351.63 5,372,073,615.12 7,697,135,324.92 602,169,223.52 8,299,304,548.44 the prior year Add: Adjustments for changed accounting policies Adjustments for corrections of previous errors Adjustments for business combinations under common control Other adjustments 2. Balances as at the 858,121,541.00 258,046,245.42 91,626,571.75 1,117,267,351.63 5,372,073,615.12 7,697,135,324.92 602,169,223.52 8,299,304,548.44 beginning of the year 3. Increase/ decrease in the 71,391,357.42 21,295,310.76 58,307,425.12 150,994,093.30 3,861,542.42 154,855,635.72 period (“-” for decrease) 3.1 Total comprehensive 21,295,310.76 144,119,579.22 165,414,889.98 3,861,542.42 169,276,432.40 income 3.2 Capital increased and 71,391,357.42 71,391,357.42 50,000,000.00 121,391,357.42 reduced by owners 63 Lu Thai Textile Co., Ltd. Interim Report 2020 3.2.1 Ordinary shares 50,000,000.00 50,000,000.00 increased by shareholders 3.2.2 Capital increased by holders of other equity 71,391,357.42 71,391,357.42 71,391,357.42 instruments 3.2.3 Share-based payments included in owners’ equity 3.2.4 Other 3.3 Profit distribution -85,812,154.10 -85,812,154.10 -50,000,000.00 -135,812,154.10 3.3.1 Appropriation to surplus reserves 3.3.2 Appropriation to general reserve 3.3.3 Appropriation to -85,812,154.10 -85,812,154.10 -50,000,000.00 -135,812,154.10 owners (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 64 Lu Thai Textile Co., Ltd. Interim Report 2020 defined benefit pension 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. Balances as at the end of 858,121,541.00 71,391,357.42 258,046,245.42 112,921,882.51 1,117,267,351.63 5,430,381,040.24 7,848,129,418.22 606,030,765.94 8,454,160,184.16 the period H1 2019 Unit: RMB H1 2019 Equity attributable to owners of the Company as the parent Other equity Item instruments Specifi Gen Other Non-controlling Total owners’ Pref Perp Less: Treasury c eral Othe Share capital Ot Capital reserves comprehensiv Surplus reserves Retained earnings Subtotal interests equity erre etual stock reserv reser r he e income d bond e ve r shar s 65 Lu Thai Textile Co., Ltd. Interim Report 2020 es 1. Balances as at the end 922,602,311.00 699,493,647.48 486,922,944.94 61,157,013.37 1,022,717,451.40 4,927,500,989.55 7,146,548,467.86 579,276,247.53 7,725,824,715.39 of the prior year Add: Adjustments for changed accounting -520,200.00 15,797,284.81 15,277,084.81 15,277,084.81 policies Adjustments for corrections of previous errors Adjustments for business combinations under common control Other adjustments 2. Balances as at the 922,602,311.00 699,493,647.48 486,922,944.94 60,636,813.37 1,022,717,451.40 4,943,298,274.36 7,161,825,552.67 579,276,247.53 7,741,101,800.20 beginning of the year 3. Increase/ decrease in the period (“-” for -64,480,770.00 -442,861,219.20 -486,922,944.94 11,806,511.25 -17,614,553.91 -26,227,086.92 8,640,988.50 -17,586,098.42 decrease) 3.1 Total 11,806,511.25 411,446,216.59 423,252,727.84 9,251,293.40 432,504,021.24 comprehensive income 3.2 Capital increased -64,480,770.00 -442,861,219.20 -486,922,944.94 -20,419,044.26 49,389,695.10 28,970,650.84 and reduced by owners 3.2.1 Ordinary shares -64,480,770.00 -442,630,569.04 -486,922,944.94 -20,188,394.10 50,000,000.00 29,811,605.90 increased by shareholders 3.2.2 Capital increased by holders of other equity instruments 3.2.3 Share-based payments included in 66 Lu Thai Textile Co., Ltd. Interim Report 2020 owners’ equity 3.2.4 Other -230,650.16 -230,650.16 -610,304.90 -840,955.06 3.3 Profit distribution -429,060,770.50 -429,060,770.50 -50,000,000.00 -479,060,770.50 3.3.1 Appropriation to surplus reserves 3.3.2 Appropriation to general reserve 3.3.3 Appropriation to owners (or -429,060,770.50 -429,060,770.50 -50,000,000.00 -479,060,770.50 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 benefit pension schemes transferred to retained earnings 3.4.5 Other comprehensive income transferred to retained earnings 67 Lu Thai Textile Co., Ltd. Interim Report 2020 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. Balances as at the end 858,121,541.00 256,632,428.28 72,443,324.62 1,022,717,451.40 4,925,683,720.45 7,135,598,465.75 587,917,236.03 7,723,515,701.78 of the period 8. Statements of Changes in Owners’ Equity of the Company as the Parent H1 2020 Unit: RMB H1 2020 Other equity instruments Less: Other Item Treas Specific Total owners’ Share capital Preferre Perpetual Capital reserves comprehensiv Surplus reserves Retained earnings Other Other ury reserve equity d shares bonds e income stock 1. Balances as at the end of the prior year 858,121,541.00 317,206,232.47 1,114,158,611.99 4,136,701,381.01 6,426,187,766.47 Add: Adjustments for changed accounting policies Adjustments for corrections of previous errors Other adjustments 2. Balances as at the beginning of the year 858,121,541.00 317,206,232.47 1,114,158,611.99 4,136,701,381.01 6,426,187,766.47 3. Increase/ decrease in the period (“-” for 71,391,357.42 136,263,836.51 207,655,193.93 decrease) 68 Lu Thai Textile Co., Ltd. Interim Report 2020 3.1 Total comprehensive income 222,075,990.61 222,075,990.61 3.2 Capital increased and reduced by owners 71,391,357.42 71,391,357.42 3.2.1 Ordinary shares increased by shareholders 3.2.2 Capital increased by holders of other 71,391,357.42 71,391,357.42 equity instruments 3.2.3 Share-based payments included in owners’ equity 3.2.4 Other 3.3 Profit distribution -85,812,154.10 -85,812,154.10 3.3.1 Appropriation to surplus reserves 3.3.2 Appropriation to owners (or -85,812,154.10 -85,812,154.10 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 pension schemes transferred to retained earnings 3.4.5 Other comprehensive income transferred to retained earnings 69 Lu Thai Textile Co., Ltd. Interim Report 2020 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. Balances as at the end of the period 858,121,541.00 71,391,357.42 317,206,232.47 1,114,158,611.99 4,272,965,217.52 6,633,842,960.40 H1 2019 Unit: RMB H1 2019 Other equity instruments Other Item Perpet Less: Treasury Specific Total owners’ Share capital Preferred Capital reserves comprehensiv Surplus reserves Retained earnings Other ual Other stock reserve equity shares e income bonds 1. Balances as at the end of the prior year 922,602,311.00 759,836,756.57 486,922,944.94 520,200.00 1,019,608,711.76 3,714,813,049.43 5,930,458,083.82 Add: Adjustments for changed accounting -520,200.00 15,797,284.81 15,277,084.81 policies Adjustments for corrections of previous errors Other adjustments 2. Balances as at the beginning of the year 922,602,311.00 759,836,756.57 486,922,944.94 1,019,608,711.76 3,730,610,334.24 5,945,735,168.63 3. Increase/ decrease in the period (“-” for -64,480,770.00 -442,630,524.10 -486,922,944.94 22,092,634.24 1,904,285.08 decrease) 3.1 Total comprehensive income 451,153,404.74 451,153,404.74 3.2 Capital increased and reduced by owners -64,480,770.00 -442,630,524.10 -486,922,944.94 -20,188,349.16 3.2.1 Ordinary shares increased by -64,480,770.00 -442,630,569.04 -486,922,944.94 -20,188,394.10 shareholders 70 Lu Thai Textile Co., Ltd. Interim Report 2020 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 44.94 44.94 3.3 Profit distribution -429,060,770.50 -429,060,770.50 3.3.1 Appropriation to surplus reserves 3.3.2 Appropriation to owners (or -429,060,770.50 -429,060,770.50 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 pension 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. Balances as at the end of the period 858,121,541.00 317,206,232.47 1,019,608,711.76 3,752,702,968.48 5,947,639,453.71 71 Lu Thai Textile Co., Ltd. Interim Report 2020 III Company Profile Lu Thai Textile Co., Ltd. (hereinafter referred to as the “Company”) is a joint venture invested by Zibo Lucheng Textile Investment Co., Ltd (originally named Zibo Lucheng Textile Co., Ltd, hereinafter referred to as Lucheng Textile) and Thailand Tailun Textile Co., Ltd. On 3 February 1993, the Company is approved by the former Ministry of Foreign Trade and Economy of the State (1993) in WJMZEHZ No. 59 to convert into a joint-stock enterprise. Zibo Administration for Industry and Commerce issued the Company corporate business license with the registration No. of QGLZZZ No. 000066. In July 1997, the Company is approved by the Securities Committee of the Department of the State in the ZWF (1997) No. 47 to issue 80 million shares of domestically listed foreign share( B-shares) at the price of RMB 1.00 per share. Upon approved by Shenzhen Stock Exchange with No. (1997) 296 Listing Notice, the Company is listed on the Shenzhen Stock Exchange on 19 August 1997 with B-shares stock code of 200726. On 24 November 2000, approved by ZJGSZ [2000] No.199 by CSRC, the Company increased publication of 50 million shares of general share (A-shares) at the book value of RMB 1.00, which are listed on the Shenzhen Stock Exchange on 25 December 2000 with A-shares stock code of 000726 through approval by Shenzhen Stock Exchange with No. (2000) 162 Listing Notice. As approved by 2000 Annual General Meeting in May 2001, the Company carried out the distribution plan that 10 shares of capital public reserve are converted to 3 more shares for each 10 shares. As approved by Resolutions of 2001 Annual General Meeting in June 2002, the Company implemented the distribution plan that 10 shares of capital public reserve are converted 3 more shares for each 10 shares again. As approved by 2002 Annual General Meeting in May 2003, the Company implemented the distribution plan that 10 shares of capital public reserve are 2 more shares for each 10 shares, and inner employees’ shared increased to 40.56 million shares. As examined and approved by ZJGSZ No. [2000] 199 of CSRC, the inner employees’ shares will start circulation 3 years later since listing on the A-share market. On 25 December 2003, the inner employees’ shares reach 3 years since listing on the A-share stock market, and they set out circulation on 26 December 2003. As approved by the Annual General Meeting 2006 held in June 2007, the Company implemented the plan on converting 10 shares to all its shareholders with capital reserves for every 10 shares. After capitalization, the registered capital of the Company was RMB 844.8648 million. The Company, in accordance with the official reply on approving Lu Thai Textile Co., Ltd. to issue additional shares (ZJXK [2008] No. 890 document) from CSRC, issued the Renminbi common shares (A shares) amounting to 150 million shares on 8 December 2008. According to the relevant resolution of the 2nd Special Extraordinary General Meeting of 2011, the relevant resolution of the 15 th Meeting of the 6th Board of Directors, the Opinion of China Securities Regulatory Commission on the Restricted Share Incentive Plan of Lu Thai Textile Co., Ltd. (Shang-Shi-Bu-Han [2011] No. 206), the Company applied for a registered capital increment of RMB 14.09 million, which was contributed by restricted share incentive receivers with monetary funds. In accordance with the resolution of Proposal on Repurchasing and Canceling Partial Restricted Shares already Granted for the Original Incentive Targets not Reaching the Incentive Conditions made at the 23 rd Session of the 6th Board of Directors on 13 August 2012, the Company canceling a total of 60,000.00 shares already granted for the original incentive targets not reaching the incentive conditions. According to the second temporary resolution of Proposal on counter purchase of part of the domestic listed foreign share (B share) on 25 June 2012, the Company counter purchase domestic listed foreign share (B share) 48,837,300 shares. According to the Proposal on Repurchase and Cancel Part of Unlocked Restricted Share of the Original Incentive Personnel not Conforming to the Incentive Condition, Proposal on Repurchase and Cancel unlocked Restricted Share in Second Unlocked Period of all the Incentive Personnel reviewed and approved by the 26th Meeting of the 6th Board of Directors on 27 March 2013, the Company repurchase and cancel 4,257,000 shares owned by original people whom to motivate. According to the Proposal on Repurchase and Write-off of Partly of the Original Incentive Targets Not Met with the Incentive 72 Lu Thai Textile Co., Ltd. Interim Report 2020 Conditions but Granted Restricted Shares approved on the 11th Meeting of the 7th Board of Directors on 11 June 2014, to execute repurchase and write-off of the whole granted shares of 42,000 shares of the original incentive targets not met with the incentive targets of the Company. As per the Proposal on Buy-back of Some A- and B-shares considered and approved as a resolution at the 1st special meeting of shareholders on 5 August 2015, the Company repurchased 33,156,200 domestically listed foreign shares (B-shares). As per the Proposal on Buy-back of Some B-shares considered and approved as a resolution at the 2nd Extraordinary General Meeting on 23 March 2018, the Company repurchased 64,480,800 domestically listed foreign shares (B-shares). As of 30 June 2020, the registered capital of the Company was RMB858.1215 million. The Company’s registered address: No. 11, Mingbo Road, Hi-tech Development Zone, Zibo, Shandong The Company’s unified social credit code: 91370300613281175K The Company’s legal representative: Liu Zibin The Company establishes the corporate governance structure consisting of the shareholders meeting, the Board of Directors and the Supervisory Committee. At present, the Company has set up various departments including the production department, the quality management department, the yarn BD, the weaving BD, the dyeing BD, the fabric finishing BD, the clothing manufacturing department, the clothing manufacturing BD, the clothing marketing department, the global marketing department, the enterprise management department, the financial department, the design & development department and the strategy and market department etc.. The scope of business of the Company and its subsidiaries (hereinafter referred to as “the Group”) shall include: the design, R&D, production and sales of various textiles and garments including yarns, fabrics, blouses/shirts, suits and coats etc.; the textiles and clothing testing; the production and sales of Class I medical devices; the production and sales of non-medical masks and protective clothing; the technical development, service and consultation based on the e-commerce platform; the processing and sales of mechanical and electrical products; the procurement of agricultural products; hotel, restaurant, catering, conference and training services; the lease of self-owned premises and lands; the non-quota license management; the procurement and sales of non-exclusive goods. The Company’s financial statements and Notes thereof have been approved for issue by the 13 th Meeting of the 9th Board of Directors held on 26 August 2020. There were 18 subsidiaries included into the consolidation scope of the Company from January to June 2020, and for the details, please refer to Notes VIII. “Equities among Other Entities”. IV Basis for Preparation of Financial Statements 1. Preparation Basis This financial statement is prepared in accordance with the accounting standards for business enterprises, and the application guide, interpretation and other relevant regulations (hereinafter collectively referred to as “Accounting Standards for Business Enterprises”) issued by the Ministry of Finance. In addition, the Group also disclosed relevant financial information in accordance with the Regulations on Information Disclosure and Compilation for Companies Public Offering Securities No. 15-General Provisions on Financial Report (revised in 2014) issued by China Securities Regulatory Commission. The Group's accounting is based on the accrual basis. Except for certain financial instruments, this financial statement is measured on the basis of historical cost. If the asset is impaired, the corresponding impairment provision shall be made in accordance with relevant regulations. 73 Lu Thai Textile Co., Ltd. Interim Report 2020 2. Going-concern The financial statements are presented on the basis of continuing operations. V Significant Accounting Policies and Estimates Specific accounting policies and accounting estimates indicators: 1. Statement of Compliance with the Accounting Standards for Business Enterprises The financial statements prepared by the Company are in compliance with in compliance with the Accounting Standards for Business Enterprises, which factually and completely present the Company’s, and the Company’s financial positions as at 30 June 2020, business results and cash flows for the January to June of 2020, and other relevant information. 2. Fiscal Year The Company’s fiscal year starts on 1 January and ends on 31 December of every year according to the Gregorian calendar. 3. Operating Cycle The Group regards 12 months as an operating cycle. 4. Recording Currency The Company and its domestic subsidiaries adopt RMB as the recording currency. The Company’s overseas subsidiaries confirm to adopt HK Dollar and US Dollar as the recording currency according their major economic environment of the operating. When preparing the financial statements for the Reporting Period, the Group adopted RMB as the recording currency. 5. Accounting Treatment for Business Combinations under the Common Control and Not under the Common Control (1) Business combinations under the same control For business combinations under the same control, the assets and liabilities of the merged party acquired by the merger party in the merger, except for adjustments due to different accounting policies, shall be measured at the carrying value of the merged party in the consolidated financial statement of the final controller on the combination date. As for the difference between the carrying value of the merger consideration and carrying value of the net assets obtained in the merger, the capital reserve (capital stock premium) shall be adjusted, and if the capital reserve (capital stock premium) is insufficient to offset, the retained earnings shall be adjusted. (2) Business combinations not under the same control For a business combination not under the same control, the cost of the combination is the assets paid, liabilities incurred or assumed, and the fair value of the equity securities issued on the acquisition date to obtain control over the purchased party. On the purchase date, the acquired assets, liabilities and contingent liabilities of the purchased party are recognized at fair value. The difference between the merger cost and the fair value of the identifiable net assets of the acquired party acquired in the merger (the former is greater than the latter) is recognized as goodwill, and subsequent measurement is made based on the cost deducting the accumulated impairment provision; the difference between the merger cost and the fair value of the identifiable net assets of the 74 Lu Thai Textile Co., Ltd. Interim Report 2020 acquired party acquired in the merger (the former is less than the latter) shall be recorded into the current profit or loss after the recheck. (3) Treatment of transaction costs in business combinations Intermediary expenses such as auditing, legal services, evaluation and consulting and other related management expenses incurred for the business combination shall be included in the current profit and loss when incurred. The transaction costs of equity securities or debt securities issued as the merger consideration shall be included in the initial recognition amount of equity securities or debt securities. 6. Preparation of the Consolidated Financial Statements (1) Consolidation scope The consolidation scope of the consolidated financial statements is determined on the basis of control. Control means that the Company has the power over the invested unit, enjoys variable returns by participating in the related activities of the invested unit, and has the ability to use the power over the invested unit to influence the amount of its return. Subsidiaries refer to the entities controlled by the Company (including enterprises, divisible parts of invested entities, structured entities, etc.). (2) Preparation method of consolidated financial statements The consolidated financial statements are prepared by the Company based on the financial statements of the Company and its subsidiaries and other relevant materials. When preparing the consolidated financial statements, the accounting policies and accounting fiscal of the Company and those of subsidiaries shall be consistent and the large transactions and intercourse balance among companies shall be offset. Subsidiaries and businesses increased due to business combinations under the same control during the Reporting Period shall be included into the Company’s combination scope since the date when they are jointly controlled by the final controller, and the operating result and cash flow since then shall be respectively included into the consolidated income statement and consolidated cash flow statement. As for subsidiaries and businesses increase due to business combinations not under the same control during the Reporting Period, the revenue, expenses and profit or those subsidiaries and businesses from the purchase date to the end of the Reporting Period shall be included into the consolidated income statement and the cash flow thereof shall be included into the consolidated cash flow statement. The share of shareholders’ equity in subsidiaries not belonging to the Company shall be regarded as the minority interests and separately listed under the item of shareholders’ equity in the consolidated balance sheet. The share of current portion of net profit or loss in subsidiaries belonging to minority interests shall presented as the item of minority interests under the item of net profit in the consolidated income statement. The difference between the losses of subsidiaries born by not-controlling shareholders and the share of the company’s owners’ equity at the period-beginning the not-controlling shareholders enjoy (the former is larger than the latter) shall be offset the minority interests. (3) Purchase of minority shareholders' equity of subsidiaries As for the difference between the cost of a long-term equity investment newly acquired due to the purchase of the minority shares and the share of net assets of the subsidiary continuously accounted from the purchase date or combination date the Company shall enjoy based on the new shareholding ratio and the difference between the disposal price of partial equity investments in the subsidiary under the premise of remaining the control power and the share of net assets of the subsidiary continuously accounted from the purchase date or combination date the Company shall enjoy and corresponding to the disposal of long-term equity investments, the capital reserve (capital stock premium) in the consolidated balance sheet shall be adjusted and when the capital reserve is insufficient to offset, the retained earnings shall be adjusted. (4) Treatment of loss of control over subsidiaries If the control over the original subsidiary is lost due to the disposal of partial equity investments or other reasons, the residual equity shall be remeasured at the fair value on the date of losing the control power; the balance of the sum of the consideration obtained from equity disposal and the fair value of residual equity after deducting the sum of the share of the carrying value of net assets in the original subsidiary continuously accounted from the purchase date the Company shall enjoy based on the original shareholding ratio 75 Lu Thai Textile Co., Ltd. Interim Report 2020 and the goodwill shall be recorded into the investment income of the period when the control power is lost. The other comprehensive income related to the equity investments in the original subsidiary shall be transferred to the current profit or loss when the control power is lost except for the other comprehensive income arising from changes in net liabilities or net assets due to the remeasurement of defined benefit plan by the investee. 7. Confirmation Standard for Cash and Cash Equivalent The term “cash” refers to cash on hand and deposits that are available for payment at any time. Cash equivalents refer to investments held by the Group that are short-term, highly liquid, easily convertible into known amounts of cash, and have little risk of change in value. 8. Foreign Currency Businesses and Translation of Foreign Currency Financial Statements (1) Foreign currency business The Group's foreign currency business is translated into the amount of the recording currency at the spot exchange rate on the transaction date. On the balance sheet date, foreign currency monetary items are translated at the spot exchange rate on the balance sheet date. The exchange difference 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 the previous balance sheet date is included in the current profit and loss; for foreign currency non-monetary items measured at historical cost, the translation adopts the spot exchange rate on the day the transaction occurs; for foreign currency non-monetary items measured at fair value, the translation adopts the spot exchange rate on the day when the fair value is confirmed, and the difference between the amount of recording currency and the amount of original recording currency shall be included into the current profit or loss. (2) Conversion of foreign currency financial statements When converting the foreign currency financial statements of overseas subsidiaries on the balance sheet date, the assets and liabilities items in the balance sheet shall be converted at the spot exchange rate on the balance sheet date. Other items of shareholders' equity except for "undistributed profits" shall be converted at the spot exchange rate on the occurrence date. Income and expense items in the income statement shall be converted using the current average exchange rate on the transaction date. All items in the cash flow statement are converted according to the current average exchange rate on the occurrence date of cash flow. The impact of exchange rate changes on cash is taken as a reconciling item, and the item "impact of exchange rate changes on cash and cash equivalents" is separately listed in the cash flow statement to reflect. The difference arising from the conversion of financial statements is reflected in the "other comprehensive income" under the shareholders' equity in the balance sheet. When disposing of the overseas operation and losing control rights, the foreign currency statement conversion difference related to the overseas operation shown under the shareholders' equity in the balance sheet shall be transferred to current profit and loss of disposal in whole or in proportion to the disposal of overseas operation. 9. Financial Instruments Financial instruments refer to contracts that form one party’s financial assets and form other parties’ financial liabilities or equity instruments. (1) Recognition and derecognition of financial instruments The Company recognizes a financial asset or liability when it becomes a party of the relevant financial instrument contract. Where a financial asset satisfies any of the following requirements, the recognition of it is terminated: ① The contractual rights for collecting the cash flow of the said financial asset are terminated; 76 Lu Thai Textile Co., Ltd. Interim Report 2020 ② The said financial asset has been transferred and meet the following derecognition conditions for transfer of financial assets. Only when the prevailing obligations of a financial liability are relieved in all or in part may the recognition of the financial liability be terminated in all or partly. Where the Company (debtor) enters into an agreement with a creditor so as to substitute the existing financial liabilities by way of any new financial liability, and if the contractual stipulations regarding the new financial liability is substantially different from that regarding the existing financial liability, it terminates the recognition of the existing financial liability, and at the same time recognizes the new financial liability. The purchase and sale of financial assets under the normal ways shall be recognized and stopped to be recognized respectively at the price of transaction date. (2) Classification and measurement of financial assets The Group classifies financial assets into the following three categories according to the business mode of managing financial assets and the contractual cash flow characteristics of financial assets upon initial recognition: financial assets measured at amortized cost, financial assets measured at fair value and whose changes are included in other comprehensive income, and financial assets measured at fair value and whose changes are included in current profit and loss. Financial assets measured at amortized cost The Group classifies financial assets that meet the following conditions and are not designated to be measured at fair value and whose changes are included in current profit and loss as financial assets measured at amortized cost: The Group's business model for managing this financial asset is aimed at collecting contractual cash flow; The contractual terms of this financial asset stipulate that the cash flow generated on the specific date is only the payment of principal and interest based on the principal amount outstanding. Such financial assets are measured in amortized cost by the effective interest method after initial recognition. Gains or losses arising from financial assets measured in amortized cost that are not part of any hedging relationship are included in current profit and loss when derecognition, amortization according to the effective interest method, or impairment is recognized. Financial assets measured at fair value and whose changes are included in other comprehensive income The Group classifies financial assets that meet the following conditions and are not designated to be measured at fair value and whose changes are included in current profit and loss as financial assets measured at fair value and whose changes are included in other comprehensive income: The Group's business model for managing this financial asset is aimed at both collecting the contractual cash flow and selling this financial asset; The contractual terms of this financial asset stipulate that the cash flow generated on the specific date is only the payment of principal and interest based on the principal amount outstanding. Such financial assets are subsequently measured at fair value after initial recognition. Interest, impairment losses or gains and exchange gains and losses calculated by the effective interest method are included in current profit and loss, while other gains or losses are included in other comprehensive income. When the financial asset is derecognized, the accumulated gains or losses previously included in other comprehensive income are transferred out and included in current profit and loss. Financial assets measured at fair value and whose changes are included in current profit and loss Except for the above financial assets measured at amortized cost and at fair value with changes included in other comprehensive income, the Group classifies all other financial assets as financial assets measured at fair value with changes included in current profit and loss. Upon initial recognition, in order to eliminate or significantly reduce accounting mismatches, the Group irrevocably designates some financial assets that should have been measured at amortized cost or at fair value and whose changes are included in other comprehensive income as financial assets measured at fair value and whose changes are included in current profit and loss. Such financial assets are subsequently measured at fair value after initial recognition, and the resulting gains or losses (including interest and dividend income) are included in current profit and loss unless the financial assets are part of the hedging relationship. 77 Lu Thai Textile Co., Ltd. Interim Report 2020 The business model of managing financial assets refers to how the Group manages financial assets to generate cash flow. The business model determines whether the cash flow of the financial assets managed by the Group comes from the collection of contractual cash flow, the sale of financial assets or both. The Group determines the business model for managing financial assets on the basis of objective facts and specific business objectives decided by key management personnel to manage financial assets. The Group evaluates the contractual cash flow characteristics of financial assets to determine whether the contractual cash flow generated by the relevant financial assets on the specific date is only the payment of principal and interest based on the principal amount outstanding. Among them, the principal refers to the fair value of financial assets upon initial recognition; interest includes consideration for the time value of money, credit risks related to the principal amount outstanding in the specific period, and other basic lending risks, costs and profits. In addition, the Group evaluates the contract terms that may lead to changes in the time distribution or amount of contractual cash flow of financial assets to determine whether they meet the requirements of the above-mentioned contractual cash flow characteristics. Only when the Group changes the business mode of managing financial assets will all affected related financial assets be reclassified on the first day of the first reporting period after business model changes, otherwise financial assets cannot be reclassified after initial recognition. Financial assets are measured at fair value upon initial recognition. For financial assets measured at fair value and whose changes are included in current profit and loss, relevant transaction expenses are directly included in current profit and loss; for other types of financial assets, relevant transaction expenses are included in the initial recognition amount. For accounts receivable arising from the sale of products or the provision of labor services, which do not include or do not consider significant financing components, the amount of consideration the Group is expected to be entitled to receive is taken as the initial recognition amount. (3) Classification and measurement of financial liabilities The Group's financial liabilities are classified upon initial recognition as: financial liabilities measured at fair value and whose changes are included in current profit and loss, and financial liabilities measured at amortized cost. For financial liabilities that are not classified as measured at fair value and whose changes are included in current profit and loss, relevant transaction costs are included in the initial recognition amount. Financial liabilities measured at fair value and whose changes are included in current profit and loss Financial liabilities measured at fair value and whose changes are included in current profit and loss include transactional financial liabilities and financial liabilities designated as measured at fair value upon initial recognition and whose changes are included in current profit and loss. Subsequent measurement shall be carried out according to fair value for such financial liabilities. Gains or losses resulting from changes in fair value and dividends and interest expenses related to such financial liabilities shall be included in current profit and loss. Financial liabilities measured at amortized cost Other financial liabilities are subsequently measured at amortized cost by using the effective interest method. Gains or losses resulting from derecognition or amortization are included in current profit and loss. Distinction between financial liabilities and equity instruments Financial liabilities refer to liabilities that meet one of the following conditions: ① The contractual obligation to deliver cash or other financial assets to other parties. ② The contractual obligation to exchange financial assets or financial liabilities with other parties under potentially unfavorable conditions. ③ Non-derivative contracts that must be or can be settled with the enterprise's own equity instruments in the future, and the enterprise will deliver a variable number of its own equity instruments according to the contract. ④ Derivative contracts that must be or can be settled with the enterprise's own equity instruments in the future, except derivatives contracts that exchange a fixed amount of cash or other financial assets with a fixed amount of its own equity instruments. 78 Lu Thai Textile Co., Ltd. Interim Report 2020 Equity instruments refer to contracts that can prove that an enterprise has the residual equity in its assets after deducting all liabilities. If the Group cannot unconditionally avoid performing a contractual obligation by delivering cash or other financial assets, the contractual obligation meets the definition of financial liability. If a financial instrument must be or can be settled with the Group's own equity instruments, it is necessary to consider whether the Group's own equity instruments used to settle the instrument are used as substitutes for cash or other financial assets or to enable the holder of this instrument to enjoy the residual equity in the assets after deducting all liabilities from the issuer. If it is the former, this instrument is the Group's financial liability; if the latter is the case, this instrument is the Group's equity instrument. (4) Derivative financial instruments and embedded derivatives The Group's derivative financial instruments include forward foreign exchange contracts. Initially, the fair value on the date when the derivative transaction contract is signed shall be used for measurement, and the fair value shall be used for subsequent measurement. Derivative financial instruments with positive fair value are recognized as an asset, while those with negative fair value are indeed recognized as a liability. Any gains or losses arising from changes in fair value that do not conform to the provisions of hedge accounting are directly included in current profit and loss. For hybrid instruments containing embedded derivatives, such as the main contract is a financial asset, the relevant provisions on classification of financial assets shall apply to the hybrid instruments as a whole. If the main contract is not a financial asset, and the hybrid instrument is not measured at fair value and its changes are included in current profit and loss for accounting treatment, the embedded derivative instrument has no close relationship with the main contract in terms of economic characteristics and risks, and has the same conditions as the embedded derivative instrument, and the separate existing instrument meets the definition of derivative instrument, the embedded derivative instrument shall be separated from the hybrid instrument and treated as a separate derivative financial instrument. If it is not possible to separately measure embedded derivative instruments at the time of acquisition or the subsequent balance sheet date, the hybrid instruments as a whole are designated as financial assets or financial liabilities measured at fair value and their changes are included in current profit and loss. (5) Fair value of financial instruments See Note V (10) for the method of determining the fair value of financial assets and liabilities. (6) Impairment of financial assets The Group conducts impairment accounting treatment for the following items and confirms the loss provision based on the expected credit losses: Financial assets measured at amortized cost; Receivables and creditors' investments measured at fair value and whose changes are included in other comprehensive income; Lease receivables; Financial guarantee contracts (except those that are measured at fair value and whose changes are included in current profit and loss, the transfer of financial assets does not meet the conditions for derecognition or continue to involve in the transferred financial assets). Measurement of expected credit loss Expected credit loss refers to the weighted average of the credit losses of financial instruments weighted by the risk of default. Credit loss refers to the difference between all contractual cash flows discounted at the original effective interest rate and receivable according to the contract and all cash flows expected to be collected of the Group, i.e. the present value of all cash shortfalls. Considering the reasonable and reliable information about past events, current situation and the forecast of future economic situation, the company takes the risk of default as the weight, calculates the probability weighted amount of the present value of the difference between the cash flow receivable from the contract and the cash flow expected to be received, and confirms the expected credit loss. The Group separately measures the expected credit losses of financial instruments at different stages. If the credit risk of financial instruments has not increased significantly since the initial recognition, it is in the first stage. The Group measures the loss reserve 79 Lu Thai Textile Co., Ltd. Interim Report 2020 according to the expected credit loss in the next 12 months; if the credit risk of financial instruments has increased significantly since its initial recognition but no credit impairment has occurred, it is in the second stage. The Group measures the loss reserve according to the expected credit loss during the whole duration of this instrument; if the financial instrument has suffered credit impairment since its initial recognition, it is in the third stage. The Group measures the loss reserve according to the expected credit loss during the whole duration of this instrument. For financial instruments with low credit risk on the balance sheet date, the Group assumes that their credit risk has not increased significantly since the initial recognition, and measures the loss reserve according to the expected credit loss in the next 12 months. The expected credit loss during the whole duration refers to the expected credit loss caused by all possible default events during the whole expected duration of financial instruments. The expected credit loss in the next 12 months refers to the expected credit loss caused by the possible default events of financial instruments within 12 months (or the expected duration if the expected duration of financial instruments is less than 12 months) after the balance sheet date, which is part of the expected credit loss in the whole duration. When measuring the expected credit loss, the longest term that the Group needs to consider is the longest contract term that the enterprise faces credit risk (including the option to renew the contract). The Group calculates interest income based on the book balance before deducting impairment provisions and the effective interest rate for financial instruments in the first and second stages and with low credit risk. The interest income shall be calculated according to their book balance minus the amortized cost after impairment provision and the effective interest rate for financial instruments in the third stage. The Group always measures its loss reserves at an amount equivalent to the expected credit loss during the entire duration for notes receivable and accounts receivable, regardless of whether there is any significant financing component. If a single financial asset cannot be used to evaluate the expected credit loss information at a reasonable cost, the Group will divide the notes receivable and accounts receivable into portfolio on the basis of the credit risk features, and calculate the expected credit loss based on the portfolio. The basis for determining the portfolio is as follows: A. Notes receivable Notes receivable portfolio 1: bank acceptance bills and L/C Notes receivable portfolio 2: commercial acceptance bills B. Accounts receivable Accounts receivable portfolio 1: payment not overdue (with credit insurance) Accounts receivable portfolio 2: payment not overdue (without credit insurance) Accounts receivable portfolio 3: payment overdue (with credit insurance) Accounts receivable portfolio 4: payment overdue (without credit insurance) For notes receivable divided into portfolios, with reference to historical credit loss experience, combined with current conditions and predictions of future economic conditions, the Group has calculated expected credit losses through default risk exposure and expected credit loss rate for the entire duration. For accounts receivable divided into portfolios, with reference to historical credit loss experience, combined with current conditions and predictions of future economic conditions, the Group has prepared a comparison table between the number of overdue days of accounts receivable and the expected credit loss rate over the entire duration, and has calculated the expected credit loss. Other receivables The Group divides other receivables into several portfolios based on the features of credit risk, and calculates the expected credit losses on the basis of the combination. The basis for determining the portfolio is as follows: Other receivables portfolio 1: Receivables from related parties within the scope of consolidation Other receivables portfolio 2: Tax refund receivable 80 Lu Thai Textile Co., Ltd. Interim Report 2020 Other receivables portfolio 3: Deposit receivable and security deposit Other receivables portfolio 4: other accounts For other receivables that are divided into portfolios, the Group calculates the expected credit loss with the default risk exposure and the expected credit loss rate within the next 12 months or the entire duration. Long-term receivables The long-term receivables of the Group include finance lease receivables and long-term advance receivables. Based on credit risk characteristics, the Group divides long-term receivables into portfolios of finance lease receivables and other long-term receivables, calculates expected credit losses based on the portfolio. The basis for determining the portfolio is as follows: A. Finance lease receivable portfolio: finance lease receivable B. Other long-term receivables: prepaid receivables For the financial lease receivables, the with reference to the historical credit loss experience, in combination with the current situation and the prediction of the future economic situation, the Group calculates the expected credit loss with the default risk exposure and the expected credit loss rate for the entire duration. Others, except finance lease receivables, are divided into portfolio long-term receivables; the Group calculates expected credit losses with default risk exposure and expected credit loss rate within the next 12 months or the entire duration. Creditors' investment and other creditors' investment For creditors' investment and other creditors' investment, the Group calculates the expected credit based on the nature of the investment, as well as kinds of types of counterparties and risk exposures, the default risk exposure and the expected credit loss rate within the next 12 months or the entire duration loss. Assessment on significant increase of credit risk In order to determine the relative changes in the default risk of financial instruments during their expected life and to assess whether the credit risk of financial instruments has increased significantly since initial recognition, the Group compares the default risk of financial instruments on the balance sheet date with the default risk on the initial recognition date. When determining whether the credit risk has risen greatly since the initial recognition, the Group considers reasonable and reliable information (forward-looking information inclusive) that can be obtained without unnecessary extra costs or efforts. The information the Group considers shall include: The debtor fails to pay the principal and interest according to the contract expiration date; The external or internal credit ratings (if any) of financial instruments, which have occurred or are expected, deteriorate significantly; The debtor’s operating results, which have occurred or are expected, deteriorate significantly; Existing or expected changes in technology, market, economy or legal environment will lead to a great adverse effect on the debtor's ability to repay the Group. Based on the nature of financial instruments, the Group assesses whether there is great risk in credit risk on the basis of individual financial instruments or financial instrument portfolios. During assessment based on financial instrument portfolios, the Group can divide financial instruments on the basis of common credit risk characteristics, such as overdue information and credit risk ratings. In case that the period overdue exceeds 30 days, the Group determines that there is a significant increase in the credit risk of financial instruments. Financial assets with depreciation of credit The Group assesses, on the balance sheet date, whether there is any credit impairment to financial assets measured at amortized cost and creditors' investment measured at fair value and whose changes are included in other comprehensive income. In case of one or more events that adversely affect the expected future cash flow of a financial asset occur, the financial asset will become financial assets with depreciation of credit. The observable information below can be treated as evidence for credit impairment to financial assets: 81 Lu Thai Textile Co., Ltd. Interim Report 2020 The issuer or debtor is caught in a serious financial difficulty; The debtor breaches the agreement of contract, such as default or overdue payment of interest or principal, or other default; Due to economic or contractual considerations related to the debtor's financial difficulties, the Group gives concessions to the debtor; and the concessions will not be made under any other circumstances; There lies a great probability of bankruptcy or other financial restructuring for the debtor; The issuer or debtor is caught in financial difficulties, which leads to the disappearance of the active market of the financial asset; Presentation of expected credit loss provision The Group remeasures expected credit losses on each balance sheet date to reflect the changes in the credit risk of financial instruments since initial recognition; the increase or reversal amount of the loss reserve formed there from shall be included in the current profit and loss as impairment losses or gains. For financial assets measured at amortized cost, the loss allowance offsets the carrying amount of the financial asset listed in the balance sheet; for creditors’ investment that are measured at fair value and its changes are included in other comprehensive income, the Group recognizes its loss reserve in other comprehensive income and will not offset the carrying amount of the financial asset. Write-offs In case that the Group fails to reasonably expect the contract cash flow of the financial asset to be recovered in a full or partial scale, the book balance of the financial asset will be written off directly. Such write-downs may constitute the derecognition for related financial assets. This situation occurs frequently when the Group determines that the debtor does not have any assets or any source of income to generate sufficient cash flow to repay the amount that will be written off. However, in accordance with the procedures for recovering due payments of the Group, the written-off financial assets may still be affected by the execution activities. In case that the financial asset written off is recovered later, it shall be included in the current profit and loss as the reversal of the impairment loss. (7) Transfer of financial assets The transfer of financial assets refers to the transfer or delivery of financial assets to another party (transferee) other than the issuer of the financial asset. If the Group has transferred almost all the risks and rewards of the ownership of financial assets to the transferee, derecognize the financial asset; if it retains almost all the risks and rewards of the ownership of financial assets, the financial asset will not be derecognized. If the Group has neither transferred nor retained almost all the risks and rewards of the ownership of financial assets, it shall be dealt with in the following situations: if the control of the financial asset is abandoned, the confirmation of the financial asset shall be terminated and the generated assets and liabilities shall be confirmed; If the financial assets are controlled, the relevant financial assets shall be recognized according to the extent of their continued involvement in the transferred financial assets, and the relevant liabilities shall be recognized accordingly. (8) Offsetting financial assets and financial liabilities When the Company has a legal right that is currently enforceable to set off the recognized financial assets and financial liabilities, and intends either to settle on a net basis, or to realize the financial asset and settle the financial liability simultaneously, a financial asset and a financial liability shall be offset and the net amount is presented in the balance sheet. Except for the above circumstances, financial assets and financial liabilities shall be presented separately in the balance sheet and shall not be offset. 10. Measurement of Fair Value Fair value refers to the price that market participants can receive from sales of a asset or shall pay for transfer of a liability in the orderly transaction that occurs on the measurement date. The Group measures related assets or liabilities at fair value, assuming that the orderly transaction of selling assets or transferring 82 Lu Thai Textile Co., Ltd. Interim Report 2020 liabilities is conducted in the main market of related assets or liabilities; if there is no main market, the Group assumes that the transaction is conducted in the most beneficial market. The main market (or the most favorable market) is the trading market that the Group can enter on the measurement date. The Group uses the assumptions used by market participants to maximize their economic benefits when pricing the asset or liability. For financial assets or financial liabilities with active markets, the Group uses the quotation in active markets to determine its fair value. If there is no active market for financial instruments, the Group uses valuation techniques to determine its fair value. When measuring non-financial assets at fair value, the ability of market participants to best use the asset for generating economic benefits, or the ability to sell the asset to other market participants that can best use the asset to generate economic benefits shall be considered. The Group adopts valuation techniques that are applicable in the current situation and have sufficient available data and other information to support it. Priority is given to using relevant observable input values. Only when observable input values are unavailable or are not feasible to obtain, the unobservable input values can be used. For assets and liabilities measured or disclosed at fair value in the financial statements, the fair value hierarchy to which they belong is determined based on the lowest level input value that is important to the fair value measurement as a whole: the first level input value is the unadjusted quotation of the same assets or liabilities able to be obtained in an active market on the measurement date; the second level input value is the directly or indirectly observable input value of the relevant asset or liability except the first level input value; the third level input value is unobservable input value of related assets or liabilities. On each balance sheet date, the Group reassessed the assets and liabilities continuously measured at fair value confirmed in the financial statements to determine whether there is a transition among levels of fair value measurement. Presented respectively without mutual offset. 11. Inventory (1) Classification Inventories mainly include raw materials, work-in-progress, stock products, product processed on entrustment, consumptive biological assets and etc. (2) Valuation method of inventories acquiring and issuing Inventories shall be measured at actual cost when acquired, and the cost of the inventories including the procurement cost, processing cost and other costs. Grey yarn, dyed yarn, and plus material shall be measured at first-in first-out method when acquired and delivered; other inventories shall be measured as per the weighted average method (3) Basis for determining net realizable value of inventories and provision methods for decline in value of inventories Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion, the estimated costs necessary to make the sale and relevant taxes. Net realizable value is determined on the basis of clear evidence obtained, and takes into consideration the purpose of holding inventories and effect of post balance sheet events. At the balance sheet date, inventories are measured at the lower of the cost and net realizable value. If the net realizable value is below the cost of inventories, a provision for decline in value of inventories is made. The provision for inventories decline in value is determined by the difference of the cost of individual item less its realizable value. After the provision for decline in value of inventories is made, if the circumstances that previously caused inventories to be written down below cost no longer exist so that the net realizable value of inventories is higher than their cost, the original provision for decline in value is reversed and the reversal is included in profit or loss for the period. (4) The perpetual inventory system is maintained for stock system. (5) Amortization method of the low-value consumption goods and packing articles For the Low-value consumption goods, should be amortized by one-off amortization method when consuming. 83 Lu Thai Textile Co., Ltd. Interim Report 2020 For the packing articles, should be amortized by one-off amortization method when consuming. 12. Long-term Equity Investments Long-term equity investments include equity investments in subsidiaries, joint ventures and associated enterprises. The investee that the Group is able to exert significant influence is an associated enterprise of the Group. (1) Determination of initial investment cost Long-term equity investment that forms a business combination: Long-term equity investment obtained by business combination under the same control, on the merger date, based on the book value share of the merged party’s owners’ equity in the final controller’s consolidated financial statements as investment cost; The long-term equity investment acquired by a business combination shall be the investment cost of the long-term equity investment according to the cost of the combination. For long-term equity investments obtained by other means: the long-term equity investment obtained by paying cash shall be the initial investment cost according to the actual purchase price; the long-term equity investment obtained by issuing equity securities shall be the initial investment cost of the fair value of the equity securities issued. (2) Subsequent measurement and profit and loss confirmation method Investment in subsidiaries is accounted for using the cost method unless the investment meets the conditions for holding for sale; investment in associates and joint ventures is accounted for using the equity method. For long-term equity investments that are accounted for using the cost method, in addition to the cash dividends or profits that have been declared but not yet included in the actual payment or consideration included in the investment, the cash dividends or profits declared by the invested entity are recognized as investment income and recorded into the current profit and loss. For long-term equity investments accounted for using the equity method, where the initial investment cost is greater than the fair value share of the investee’s identifiable net assets at the time of investment, the investment cost of the long-term equity investment is not adjusted; when the initial investment cost is less than the investment, the investee ’s If the fair value share of net assets is identified, the book value of the long-term equity investment is adjusted, and the difference is included in the current profit and loss of the investment. When using the equity method of accounting, the investment income and other comprehensive income are recognized separately according to the share of net profit and loss and other comprehensive income realized by the invested unit that should be enjoyed or shared, and the book value of the long-term equity investment is adjusted at the same time; The distribution of profits or cash dividends should be calculated to reduce the book value of long-term equity investment; the investee's other changes in owner's equity other than net profit and loss, other comprehensive income and profit distribution, adjust the book value of long-term equity investment and Included in capital reserves (other capital reserves). When confirming the share of the investee’s net profit or loss, based on the fair value of the investee’s identifiable assets at the time of investment, and in accordance with the Group’s accounting policies and accounting period, the net profit of the investee Confirm after making adjustments. If the additional investment and other reasons can exert significant influence on the investee or exercise joint control but do not constitute control, on the conversion date, the sum of the fair value of the original equity plus the additional investment cost will be used as the initial accounting for the equity method cost of investment. The difference between the fair value of the original equity on the conversion date and the book value, as well as the cumulative changes in fair value originally included in other comprehensive income, are transferred to the current profit and loss accounted for using the equity method. If the joint control or significant influence on the invested unit is lost due to the disposal of part of the equity investment, etc., the remaining equity after the disposal shall be changed to the Accounting Standards for Business Enterprises No. 22-Recognition and Measurement of Financial Instruments is performed, and the difference between fair value and book value is included in the current profit and loss. Other comprehensive income recognized by the original equity investment due to the equity method of accounting shall be accounted for on the same basis as the investee’s direct disposal of related assets or liabilities when the equity method of accounting is terminated; changes in other owners ’equity related to the original equity investment Transfer to current profit and loss. 84 Lu Thai Textile Co., Ltd. Interim Report 2020 If the control of the invested unit is lost due to the disposal of part of the equity investment, if the remaining equity after the disposal can exercise joint control or exert significant influence on the invested unit, the equity method is used for accounting and the remaining equity is treated as When acquiring, the equity method is adopted for adjustment; if the remaining equity after disposal cannot exercise joint control or exert significant influence on the investee, the accounting shall be changed according to the relevant provisions of "Accounting Standards for Business Enterprises No. 22-Recognition and Measurement of Financial Instruments The difference between the fair value and the book value on the date of loss of control is included in the current profit and loss. If the shareholding ratio of the company decreases due to the capital increase of other investors, thereby losing control but being able to exercise joint control or exert significant influence on the investee, the new shareholding ratio shall be used to confirm that the company should enjoy the capital increase of the investee. The difference between the increase in share and the increase in the share of net assets and the original book value of the long-term equity investment corresponding to the decrease in the proportion of the shareholding that should be carried forward are included in the current profit and loss; That is, adjustments are made using the equity method of accounting. The unrealized internal transaction gains and losses that occur between the Group and associates and joint ventures are calculated according to the shareholding ratio and are attributed to the Group, and the investment gains and losses are recognized on the basis of offset. However, the unrealized internal transaction losses incurred by the Group and the investee are the impairment losses of the transferred assets and shall not be offset. (3) Determine the basis for joint control and significant influence on the invested unit Joint control refers to the common control of an arrangement in accordance with the relevant agreement, and related activities of the arrangement must be agreed upon by the parties sharing control rights before they can make decisions. When judging whether there is joint control, first determine whether all participants or a combination of participants collectively control the arrangement, and secondly determine whether the decision-making related activities of the arrangement must be unanimously agreed by the participants who collectively control the arrangement. If all participants or a group of participants must act in concert to determine the relevant activities of an arrangement, it is considered that all participants or a group of participants collectively control the arrangement; if there is a combination of two or more participants can collectively Controlling an arrangement does not constitute joint control. When judging whether there is joint control, the protective rights enjoyed are not considered. Significant influence means that the investor has the right to participate in the decision-making of the financial and operating policies of the invested unit, but cannot control or jointly control the formulation of these policies with other parties. When determining whether it can exert significant influence on the invested unit, consider that the investor directly or indirectly holds the voting shares of the invested unit and the current executable potential voting rights held by the investor and other parties are assumed to be converted into the invested unit After the equity of the company, the impact includes the current convertible warrants, stock options and convertible corporate bonds issued by the investee. When the company directly or indirectly owns more than 20% (including 20%) but less than 50% of the voting shares of the invested unit, it is generally considered to have a significant impact on the invested unit, unless there is clear evidence that such circumstances cannot participate in the production and operation decisions of the invested unit, and does not have a significant impact; when the Group owns less than 20% (excluding) voting rights of the invested unit, it generally does not consider it to have a significant impact on the invested unit unless there is clear evidence that Under these circumstances, it can participate in the production and operation decisions of the invested unit and have a significant impact. (4) Impairment test method and impairment provision method For the investments in subsidiaries, associates and joint ventures, the method of accruing asset impairment is shown in the Note V-18. 13. Investment Property Measurement model of investment real estate 85 Lu Thai Textile Co., Ltd. Interim Report 2020 Costing method measurement Depreciation or amortization method The investment real estate refers to the real estate gaining the rent or capital appreciation or both. It includes rented land use right, holding land use right to be transferred after the appreciation and rented building, etc. The investment real estate is measured initially according to the cost and withdraw depreciation or amortization as regulations of fixed assets or intangible assets. The Company adopts the cost mode to conduct the subsequent measurement on the investment real estate, see the Note V-18 for the method of withdrawing asset impairment provision. The difference between the disposal income of investment real estate sales, transfer, scrap or damage after deducting its book value and related taxes is included in the current profit and loss. 14. Fixed Assets (1) Conditions for Recognition The term “fixed assets” refers to the tangible assets that simultaneously possess the features as follows: (a) they are held for the sake of producing commodities, rendering labor service, renting or business management; and (b) their useful life is in excess of one fiscal year. The fixed assets are only recognized when the relevant economic benefits probably flow in the Company and its cost could be reliable measured. The fixed assets of the Group are initially measured at the actual cost at the time of acquisition. Please refer to Note V-18 for the test method of impairment of fixed assets and the method of impairment provision. (2) Depreciation Methods Category of fixed assets Method Useful life Salvage value Annual deprecation Average method of Housing and building 5-30 0-10 20.00-3.00 useful life Average method of Machinery equipments 10-18 0-10 10.00-5.00 useful life Average method of Transportation vehicle 5 0-10 20.00-18.00 useful life Electronic equipments Average method of 5 0-10 20.00-18.00 and others useful life (3) Recognition Basis, Pricing and Depreciation Method of Fixed Assets by Finance Lease When the fixed assets leased by the Group meet one or more of the following criteria, it is recognized as fixed assets leased by financing: ① When the lease term expires, the ownership of the leased assets is transferred to the Group. ② The Group has the option to purchase leased assets, and the purchase price concluded is expected to be much lower than the fair value of the leased assets when the option is exercised, so it can be reasonably determined that the Group will exercise this option on the lease start date. ③Even if the ownership of the asset is not transferred, the lease period accounts for most of the service life of the leased asset. ④ The present value of the Group's minimum lease payment on the lease start date is almost equivalent to the fair value of the leased asset on the lease start date. ⑤ The leased assets are of a special nature and only the Group can use them without major renovation. The fixed assets leased under financial leases shall be the booked value at the lower of the fair value of the leased assets on the lease 86 Lu Thai Textile Co., Ltd. Interim Report 2020 start date and the present value of the minimum lease payment. The minimum lease payment is taken as the book value of long-term payables, and the difference is taken as unrecognized financing expenses. The initial direct costs such as handling fees, attorney’s fees, travel expenses, and stamp taxes that occurred during the lease negotiation and signing of the lease contract are included in the value of the leased asset. Unrecognized financing expenses are allocated using the effective interest rate method in each period of the lease period. Financing leased fixed assets adopts the same policy as its own fixed assets to withdraw depreciation of leased assets. If it can be reasonably determined that the ownership of the leased asset will be acquired at the end of the lease period, depreciation will be accrued within the useful life of the leased asset; if it cannot be reasonably determined that the ownership of the leased asset can be acquired at the end of the lease period, the depreciation shall be accrued in the shorter period between the lease period and the residual life of the leased asset. (4) Other Notes At the end of each year, review is carried out by the Group for the service life, estimated net residual value and depreciation method of fixed assets. If there is any difference between the expected service life and the original estimated service life, the service life of fixed assets will be adjusted; if there is any difference between the expected net residual value and the original estimated net residual value, the expected net residual value will be adjusted. Major repair expenses incurred by the Group in the regular inspection of fixed assets are included in the cost of fixed assets if evidences show that they meet the recognition conditions of fixed assets, and those fail to meet the recognition conditions of fixed assets are included in the current profit and loss. Fixed assets at intervals of regular major repairs shall be depreciated as accrued. 15. Construction in Progress Construction in process is measured at actual cost. Actual cost comprises construction costs, borrowing costs that are eligible for capitalization before the fixed assets being ready for their intended us and other relevant costs. Construction in process is transferred to fixed assets when the assets are ready for their intended use. See the details of the impairment provision withdrawal method of the construction in progress to Notes V-18. 16. Biological Assets (1) Criteria for determination of biological assets Biological assets refer to the assets composed of living animals and plants. It shall be recognized if biological assets meet the following conditions at the same time: ① The enterprise owns or controls the biological assets on account of past transactions or events; ② The economic benefits or service potential related to the biological assets are likely to flow into the enterprise; ③ The cost of the biological assets can be reliably measured. (2) Classification of biological assets The biological assets of the Group include consumptive biological assets and productive biological assets. ①Consumptive biological assets Consumptive biological assets refer to the biological assets held for sale or to be harvested as agricultural products in future, including crops, vegetables under growing, timber production forest and domestic animals for sale. The consumptive biological assets shall be measured based on cost. All costs for planting, creating, cultivating or raising of consumptive biological assets shall be the necessary expenses directly added to such assets that accrued before harvest, including any loan that satisfies capitalization conditions. Subsequent expenses for keeping and feeding the consumptive biological assets after the harvest should be recognized as the losses and gains of the current period. 87 Lu Thai Textile Co., Ltd. Interim Report 2020 Upon harvest or sale, the cost of consumptive biological assets shall be based on its book value through weighted average. ②Productive biological assets Productive biological assets refer to agricultural products produced, and biological assets held for labor provision or lease, including economic forest, firewood forest, productive animals and labor animals. The productive biological assets shall be measured based on cost. All costs for creating or fostering productive biological assets shall be the necessary expenses directly added to such assets that accrued before it reaches expected production purpose, including any loan that satisfies capitalization conditions. The management, maintenance and feed cost, which incurred after the productive biological assets are closed or the expected production and operation purpose are achieved, will be included in the current profit and loss. The depreciation of productive biological assets is calculated by the straight-line method. The depreciation rate is determined as follows after deducting the residual value based on the estimated service life of various biological assets: Annual Service life Residuals Category depreciation (year) rate % rate % Stockbreeding ① Livestock 5 5 19 The Company shall review the service life, expected net residuals and depreciation method of the productive biological assets at least by the end of the year. In case of any change, it shall be deemed as accounting estimate change. The difference between proceedings from disposal (sale, loss, death or damage) of the productive biological assets deducted by book value and related tax shall be recognized as loss and gain for the current period. (3) Treatment of impairment of biological assets If the net realizable value of the consumptive biological asset is lower than its carrying amount, falling price reserves of the biological asset shall be accrued according to the difference between the net realizable value and the carrying amount, and it shall be included in the current profit and loss. If the factors influencing the impairment of consumptive biological assets have been eliminated, the write-down amount shall be recovered and reversed within the amount of the original falling price reserves, and the reversed amount shall be included in the current profit and loss. Please refer to Note V-18 for the method of provision for impairment of assets of productive biological assets. 17. Intangible Assets (1) Pricing Method, Useful Life and Impairment Test The intangible assets of the Group include land use right, patent right, etc. Intangible assets are initially measured at cost, and their service life is analyzed and determined when intangible assets are acquired. If the service life of intangible assets is limited, the intangible assets shall be amortized by the method that can reflect the expected realization method of the economic benefits related to the assets within the expected service life since they are available for use. The straight-line method shall be used for amortization if no expected realization method can be determined reliably. Intangible assets with uncertain service life shall not be amortized. The amortization method of intangible assets with limited service life is as follows: Amortization Category Service life Note method Land use right Stipulated in the land certificate Method of line Patent use right 10 years Method of line 88 Lu Thai Textile Co., Ltd. Interim Report 2020 Software use right 1-3 years Method of line Brand use right 10 years Method of line At the end of each year, the Group reviews the service life and amortization method of intangible assets with limited service life. If the estimate is different from the previous one, the original estimate shall be adjusted and treated as per accounting estimate change. If it is estimated that an intangible asset can no longer bring future economic benefits to the enterprise on the date of balance sheet, this carrying amount of the intangible asset shall be transferred into the current profit and loss. The method of withdrawing impairment on intangible assets was stated in the Note V-18. (2) Accounting Policy for Internal Research and Development Expenditures The expenditures for internal research and development projects of an enterprise shall be classified into research expenditures and development expenditures. The research expenditures shall be recorded into the profit or loss for the current period. The development expenditures can be capitalized only when they satisfy the following conditions simultaneously: ① It is feasible technically to finish intangible assets for use or sale; ② It is intended to finish and use or sell the intangible assets; ③ The usefulness of methods for intangible assets to generate economic benefits shall be proved, including being able to prove that there is a potential market for the products manufactured by applying the intangible assets or there is a potential market for the intangible assets itself or the intangible assets will be used internally; ④ It is able to finish the development of the intangible assets, and able to use or sell the intangible assets, with the support of sufficient technologies, financial resources and other resources; ⑤ The development expenditures of the intangible assets can be reliably measured. The development expenditures shall be recorded into profit or loss for the current period when they don’t satisfy the following conditions. The research and development project of the Group will enter the development stage after meeting the above conditions and the project is approved and initiated through technical feasibility and economic feasibility study. The capitalized expenditure in the development stage is listed as expenditure for development on the balance sheet, and it will be transferred to intangible assets from the date when the project reaches the intended purpose. 18. Impairment of Long-term Assets For long term equity investment in subsidiaries, associated enterprises and joint ventures, investment real estate which follow-up measurement is carried out by cost pattern, fixed assets, project under construction, productive biological assets measured by cost pattern, intangible assets, business reputation, etc. (excluding inventory, investment real estate measured by fair value pattern, deferred income tax assets, financial assets), the impairment of assets shall be determined according to the following methods: On the date of the balance sheet, determination shall be made to see whether there is any sign of possible impairment of assets. If there is, the Group will estimate its recoverable amount and conduct impairment test. For goodwill, intangible assets with uncertain service life and intangible assets that have not reached the serviceable state due to business merger, impairment test shall be carried out every year regardless of whether there is any sign of impairment. The recoverable amount is determined according to the net amount of the fair value of the asset minus the disposal expenses and the present value of the expected future cash flow of the asset, the higher amount shall be prevail. The Group estimates the recoverable amount on the basis of a single asset. If it is difficult to estimate the recoverable amount of a single asset, the recoverable amount of the asset group shall be determined based on the asset group to which the asset belongs. The asset group is determined on the basis of whether the main cash inflow generated by the asset group is independent of the cash inflow of other assets or asset groups. When the recoverable amount of an asset or asset group is lower than its carrying amount, the group will write down its carrying amount to the recoverable amount, and the written down amount will be included in the current profit and loss, and the corresponding asset impairment reserve will be accrued. 89 Lu Thai Textile Co., Ltd. Interim Report 2020 Regarding the impairment test of business reputation, the carrying amount of business reputation formed by business merger shall be apportioned to the relevant asset group in a reasonable way from the date of purchase. If it is difficult to apportion to the relevant asset group, it shall be apportioned to the relevant combination of asset group. The relevant asset group or combination of asset groups is the one that can benefit from the synergy effect of business merger, and is the one smaller than the reportable segment determined by the Group. In the impairment test, if there is any sign of impairment in the asset group or combination of asset groups related to business reputation, first, impairment test shall be carried out on the asset group or combination of asset groups not containing business reputation, to calculate the recoverable amount and recognize the corresponding impairment loss. Then impairment test shall be carried out on the asset group or combination of asset group containing business reputation to compare the carrying amount with the recoverable amount. If the recoverable amount is lower than the carrying amount, the impairment loss of business reputation shall be recognized. Once the impairment loss of assets is recognized, it will not be reversed in the future accounting period. 19. Long-term Deferred Expenses The long-term expenses to be amortized incurred by the Group are valued at the actual cost and amortized averagely according to the expected benefit period. For long-term expenses to be amortized, the amortized value that cannot benefit the future accounting period shall be included in the current profit and loss. 20. Contract liabilities Contract liabilities reflect the Company’s obligation of transferring commodities to customers for the consideration received or receivable from them. Before the transfer of a commodity to a customer, if the customer has paid the contract consideration or gained the right to charge the contract consideration unconditionally, the contract liability should be recognized by the amount received or receivable at the earlier between the customer’s actual payment and the due date of the amount payable. Contract assets and contract liabilities under the same contract are presented in net amounts, and contract assets and contract liabilities under different contracts should not be offset. 21. Payroll (1) Accounting Treatment of Short-term Compensation During the accounting period in which employees provide services, the Group recognizes the actual employee wages, bonuses, social insurance premiums such as medical insurance premiums, industrial injury insurance premiums, and maternity insurance premiums and housing provident funds paid to employees according to the prescribed standards and proportions as liabilities and included them in the current profit and loss or related asset costs. If the liability is not expected to be fully paid within twelve months after the end of the annual reporting period for employees to provide related services, and the financial impact is significant, the liability will be measured at the discounted amount. (2) Accounting Treatment of the Welfare after Departure The post-employment benefit plan includes a defined contribution plan and a defined benefit plan. Among them, the defined contribution plan refers to the post-employment benefit plan that the enterprise no longer assumes further payment obligations after the fixed fund has paid a fixed fee; the defined benefit plan refers to the post-employment benefit plan other than the established 90 Lu Thai Textile Co., Ltd. Interim Report 2020 contribution plan. Set withdrawal plan The set contribution plan includes basic pension insurance and unemployment insurance. During the accounting period in which employees provide services, the amount of deposit payable calculated according to the set withdrawal plan is recognized as a liability and included in the current profit and loss or related asset costs. Define a benefit plan For the defined benefit plan, an independent actuary performs an actuarial valuation on the annual balance sheet date, and the cost of providing benefits is determined by the expected cumulative benefit unit method. The employee compensation cost caused by the Group's defined benefit plan includes the following components: ①Service cost, including current service cost, past service cost and settlement gains or losses. Among them, the current service cost refers to the increase in the present value of the defined benefit plan obligations caused by the employees providing services in the current period; the past service cost refers to the defined benefit related to the employee services in the previous period caused by the modification of the defined benefit plan An increase or decrease in the present value of plan obligations. ② The net interest of the net liabilities or net assets of the defined benefit plan, including the interest income of the plan assets, the interest expense of the defined benefit plan obligations and the interest affected by the asset ceiling. ③ Re-measure the changes caused by the net liabilities or net assets of the defined benefit plan. Unless other accounting standards require or allow employee benefit costs to be included in the cost of assets, the Group will include the above items ① and ② into the current profit and loss; item ③ is included in other comprehensive income and will not be transferred back to profit or loss in the subsequent accounting period When the defined benefit plan is terminated, all the parts originally included in other comprehensive income are carried forward to undistributed profits within the scope of equity. (3) Accounting Treatment of the Demission Welfare The Company relieves the labor relation with the employees before the due date of the labor contacts or puts forward the advice of providing the compensation for urging the employees volunteered to receive the downsizing and when the Company could not unilaterally withdraw the demission welfare owning to the relieving plan of the labor relation or the downsizing advice, should confirm the liabilities of the employees’ salary from the demission welfare on the earlier day between the cost confirmed by the Company and the cost related to the reorganization of the payment of the demission welfare and includes which in the current gains and losses. Regarding the implementation of internal retirement plan of the employees, the economic compensation before the official retirement date belongs to the dismissal welfare. From the date when the employees stop providing services to the normal retirement date, the wages and social insurance premiums to be paid to the early retired employees shall be included in the current profit and loss at one time. Financial compensation (such as normal pension) after the official retirement date shall be handled as welfare after separation. (4) Accounting Treatment of the Welfare of Other Long-term Staffs Other long-term employee benefits provided by the Group to employees that meet the conditions of defined contribution plans shall be handled in accordance with the above-mentioned relevant provisions on defined contribution plans. Those in line with the defined benefit plan shall be handled in accordance with the above-mentioned relevant provisions on the defined benefit plan. However, the part of "changes caused by remeasuring the net liabilities or net assets of the defined benefit plan" in the salary cost of relevant employees shall be included in the current profit and loss or the relevant asset cost. 91 Lu Thai Textile Co., Ltd. Interim Report 2020 22. Revenue Accounting policies adopted for the recognition and measurement of revenue (1) General principle The Company recognizes revenue when it has fulfilled its contract performance obligation in a contract, namely, when the customer obtains the control over the related commodity or service. ① Selling commodities The Company recognizes operating revenue when: the major risks and remunerations in respect of the commodity ownership have been transferred to the buyer in the sales of a commodity; the Company no longer exercises continued management and actual control over the commodity; economic interests in relation to the transaction are very likely to flow in the Company; and revenue and costs in relation to the sales of the commodity can be reliably measured. The specific sales revenue recognition time point in major transaction models: The sales revenue recognition time point is when: the goods specified in a contract have been delivered with the receipt acknowledgement of the customer; the payment voucher has been obtained and related economic interests are very likely to flow in the Company; and the costs in relation to the products can be measured reliably. ② Providing labor service For labor commenced and completed in the same accounting year, the revenue is recognized at the completion of the labor service; if the commencement and completion of a labor service fall in different accounting years, the labor service revenue should be recognized at the end of the period by the percentage of the service completed towards completion, provided that the result of providing the labor transaction can be estimated reliably; the specific recognition method: After providing a labor service, the Company recognizes the revenue when the other party inspects and accepts the service and issues the invoice. ③ Assigning the right to use an asset The interests revenue and the use revenue obtained from the assignment of the right to use an asset are recognized when economic interests in relation to the transaction are able to flow in the Company and the amount of revenue can be measured reliably. Revenue from the assignment of the right to use an asset includes interests revenue and use revenue. The amount of the interests revenue should be recognized according to the period of the party using the Company’s monetary fund and the effective interest rate; the amount of the use revenue should be recognized according to the period and method specified in the related contract or agreement. Differences in accounting policies for revenue recognition due to different business models of the same type of business (2) Specific methods The Company uses the following methods to recognize the revenue from commodity sales: For revenue from domestic sales of products, the Company recognizes the revenue after delivering the products to the purchaser pursuant to the contract with receipt acknowledgement from the purchaser. For revenue from export sales of products, the Company recognizes the revenue when obtaining the bill of lading after customs declaration and departure from the port pursuant to the contract. Differences in accounting policies for revenue recognition due to different business models of the same type of business Not applicable. 23. Government Grants Government grants are recognized when they meet the conditions attached to government grants and when they can be received. Government grants for monetary assets shall be measured according to the amount received or receivable. Government grants for non-monetary assets shall be measured by fair value, and they shall be measured by the nominal amount of RMB1 if the fair value 92 Lu Thai Textile Co., Ltd. Interim Report 2020 cannot be obtained reliably. Asset related government grants refer to the government grants obtained by the Group for acquisition and construction or other forms of long-term assets. In addition, they are government grants related to income. Regarding the government grants that the government document does not specify the object of subsidy and can form long-term assets, the part of government subsidy corresponding to the asset value shall be regarded as the asset-related government subsidy and the rest shall be regarded as income-related government subsidy. If it is difficult to distinguish, the government subsidy shall be regarded as the income-related government subsidy. The government grants related to assets shall be recognized as the deferred income, which shall be included in the profit and loss in installment in a reasonable and systematic way within the service life of the relevant assets. Income-related government grants which are used to compensate the relevant costs or losses incurred shall be included in the current profit and loss. Those used to compensate the relevant costs or losses in the later period shall be included in the deferred income, and shall be included in the current profit and loss during the recognition period of the relevant costs or losses. The government grants measured according to the nominal amount shall be directly included in the current profit and loss. The same method is adopted for the same or similar government subsidy businesses of the Group. Government grants related to daily activities shall be included in other incomes according to the essence of business transactions. Government grants irrelevant to daily activities are included in non-business income. When the recognized government grants need to be returned, the book balance of relevant deferred income shall be offset if there is a balance of relevant deferred income, and the excess part shall be included in the current profit and loss. Otherwise, it shall be directly included in the current profit and loss. Regarding the interest subsidy of the policy preferential loan obtained, if the Ministry of Finance allocates the interest subsidy to the loan bank, the actual received loan amount shall be taken as the entry value of the loan, and the loan cost shall be calculated according to the loan principal and the policy preferential interest rate. If the Ministry of Finance allocates the interest subsidy directly to the Group, the interest subsidy will offset the borrowing costs. 24. Deferred Income Tax Assets/Deferred Income Tax Liabilities Income tax includes current income tax and deferred income tax. All shall be included in the current profit and loss as income tax expense except the adjustment business reputation arising from business merger, or the deferred income tax related to the transactions or events directly included in the owner's equity is included in the owner's equity. Pursuant to the temporary difference between the carrying amount of assets and liabilities on the date of balance sheet and the tax basis, the Group recognizes the deferred income tax by balance sheet liability method. For all taxable temporary differences, related deferred income tax liabilities are recognized, unless the taxable temporary differences are generated in the following transactions: (1) The initial recognition of business reputation or the initial recognition of assets or liabilities arising from transactions with the following characteristics: The transaction is not a business merger, and does not affect the accounting profit or taxable income when it occurs; (2) Regarding the taxable temporary difference related to the investment of subsidiaries, joint ventures and associated enterprises, the time of reversal of the temporary difference can be controlled and the temporary difference is unlikely to be reversed in the foreseeable future. For deductible temporary differences, deductible losses and tax credits that can be carried forward in subsequent years, the Group is likely to obtain the future taxable income as the limit to offset the deductible temporary differences, deductible losses and tax credits, in which way to recognize the deferred income tax assets arising from the deductible temporary differences, deductible losses and tax credits, unless the deductible temporary differences are generated in the following transactions: (1) The transaction is not a business merger, and does not affect the accounting profit nor taxable income when it occurs; (2) The corresponding deferred income tax assets shall be recognized if the deductible temporary differences related to the 93 Lu Thai Textile Co., Ltd. Interim Report 2020 investment of subsidiaries, joint ventures and associated enterprises meet the following conditions simultaneously: The temporary differences are likely to be reversed in the foreseeable future, and the taxable income used to deduct the deductible temporary differences is likely to be obtained in the future. On the date of the balance sheet, the income tax assets and deferred income tax liabilities shall be measured by the Group on the basis of the applicable tax rate during the period when the assets are expected to be recovered or the liabilities are expected to be paid off, and the income tax impact on the expected recovery of assets on the date of the balance sheet or on the method to pay off the liabilities shall be reflected. The book value of deferred income tax assets shall be reviewed at each balance sheet date. If it is unlikely to obtain sufficient taxable income to offset against the benefit of the deferred income tax asset, the book value of the deferred income tax assets shall be written down. Any such write-down should be subsequently reversed where it becomes probable that sufficient taxable income will be available. 25. Lease (1) Accounting Treatment of Operating Lease (1) The Group as the lessor The rent incomes from operating leases shall be recognized as the profits and losses of the current period by using the straight-line method over each period of the lease term. The initial direct costs shall be recorded into current profits and losses. (2) The Group as the lessee The rent expenses from operating leases shall be recorded by the lessee in the relevant asset costs or the profits and losses of the current period by using the straight-line method over each period of the lease term. The initial direct costs shall be recognized as the profits and losses of the current period. (2) Accounting Treatments of Financial Lease (1) The Company as the lessor On the beginning date of the lease term, the Company shall recognize the sum of the minimum lease receipts on the lease beginning date and the initial direct costs as the entering value in an account of the financing lease values receivable, and record the unguaranteed residual value at the same time. The balance between the sum of the minimum lease receipts, the initial direct costs and the unguaranteed residual value and the sum of their present values shall be recognized as unrealized financing income. Unrecognized financing incomes shall be adopted by the effective interest rate method in the lease term, so as to calculate and recognize current financing revenues. (2) The Company as the lessee On the lease beginning date, the Company shall record the lower one of the fair value of the leased asset and the present value of the minimum lease payments on the lease beginning date as the entering value in an account, recognize the amount of the minimum lease payments as the entering value in an account of long-term account payable, and treat the balance between the recorded amount of the leased asset and the long-term account payable as unrecognized financing charges. The initial direct costs shall be recorded into value of leased assets. Unrecognized financing charges shall be adopted by the effective interest rate method in the lease term, so as to calculate and recognize current financing charges. The Group adopts a depreciation policy consistent with its own fixed assets to accrue the depreciation of leased assets. 94 Lu Thai Textile Co., Ltd. Interim Report 2020 26. Other Significant Accounting Policies and Estimations Pursuant to historical experience and other factors and reasonable expectations for future events, the Group continuously evaluates the important accounting estimates and key assumptions adopted. The important accounting estimates and key assumptions that are likely to cause major adjustment risk to the carrying amount of assets and liabilities in the next fiscal year are listed as follows: Classification of financial assets During the recognition of the classification of financial assets by the Group, the major judgments involved include the analysis of business model and contract cash flow characteristics, etc. The Group determines the business model for managing financial assets at the level of financial asset portfolio, and factors considered include methods of evaluation and reporting financial asset performance to key management personnel, risks affecting financial asset performance and their management methods, and the way in which relevant business management personnel are paid. When assessing whether the contractual cash flow of financial assets is consistent with the basic lending arrangements, the Group has the following main judgments: Whether the principal may change in the time distribution or amount during the duration due to prepayment and other reasons; whether the interest include only the time value of money, credit risk, other basic lending risks, and considerations of costs and profits. For example, whether the amount of prepayment only reflect the unpaid principal and interest based on the unpaid principal, as well as reasonable compensation due to early termination of the contract. Measurement of expected credit loss of accounts receivable The Group calculates the expected credit loss of accounts receivable through the default risk exposure and the expected credit loss rate of accounts receivable, and determines the expected credit loss rate based on the default probability and loss given default. When determining the expected credit loss rate, the Group adjusts the historical data by using internal historical credit loss experience and other data, and combining the current situation and forward-looking information. The indicators used by the Group include risks of economic downturn, changes in external market environment, technological environment and customer conditions, etc. when considering forward-looking information. The Group regularly monitors and reviews assumptions related to the calculation of expected credit losses. Impairment of goodwill The Group assesses whether goodwill is impaired at least annually. This requires estimating the value in use of the asset group to which goodwill has been allocated. When estimating the value in use, the Group needs to estimate the future cash flows from the asset group and select the appropriate discount rate to calculate the present value of future cash flows. Deferred income tax assets In a limit providing large possibility of offset losses from sufficient taxable profits, the Group shall recognize deferred income tax assets in line with all unused tax losses, which requires management staffs of the Group to estimate the time when future taxable profits occurs and the amount thereof by applying plenty of judgments and combining tax planning strategies, so as to determine the amount of the recognizable deferred income tax assets. Recognition of fair value of unlisted equity investment When confirming the fair value of unlisted equity investments, the Group will choose an appropriate valuation method. The valuation method makes maximum use of observable market information. However, the management will estimate the significant unobservable information included in the valuation method when observable market information is unavailable. Under limited circumstances, if the information used to determine the fair value is insufficient, or the possible estimated amount of fair value is widely distributed, and the cost represents the best estimate of fair value within the range, the cost may represent the appropriate estimate of fair value within the distribution range. 95 Lu Thai Textile Co., Ltd. Interim Report 2020 27. Changes in Main Accounting Policies and Estimates (1) Significant Changes in Accounting Policies √ Applicable □ Not applicable Contents of changes in accounting policies and reasons thereof Approval procedures Note On 5 July 2017, the Ministry of Finance published the revision on the “Accounting Standards for Business Enterprises No. 14 - Revenue” (hereinafter referred to as “the new revenue standards”) (CK [2017] No. 22). Domestic listed companies shall implement the new revenue standards starting from 1 January 2020. Main content of the changes in The Company approved this the “Accounting Standards for Business Enterprises No. 14 - Revenue” change in accounting policies includes (1) The current two standards for revenue and construction on the 13th Meeting of the 9th contracts are integrated into a unified revenue recognition model; (2) the Board of Directors held on 28 transfer of control is used to replace the transfer of risks and April 2020. remunerations as the criteria to judge the time point of revenue recognition; (3) clearer guidance is provided for the accounting treatment of a contract containing multiple transaction arrangements; (4) specific regulations are provided for the revenue recognition and measurement in some specific transactions (or matters). (2) Significant Changes in Accounting Estimates □ Applicable √ Not applicable (3) Adjustments to the Financial Statements at the Beginning of the First Execution Year of any New Standards Governing Revenue or Leases since 2020 Applicable Whether need to adjust items of balance sheet at the beginning of the year √ Yes □ No Consolidated balance sheet Unit: RMB Item 31 December 2019 1 January 2020 Adjusted Current assets: Monetary assets 924,322,008.17 924,322,008.17 Settlement reserve Interbank loans granted Held-for-trading financial assets 52,356,098.85 52,356,098.85 Derivative financial assets Notes receivable 104,737,949.91 104,737,949.91 96 Lu Thai Textile Co., Ltd. Interim Report 2020 Accounts receivable 515,306,599.62 515,306,599.62 Accounts receivable financing 26,963,818.87 26,963,818.87 Prepayments 56,828,987.59 56,828,987.59 Premiums receivable Reinsurance receivables Receivable reinsurance contract reserve Other receivables 59,743,471.84 59,743,471.84 Including: Interest receivable Dividends receivable Financial assets purchased under resale agreements Inventories 2,421,500,259.30 2,421,500,259.30 Contract assets Assets held for sale Current portion of non-current assets Other current assets 68,788,674.10 68,788,674.10 Total current assets 4,230,547,868.25 4,230,547,868.25 Non-current assets: Loans and advances to customers Investments in debt obligations Investments in other debt obligations Long-term receivables 7,058,233.71 7,058,233.71 Long-term equity investments 103,226,300.00 103,226,300.00 Investments in other equity instruments Other non-current financial assets 278,149,500.00 278,149,500.00 Investment property 45,896,747.87 45,896,747.87 Fixed assets 6,012,094,104.67 6,012,094,104.67 Construction in progress 400,235,070.01 400,235,070.01 Productive living assets Oil and gas assets Right-of-use assets Intangible assets 516,479,519.15 516,479,519.15 Development costs Goodwill 20,563,803.29 20,563,803.29 Long-term prepaid expense 153,031,253.79 153,031,253.79 97 Lu Thai Textile Co., Ltd. Interim Report 2020 Deferred income tax assets 99,307,233.72 99,307,233.72 Other non-current assets 18,841,918.62 18,841,918.62 Total non-current assets 7,654,883,684.83 7,654,883,684.83 Total assets 11,885,431,553.08 11,885,431,553.08 Current liabilities: Short-term borrowings 2,120,154,330.61 2,120,154,330.61 Borrowings from the central bank Interbank loans obtained Held-for-trading financial liabilities Derivative financial liabilities Notes payable 85,219,724.63 85,219,724.63 Accounts payable 305,346,284.94 305,346,284.94 Advances from customers 108,783,148.03 -108,783,148.03 Contract liabilities 108,783,148.03 108,783,148.03 Financial assets sold under repurchase agreements Customer deposits and interbank deposits Payables for acting trading of securities Payables for underwriting of securities Employee benefits payable 335,576,560.36 335,576,560.36 Taxes payable 25,051,630.06 25,051,630.06 Other payables 104,982,189.40 104,982,189.40 Including: Interest payable Dividends payable 441,113.64 441,113.64 Handling charges and commissions payable Reinsurance payables Liabilities directly associated with assets held for sale Current portion of non-current liabilities 101,111,297.49 101,111,297.49 Other current liabilities Total current liabilities 3,186,225,165.52 3,186,225,165.52 Non-current liabilities: Insurance contract reserve Long-term borrowings 42,364,019.74 42,364,019.74 Bonds payable 98 Lu Thai Textile Co., Ltd. Interim Report 2020 Including: Preferred shares Perpetual bonds Lease liabilities Long-term payables Long-term employee benefits payable 105,589,249.56 105,589,249.56 Provisions Deferred income 157,668,211.41 157,668,211.41 Deferred income tax liabilities 92,440,358.41 92,440,358.41 Other non-current liabilities 1,840,000.00 1,840,000.00 Total non-current liabilities 399,901,839.12 399,901,839.12 Total liabilities 3,586,127,004.64 3,586,127,004.64 Owners’ equity: Share capital 858,121,541.00 858,121,541.00 Other equity instruments Including: Preferred shares Perpetual bonds Capital reserves 258,046,245.42 258,046,245.42 Less: Treasury stock Other comprehensive income 91,626,571.75 91,626,571.75 Specific reserve Surplus reserves 1,117,267,351.63 1,117,267,351.63 General reserve Retained earnings 5,372,073,615.12 5,372,073,615.12 Total equity attributable to owners of the 7,697,135,324.92 7,697,135,324.92 Company as the parent Non-controlling interests 602,169,223.52 602,169,223.52 Total owners’ equity 8,299,304,548.44 8,299,304,548.44 Total liabilities and owners’ equity 11,885,431,553.08 11,885,431,553.08 Note for adjustment Balance Sheet of the Company as the Parent Unit: RMB Item 31 December 2019 1 January 2020 Adjusted Current assets: Monetary assets 259,320,863.08 259,320,863.08 Held-for-trading financial assets 52,356,098.85 52,356,098.85 99 Lu Thai Textile Co., Ltd. Interim Report 2020 Derivative financial assets Notes receivable 67,898,885.35 67,898,885.35 Accounts receivable 417,599,518.08 417,599,518.08 Accounts receivable financing 2,675,090.00 2,675,090.00 Prepayments 10,178,452.88 10,178,452.88 Other receivables 838,523,449.52 838,523,449.52 Including: Interest receivable Dividends receivable Inventories 1,280,620,296.02 1,280,620,296.02 Contract assets Assets held for sale Current portion of non-current assets Other current assets 5,780,635.28 5,780,635.28 Total current assets 2,934,953,289.06 2,934,953,289.06 Non-current assets: Investments in debt obligations Investments in other debt obligations Long-term receivables Long-term equity investments 2,510,868,604.84 2,510,868,604.84 Investments in other equity instruments Other non-current financial assets 266,149,500.00 266,149,500.00 Investment property 31,089,260.38 31,089,260.38 Fixed assets 2,603,258,003.94 2,603,258,003.94 Construction in progress 53,443,768.04 53,443,768.04 Productive living assets 235,277,114.25 Oil and gas assets Right-of-use assets Intangible assets 235,277,114.25 Development costs Goodwill Long-term prepaid expense Deferred income tax assets 60,974,304.57 60,974,304.57 Other non-current assets Total non-current assets 5,761,060,556.02 5,761,060,556.02 100 Lu Thai Textile Co., Ltd. Interim Report 2020 Total assets 8,696,013,845.08 8,696,013,845.08 Current liabilities: Short-term borrowings 816,301,973.60 816,301,973.60 Held-for-trading financial liabilities Derivative financial liabilities Notes payable 602,741,973.76 602,741,973.76 Accounts payable 105,588,631.54 105,588,631.54 Advances from customers 53,418,950.04 -53,418,950.04 Contract liabilities 53,418,950.04 53,418,950.04 Employee benefits payable 242,300,723.41 242,300,723.41 Taxes payable 11,995,830.49 11,995,830.49 Other payables 149,255,207.79 149,255,207.79 Including: Interest payable Dividends payable 441,113.64 441,113.64 Liabilities directly associated with assets held for sale Current portion of non-current liabilities Other current liabilities Total current liabilities 1,981,603,290.63 1,981,603,290.63 Non-current liabilities: Long-term borrowings Bonds payable Including: Preferred shares Perpetual bonds Lease liabilities Long-term payables Long-term employee benefits payable 105,589,249.56 105,589,249.56 Provisions Deferred income 112,187,678.66 112,187,678.66 Deferred income tax liabilities 70,445,859.76 70,445,859.76 Other non-current liabilities Total non-current liabilities 288,222,787.98 288,222,787.98 Total liabilities 2,269,826,078.61 2,269,826,078.61 Owners’ equity: Share capital 858,121,541.00 858,121,541.00 101 Lu Thai Textile Co., Ltd. Interim Report 2020 Other equity instruments Including: Preferred shares Perpetual bonds Capital reserves 317,206,232.47 317,206,232.47 Less: Treasury stock Other comprehensive income Specific reserve Surplus reserves 1,114,158,611.99 1,114,158,611.99 Retained earnings 4,136,701,381.01 4,136,701,381.01 Total owners’ equity 6,426,187,766.47 6,426,187,766.47 Total liabilities and owners’ equity 8,696,013,845.08 8,696,013,845.08 Note for adjustment None (4) Retroactive Adjustments to Comparative Data of Prior Years when First Execution of any New Standards Governing Revenue or Leases since 2020 √ Applicable □ Not applicable 28. Other VI Taxation 1. Main Taxes and Tax Rate Category of taxes Tax basis Tax rate VAT Taxable income 13%, 10%, 9%, 6%, 5%, 3%, 0 Urban maintenance and construction tax Turnover tax payable 7%, 5%, 1% Enterprise income tax Income tax payable 0, 15%, 16.5%, 20%, 25% Notes of the disclosure situation of the taxpaying bodies with different enterprises income tax rate Taxpayer Income tax rate The Company 15% Lufeng Weaving & Dyeing 15% Lu Thai Hong Kong 16.50% Xinjiang Lu Thai 25% Luqun Textile 25% Xinsheng Power 25% 102 Lu Thai Textile Co., Ltd. Interim Report 2020 Shanghai Lu Thai 20% Beijing Youxian 20% Shanghai Zhinuo 20% Xinjiang Textile 15% Lulian New Materials 25% Lujia Import & Export 20% Lu Thai Cambodia 20% Lu Thai Burma 0% Lu Thai Vietnam 0% Lu Thai Tan Chau 0% Lu An Garments 0% Lu Thai America Refer to 2. Tax Preference presented as follows for details 2. Tax Preference According to the Notice on the Recognition of 2078 Enterprises as High-tech Enterprises for 2017 such as Weihai Tuozhan Fiber Co., Ltd. (LK Zi [2018] No. 37) issued by the Department of Science and Technology of Shandong Province, Shandong Provincial Finance Department, State Administration of Taxation of Shandong Province and Local Taxation Bureau of Shandong Province, the Company and the holding subsidiary Lufeng Weaving & Dyeing were identified as high-tech enterprises. Pursuant to Article 28 of the Law of the PRC on Enterprise Income Tax and the No. 23 Announcement revised and published by the State Administration of Taxation in 2018, namely Management of Preferential Policy on Corporate Income Tax, the Measures for the Administration of the Recognition of High and New Technological Enterprises (GKFH [2016] No. 195) and Announcement on Implementing the Preferential Policies regarding Enterprise Income Tax for High-Tech Enterprises (GJSWZJY2017No.24) revised and published by the Ministry of Science and Technology, Ministry of Finance and State Administration of Taxation, the Company and the holding subsidiary Lufeng Weaving & Dyeing enjoy a corporate income tax rate of 15%. According to the Announcement on Implementing the Universal Income Tax Reduction and Exemption Policy Published the State Administration of Taxation (SAT) (SAT Announcement No.2 of 2019), from 1 January 2019 to 31 December 2021, the portion of annual taxable income of within RMB1 million of the wholly-owned subsidiaries of the Company Shanghai Lu Thai, Beijing Youxian, Shanghai Zhinuo and Lujia Import & Export (the small-scale and low-profit enterprise) shall be included in taxable income by reduction of 25% based on the enterprise income tax rate of 20%; for the portion exceeding RMB1 million but within RMB3 million, it shall be included in taxable income by reduction of 50% based on the enterprise income tax rate of 20%. According to the Notice of the Ministry of Finance, the General Administration of Customs and the State Administration of Taxation on Tax Policy Issues concerning Further Implementing the Western China Development Strategy (CS[2011] No. 58), Xinjiang Textile Co., Ltd., the subsidiary of Lu Thai in Xinjiang, enjoys a preferential corporate income tax rate of 15%. Lu Thai (Hong Kong) Textile Co., Ltd. (hereinafter refers as Lu Thai (Hong Kong) Textile), the wholly-owned subsidiary company of the Company, was incorporated in Hong Kong SAR, whose profit tax shall be paid at tax rate of 16.5%. The wholly own subsidiary Lu Thai Cambodia, according to the Lu Thai Cambodia Profits tax free approval issued by Investment Committee of Cambodia, the preferential term expired, enjoys the enterprise income tax rate of 20%. The wholly own subsidiary Lu Thai Burma, according to the Burma’s Special Economic Zone Law issued by Pyidaungsu Hluttaw, Lu Thai Burma enjoys tax preference on corporate income tax of 7 (7 years tax holiday) + 5 (5 years tax revenues drop by half) + 5 (re-invest the profits within 1 year and continues to enjoy the half tax revenues 5 years afterwards). After grace period, enterprise 103 Lu Thai Textile Co., Ltd. Interim Report 2020 income tax rate was of 25%. Year 2020 is the fifth year of tax holiday. The wholly-owned subsidiary Lu Thai (Vietnam) Textile Co., Ltd. shall enjoy the preference of enterprise income tax at 3 years’ starting term + 4 years’ duty-free term + 9 years’ half-tax term according to the investment license issued by Vietnamese Tay Ninh Industrial Zone Management Committee, and it will enter into 2 years’ duty-free term if it is profitable within 3 years’ starting term. The Company shall enjoy 10% of the preference tax rate within 15 years since the tax year to get the first production and operation income, and the enterprise income tax rate shall be 20% after the preference term ends. Year 2020 is the third year of the duty-free term. The wholly-owned subsidiary of Lu Thai Vienam, Lu Thai Tan Chau, shall enjoy the preference of enterprise income tax at 3 years’ starting term + 4 years’ duty-free term + 9 years’ half-tax term according to the investment license issued by Vietnamese Tay Ninh Investment Planning Office, and it will enter into 2 years’ duty-free term if it is profitable within 3 years’ starting term. The Company shall enjoy 10% of the preference tax rate within 15 years since the tax year to get the first production and operation income, and the enterprise income tax rate shall be 20% after the preference term ends. Year 2020 is the second year of the starting term. The wholly-owned subsidiary Lu An Garments Co., Ltd. shall enjoy the preference of enterprise income tax at 3 years’ starting term + 2 years’ duty-free term + 4 years’ half-tax term according to the investment license issued by Vietnamese Anjiang Province Economic Zone Management Committee, and it will enter into duty-free term if the profitability is realized at any year within 3 years’ starting term. The Company shall enjoy 17% of the preference tax rate within 10 years since the tax year to get the first production and operation income, and the enterprise income tax rate shall be 20% after the preference term ends. Year 2020 is the second year of the duty-free term. Lu Thai America, the wholly-owned subsidiary of the Company registered in New York, America, was imposed the federal enterprise income tax at progressive tax rate in excess of specific amount of 15%-39%, and imposed the New York Enterprise income tax at the rate of 6.5%. The income tax rate shall be 6.5% when the sales income in New York was below US$10 million, while 8.85% when above US$10 million. The 6.5% of income tax rate was applied in 2020. 3. Others VII. Notes to Main Items of Consolidated Financial Statements 1. Monetary Assets Unit: RMB Item Ending balance Beginning balance Cash on hand 9,094,993.18 9,544,377.41 Bank deposits 2,014,615,919.85 870,590,467.70 Other monetary funds 4,586,637.12 44,187,163.06 Total 2,028,297,550.15 924,322,008.17 Of which: total amount deposited overseas 394,517,114.44 299,088,689.18 Total amount of restriction in use by guaranteed, 4,586,637.12 44,187,163.06 pledged or frozen Other notes: (1) On 30 June 2020, the monetary assets with restricted ownership of the Company was of RMB4.5866 million, which was L/C guarantee deposit of RMB1.9433 million for the Company’s subsidiary Lu Thai Vietnam; L/C guarantee deposit of RMB1.423 104 Lu Thai Textile Co., Ltd. Interim Report 2020 million for the Company’s subsidiary Lu Thai Tan Chau; L/C guarantee deposit of RMB0.925 million for the Company’s subsidiary Lulian New Materials; and L/C guarantee deposit of RMB0.2953 for the Company’s subsidiary Xinjiang Lu Thai. (2) The interest receivable in bank deposits was RMB5,062,269.54. 2. Trading Financial Assets Unit: RMB Item Ending balance Beginning balance Financial assets at fair value through profit or loss 52,356,098.85 Of which: Debt instrument investment 52,356,098.85 Of which: Total 52,356,098.85 3. Notes Receivable (1) Notes Receivable Listed by Category Unit: RMB Item Ending balance Beginning balance Bank acceptance bill 15,386,031.86 13,622,998.20 L/C 56,744,964.31 91,114,951.71 Total 72,130,996.17 104,737,949.91 Please refer to the relevant information of disclosure of bad debt provision of other accounts receivable if adopting the general mode of expected credit loss to withdraw bad debt provision of notes receivable. □ Applicable √ Not applicable (2) Notes Receivable which Had Endorsed by the Company or Had Discounted and Had not Due on the Balance Sheet Date at the Period-end Unit: RMB Amount of recognition termination at the Amount of not terminated recognition at Item period-end the period-end Bank acceptance bill 158,108,463.95 Total 158,108,463.95 105 Lu Thai Textile Co., Ltd. Interim Report 2020 4. Accounts Receivable (1) Accounts Receivable Disclosed by Category Unit: RMB Ending balance Beginning balance Carrying amount Bad debt provision Carrying amount Bad debt provision Category Withdr Withdra Proporti awal Carrying value Proporti wal Carrying value Amount Amount Amount Amount on proport on proporti ion on Of which: Accounts receivable withdrawal of bad 424,558,081.29 100.00% 33,640,125.47 7.92% 390,917,955.82 546,428,127.56 100.00% 31,121,527.94 5.70% 515,306,599.62 debt provision of by group Of which: Group 1: Undue accounts (credit 120,187,113.74 28.31% 1,261,964.64 1.05% 118,925,149.10 146,231,602.81 26.76% 1,535,431.83 1.05% 144,696,170.98 insurance insured) Group 2: Undue accounts(no credit 114,352,857.84 26.94% 5,717,642.90 5.00% 108,635,214.94 298,971,131.80 54.72% 14,948,556.59 5.00% 284,022,575.21 insurance) Group 3: Overdue accounts (credit 116,685,694.57 27.48% 12,485,369.25 10.70% 104,200,325.32 59,793,875.78 10.94% 6,397,944.71 10.70% 53,395,931.07 insurance insured) Group 4: Overdue accounts (no credit 73,332,415.14 17.27% 14,175,148.68 19.33% 59,157,266.46 41,431,517.17 7.58% 8,239,594.81 19.89% 33,191,922.36 insurance) Total 424,558,081.29 100.00% 33,640,125.47 7.92% 390,917,955.82 546,428,127.56 100.00% 31,121,527.94 5.70% 515,306,599.62 Bad debt provision separately accrued: Please refer to the relevant information of disclosure of bad debt provision of other accounts receivable if adopting the general mode of expected credit loss to withdraw bad debt provision of accounts receivable. √ Applicable □ Not applicable Disclosure by aging Unit: RMB Aging Ending balance Within 1 year (including 1 year) 415,233,048.36 106 Lu Thai Textile Co., Ltd. Interim Report 2020 1 to 2 years 8,698,826.62 2 to 3 years 287,070.75 Over 3 years 339,135.56 3 to 4 years 339,135.56 Total 424,558,081.29 (2) Bad Debt Provision Withdrawn, Reversed or Recovered in the Reporting Period Withdrawal of bad debt provision: Unit: RMB Changes in the Reporting Period Category Beginning balance Reversal or Ending balance Withdrawal Verified Other recovery Bad debt provision of accounts 31,121,527.94 2,518,597.53 33,640,125.47 receivable Total 31,121,527.94 2,518,597.53 33,640,125.47 (3) Top 5 Accounts Receivable in Ending Balance Collected according to the Arrears Party Unit: RMB Proportion to total ending balance Ending balance of bad debt Name of entity Ending balance of accounts receivable provision A 38,710,993.71 9.12% 5,036,493.37 B 35,475,317.09 8.36% 2,714,450.81 C 20,855,871.57 4.91% 229,475.50 D 16,934,300.99 3.99% 846,715.05 E 16,612,273.70 3.91% 1,913,619.05 Total 128,588,757.06 30.29% 5. Accounts Receivable Financing Unit: RMB Item Ending balance Beginning balance Notes receivable 14,807,543.11 26,963,818.87 Total 14,807,543.11 26,963,818.87 The changes of accounts receivable financing in the Reporting Period and the changes in fair value □ Applicable √ Not applicable Please refer to the relevant information of disclosure of bad debt provision of other accounts receivable if adopting the general mode 107 Lu Thai Textile Co., Ltd. Interim Report 2020 of expected credit loss to withdraw bad debt provision of accounts receivable financing. □ Applicable √ Not applicable Other notes: There was no bank acceptance bill for which bad debt provision accrued separately in the Company. On 30 June 2020, the Company believed that there was no significant credit risk in the bank acceptance bill held by the Company, and no significant loss caused by bank defaults. 6. Prepayment (1) Prepayment Listed by Aging Analysis Unit: RMB Ending balance Beginning balance Aging Amount Proportion Amount Proportion Within 1 year 59,302,005.11 97.04% 53,283,453.85 93.76% 1 to 2 years 350,207.34 0.57% 3,529,989.66 6.21% 2 to 3 years 1,445,049.21 2.36% 0.00% Over 3 years 15,544.08 0.03% 15,544.08 0.03% Total 61,112,805.74 -- 56,828,987.59 -- (2) Top 5 Prepayment in Ending Balance Collected according to the Prepayment Target The total top 5 prepayment in ending balance collected according to the prepayment target for the Company was RMB34,867,312.99, accounting for 57.05% of total ending balance of prepayment. 7. Other Accounts Receivable Unit: RMB Item Ending balance Beginning balance Other accounts receivable 34,453,389.96 59,743,471.84 Total 34,453,389.96 59,743,471.84 (1) Other Accounts Receivable 1) Other Account Receivable Classified by Account Nature Unit: RMB Nature Ending carrying amount Beginning carrying amount Export taxes refund 114,937.20 10,107,773.06 VAT to be returned 7,166,722.20 28,015,795.39 108 Lu Thai Textile Co., Ltd. Interim Report 2020 Advance payment 14,980,474.50 12,156,529.38 Cash Pledge & Margin 9,875,778.47 6,749,222.66 Borrowings and petty cash 2,720,501.23 6,971,063.51 Other 4,494,114.55 1,210,146.25 Total 39,352,528.15 65,210,530.25 2) Withdrawal of Bad Debt Provision Unit: RMB First stage Second stage Third stage Expected loss in the Expected loss in the Bad debt provision Expected credit loss Total duration (credit impairment duration (credit impairment of the next 12 months not occurred) occurred) Balance of 1 January 3,043,394.21 1,831,226.97 592,437.23 5,467,058.41 2020 Balance of 1 January 2020 in the Current —— —— —— —— Period Withdrawal of the -1,206,855.30 638,935.08 0.00 -567,920.22 Current Period Balance of 30 June 2020 1,836,538.91 2,470,162.05 592,437.23 4,899,138.19 Changes of carrying amount with significant amount changed of loss provision in the Current Period □ Applicable √ Not applicable Disclosure by aging Unit: RMB Aging Ending balance Within 1 year (including 1 year) 29,361,581.37 1 to 2 years 2,873,988.95 2 to 3 years 2,288,889.85 Over 3 years 4,828,067.98 3 to 4 years 317,386.98 4 to 5 years 325,486.20 Over 5 years 4,185,194.80 Total 39,352,528.15 109 Lu Thai Textile Co., Ltd. Interim Report 2020 3) Bad Debt Provision Withdrawn, Reversed or Recovered in the Reporting Period Information of bad debt provision withdrawn: Unit: RMB Changes in the Reporting Period Beginning Category Reversal or Ending balance balance Withdrawal Verified Other recovery Bad debt provision of 5,467,058.41 -567,920.22 4,899,138.19 other receivables Total 5,467,058.41 -567,920.22 4,899,138.19 4) Top 5 Other Accounts Receivable in Ending Balance Collected according to the Arrears Party Unit: RMB Proportion to total Ending Ending ending balance of balance of Name of the entity Nature Aging balance other accounts bad debt receivable provision VAT receivable to be returned Input VAT 7,166,722.20 Within 1 year 18.21% 358,336.11 Xining Electric Power Company Intercourse borrowing 3,537,824.38 Within 1 year 8.99% 176,891.22 Security deposit for Zibo Customs, P.R.China 3,481,705.53 Within 1 year 8.85% 174,085.28 imported equipment Advance electric charge of Payment of electric charge 2,336,299.11 Within 1 year 5.93% 116,814.96 branches on behalf Migrant workers’ wage Migrant workers’ wage margin Within 1 year, over 3 margin of infrastructural 2,242,126.50 5.70% 112,106.33 in Zichuan District of Zibo years project Total -- 18,764,677.72 -- 47.68% 938,233.90 8. Inventory Whether the Company needs to comply with the disclosure requirements for real estate industry No (1) Category of Inventory Unit: RMB Ending balance Beginning balance Item Depreciation Depreciation Carrying amount Carrying value Carrying amount Carrying value reserves of reserves of 110 Lu Thai Textile Co., Ltd. Interim Report 2020 inventories or inventories or impairment impairment provision for provision for contract contract performance performance costs costs Raw materials 1,146,718,983.35 1,146,718,983.35 1,022,913,125.05 1,022,913,125.05 Goods in process 460,496,199.39 460,496,199.39 583,495,292.95 583,495,292.95 Inventory goods 1,073,612,442.52 97,641,596.89 975,970,845.63 888,016,891.18 102,276,414.38 785,740,476.80 Consumptive 1,472,972.75 576,304.29 896,668.46 1,472,972.75 576,304.29 896,668.46 living assets Assigned processing 11,053,172.84 11,053,172.84 28,454,696.04 28,454,696.04 products Total 2,693,353,770.85 98,217,901.18 2,595,135,869.67 2,524,352,977.97 102,852,718.67 2,421,500,259.30 (2) Falling Price Reserves of Inventory and Impairment Provision for Contract Performance Costs Unit: RMB Increased amount Decreased amount Beginning Item Reversal or Ending balance balance Withdrawal Other Other write-off Inventory goods 102,276,414.38 24,613,079.38 29,247,896.87 97,641,596.89 Consumptive 576,304.29 576,304.29 living assets Total 102,852,718.67 24,613,079.38 29,247,896.87 98,217,901.18 Item Specific basis of Reasons for write-off withdrawal of inventory or write-back falling price reserves The lower one between Sales cost of each item of Inventory goods inventory and its realizable net value The lower one between cost of each item of Consumptive living assets inventory and its realizable net value 111 Lu Thai Textile Co., Ltd. Interim Report 2020 (3) Ending Balance of Inventories Including Capitalized Borrowing Expense (4) Amount of Contract Performance Costs Amortized in the Reporting Period 9. Other Current Assets Unit: RMB Item Ending balance Beginning balance Prepaid income tax 18,272,897.64 18,801,867.00 Input VAT 61,216,399.92 49,986,686.74 Prepaid other taxes 120.36 Total 79,489,297.56 68,788,674.10 10. Long-term Receivables (1) List of Long-term Receivables Unit: RMB Ending balance Beginning balance Interval of Item Carrying Bad debt Carrying Carrying Carrying value Carrying value discoun amount provision amount amount t rate Financing lease accounts 250,000.00 250,000.00 250,000.00 250,000.00 Of which: unrealized 26,400.76 26,400.76 financing income Long-term advances 7,190,191.62 359,509.58 6,830,682.04 7,564,704.12 756,470.41 6,808,233.71 receivable Total 7,440,191.62 359,509.58 7,080,682.04 7,814,704.12 756,470.41 7,058,233.71 -- Impairment of bad debt provision Unit: RMB First stage Second stage Third stage Expected loss in the Expected loss in the Bad debt provision Expected credit loss Total duration (credit impairment duration (credit impairment of the next 12 months not occurred) occurred) Balance of 1 January 2020 756,470.41 756,470.41 Balance of 1 January 2020 in —— —— —— —— the Current Period Withdrawal of the Current -396,960.83 -396,960.83 Period 112 Lu Thai Textile Co., Ltd. Interim Report 2020 Balance of 30 June 2020 359,509.58 359,509.58 Changes of carrying amount with significant amount changed of loss provision in the Current Period □ Applicable √ Not applicable 11. Long-term Equity Investment Unit: RMB Increase/decrease Ending Adjustm Beginning Red Gains and Cash Withdra Ending balance ent of Chang balance uced losses bonus or wal of balance of Investees Additional other es of Othe (carrying inve recognized profits deprecia (carrying depreciati investment compreh other r value) stme under the announced tion value) on ensive equity nt equity method to issue reserves reserves income I. Joint ventures II. Associated enterprises Ningbo Mei shan Bonded Port Area Haohong Equity Investment 99,516,74 Partnership (L.P) 103,226,300.00 -3,709,556.61 3.39 (hereinafter referred to as “Haohong Investment”) Ningbo Haoying Equity Investment Partnership (L.P) 50,130,03 50,000,000.00 130,033.26 (hereinafter 3.26 referred to as “Haoying Investment”) 149,646,7 Subtotal 103,226,300.00 50,000,000.00 -3,579,523.35 76.65 149,646,7 Total 103,226,300.00 50,000,000.00 -3,579,523.35 76.65 Other notes 113 Lu Thai Textile Co., Ltd. Interim Report 2020 12. Other Non-current Financial Assets Unit: RMB Item Ending balance Beginning balance Equity instrument investment 126,519,880.41 266,149,500.00 Financial assets assigned measured by fair value and the changes be 12,000,000.00 12,000,000.00 included in the current gains and losses Total 138,519,880.41 278,149,500.00 13. Investment Property (1) Investment Property Adopted the Cost Measurement Mode √ Applicable □ Not applicable Unit: RMB Houses and Construction in Item Land use right Total buildings progress I. Original carrying value 1. Beginning balance 60,832,966.04 60,832,966.04 2. Increased amount of the period (1) Outsourcing (2)Transfer from inventory/fixed assets/construction in progress (3) Enterprise combination increase 3. Decreased amount of the period (1) Disposal (2) Other transfer 4. Ending balance 60,832,966.04 60,832,966.04 II. Accumulative depreciation and accumulative amortization 1. Beginning balance 14,936,218.17 14,936,218.17 2. Increased amount of the period 1,008,056.17 1,008,056.17 (1) Withdrawal or amortization 1,008,056.17 1,008,056.17 3. Decreased amount of the period (1) Disposal (2) Other transfer 4. Ending balance 15,944,274.34 15,944,274.34 114 Lu Thai Textile Co., Ltd. Interim Report 2020 III. Depreciation reserves 1. Beginning balance 2. Increased amount of the period (1) Withdrawal 3. Decreased amount of the period (1) Disposal (2) Other transfer 4. Ending balance IV. Carrying value 1. Ending carrying value 44,888,691.70 44,888,691.70 2. Beginning carrying value 45,896,747.87 45,896,747.87 14. Fixed Assets Unit: RMB Item Ending balance Beginning balance Fixed assets 5,911,198,566.20 6,012,094,104.67 Total 5,911,198,566.20 6,012,094,104.67 (1) List of Fixed Assets Unit: RMB Transportation Electronic equipment and Item Houses and buildings Machinery equipment Total equipment others I. Original carrying value 1. Beginning balance 3,566,066,620.95 6,950,430,267.50 66,490,962.47 145,125,211.07 10,728,113,061.99 2. Increased amount of the 35,719,541.15 106,836,999.02 3,863,521.81 5,472,067.02 151,892,129.00 period (1) Purchase 42,562.00 88,696,317.74 3,775,948.23 4,957,581.06 97,472,409.03 (2) Transfer from 23,911,624.53 3,101,939.48 0.00 426,254.98 27,439,818.99 construction in progress (3) Enterprise combination increase (4) Other increase 11,765,354.62 15,038,741.80 87,573.58 88,230.98 26,979,900.98 3. Decreased amount of the 2,077.90 28,221,896.60 4,412,343.76 992,867.74 33,629,186.00 period (1) Disposal or scrap 2,077.90 28,221,896.60 4,412,343.76 992,867.74 33,629,186.00 115 Lu Thai Textile Co., Ltd. Interim Report 2020 4. Ending balance 3,601,784,084.20 7,029,045,369.92 65,942,140.52 149,604,410.35 10,846,376,004.99 II. Accumulative depreciation 1. Beginning balance 1,055,126,921.87 3,453,435,496.65 45,436,360.53 101,913,448.80 4,655,912,227.85 2. Increased amount of the 59,321,095.33 173,849,716.41 3,002,788.38 8,061,719.89 244,235,320.01 period (1) Withdrawal 58,483,036.20 171,636,818.56 2,953,992.96 8,003,021.75 241,076,869.47 (2) Other increase 838,059.13 2,212,897.85 48,795.42 58,698.14 3,158,450.54 3. Decreased amount of the 2,077.90 16,152,983.00 3,994,696.23 945,019.89 21,094,777.02 period (1) Disposal or scrap 2,077.90 16,152,983.00 3,994,696.23 945,019.89 21,094,777.02 4. Ending balance 1,114,445,939.30 3,611,132,230.06 44,444,452.68 109,030,148.80 4,879,052,770.84 III. Depreciation reserves 1. Beginning balance 5,090,742.73 54,860,025.36 26,383.69 129,577.69 60,106,729.47 2. Increased amount of the period (1) Withdrawal 3. Decreased amount of the 3,940,581.21 41,480.31 3,982,061.52 period (1) Disposal or scrap 3,940,581.21 41,480.31 3,982,061.52 4. Ending balance 5,090,742.73 50,919,444.15 26,383.69 88,097.38 56,124,667.95 IV. Carrying value 1. Ending carrying value 2,482,247,402.17 3,366,993,695.71 21,471,304.15 40,486,164.17 5,911,198,566.20 2. Beginning carrying value 2,505,848,956.35 3,442,134,745.49 21,028,218.25 43,082,184.58 6,012,094,104.67 (2) Fixed Assets Leased out by Operation Lease Unit: RMB Item Ending carrying value Houses and buildings 2,885,865.83 (3) Fixed Assets Failed to Accomplish Certification of Property Unit: RMB Item Carrying value Reason Lufeng weaving dye gray yarn 11,529,607.08 Under the relevant certificate procedures of acceptance, measurement, 116 Lu Thai Textile Co., Ltd. Interim Report 2020 warehouse examination by the real estate trading center and other departments Other notes 15. Construction in Progress Unit: RMB Item Ending balance Beginning balance Construction in progress 248,852,110.85 165,841,680.32 Engineering materials 294,911,819.62 234,393,389.69 Total 543,763,930.47 400,235,070.01 (1) Construction in Progress Unit: RMB Ending balance Beginning balance Depreciati Depreciati Item Carrying Carrying on Carrying value on Carrying value amount amount reserves reserves Reform project of Xinsheng Thermal 3,493,638.27 3,493,638.27 2,837,138.88 2,837,138.88 Power Expansion project of Xinsheng 24,870,169.90 24,870,169.90 22,186,638.85 22,186,638.85 Thermal Power (Phase II) Dormitory project of Lu Thai 11,266,561.67 11,266,561.67 7,701,372.43 7,701,372.43 (Vietnam) Spinning project of Lu Thai Tan Chau 57,596,392.37 57,596,392.37 52,700,509.90 52,700,509.90 Functional Fabric Intelligent 128,024,572.68 128,024,572.68 56,365,451.33 56,365,451.33 Ecological Park Project Phase I Other retails projects 23,600,775.96 23,600,775.96 24,050,568.93 24,050,568.93 Total 248,852,110.85 248,852,110.85 165,841,680.32 165,841,680.32 (2) Changes in Significant Construction in Progress during the Reporting Period Unit: RMB Proporti Of which: Capitaliz Accumula on of amount of ation ted Transferre Other accumul Job capitalized rate of Capital Beginning Increased Ending amount of Item Budget d in fixed decreased ated schedu interests for interests resource balance amount balance interest assets amount investme le the for the s capitalizat nt in Reporting Reportin ion construc Period g Period 117 Lu Thai Textile Co., Ltd. Interim Report 2020 tions to budget Reform project of 26,000,000 2,837,138. 3,429,063. 2,772,563. 3,493,638. Xinsheng 0.00 24.00% 24% Other .00 88 26 87 27 Thermal Power Expansio n project of 110,690,00 22,186,63 3,193,015. 509,484.6 24,870,16 Xinsheng 0.00 111.00% 99% Other 0.00 8.85 69 4 9.90 Thermal Power (Phase II) Dormitor y project 21,626,200 7,701,372. 3,451,151. -114,037.9 11,266,56 of Lu 0.00 52.00% 52% Other .00 43 26 8 1.67 Thai (Vietnam) Spinning project of 153,470,00 52,700,50 11,029,87 6,914,353. -780,362.1 57,596,39 90.00% 90% Other Lu Thai 0.00 9.90 3.82 53 8 2.37 Tan Chau Functiona l Fabric Raised Intelligent 217,211,00 56,365,45 71,659,12 128,024,5 5,092,555 through Ecologica 0.00 0.00 59.00% 59% 5,092,555.05 3.68% 0.00 1.33 1.35 72.68 .05 equity l Park offering Project Phase I Other 24,050,56 16,787,97 17,243,41 23,600,77 retails -5,649.58 8.93 4.40 6.95 5.96 projects 528,997,20 165,841,6 109,550,1 27,439,81 -900,049.7 248,852,1 5,092,555 Total -- -- 5,092,555.05 3.68% -- 0.00 80.32 99.78 8.99 4 10.85 .05 (3) Engineering Materials Unit: RMB Ending balance Beginning balance Item Carrying amount Depreciation Carrying value Carrying Depreciation Carrying value 118 Lu Thai Textile Co., Ltd. Interim Report 2020 reserves amount reserves Special equipment 294,911,819.62 294,911,819.62 234,393,389.69 0.00 234,393,389.69 Total 294,911,819.62 294,911,819.62 234,393,389.69 0.00 234,393,389.69 16. Intangible Assets (1) List of Intangible Assets Unit: RMB Non-patent Software use Brand use Item Land use right Patent right Total technologies rights rights I. Original carrying value 1. Beginning balance 633,234,119.27 1,985,176.47 5,960,347.27 300,000.00 641,479,643.01 2. Increased amount of the 644,070.79 644,070.79 period (1) Purchase 644,070.79 644,070.79 (2) Internal R&D (3) Business combination increase 3. Decreased amount of the 25,057.34 950,371.07 975,428.41 period (1) Disposal (2) Invalid and recognition 25,057.34 950,371.07 975,428.41 terminated portion 4. Ending balance 633,209,061.93 1,985,176.47 5,654,046.99 300,000.00 641,148,285.39 II. Accumulated amortization 1. Beginning balance 119,122,908.13 1,819,745.40 3,907,470.33 150,000.00 125,000,123.86 2. Increased amount of the 7,311,646.62 99,258.84 1,084,879.93 15,000.00 8,510,785.39 period (1) Withdrawal 7,311,646.62 99,258.84 1,084,879.93 15,000.00 8,510,785.39 3. Decreased amount of the 49,369.10 952,652.51 1,002,021.61 period (1) Disposal 49,369.10 952,652.51 1,002,021.61 4. Ending balance 126,385,185.65 1,919,004.24 4,039,697.75 165,000.00 132,508,887.64 III. Depreciation reserves 1. Beginning balance 2. Increased amount of the 119 Lu Thai Textile Co., Ltd. Interim Report 2020 period (1) Withdrawal 3. Decreased amount of the period (1) Disposal 4. Ending balance IV. Carrying value 1. Ending carrying value 506,823,876.28 66,172.23 1,614,349.24 135,000.00 508,639,397.75 2. Beginning carrying value 514,111,211.14 165,431.07 2,052,876.94 150,000.00 516,479,519.15 The proportion of intangible assets formed from the internal R&D of the Company at the Period-end to the ending balance of intangible assets was 0.00%. 17. Development Costs Unit: RMB Increase Decrease Beginning Ending Item Internal Recognized as intangible Transferred into the balance Other balance development costs assets current profit or loss R&D of 123,441,723.06 123,441,723.06 products Total 123,441,723.06 123,441,723.06 18. Goodwill (1) Original Carrying Value of Goodwill Unit: RMB Name of the Increase Decrease invested units or Beginning Formed by Ending balance events generating balance business Disposal goodwill combination Xinsheng Power 20,563,803.29 20,563,803.29 Total 20,563,803.29 20,536,803.29 19. Long-term Prepaid Expense Unit: RMB Amortization Other decreased Item Beginning balance Increased amount Ending balance amount of the amount 120 Lu Thai Textile Co., Ltd. Interim Report 2020 period Land contracting fee of 24,521,204.92 543,109.50 0.00 23,978,095.42 Xinjiang Lu Thai Decoration fee 486,407.69 81,067.98 0.00 405,339.71 Land rent of overseas 128,023,641.18 1,520,353.98 -1,895,708.56 128,398,995.76 subsidiaries Charge for supporting 4,587,155.95 38,226.30 4,548,929.65 facilities Total 153,031,253.79 4,587,155.95 2,182,757.76 -1,895,708.56 157,331,360.54 20. Deferred Income Tax Assets/Deferred Income Tax Liabilities (1) Deferred Income Tax Assets Had Not Been Off-set Unit: RMB Ending balance Beginning balance Item Deductible temporary Deferred income tax Deductible temporary Deferred income tax difference assets difference assets Provision for impairment of assets 175,881,729.93 28,713,937.96 180,480,880.04 29,370,310.33 Internal unrealized profit 104,223,041.48 12,437,892.74 123,500,857.32 14,085,213.14 Deductible losses 31,584,302.32 5,600,742.22 31,584,302.32 5,600,742.22 One-time listed decoration expenses 3,496,364.02 874,091.01 3,496,364.02 874,091.01 Payroll payable 140,654,344.00 21,198,255.31 140,654,344.00 21,198,255.31 Deferred income 162,647,704.62 25,656,165.40 157,668,211.41 24,986,231.71 Changes in fair value of other 21,282,600.00 3,192,390.00 21,282,600.00 3,192,390.00 non-current financial assets Total 639,770,086.37 97,673,474.64 658,667,559.11 99,307,233.72 (2) Deferred Income Tax Liabilities Had not Been Off-set Unit: RMB Ending balance Beginning balance Item Taxable temporary Deferred income tax Taxable temporary Deferred income tax difference liabilities difference liabilities Depreciation of fixed assets 350,186,466.49 55,734,466.30 349,845,317.15 55,676,007.33 Internal unrealized profit 8,245,287.26 1,236,793.09 10,805,075.00 1,620,761.25 Changes in fair value of trading 0.00 0.00 2,356,098.85 353,414.83 financial assets 121 Lu Thai Textile Co., Ltd. Interim Report 2020 Changes in fair value of other 90,436,047.47 13,565,407.12 231,934,500.00 34,790,175.00 non-current financial assets Total 448,867,801.22 70,536,666.51 594,940,991.00 92,440,358.41 (3) List of Unrecognized Deferred Income Tax Assets Unit: RMB Item Ending balance Beginning balance Deductible temporary difference 15,930,114.89 19,823,624.86 Deductible losses 23,975,983.50 23,728,086.37 Total 39,906,098.39 43,551,711.23 (4) Deductible Losses of Unrecognized Deferred Income Tax Assets will Due in the Following Years Unit: RMB Years Ending amount Beginning amount Notes Y2020 13,393,727.33 13,393,727.33 Y2021 4,250,703.45 4,250,703.45 Y2022 3,730,297.90 3,730,297.90 Y2023 0.00 0.00 Y2024 2,353,357.69 2,353,357.69 Y2025 247,897.13 0.00 Total 23,975,983.50 23,728,086.37 -- 21. Other Non-current Assets Unit: RMB Ending balance Beginning balance Item Carrying Impairmen Carrying Impairment Carrying value Carrying value amount t provision amount provision Prepayment for equipment 7,754,157.78 7,754,157.78 18,841,918.62 18,841,918.62 Total 7,754,157.78 7,754,157.78 18,841,918.62 18,841,918.62 22. Short-term Borrowings (1) Category of Short-term Borrowings Unit: RMB 122 Lu Thai Textile Co., Ltd. Interim Report 2020 Item Ending balance Beginning balance Mortgage loan 200,000,000.00 309,422,409.94 Guaranteed loan 615,165,368.62 479,189,664.03 Credit loan 1,066,071,893.21 1,331,542,256.64 Total 1,881,237,261.83 2,120,154,330.61 Notes of the category for short-term loans: (1) As of 30 June 2020, he Company’s subsidiary Xinjiang Lu Thai pledged the inventory with carrying value of RMB76,161,332.00 and the land use rights with carrying value of RMB97,498,130.83 for bank short-term borrowing of RMB200,000,000.00. (2) The guaranteed loan at the period-end was the guarantee provided for the bank loan of the subsidiary Lu Thai (Vietnam) by the Company. Refer to Note XII-2 for details. (3) The short-term borrowings include interest payable of RMB 7,340,636.27. 23. Trading Financial Liabilities Unit: RMB Item Ending balance Beginning balance Trading financial liabilities 841,402.78 Of which: Derivative financial liabilities 841,402.78 Of which: Total 841,402.78 24. Notes Payable Unit: RMB Item Ending balance Beginning balance Trade acceptance 848,873.48 Bank’s acceptance bill 3,233,148.00 84,370,851.15 Total 3,233,148.00 85,219,724.63 The total overdue but unpaid notes payable at the period-end were RMB0.00. 25. Accounts Payable (1) List of Accounts Payable Unit: RMB Item Ending balance Beginning balance 123 Lu Thai Textile Co., Ltd. Interim Report 2020 Payment for goods 97,246,497.38 159,191,179.02 Engineering equipment 101,306,194.97 135,578,852.63 Other 26,230,288.84 10,576,253.29 Total 224,782,981.19 305,346,284.94 26. Contract Liabilities Unit: RMB Item Ending balance Beginning balance Payment for goods 111,405,604.38 108,783,148.03 Total 111,405,604.38 108,783,148.03 27. Payroll Payable (1) List of Payroll Payable Unit: RMB Item Beginning balance Increase Decrease Ending balance I. Short-term salary 327,102,126.87 809,960,231.98 865,693,350.19 271,369,008.66 II. Post-employment 8,474,433.49 49,230,274.99 53,812,540.77 3,892,167.71 benefit-defined contribution plans Total 335,576,560.36 859,190,506.97 919,505,890.96 275,261,176.37 (2) List of Short-term Salary Unit: RMB Item Beginning balance Increase Decrease Ending balance 1. Salary, bonus, allowance, subsidy 267,390,519.63 719,066,736.26 777,680,537.39 208,776,718.50 2. Employee welfare 0.00 41,192,308.46 41,192,308.46 0.00 3. Social insurance 486,333.39 31,013,459.50 31,264,502.75 235,290.14 Of which: 1. Medical insurance 21,917.76 28,774,976.64 28,779,514.66 17,379.74 premiums Work-related injury insurance 464,415.63 2,237,981.18 2,484,486.41 217,910.40 Maternity insurance 0.00 501.68 501.68 0.00 4. Housing fund 0.00 8,542,617.20 8,542,617.20 0.00 5. Labor union budget and 59,225,273.85 10,145,110.56 7,013,384.39 62,357,000.02 employee education budget Total 327,102,126.87 809,960,231.98 865,693,350.19 271,369,008.66 124 Lu Thai Textile Co., Ltd. Interim Report 2020 (3) List of Defined Contribution Plans Unit: RMB Item Beginning balance Increase Decrease Ending balance 1. Basic pension benefits 8,119,137.55 46,847,776.72 51,237,893.95 3,729,020.32 2. Unemployment 355,295.94 2,382,498.27 2,574,646.82 163,147.39 insurance Total 8,474,433.49 49,230,274.99 53,812,540.77 3,892,167.71 Other notes: The Company, in line with the requirement, participate the endowment insurance, unemployment insurance scheme and so on. Except the monthly payment, the Company no longer shoulder the further payment obligation, the relevant expense occurred was recorded into current profits and losses or related assets costs. 28. Taxes Payable Unit: RMB Item Ending balance Beginning balance VAT 4,216,792.63 3,285,763.29 Corporate income tax 12,742,870.58 4,184,737.55 Personal income tax 4,461,704.23 714,935.78 Urban maintenance and construction tax 982,146.45 4,805,486.91 Stamp tax 236,011.40 423,497.30 Property tax 4,866,325.70 4,802,550.30 Land use tax 4,241,519.13 2,477,984.56 Education surcharge 434,131.03 2,128,521.32 Local education surcharge 289,420.68 1,419,014.22 Local water conservancy facility 70,788.15 342,756.22 construction fund Resource tax 137,168.00 116,530.00 Environmental protection tax 189,815.83 349,852.61 Tax for foreign contractors 259,311.11 Total 33,128,004.92 25,051,630.06 29. Other Payables Unit: RMB Item Ending balance Beginning balance Dividends payable 86,253,267.74 441,113.64 125 Lu Thai Textile Co., Ltd. Interim Report 2020 Other payables 109,079,154.27 104,541,075.76 Total 195,332,422.01 104,982,189.40 (1) Dividends Payable Unit: RMB Item Ending balance Beginning balance Ordinary stock dividends 85,812,154.10 Dividends payable to individual 441,113.64 441,113.64 shareholders Total 86,253,267.74 441,113.64 Other notes: including significant dividends payable unpaid for over one year, the unpaid reason shall be disclosed: Name Amount Reason Dividends payable to 441,113.64 Cash dividend of previous year not received individual by individual shareholders shareholders Total 441,113.64 -- (2) Other Payables 1) Other Payables Listed by Nature of Account Unit: RMB Item Ending balance Beginning balance Deposits and cash deposits etc. 7,018,209.82 19,949,169.11 Collecting payment on behalf of others 23,391,793.62 22,312,587.01 Intercourse funds 60,899,499.87 51,201,798.22 Other 17,769,650.96 11,077,521.42 Total 109,079,154.27 104,541,075.76 2) Significant Other Accounts Payable Aging over One Year Unit: RMB Item Ending balance Unpaid/Un-carry-over reason Cotton and Linen Company 11,925,000.00 Received deposit of sale contract Total 11,925,000.00 -- Other notes 126 Lu Thai Textile Co., Ltd. Interim Report 2020 30. Current Portion of Non-current Liabilities Unit: RMB Item Ending balance Beginning balance Current portion of long-term borrowings 56,636,000.00 101,111,297.49 Interest of current portion of bonds payable 955,068.49 Total 57,591,068.49 101,111,297.49 31. Long-term Borrowings (1) Category of Long-term Borrowings Unit: RMB Item Ending balance Beginning balance Guarantee loan 70,795,000.00 143,475,317.23 Less: current portion of long-term -56,636,000.00 -101,111,297.49 borrowings Total 14,159,000.00 42,364,019.74 Note to the category of long-term borrowings: (1) The guarantee loan was the guarantee provided for the bank loan of the subsidiary Lu Thai (Vietnam) by the Company. Refer to Note XII-2 for details. 32. Bonds Payable (1) Bonds Payable Unit: RMB Item Ending balance Beginning balance Convertible corporate bonds 1,324,932,419.54 Total 1,324,932,419.54 (2) Changes of Bonds Payable (Excluding Other Financial Instruments Divided as Financial Liabilities such as Preferred Shares and Perpetual Bonds) Unit: RMB Begi Rep Less: Bon Amortization nnin Interest aid interest of Bonds Par d Issued in the of premium Issue date Issue amount g accrued at in current Ending balance name value dura Reporting Period and bala par value the portion of tion depreciation nce Rep bonds 127 Lu Thai Textile Co., Ltd. Interim Report 2020 ortin payable g Peri od LuThai Convertibl 9 April 100.00 6 1,400,000,000.00 1,314,891,661.48 955,068.49 10,040,758.06 955,068.49 1,324,932,419.54 e Bond 2020 127016 Total -- -- -- 1,400,000,000.00 1,314,891,661.48 955,068.49 10,040,758.06 955,068.49 1,324,932,419.54 (3) Convertible Conditions and Time for Convertible Corporate Bonds On 9 April 2020, the Company publicly issued 14 million A-share convertible corporate bonds (short name: Luthai Convertible Bonds, bond code: 127016) on Shenzhen Stock Exchange with an issue price of RMB 100 per share and a share conversion price of RMB 9.01 per share. The bonds were listed on Shenzhen Stock Exchange on 13 May 2020. The period for converting the convertible bonds into shares will start from the first trading day next to six months upon the end of the bond issue (15 April 2020, T+4) and end on the maturity of the convertible bonds, namely, from 15 October 2020 till 8 April 2026. 33. Long-term Payroll Payable (1) List of Long-term Payroll Payable Unit: RMB Item Ending balance Beginning balance III. Other long-term welfare 52,317,084.85 105,589,249.56 Total 52,317,084.85 105,589,249.56 34. Deferred Income Unit: RMB Reason for Item Beginning balance Increase Decrease Ending balance formation Government grants 157,641,810.65 11,502,800.00 6,496,906.03 162,647,704.62 Government grants Unrealized financing 26,400.76 26,400.76 0.00 Finance lease incomes Total 157,668,211.41 11,502,800.00 6,523,306.79 162,647,704.62 -- Item involving government grants: Unit: RMB 128 Lu Thai Textile Co., Ltd. Interim Report 2020 Amount Amount Amount recorded into recorded into offset cost in Other Related to Beginning Amount of non-operating other income Item the change Ending balance assets/related balance newly subsidy income in the in the Reporting s income Reporting Reporting Period Period Period Related to the Land 56,479,453.57 0.00 0.00 696,578.94 0.00 0.00 55,782,874.63 assets Related to the Equipment 79,175,495.32 8,702,800.00 0.00 2,493,310.22 0.00 0.00 85,384,985.10 assets Related to the Production living assets 425,000.12 0.00 0.00 42,499.90 0.00 0.00 382,500.22 assets Related to the Overseas investment 500,000.00 800,000.00 0.00 0.00 0.00 0.00 1,300,000.00 assets Related to the R&D 10,012,000.00 2,000,000.00 0.00 0.00 0.00 0.00 12,012,000.00 income Related to the public rental housing 1,189,710.65 0.00 0.00 24,115.74 0.00 0.00 1,165,594.91 assets Transformation of garden Related to the 9,860,150.99 0.00 0.00 3,240,401.23 0.00 0.00 6,619,749.76 greens income Total 157,641,810.65 11,502,800.00 0.00 6,496,906.03 0.00 0.00 162,647,704.62 Other notes: 35. Other Non-current Liabilities Unit: RMB Item Ending balance Beginning balance Loan project 1,840,000.00 1,840,000.00 Total 1,840,000.00 1,840,000.00 36. Share Capital Unit: RMB Increase/decrease (+/-) Beginning New shares Bonus issue Ending balance balance Bonus shares Other Subtotal issued from profit The sum of 858,121,541.00 858,121,541.00 shares 129 Lu Thai Textile Co., Ltd. Interim Report 2020 37. Other Equity Instruments (1) Basic Information about Other Outstanding Financial Instruments such as Preferred Shares and Perpetual Bonds at the Period-end On 9 April 2020, the Company publicly issued 14 million A-share convertible corporate bonds (short name: Luthai Convertible Bonds, bond code: 127016) on Shenzhen Stock Exchange with an issue price of RMB 100 per share and a share conversion price of RMB 9.01 per share. The bonds were listed on Shenzhen Stock Exchange on 13 May 2020. (2) Changes of Outstanding Financial Instruments such as Preferred Shares and Perpetual Bonds at the Period-end Unit: RMB Period-beginning Increase Decrease Period-end Outstanding financial Carrying Carrying instruments Number Number Carrying value Number Number Carrying value value value Equity part of LuThai 14,000,000 71,391,357.42 14,000,000 71,391,357.42 Convertible Bonds Total 14,000,000 71,391,357.42 14,000,000 71,391,357.42 Changes of other equity instruments in the Reporting Period, reasons thereof and basis of related accounting treatment: Other notes; The Company analyzed the debt and equity components in convertible bonds issued: after taking the issue expense into account, the fair value of RMB1,314,891,661.48 of debt part shall be recorded into bonds payable and the fair value of RMB71,391,357.42 of the equity part shall be recorded into other equity instruments. 38. Capital Reserves Unit: RMB Item Beginning balance Increase Decrease Ending balance Capital premium 197,609,646.20 197,609,646.20 (premium on stock) Other capital reserves 60,436,599.22 60,436,599.22 Total 258,046,245.42 258,046,245.42 39. Other Comprehensive Income Unit: RMB Reporting Period Beginning Income before Less: recorded Less: recorded Less: Attributable to Attributa Item Ending balance balance taxation in the in other in other Incom owners of the ble to Current Period comprehensive comprehensive e tax Company as non-cont 130 Lu Thai Textile Co., Ltd. Interim Report 2020 income in prior income in prior expens the parent rolling period and period and e after tax interests transferred in transferred in after tax profit or loss in retained the Current earnings in the Period Current Period II. Other comprehensive income that may 91,626,571.75 21,295,310.76 21,295,310.76 112,921,882.51 subsequently be reclassified to profit or loss Differences arising from translation of foreign 91,626,571.75 21,295,310.76 21,295,310.76 112,921,882.51 currency-denominat ed financial statements Total of other comprehensive 91,626,571.75 21,295,310.76 21,295,310.76 112,921,882.51 income 40. Surplus Reserves Unit: RMB Item Beginning balance Increase Decrease Ending balance Statutory surplus 1,113,925,779.05 1,113,925,779.05 reserves Discretional surplus 3,341,572.58 3,341,572.58 reserves Total 1,117,267,351.63 1,117,267,351.63 41. Retained Profits Unit: RMB Item Reporting Period Same period of last year Beginning balance of retained profits before 5,372,073,615.12 4,927,500,989.55 adjustments Total beginning retained profits of the adjustments 15,797,284.81 ( “+” for increase, “-” for decrease) Beginning balance of retained profits after 5,372,073,615.12 4,943,298,274.36 131 Lu Thai Textile Co., Ltd. Interim Report 2020 adjustments Add: Net profit attributable to owners of the 144,119,579.22 411,446,216.59 Company as the parent Dividend of ordinary shares payable 85,812,154.10 429,060,770.50 Ending retained profits 5,430,381,040.24 4,925,683,720.45 List of adjustment of beginning retained profits: 1) RMB0.00 beginning retained profits was affected by retrospective adjustment conducted according to the Accounting Standards for Business Enterprises and relevant new regulations. 2) RMB0.00 beginning retained profits was affected by changes in accounting policies. 3) RMB0.00 beginning retained profits was affected by correction of significant accounting errors. 4) RMB0.00 beginning retained profits was affected by changes in combination scope arising from same control. 5) RMB0.00 beginning retained profits was affected totally by other adjustments. 42. Operating Revenue and Cost of Sales Unit: RMB Reporting Period Same period of last year Item Operating revenue Cost of sales Operating revenue Cost of sales Main operations 2,222,332,890.30 1,634,158,882.29 3,067,390,155.73 2,138,306,997.45 Other operations 64,411,190.49 49,593,448.98 118,058,188.28 72,579,958.08 Total 2,286,744,080.79 1,683,752,331.27 3,185,448,344.01 2,210,886,955.53 Performance obligations: Naught Information in relation to the transaction price apportioned to the residual contract performance obligation: As at the end of the Reporting Period, the revenue amount corresponding to the contract performance obligation yet to be fulfilled or yet to be completed under a signed contract is RMB 0.00, including RMB 0.00 expected to be recognized as revenue in the year, RMB 0.00 expected to be recognized as revenue in the year, and RMB 0.00 expected to be recognized as revenue in the year. Other notes Naught 43. Taxes and Surtaxes Unit: RMB Item Reporting Period Same period of last year Urban maintenance and construction tax 7,630,680.55 12,942,977.77 Education Surcharge 3,402,460.99 6,280,555.02 Resources tax 262,578.00 273,812.00 Property tax 10,624,279.89 10,445,304.80 132 Lu Thai Textile Co., Ltd. Interim Report 2020 Land use tax 8,760,353.77 4,971,821.88 Vehicle and vessel usage tax 75,368.72 67,558.06 Stamp duty 1,668,370.50 1,974,918.20 Local education surcharge 2,268,305.20 4,186,251.77 Local water conservancy facility 541,123.15 906,978.57 construction fund Environmental protection tax 532,734.64 686,626.70 Total 35,766,255.41 42,736,804.77 44. Selling Expense Unit: RMB Item Reporting Period Same period of last year Salary 24,858,302.63 20,574,080.44 Transport fees 18,556,351.95 23,619,036.59 Advertising expense 218,938.82 842,219.72 Port surcharge 5,552,752.80 6,962,843.36 Depreciation charge 3,364,600.96 2,590,789.92 Business travel charges 963,154.55 2,276,163.13 Rental charges 2,003,837.09 352,005.53 Sales service fee 4,662,986.11 9,324,787.65 Publicity expenses 8,117,611.43 5,672,646.13 Expense for repairmen and loss 7,115,057.20 1,040,128.85 Other 6,326,312.05 4,582,241.62 Total 81,739,905.59 77,836,942.94 45. Administrative Expense Unit: RMB Item Reporting Period Same period of last year Salary 67,681,094.74 70,734,616.39 Depreciation charge 17,659,534.12 16,165,351.08 Warehouse funding 20,442,304.85 18,689,030.12 Travel expense 12,025,932.80 9,626,697.87 Rental charges 6,948,195.24 7,783,345.21 Labor-union expenditure 5,915,433.42 7,253,250.66 133 Lu Thai Textile Co., Ltd. Interim Report 2020 Employee education budget 4,188,129.15 4,917,654.51 Amortization of intangible assets 6,766,430.80 6,659,983.58 Carriage charges 3,500,431.81 3,978,013.51 Other 32,766,112.54 45,397,654.81 Total 177,893,599.47 191,205,597.74 46. R&D Expense Unit: RMB Item Reporting Period Same period of last year Labor cost 63,175,350.86 81,442,048.22 Material expense 43,001,450.30 61,389,843.36 Depreciation charge 6,678,502.09 5,495,504.06 Other 10,586,419.81 13,611,643.59 Total 123,441,723.06 161,939,039.23 47. Finance Costs Unit: RMB Item Reporting Period Same period of last year Interest expense 43,752,260.50 47,316,465.76 Less: Interest income 13,506,359.51 4,338,765.10 Less: Capitalized interest 5,092,555.05 Foreign exchange gains or losses -3,962,751.87 4,695,399.57 Less: Capitalized foreign exchange gains or losses Other 4,016,715.61 4,881,469.82 Total 25,207,309.68 52,554,570.05 48. Other Income Unit: RMB Sources Reporting Period Same period of last year Government grants 36,850,705.82 32,226,225.91 Total 36,850,705.82 32,226,225.91 134 Lu Thai Textile Co., Ltd. Interim Report 2020 49. Investment Income Unit: RMB Item Reporting Period Same period of last year Long-term equity investment income -3,579,523.35 5,083,101.54 accounted by equity method Investment income from disposal of long-term -46,137.60 equity investment Investment income from holding of trading 1,382,405.99 financial assets Investment income from disposal of trading 154,309,537.24 3,998,105.48 financial assets Total 150,730,013.89 10,417,475.41 50. Gain on Changes in Fair Value Unit: RMB Sources Reporting Period Same period of last year Trading financial assets -143,854,551.38 405,000.00 Trading financial liabilities -841,402.78 4,877,600.00 Total -144,695,954.16 5,282,600.00 51. Credit Impairment Loss Unit: RMB Item Reporting Period Same period of last year Bad debt loss of other receivables 567,920.22 597,634.52 Bad debt loss of long-term receivables 396,960.83 -62,635.15 Bad debt loss of accounts receivable -2,518,597.53 -1,065,950.68 Total -1,553,716.48 -530,951.31 52. Asset Impairment Loss Unit: RMB Item Reporting Period Same period of last year II. Inventory falling price loss and impairment provision for contract -24,613,079.38 -1,543,199.38 performance costs Total -24,613,079.38 -1,543,199.38 135 Lu Thai Textile Co., Ltd. Interim Report 2020 53. Asset Disposal Income Unit: RMB Sources Reporting Period Same period of last year Fixed asset disposal income (“-” for loss) -405,636.42 513,490.00 Intangible asset disposal income (“-” for 51,773.24 0.00 loss) Total -353,863.18 513,490.00 54. Non-operating Income Unit: RMB Amount recorded in the current Item Reporting Period Same period of last year non-recurring profit or loss Gains on exchange of 16,961.25 non-monetary assets Other 2,125,819.41 3,080,063.19 Total 2,125,819.41 3,097,024.44 55. Non-operating Expense Unit: RMB Amount recorded in the current Item Reporting Period Same period of last year non-recurring profit or loss Donations 1,000,000.00 102,676.14 Losses from damage and scrap 149,918.89 24,624.99 of non-current assets Other 1,234,008.01 2,087,055.41 Total 2,383,926.90 2,214,356.54 56. Income Tax Expense (1) List of Income Tax Expense Unit: RMB Item Reporting Period Same period of last year Current income tax expense 26,171,457.60 72,479,054.50 Deferred income tax expense 896,376.09 2,360,177.79 Total 27,067,833.69 74,839,232.29 136 Lu Thai Textile Co., Ltd. Interim Report 2020 (2) Adjustment Process of Accounting Profit and Income Tax Expense Unit: RMB Item Reporting Period Profit before taxation 175,048,955.33 Current income tax expense accounted at statutory/applicable tax 26,257,343.30 rate Influence of applying different tax rates by subsidiaries 4,031,973.86 Influence of income tax before adjustment -2,684,554.97 Profit/loss of associated enterprises and joint ventures accounted -536,928.50 by equity method Income tax expense 27,067,833.69 57. Other Comprehensive Income Refer to Note VII-39 for details. 58. Cash Flow Statement (1) Cash Generated from Other Operating Activities Unit: RMB Item Reporting Period Same period of last year Government subsidies 42,760,333.79 31,316,634.62 Claim income 657,147.73 2,085,818.06 Recovery of employee borrowings, petty 7,829,609.00 10,419,971.60 cash and deposit Collection for employees 1,507,827.48 1,888,073.17 Other 2,847,294.50 772,153.13 Total 55,602,212.50 46,482,650.58 (2) Cash Used in Other Operating Activities Unit: RMB Item Reporting Period Same period of last year Freight and miscellaneous charges 25,102,769.53 27,584,811.06 Rental charges 11,393,199.71 10,519,175.31 Advertising expense 1,074,493.45 1,918,696.01 Business travel charges 14,492,835.30 11,411,011.08 137 Lu Thai Textile Co., Ltd. Interim Report 2020 Insurance 2,130,902.85 6,869,594.27 Audit advisory announcement fee 9,146,615.17 2,301,944.65 Decoration & repair expenses 1,368,170.04 82,537.34 Donation 1,000,000.00 22,546.59 Pre-payment 1,750,359.55 5,086,731.48 Payment of employee borrowings, petty 6,298,914.86 11,643,401.71 cash and deposit Other 30,165,500.96 14,392,971.31 Total 103,923,761.42 91,833,420.81 (3) Cash Generated from Other Investing Activities Unit: RMB Item Reporting Period Same period of last year Interest income 8,467,672.27 3,366,107.52 Income from forward foreign exchange 8,657,194.49 6,470,691.14 Cash deposit of L/C for purchasing 28,969,919.03 equipment Total 46,094,785.79 9,836,798.66 (4) Cash Used in Other Investing Activities Unit: RMB Item Reporting Period Same period of last year Forward settlement exchange loss 363,000.00 4,874,724.40 Payment of deposit for the L/C of 2,868,380.25 equipment purchase Total 3,231,380.25 4,874,724.40 (5) Cash Generated from Other Financing Activities Unit: RMB Item Reporting Period Same period of last year Return of loan guarantees 14,000,000.00 10,000,000.00 Recovery of intercourse accounts 160,000,000.00 9,000,000.00 Total 174,000,000.00 19,000,000.00 138 Lu Thai Textile Co., Ltd. Interim Report 2020 (6) Cash Used in Other Financing Activities Unit: RMB Item Reporting Period Same period of last year Payment of the B-share buy-back amount 8,573,104.03 Payment for intercourse accounts 160,000,000.00 11,750,000.00 Acquisition of minority equity of 841,000.00 subsidiaries Total 160,000,000.00 21,164,104.03 59. Supplemental Information for Cash Flow Statement (1) Supplemental Information for Cash Flow Statement Unit: RMB Same period of last Supplemental information Reporting Period year 1. Reconciliation of net profit to net cash flows generated from operating activities -- -- Net profit 147,981,121.64 420,697,509.99 Add: Provision for impairment of assets 26,166,795.86 2,074,150.69 Depreciation of fixed assets, oil-gas assets, and productive living assets 242,090,445.82 226,725,498.16 Amortization of intangible assets 8,510,785.39 9,965,756.01 Amortization of long-term prepaid expenses 2,182,757.76 1,602,913.05 Losses from disposal of fixed assets, intangible assets and other long-lived assets 353,863.18 -513,490.00 (gains: negative) Losses from scrap of fixed assets (gains: negative) 149,918.89 7,663.74 Losses from changes in fair value (gains: negative) 143,854,551.38 -5,282,600.00 Finance costs (gains: negative) 21,190,594.07 47,673,100.23 Investment loss (gains: negative) -150,730,013.89 -10,417,475.41 Decrease in deferred income tax assets (gains: negative) 1,633,759.08 2,508,867.66 Increase in deferred income tax liabilities (“-” means decrease) 21,903,691.90 -148,689.87 Decrease in inventory (gains: negative) -169,000,792.88 -221,528,624.76 Decrease in accounts receivable generated from operating activities (gains: negative) 188,207,459.72 -174,035,167.80 Increase in accounts payable used in operating activities (decrease: negative) -275,102,672.23 -179,612,349.12 Net cash generated from/used in operating activities 209,392,265.69 119,717,062.57 2. Significant investing and financing activities without involvement of cash receipts -- -- and payments 139 Lu Thai Textile Co., Ltd. Interim Report 2020 3. Net increase/decrease of cash and cash equivalent: -- -- Ending balance of cash 2,018,648,643.49 623,558,417.28 Less: beginning balance of cash 878,559,018.92 535,134,772.90 Net increase in cash and cash equivalents 1,140,089,624.57 88,423,644.38 (2) Cash and Cash Equivalents Unit: RMB Item Ending balance Beginning balance I. Cash 2,018,648,643.49 878,559,018.92 Including: Cash on hand 9,094,993.18 9,544,377.41 Bank deposit on demand 2,009,553,650.31 869,014,641.51 III. Ending balance of cash and cash 2,018,648,643.49 878,559,018.92 equivalents 60. Notes of Items in Owners’ Equity Change Specific name of “other” related to the adjustment of the ending balance of last year and adjusted amount: Not applicable. 61. Assets with Restricted Ownership or Right to Use Unit: RMB Item Ending carrying value Reason for restriction Monetary assets 4,586,637.12 Cash deposit for L/G and L/C Inventory 76,161,332.00 Mortgaged for short-term borrowings Intangible assets 97,498,130.83 Mortgaged for short-term borrowings Total 178,246,099.95 -- 62. Foreign Currency Monetary Items (1) Foreign Currency Monetary Items Unit: RMB Ending foreign currency Ending balance converted to Item Exchange rate balance RMB Monetary assets -- -- Of which: USD 58,303,032.08 7.0795 412,756,315.61 EUR 90,052.92 7.9610 716,911.30 HKD 3,204,206.74 0.9134 2,926,722.44 140 Lu Thai Textile Co., Ltd. Interim Report 2020 JPY 34,192,053.00 0.0658 2,249,837.09 GBP 2,667.18 8.7144 23,242.87 CHF 163.16 7.4434 1,214.47 SEK 800.00 0.7589 607.12 Dong 873,916,580,881.03 0.000305 266,531,448.42 MMK 296,405,273.21 0.00515 1,525,776.97 Riel 450,723,939.55 0.0017 779,599.62 Notes receivable Of which: USD 8,015,391.52 7.0795 56,744,964.31 Accounts receivable -- -- Of which: USD 42,608,540.53 7.0795 301,647,162.68 EUR 63,901.92 7.9610 508,723.19 HKD Dong 10,407,738,019.90 0.000305 3,174,203.98 Other receivables Of which: USD 133,004.59 7.0795 941,606.00 JPY 1,395,039.97 0.0658 91,793.63 Dong 13,996,291,784.84 0.000305 4,268,659.05 GBP 9,250.00 8.7144 80,608.20 MMK 1,099,999.15 0.00515 5,662.36 Accounts payable Of which: USD 7,271,078.54 7.0795 51,475,600.52 HKD 350,463.00 0.9134 320,112.90 JPY 8,087,725.08 0.0658 532,172.31 EUR 433,568.07 7.9610 3,451,635.41 Dong 9,502,365,788.48 0.000305 2,898,079.03 MMK 51,969,718.34 0.00515 267,519.53 Other payables Of which: USD 86,080.00 7.0795 609,403.36 HKD 16,868,397.14 0.9134 15,407,593.95 Dong 241,549,846.71 0.000305 73,669.08 MMK 999,999.22 0.005148 5,147.60 Short-term borrowings Of which: USD 184,755,016.35 7.0795 1,307,973,138.29 141 Lu Thai Textile Co., Ltd. Interim Report 2020 Dong 237,146,179,601.00 0.000305 72,325,994.33 Current portion of long-term borrowings Of which: USD 8,000,000.00 7.0795 56,636,000.00 Long-term borrowings -- -- Of which: USD 2,000,000.00 7.0795 14,159,000.00 EUR HKD (2) Notes to Overseas Entities Including: for Significant Oversea Entities, Main Operating Place, Recording Currency and Selection Basis Shall Be Disclosed; if there Are Changes in Recording Currency, Relevant Reasons Shall Be Disclosed. √ Applicable □ Not applicable The operating places of Company’s subsidiaries Lu Thai (Hong Kong), Lu Thai (Cambodia), Lu Thai (Burma), Lu Thai (America), and Lu Thai (Vietnam), Lu An Garment Co., Ltd., and the sub-subsidiary Lu Thai Tan Chau were Hong Kong, Cambodia, Burma, America, Vietnam, Vietnam and Vietnam, and the recording currency was HKD for Lu Thai (Hong Kong), and USD for other overseas companies.. 63. Government Grants (1) Basic Information on Government Grants Unit: RMB Amount recorded in the current Category Amount Listed items profit or loss Provincial industrial transformation 2,000,000.00 Deferred income development fund Central government foreign trade and 800,000.00 Deferred income economic development fund Enterprise technology improvement fund 8,702,800.00 Deferred income Fund for providing generous support to 16,455,600.00 Other income 16,455,600.00 local enterprises Subsidy for stabilizing employment 4,970,305.36 Other income 4,970,305.36 Transport subsidy for the transfer of cotton 2,641,138.52 Other income 2,641,138.52 yarns Support incentive fund of national and 1,000,000.00 Other income 1,000,000.00 provincial science and technology awards Subsidy for electricity bills 871,326.00 Other income 871,326.00 142 Lu Thai Textile Co., Ltd. Interim Report 2020 Support of national science and technology 800,000.00 Other income 800,000.00 awards Loans with discounted interests 630,534.00 Finance costs 630,534.00 Social insurance subsidies 531,858.71 Other income 531,858.71 Rebate of surcharges for withholding taxes 379,942.04 Other income 379,942.04 Fund for the conversion from old to new 336,600.00 Other income 336,600.00 industrial growth drivers Training subsidy for the new apprenticeship 330,000.00 Other income 330,000.00 system Municipal commerce and trade fund 289,900.00 Other income 289,900.00 subsidy Imports with discounted interests 273,200.00 Finance costs 273,200.00 Project subsidy for the introduction of 270,000.00 Other income 270,000.00 overseas engineers at the municipal level Subsidy for market expansion in commerce and trade development at the provincial 256,300.00 Other income 256,300.00 level Central government foreign trade and 198,000.00 Other income 198,000.00 economic development fund Once-off new employment subsidy fund 196,000.00 Other income 196,000.00 Subsidy fund for the conversion from old to 180,000.00 Other income 180,000.00 new industrial growth drivers Bonus of national science and technology 150,000.00 Other income 150,000.00 awards Municipal foreign trade and economic 123,400.00 Other income 123,400.00 development fund Transport subsidy for outbound transfer of 116,238.53 Other income 116,238.53 cotton from Xinjiang VAT exemption amount 96,254.89 Other income 96,254.89 Workstation subsidy to the payment to 80,000.00 Other income 80,000.00 technicians Municipal business area fund 55,500.00 Other income 55,500.00 Social insurance subsidy for absorbing 19,519.67 Other income 19,519.67 personnel with difficulties in finding jobs Additional deduction amount of VAT 3,800.48 Other income 3,800.48 VAT deduction of GTS equipment 1,540.00 Other income 1,540.00 VAT reduction and exemption 575.59 Other income 575.59 143 Lu Thai Textile Co., Ltd. Interim Report 2020 Total 42,760,333.79 31,257,533.79 (2) Return of Government Grants □ Applicable √ Not applicable Other notes: VIII. Equity in Other Entities 1. Equity in Subsidiary (1) Subsidiaries Main Holding percentage (%) Registration Name operating Nature of business Way of gaining place Directly Indirectly place Luthai (Hong Kong) Hong Kong Hong Kong Wholesale and retail industry 100.00% Set-up Shanghai Luthai Shanghai Shanghai Wholesale and retail industry 100.00% Set-up Business combination not Xinjiang Luthai Xinjiang Xinjiang Manufacturing industry 59.92% under the same control Lufeng Weaving & Zibo Zibo Manufacturing industry 75.00% Set-up Dyeing Luqun Textile Zibo Zibo Manufacturing industry 100.00% Set-up Business combination not Xinsheng Power Zibo Zibo Manufacturing industry 100.00% under the same control Xinjiang Textile Xinjiang Xinjiang Manufacturing industry 59.92% Set-up (sub-subsidiary) Beijing Youxian Beijing Beijing Wholesale and retail industry 100.00% Set-up Technology development, Shanghai Zhinuo Shanghai Shanghai technical consultancy and transfer 100.00% Set-up of technologies Lulian New Materials Zibo Zibo Manufacturing industry 75.00% Set-up Lujia Import & Export Zibo Zibo Import and export trade 100.00% Set-up Lu Thai Occupational Zibo Zibo Skill training 100.00% Set-up Training School Lu Thai (Cambodia) Cambodia Cambodia Manufacturing industry 100.00% Set-up 144 Lu Thai Textile Co., Ltd. Interim Report 2020 Lu Thai (Burma) Burma Burma Manufacturing industry 100.00% Set-up Lu Thai (America) America America Wholesale and retail industry 100.00% Set-up Lu Thai (Vietnam) Vietnam Vietnam Manufacturing industry 100.00% Set-up Lu Thai Tan Chau Vietnam Vietnam Manufacturing industry 100.00% Set-up (sub-subsidiary) Lu An Garments Vietnam Vietnam Manufacturing industry 100.00% Set-up (2) Significant Non-wholly-owned Subsidiary Unit: RMB Shareholding proportion The profit or loss Declaring dividends Balance of Name of non-controlling attributable to the distributed to non-controlling interests interests non-controlling interests non-controlling interests at the period-end Xinjiang Luthai 40.08% -2,166,723.45 193,750,107.65 Lufeng Weaving & 25.00% 7,992,782.43 50,000,000.00 314,776,411.66 Dyeing (3) The Main Financial Information of Significant Not Wholly-owned Subsidiary Unit: RMB Ending balance Beginning balance Name Current Non-curre Total Current Non-curre Total Current Non-curre Total Current Non-curre Total assets nt assets assets liabilities nt liability liabilities assets nt assets assets liabilities nt liability liabilities Xinjiang 311,441,7 502,104,2 813,545,9 315,701,4 4,369,911. 320,071,4 420,902,2 514,128,6 935,030,9 441,046,8 4,493,264. 445,540,0 Luthai 26.96 37.30 64.26 99.54 06 10.60 64.09 62.24 26.33 27.41 80 92.21 Lufeng 835,342,2 789,653,4 1,624,995, 315,764,7 43,527,42 359,292,1 869,432,9 806,983,3 1,676,416, 200,786,1 40,658,79 241,444,9 Weaving 38.42 25.19 663.61 76.90 3.01 99.91 92.40 71.55 363.95 05.11 5.64 00.75 & Dyeing Unit: RMB Reporting Period Same period of last year Total Cash flows Total Cash flows Name Operating Operating Net profit comprehensive from operating Net profit comprehensive from operating revenue revenue income activities income activities Xinjiang 182,903,647.38 -8,070,795.31 -8,070,795.31 94,628,954.27 314,368,667.80 -5,299,119.43 -5,299,119.43 30,794,222.48 Luthai Lufeng Weaving & 606,784,342.44 30,732,000.50 30,732,000.50 -27,139,185.20 805,575,459.05 52,877,665.09 52,877,665.09 106,151,171.66 Dyeing Other notes: 145 Lu Thai Textile Co., Ltd. Interim Report 2020 2. Equity in Joint Ventures or Associated Enterprises (1) Significant Joint Ventures or Associated Enterprises Holding percentage (%) Accounting treatment of the Main operating Nature of investment to Name Registration place place business Directly Indirectly joint venture or associated enterprise Haohong Equity Ningbo Ningbo 33.33% Equity method Investment investment Haoying Equity Ningbo Ningbo 47.62% Equity method Investment investment (2) Main Financial Information of Significant Associated Enterprises Unit: RMB Beginning balance/The same period of last Ending balance/Reporting Period year Haohong Investment Haohong Investment Current assets 298,700,085.17 312,249,946.34 Total assets 298,700,085.17 312,249,946.34 Current liabilities 150,000.00 150,000.00 Total liabilities 150,000.00 150,000.00 Net assets 298,550,085.17 312,099,946.34 Equity attributable to shareholders of the 298,550,085.17 312,099,946.34 Company as the parent Net assets shares calculated at the 99,516,743.39 104,032,882.42 shareholding proportion --Other 0.00 -806,582.42 Carrying value of investment to associated 99,516,743.39 103,226,300.00 enterprises Net profit -13,549,861.17 15,250,829.70 Total comprehensive income -13,549,861.17 15,250,829.70 Other notes: According to the partnership agreement, all the partners shall enjoy 80% of surplus earnings in partnerships in proportion to their contributions, and the general partner shall enjoy the rest of 20%. Therefore, there was difference between the net assets shares calculated at shareholding proportion and he carrying value of equity investment in associated enterprises 146 Lu Thai Textile Co., Ltd. Interim Report 2020 for the Company. (3) Summary Financial Information of Insignificant Joint Ventures and Associated Enterprises Unit: RMB Beginning balance/The same period of last Ending balance/Reporting Period year Joint ventures: -- -- Total of the following calculated at the -- -- shareholding proportion Associated enterprises: -- -- Total carrying value of investments 50,130,033.26 Total of the following calculated at the -- -- shareholding proportion --Net profit 130,033.26 -- Total comprehensive income 130,033.26 IX. The Risk Related to Financial Instruments The Group’s major financial instruments include the monetary assets, notes receivable, accounts receivables, accounts receivable financing, other receivables, other current assets, trading financial assets, other equity instrument investments, other non-current financial assets, long-term receivables, notes payable, accounts payable, other payables, the short-term borrowings, trading financial liabilities, non-current liabilities due within one year and long-term borrowings. Details of various financial instruments are disclosed in relevant Notes. Possible risks related to these financial instruments and various risk management policies implemented to reduce these risks are described as follows. The Group’s management has controlled and monitored these risk exposures in order to control the above-mentioned risks within the limited scope. 1. Risk management objectives and policies The Group has conducted the risk management to achieve an appropriate balance between the risk and the income and to minimize the adverse influence of financial risks on the Group’s financial performance. According to such risk management objective, the Company has formulated corresponding risk management policy to recognize and analyze possible risks encountered by the Group, set the appropriate acceptable risk level and designed corresponding internal control procedures to monitor the Group’s risk level. Meanwhile, the Group will regularly review these risk management policies and relevant internal control system so as to cater for the market or respond to any change in the Group’s business operations. Accordingly, the Group’s internal audit department will also regularly or randomly check whether the internal control system is implemented in conformity with relevant risk management policies. The major risks caused by financial instruments of the Group are credit risk, liquidity risk and market risk (including foreign exchange risk and interest rate risk). The Board of Directors shall be responsible for planning and establishing the risk management framework for the Group, determining the Group’s risk management policies and relevant guidelines and monitoring the implementation of various risk management measures. However, the Company has established corresponding risk management policies to recognize and analyze possible risks encountered by the Group. Besides, various risks are specified in these risk management policies, including the credit risk, the liquidity risk and the market risk management etc.. On a regular basis, the Group will evaluate the specific marketing 147 Lu Thai Textile Co., Ltd. Interim Report 2020 environment and various changes in the Group’s business operations so as to determine whether any risk management policy and system need be updated. (1) Credit risk Credit Risk means that the Group will suffer any financial losses due to the counter party’s failure in fulfilling the contract obligations. The Group shall manage the credit risk based on the specific Group Classification, and the credit risk mainly arises from bank deposit, notes receivable, accounts receivable, other receivables and long-term accounts receivable etc.. The Group’s bank deposits are mainly saved in state-owned banks and other large and medium-sized listed banks. The Group’s bank deposits are expected not to suffer any major credit risks. For notes receivable, accounts receivable, other accounts receivable and long-term accounts receivable, the Group has established relevant policies to control the credit risk exposure. According to the client’s financial status, credit record and other factors (including the current market condition), the Group will evaluate the client’s credit qualification and set corresponding credit period. In addition, the Group will regularly monitor the client’s credit record. For clients with poor credit records, the Group will issue the written Reminder Notice, shorten the credit period or cancel the credit period to guarantee the Group’s overall credit risk under control. The hugest credit risk exposure borne by the Group is the book value of each financial asset reflected in the balance sheet, and the Group has not provided any other guarantees that may cause the Company to bear any credit risk. In terms of accounts receivable, the top 5 customers in accounts receivable were accounted for 30.29% of the total amount of accounts receivable of the Group (22.71% in 2019). In terms of other receivables, the top 5 of the ending balance according to the arrears party was accounted for 47.68% of the total amount of other receivables of the Group (71.72% in 2019). Investment in debt obligations The Group supervised the changes of credit risk through tracking the published external credit ratings. In order to make sure whether the credit rating was the latest, and whether the credit risk has increased obviously of evaluation report date but not been reflected in the published external ratings, the Group has supplemented through examining the changes of bond yield and the available news and supervision information. On the balance sheet date, the carrying value of investment in debt obligations of the Group are listed as follows according to report items (Unit: RMB’0,000). Item 2020.6.30 2019.12.31 Trading financial assets 0 5,235.61 Available-for-sale financial assets Total 5,235.61 (2) Liquidity risk Liquidity Risk refers to the risk of capital shortage encountered by the Group during the cash payment or the settlement of other financial assets. During the management of liquidity risk, the Group shall reserve and monitor corresponding cash and cash equivalent deemed sufficient by the management so as to meet the Group’s operational requirements and mitigate the impact caused by the cash flow fluctuation. The Group’s management will monitor the use of bank loans and guarantee the fulfillment of loan agreement. Meanwhile, major financial institutions shall promise to provide the Group with sufficient reserve funds in order to satisfy the short-term and long-term fund demand. The Group shall raise its working capital based on the capital generated from business operations and bank loans. (3) Market risk The financial instrument’s market risk refers to the fluctuation risk of fair value of financial instrument or future cash flow caused by the changes of market price, including the interest rate risk and the exchange rate risk. 148 Lu Thai Textile Co., Ltd. Interim Report 2020 Interest rate risk Interest rate risk refers to the fluctuation risk of fair value of financial instrument or future cash flow caused by the changes of market interest rate. The interest rate can derive from the recognized interest-bearing financial instruments and unrecognized financial instruments (including certain loan commitment). The Group’s interest rate risk mainly arises from the bank loan. Financial liabilities based on the floating interest rate will cause the cash flow interest rate risk to the Group, and financial liabilities based on the fixed interest rate the fair value interest rate risk. However, the Group has paid close attention the impact of interest rate fluctuations on the Group’s interest rate risk. At present, the Group has not taken any interest rate hedging measures. The rise of interest rate will increase the cost of newly-added interest-bearing debts and the interest cost of the Group’s unsettled interest-bearing debts based on the floating interest rate, and cause major adverse influence on the Group’s financial performance. The management will timely make corresponding adjustment according to the latest market situation, and corresponding interest rate swap will be arranged to reduce the interest rate risk. On 30 June 2020, if the lending rate calculated at floating interest rate up or down 100 basis points with other variables unchanged, the net profit and shareholders’ equity will be decreased or increased about RMB9.8156 million. Foreign exchange risk Foreign exchange risk is referred to the fluctuation risk of fair value of financial instruments or future cash flows resulted from the change of foreign exchange rate. The foreign exchange rate was originated from the financial instruments denominated in foreign currencies other than the recording currency. On 30 June 2020, the amount of foreign currency financial assets and foreign currency financial liabilities converted to renminbi is as follows (Unit: RMB’0,000): Item Foreign currency liabilities Foreign currency assets Ending balance Beginning balance Ending balance Beginning balance USD 143,085.31 142,862.43 77,209.00 103,091.39 EUR 345.16 93.50 122.56 108.54 JPY 53.22 178.21 234.16 47.88 HKD 1,572.77 833.05 292.67 4,879.34 GBP - 10.39 11.68 CHF - 47.44 0.12 40.82 SEK - 0.06 0.06 Dong 7,529.77 9,156.70 27,397.43 11,176.75 MMK 27.27 153.14 71.20 Riel - 77.96 63.82 Total 152,613.50 153,171.32 105,497.49 119,491.47 2. Capital management The objectives of capital management policies of the Group are to insure the continuous operation of the Group so as to provide return to shareholders and benefit other stakeholders, as well as to reduce capital cost by maintaining the optimal capital structure. In order to maintain or adjust capital structure, the Group might adjust financing method and the dividends paid to shareholders, return capital to shareholders, issue new shares and other equity instrument or sell assets to reduce debts. The Group supervised the capital structure based on the asset-liability ratio (namely total liabilities divide total assets). On 30 June 2020, the asset-liability ratio was 34.28% of the Group (30.17% on 31 December 2019). 149 Lu Thai Textile Co., Ltd. Interim Report 2020 X. The Disclosure of Fair Value 1. Ending Fair Value of Assets and Liabilities at Fair Value Unit: RMB Ending fair value Item Fair value measurement Fair value measurement Fair value measurement Total items at level 1 items at level 2 items at level 3 I. Consistent fair value -- -- -- -- measurement (II) Accounts receivable financing 14,807,543.11 14,807,543.11 (III) Other non-current financial 90,519,880.41 48,000,000.00 138,519,880.41 assets The total amount of assets 90,519,880.41 62,807,543.11 153,327,423.52 consistently measured at fair value (VI) Trading financial liabilities 841,402.78 841,402.78 The total amount of liabilities 841,402.78 841,402.78 consistently measured at fair value II. Inconsistent fair value -- -- -- -- measurement 2. Market Price Recognition Basis for Consistent and Inconsistent Fair Value Measurement Items at Level 2 As for the unlisted equity investment of Rongchang Pharmacy, the fair value was determined in accordance with the transaction value of the most recent period. 3. Valuation Technique Adopted and Nature and Amount Determination of Important Parameters for Consistent and Inconsistent Fair Value Measurement Items at Level 3 For the trust investment not existing in the active market, the Company shall recognize its fair value based on the estimated value on the balance sheet day provided by the asset manager. For the unlisted equity investment into Rongchang Pharmacy, the Company adopts the comparable listed company comparison method, and the non-observable input value of the comparable listed company comparison method includes the liquidity discount. The investment into Shandong Hongqiao Thermoelectric Co., Ltd. made by Luqun Textile (the Company’s subsidiary) is expected to be held in the long run for obtaining the discount on power purchase. As no revenue distribution right is vested in the investment, the invested unit’s operating profit and loss are not shared or borne, and the equity transfer is not proposed, the Company regards it as the financial asset which shall be measured based on the fair value and whose variations are included in the current profit and loss, and the investment cost is deemed as the fair value of the financial asset. For accounts receivables financing at fair value and the changes included in other comprehensive income, its fair value shall be determined by the discount cash flow method. 150 Lu Thai Textile Co., Ltd. Interim Report 2020 4. Fair Value of Financial Assets and Liabilities Not Measured at Fair Value The financial assets and financial liabilities measured at amortized cost mainly include: monetary assets, notes receivable, accounts receivable, other receivables, long-term receivables, short-term borrowings, notes payable, accounts payables, other payables, current portion of long-term borrowings and long-term borrowings, etc.. 5. Other XI. Related Party and Related-party Transactions 1. Information Related to the Company as the Parent of the Company Proportion of share Proportion of voting held by the rights owned by the Name Registration place Nature of business Registered capital Company as the Company as the parent against the parent against the Company (%) Company (%) Zibo Lucheng Textile, chemistry Textile Investment Zibo RMB63.26 million 16.36% 16.36% and investment Co., Ltd. Notes: information on the Company as the parent The final controllers of the Company are Mr. Liu Zibin and Mr. Liu Deming. 2. Subsidiaries of the Company Refer to Note IX-1. 3. Information on the Joint Ventures and Associated Enterprises of the Company Refer to Note IX-3. 4. Information on Other Related Parties Name Relationship with the Company Zibo Limin Purified Water Co., Ltd. (hereinafter called Limin Wholly-owned subsidiary of the Company as the parent Purified Water) Zibo Luqun Land Co., Ltd (hereinafter called Luqun Land) Wholly-owned subsidiary of the Company as the parent Zibo Lurui Fine Chemical Co., Ltd. (hereinafter referred to as Majority-owned subsidiary of the Company as the parent Lurui Chemical) Zibo Lujia Property Management Co. , Ltd. (hereinafter referred Wholly-owned subsidiary of the Company as the parent to as Lujia Property) Hong Kong Tung Hoi International Company Limited Wholly-owned subsidiary of the Company as the parent 151 Lu Thai Textile Co., Ltd. Interim Report 2020 (hereinafter called Tung Hoi International) Zibo Chengshun Hosiery Co., Ltd. (hereinafter referred to as Majority-owned subsidiary of the Company as the parent Chengshun Hosiery) Zibo Chengshun Economic and Trade Co., Ltd. (hereinafter Wholly-owned subsidiary of the Company as the parent referred to as Chengshun Economic and Trade) Chengshun Petrochemical (Zhejiang Zhoushan) Co., Ltd. Wholly-owned subsidiary of the Company as the parent (hereinafter referred to as Chengshun Petrochemical) Zibo Lucheng Petrochemical Sales Co., Ltd. (hereinafter referred Wholly-owned subsidiary of the Company as the parent to as Lucheng Petrochemical) Shanghai Hengjiu Textile New Materials Co., Ltd. Majority-owned subsidiary of the Company as the parent Majority-owned subsidy of wholly-owned subsidiary of the Lumei New Materials Co., Ltd. Company as the parent Wholly-owned subsidiary of wholly-owned subsidiary of the Unikorn Nonwovens Co., Ltd. Company as the parent Zibo Lumei Economic and Trade Co., Ltd. Wholly-owned subsidiary of the Company as the parent 5. List of Related-party Transactions (1) Information on Acquisition of Goods and Reception of Labor Service Information on acquisition of goods and reception of labor service Unit: RMB The approval trade Whether exceed trade Same period of Related party Content Reporting Period credit credit or not last year Towels, socks, oils, supermarket retail, welfare, electronics, Lucheng Textile 6,177,619.85 computer equipment, computer supplies, paper cores, etc. Limin Purified Recycled water, sewage 9,822,323.88 11,800,000.00 No 11,140,353.11 Water treatment, materials Chengshun Gas No 22,728,978.86 Petroleum Lurui Chemical Auxiliaries 36,593,447.10 44,000,000.00 No 57,285,041.23 Socks, paper cores, hose Chengshun Hosiery 3,909,785.92 4,700,000.00 No processing, etc. Chengshun Economic and Supermarket retail 1,796,605.97 2,200,000.00 No Trade 152 Lu Thai Textile Co., Ltd. Interim Report 2020 Lucheng Oils 844,180.74 1,020,000.00 No Petrochemical Chengshun Gas and Oils 16,749,727.55 20,100,000.00 No Petrochemical Unikorn Clothes 6,187.61 No Nonwovens Information of sales of goods and provision of labor service Unit: RMB Related party Content Reporting Period Same period of last year Sales of materials, electricity, running water, Lucheng Textile 56,265.15 draught water, gas etc. Lucheng Textile Sales of grey yarn, dyed yarn, garment etc. 252,090.27 Materials, electricity, running water, Chengshun Hosiery 64,659.60 heating, steam Chengshun Hosiery Sales of grey yarn, dyed yarn 186,772.14 Chengshun Economic and Materials, electricity, running water 98,220.46 Trade Lucheng Petrochemical Electricity, materials 11,892.89 Limin Purified Water Sales of materials, garment, electricity etc. 750,467.47 865,399.14 Sales of garment, water & electricity, lunch Lurui Fine Chemical 27,177.52 155,742.15 components and materials Lujia Property Sales of materials and recycled water 95,382.35 45,794.67 Unikorn Nonwovens Materials and table money 2,563.14 Luqun Property Materials 463.68 Luqun Property Heating utilities 1,720,174.32 (2) Information on Related-party Lease The Company was lessor: Unit: RMB The lease income confirmed in The lease income confirmed in Name of lessee Category of leased assets the Reporting Period the same period of last year Zibo Lucheng Textile Houses and buildings 36,108.00 Investment Co., Ltd. Chengshun Economic and Houses and buildings 36,108.00 Trade Lurui Fine Chemical Houses and buildings 4,091.82 4,091.82 The Company was lessee: 153 Lu Thai Textile Co., Ltd. Interim Report 2020 Unit: RMB The lease fee confirmed in the The lease fee confirmed in the Name of lessor Category of leased assets Reporting Period same period of last year Zibo Lucheng Textile Rent of land 1,807,428.60 1,807,428.60 Investment Co., Ltd. Zibo Lucheng Textile Rent of gas station 116,571.42 250,857.12 Investment Co., Ltd. Zibo Lucheng Textile Rent of buildings 5,511,114.30 5,511,114.30 Investment Co., Ltd. Luqun Property Rent of land and buildings 985,714.26 697,142.82 (3) Information on Inter-bank Lending of Capital of Related Parties Unit: RMB Related party Amount Start date End date Note Borrowing Lucheng Textile 10,000,000.00 16 January 2020 9 March 2020 Lucheng Textile 20,000,000.00 16 January 2020 12 March 2020 Lucheng Textile 20,000,000.00 16 January 2020 16 March 2020 Lucheng Textile 40,000,000.00 16 January 2020 24 March 2020 Lucheng Textile 40,000,000.00 16 January 2020 26 March 2020 Lucheng Textile 30,000,000.00 16 January 2020 8 April 2020 Lending 6. Accounts Receivable and Payable of Related Party (1) Accounts Payable Unit: RMB Item Related party Ending carrying amount Beginning carrying amount Chengshun Economic and Accounts payable 2,794.00 Trade Accounts payable Lurui Fine Chemical 806,304.80 Contract liabilities Luqun Property 708,147.44 Chengshun Economic and Contract liabilities 784.00 Trade 154 Lu Thai Textile Co., Ltd. Interim Report 2020 XII. Commitments and Contingency 1. Significant Commitments Significant commitments on balance sheet date Commitments signed but hasn’t been 2020.6.30 2019.12.31 recognized in financial statements Commitment on constructing and purchasing 18,487.40 19,386.82 long-lived assets (RMB’0,000) 2. Contingency (1) Significant Contingency on Balance Sheet Date (1) Contingent liabilities formed by the debt guarantee provided to other entities and the financial impact As of 30 June 2020, the Company provided guarantee to loans of the following entities: Name Item Curren Foreign currency Amount converted Start date Due date Rema cy amount to RMB rk I. Subsidiary Lu Thai Short-term Dong 21,820,795,310.00 6,655,012.12 2020/1/3 2020/7/3 (Vietnam) borrowings Lu Thai Short-term Dong 6,176,783,618.00 1,883,825.50 2020/1/15 2020/7/15 (Vietnam) borrowings Lu Thai Short-term Dong 19,962,139,440.00 6,088,150.32 2020/1/20 2020/7/20 (Vietnam) borrowings Lu Thai Short-term Dong 4,573,845,114.00 1,394,953.53 2020/1/20 2020/7/20 (Vietnam) borrowings Lu Thai Short-term Dong 5,439,698,125.00 1,659,025.60 2020/1/21 2020/7/21 (Vietnam) borrowings Lu Thai Short-term Dong 14,570,655,511 4,443,829.34 2020/2/11 2020/8/11 (Vietnam) borrowings Lu Thai Short-term Dong 10,986,788,576 3,350,804.16 2020/2/19 2020/8/19 (Vietnam) borrowings Lu Thai Short-term Dong 4,377,113,788 1,334,953.42 2020/2/25 2020/8/25 (Vietnam) borrowings Lu Thai Short-term Dong 6,115,007,882 1,864,984.83 2020/2/26 2020/8/26 (Vietnam) borrowings Lu Thai Short-term Dong 22,011,511,752 6,713,177.86 2020/3/5 2020/9/5 (Vietnam) borrowings Lu Thai Short-term Dong 7,449,117,623 2,271,868.12 2020/3/19 2020/9/19 (Vietnam) borrowings 155 Lu Thai Textile Co., Ltd. Interim Report 2020 Lu Thai Short-term Dong 4,398,499,302 1,341,475.69 2020/3/24 2020/9/24 (Vietnam) borrowings Lu Thai Short-term Dong 7,642,691,864 2,330,905.34 2020/3/24 2020/9/24 (Vietnam) borrowings Lu Thai Short-term Dong 23,515,375,245 7,171,833.39 2020/4/6 2020/10/6 (Vietnam) borrowings Lu Thai Short-term Dong 12,019,783,770 3,665,852.04 2020/4/7 2020/10/7 (Vietnam) borrowings Lu Thai Short-term Dong 23,555,323,880 7,184,017.14 2020/5/8 2020/11/8 (Vietnam) borrowings Lu Thai Short-term USD 1,052,074.08 7,448,158.45 2020/1/17 2020/7/15 (Vietnam) borrowings Lu Thai Short-term USD 337,443.80 2,388,933.38 2020/2/4 2020/8/2 (Vietnam) borrowings Lu Thai Short-term USD 859,256.80 6,083,108.52 2020/2/6 2020/8/4 (Vietnam) borrowings Lu Thai Short-term USD 1,184,915.24 8,388,607.44 2020/2/24 2020/8/22 (Vietnam) borrowings Lu Thai Short-term USD 1,774,709.07 12,564,052.86 2020/2/27 2020/8/25 (Vietnam) borrowings Lu Thai Short-term USD 34,858.37 246,779.83 2020/3/4 2020/8/31 (Vietnam) borrowings Lu Thai Short-term USD 917,605.42 6,496,187.57 2020/3/6 2020/9/2 (Vietnam) borrowings Lu Thai Short-term USD 1,495,446.52 10,587,013.64 2020/3/31 2020/9/27 (Vietnam) borrowings Lu Thai Short-term USD 606,091.37 4,290,823.85 2020/4/14 2020/10/11 (Vietnam) borrowings Lu Thai Short-term USD 1,314,673.55 9,307,231.40 2020/5/6 2020/11/2 (Vietnam) borrowings Lu Thai Short-term USD 574,465.01 4,066,925.04 2020/6/18 2020/12/15 (Vietnam) borrowings Lu Thai Short-term USD 10,000,000.00 70,795,000.00 2019/7/8 2020/7/6 (Vietnam) borrowings Lu Thai Short-term USD 8,000,000.00 56,636,000.00 2019/8/19 2020/8/17 (Vietnam) borrowings Lu Thai Short-term USD 7,500,000.00 53,096,250.00 2019/8/28 2020/8/26 (Vietnam) borrowings Lu Thai Short-term USD 3,000,000.00 21,238,500.00 2019/9/24 2020/9/22 (Vietnam) borrowings Lu Thai Short-term USD 5,000,000.00 35,397,500.00 2020/3/9 2021/3/8 (Vietnam) borrowings 156 Lu Thai Textile Co., Ltd. Interim Report 2020 Lu Thai Short-term USD 3,000,000.00 21,238,500.00 2020/3/13 2020/9/11 (Vietnam) borrowings Lu Thai Short-term USD 2,000,000.00 14,159,000.00 2020/6/24 2020/12/22 (Vietnam) borrowings Lu Thai Short-term USD 10,000,000.00 70,795,000.00 2020/6/26 2020/12/24 (Vietnam) borrowings Lu Thai Short-term USD 2,000,000.00 14,159,000.00 2020/3/12 2020/9/14 (Vietnam) borrowings Lu Thai Short-term USD 1,428,322.58 10,111,809.71 2020/4/16 2020/10/16 (Vietnam) borrowings Lu Thai Short-term USD 263,451.94 1,865,108.01 2020/4/23 2020/10/23 (Vietnam) borrowings Lu Thai Short-term USD 198,444.50 1,404,887.84 2020/4/24 2020/10/24 (Vietnam) borrowings Lu Thai Short-term USD 816,660.35 5,781,546.95 2020/4/27 2020/10/27 (Vietnam) borrowings Lu Thai Short-term USD 316,614.44 2,241,471.93 2020/5/5 2020/11/5 (Vietnam) borrowings Lu Thai Short-term USD 608,779.44 4,309,854.05 2020/5/15 2020/11/15 (Vietnam) borrowings Lu Thai Short-term USD 1,435,131.73 10,160,015.08 2020/2/14 2020/8/12 (Vietnam) borrowings Lu Thai Short-term USD 2,157,057.73 15,270,890.20 2020/3/2 2020/8/29 (Vietnam) borrowings Lu Thai Short-term USD 1,401,178.90 9,919,646.02 2020/5/28 2020/11/24 (Vietnam) borrowings Lu Thai Short-term USD 290,695.81 2,057,980.99 2020/6/5 2020/12/2 (Vietnam) borrowings Lu Thai Short-term USD 573,641.66 4,061,096.13 2020/6/25 2020/12/22 (Vietnam) borrowings Lu Thai Short-term USD 285,540.84 2,021,486.38 2020/3/9 2020/9/5 (Vietnam) borrowings Lu Thai Short-term USD 203,005.65 1,437,178.50 2020/3/13 2020/9/9 (Vietnam) borrowings Lu Thai Short-term USD 5,314,478.07 37,623,847.50 2020/5/5 2021/5/5 (Vietnam) borrowings Lu Thai Short-term Dong 5,943,610,398.00 1,812,711.21 2020/5/6 2020/11/2 Tan Chau borrowings Lu Thai Short-term Dong 5,692,613,415.00 1,736,160.93 2020/5/7 2020/11/3 Tan Chau borrowings Lu Thai Short-term Dong 8,247,906,497.00 2,515,486.59 2020/6/15 2020/12/12 Tan Chau borrowings 157 Lu Thai Textile Co., Ltd. Interim Report 2020 Lu Thai Short-term USD 1,360,796.50 9,633,758.82 2020/5/6 2021/5/6 Tan Chau borrowings Lu Thai Short-term USD 245,277.96 1,736,445.32 2020/6/4 2020/12/1 Tan Chau borrowings Lu Thai Short-term USD 102,655.00 726,746.08 2020/6/23 2020/12/20 Tan Chau borrowings Lu Thai Long-term USD 244,800.00 1,733,061.60 2019/9/30 2021/8/30 Tan Chau borrowings Lu Thai Long-term USD 2,436,000.00 17,245,662.00 2019/9/30 2021/8/30 Tan Chau borrowings Lu Thai Long-term USD 285,296.40 2,019,755.86 2019/10/3 2021/8/30 Tan Chau borrowings Lu Thai Long-term USD 160,650.00 1,137,321.68 2019/10/3 2021/8/30 Tan Chau borrowings Lu Thai Long-term USD 194,256.00 1,375,235.35 2019/10/7 2021/8/30 Tan Chau borrowings Lu Thai Long-term USD 51,840.00 367,001.28 2019/10/11 2021/8/30 Tan Chau borrowings Lu Thai Long-term USD 171,720.00 1,215,691.74 2019/10/17 2021/8/30 Tan Chau borrowings Lu Thai Long-term USD 189,802.91 1,343,709.70 2019/10/21 2021/8/30 Tan Chau borrowings Lu Thai Long-term USD 48,030.00 340,028.39 2019/10/21 2021/8/30 Tan Chau borrowings Lu Thai Long-term USD 7,560.00 53,521.02 2019/10/21 2021/8/30 Tan Chau borrowings Lu Thai Long-term USD 104,024.05 736,438.26 2019/11/7 2021/8/30 Tan Chau borrowings Lu Thai Long-term USD 109,656.67 776,314.40 2019/11/7 2021/8/30 Tan Chau borrowings Lu Thai Long-term USD 2,507,548.87 17,752,192.23 2019/11/20 2021/8/30 Tan Chau borrowings Lu Thai Long-term USD 461,217.60 3,265,190.00 2019/11/20 2021/8/30 Tan Chau borrowings Lu Thai Long-term USD 128,520.00 909,857.34 2019/12/4 2021/8/30 Tan Chau borrowings Lu Thai Long-term USD 2,588,953.33 18,328,495.10 2019/12/5 2021/8/30 Tan Chau borrowings Lu Thai Long-term USD 310,124.17 2,195,524.05 2019/12/17 2021/8/30 Tan Chau borrowings Total 685,960,368.62 158 Lu Thai Textile Co., Ltd. Interim Report 2020 (2) Explanation shall be given even if there is no significant contingency for the Company to disclose There was no significant contingency in the Company to disclose. XIII. Events after Balance Sheet Date 1. Notes to Other Events after Balance Sheet Date On 13 August 2020, the 16th Meeting of the 9th Board of Directors of the Company reviewed and approved the Proposal on Sales of Equity Interests in Xinjiang Lu Thai Fengshou Cotton Industry Co., Ltd. The Company will sell all equity interest in Xinjiang Lu Thai held it to Mr. Li Jingquan at the price of RMB195.86 million. After the transfer, the Company will no longer hold equity interest of Xinjiang Lu Thai. On the same date, the Company signed the Transfer Agreement of Equity Interest in Xinjiang Lu Thai Fengshou Cotton Industry Co., Ltd. with Mr. Li Jingquan. XIV. Notes of Main Items in the Financial Statements of the Company as the Parent 1. Accounts Receivable (1) Listed by Category Unit: RMB Ending balance Beginning balance Carrying amount Bad debt provision Carrying amount Bad debt provision Category Withdrawa Carrying Withdrawa Carrying Amount Proportion Amount l value Amount Proportion Amount l value proportion proportion Of which: Accounts receivable 286,056,8 21,076,42 264,980,44 439,725,29 22,125,772 417,599,518. withdrawal of bad debt 100.00% 7.37% 100.00% 5.03% 72.94 7.28 5.66 0.44 .36 08 provision of by group Of which: Group 1: Undue 36,312,57 381,282.0 35,931,293 87,886,175 86,963,370.7 accounts (credit 12.69% 1.05% 19.99% 922,804.84 1.05% 5.11 4 .07 .56 2 insurance insured) Group 2: Undue 163,120,8 8,156,040. 154,964,76 312,932,45 15,646,622 297,285,833. accounts (no credit 57.02% 5.00% 71.16% 5.00% 06.29 32 5.97 6.44 .82 62 insurance) Group 3: Overdue 50,529,41 5,406,646. 45,122,763 26,018,416 2,783,970. 23,234,445.7 accounts (credit 17.67% 10.70% 5.92% 10.70% 0.66 94 .72 .33 55 8 insurance insured) 159 Lu Thai Textile Co., Ltd. Interim Report 2020 Group 4: Overdue 36,094,08 7,132,457. 28,961,622 12,888,242 2,772,374. 10,115,867.9 accounts (no credit 12.62% 19.76% 2.93% 21.51% 0.88 98 .90 .11 15 6 insurance) 286,056,8 21,076,42 264,980,44 439,725,29 22,125,772 417,599,518. Total 100.00% 7.37% 100.00% 5.03% 72.94 7.28 5.66 0.44 .36 08 Withdrawal of bad debt provision by single item: RMB0.00. Withdrawal of bad debt provision by group: Unit: RMB Ending balance Name Carrying amount Bad debt provision Withdrawal proportion Group 1: Undue accounts (credit insurance 36,312,575.11 381,282.04 1.05% insured) Group 2: Undue accounts (no credit 163,120,806.29 8,156,040.32 5.00% insurance) Group 3: Overdue accounts (credit 50,529,410.66 5,406,646.94 10.70% insurance insured) Group 4: Overdue accounts (no credit 36,094,080.88 7,132,457.98 19.76% insurance) Total 286,056,872.94 21,076,427.28 -- Please refer to the relevant information of disclosure of bad debt provision of other accounts receivable if adopting the general mode of expected credit loss to withdraw bad debt provision of accounts receivable. √ Applicable □ Not applicable Disclosure by aging Unit: RMB Aging Ending balance Within 1 year (including 1 year) 279,555,324.65 1 to 2 years 6,167,185.37 2 to 3 years 0.00 Over 3 years 334,362.92 3 to 4 years 334,362.92 Total 286,056,872.94 (2) Bad Debt Provision Withdrawal, Reversed or Recovered in the Reporting Period Withdrawal of bad debt provision: Unit: RMB Beginning Changes in the Reporting Period Category Ending balance balance Withdrawal Reversal or Verification Other 160 Lu Thai Textile Co., Ltd. Interim Report 2020 recovery Bad debt 22,125,772.36 -1,049,345.08 21,076,427.28 provision Total 22,125,772.36 -1,049,345.08 21,076,427.28 (3) Top 5 of the Ending Balance of the Accounts Receivable Collected according to Arrears Party Unit: RMB Proportion to total ending Ending balance of bad debt Name of entity Ending balance balance of accounts receivable provision A 28,492,484.05 9.96% 2,081,690.53 B 27,904,570.30 9.75% 4,058,695.57 C 16,934,300.99 5.92% 846,715.05 D 8,707,125.10 3.04% 435,356.26 E 7,382,558.18 2.58% 694,234.44 Total 89,421,038.62 31.25% 2. Other Receivables Unit: RMB Item Ending balance Beginning balance Other receivables 981,462,785.76 838,523,449.52 Total 981,462,785.76 838,523,449.52 (1) Other Receivables 1) Other Receivables Classified by Account Nature Unit: RMB Nature Ending carrying amount Beginning carrying amount Intercourse funds 974,395,331.33 820,813,180.93 Export rebates 9,928,747.48 Payment on behalf 1,272,190.64 7,908,873.14 Guarantee deposit and cash deposit 4,185,003.44 3,290,964.29 Borrowings and petty cash 1,130,004.89 998,879.96 Other 5,085,023.38 248,238.60 Total 986,067,553.68 843,188,884.40 161 Lu Thai Textile Co., Ltd. Interim Report 2020 2) Withdrawal of Bad Debt Provision Unit: RMB First stage Second stage Third stage Expected loss in the Expected loss in the Bad debt provision Expected credit loss of Total duration (credit duration (credit impairment the next 12 months impairment not occurred) occurred) Balance of 1 January 2020 3,457,541.15 1,207,893.73 4,665,434.88 Balance of 1 January 2020 in the —— —— —— —— Current Period Withdrawal of the Current Period -75,997.38 15,330.42 -60,666.96 Balance of 30 June 2020 3,381,543.77 1,223,224.15 4,604,767.92 Changes of carrying amount with significant amount changed of loss provision in the Current Period □ Applicable √ Not applicable Disclosure by aging Unit: RMB Aging Ending balance Within 1 year (including 1 year) 981,425,199.70 1 to 2 years 366,693.63 2 to 3 years 2,262,046.85 Over 3 years 2,013,613.50 4 to 5 years 300,000.00 Over 5 years 1,713,613.50 Total 986,067,553.68 3) Top 5 of the Ending Balance of Other Receivables Collected according to the Arrears Party Unit: RMB Proportion to ending Ending balance Name of the entity Nature Ending balance Aging balance of total of bad debt other receivables% provision Within 1 Lu Thai (Vietnam) Intercourse funds 637,155,000.00 64.62% 1,911,465.00 year Within 1 Lufeng Weaving & Dyeing Intercourse funds 130,400,946.63 13.22% 391,202.84 year Within 1 Lu Thai Tan Chau Intercourse funds 111,148,150.00 11.27% 333,444.45 year Lu An Garments Intercourse funds 95,573,250.00 Within 1 9.69% 286,719.75 162 Lu Thai Textile Co., Ltd. Interim Report 2020 year Migrant workers’ wage Migrant workers’ wage margin Over 3 margin of infrastructural 1,458,593.50 0.15% 72,929.68 in Zichuan District of Zibo years project Total -- 975,735,940.13 -- 98.95% 2,995,761.72 3. Long-term Equity Investment Unit: RMB Ending balance Beginning balance Item Depreciation Depreciation Carrying amount Carrying value Carrying amount Carrying value reserve reserve Investment to 2,578,715,316.04 15,123,011.20 2,563,592,304.84 2,422,765,316.04 15,123,011.20 2,407,642,304.84 subsidiaries Investment to joint ventures and associated 149,646,776.65 149,646,776.65 103,226,300.00 103,226,300.00 enterprises Total 2,728,362,092.69 15,123,011.20 2,713,239,081.49 2,525,991,616.04 15,123,011.20 2,510,868,604.84 (1) Investment to Subsidiaries Unit: RMB Increase/decrease Ending balance Beginning balance Withdrawal of Ending balance Investee Additional Reduced of depreciation (carrying value) depreciation Other (carrying value) investment investment reserve reserve Xinjiang Luthai 147,303,034.16 147,303,034.16 Xinsheng Power 176,340,737.93 176,340,737.93 Lufeng Weaving 529,620,000.00 529,620,000.00 & Dyeing Luqun Textile 171,784,550.00 171,784,550.00 Luthai (Hong 128,771,800.00 128,771,800.00 Kong) Shanghai Luthai 20,000,000.00 20,000,000.00 Lu Thai 108,242,335.38 108,242,335.38 (Cambodia) Lu Thai 10,209,050.00 10,209,050.00 (America) Lu Thai 62,337,238.57 62,337,238.57 163 Lu Thai Textile Co., Ltd. Interim Report 2020 (Burma) Beijing Youxian 3,717,988.80 3,717,988.80 15,123,011.20 Lu Thai 834,936,510.00 834,936,510.00 (Vietnam) Lu An Garments 64,229,060.00 64,229,060.00 Lulian New 150,000,000.00 150,000,000.00 300,000,000.00 Materials Lujia Import & 50,000.00 5,950,000.00 6,000,000.00 Export Lu Thai Occupational 100,000.00 100,000.00 Training School Total 2,407,642,304.84 155,950,000.00 2,563,592,304.84 15,123,011.20 (2) Investment to Joint Ventures and Associated Enterprises Unit: RMB Increase/decrease Ending Gains and Adjustm Withdra balance Beginning Redu losses ent of Change Cash bonus wal of Ending balance of Investee balance Additional ced recognized other s of or profits impair Oth (carrying value) depreci (carrying value) investment invest under the compreh other announced ment er ation ment equity ensive equity to issue provisio reserve method income n I. Joint ventures II. Associated enterprises Haohong 103,226,300.00 -3,709,556.61 99,516,743.39 Investment Haoying 50,000,000.00 130,033.26 50,130,033.26 Investment Subtotal 103,226,300.00 50,000,000.00 -3,579,523.35 149,646,776.65 Total 103,226,300.00 50,000,000.00 -3,579,523.35 149,646,776.65 (3) Other Notes As of 30 June 2020, the Company didn’t invest to the subsidiary Shanghai Zhinuo. 4. Operating Revenue and Cost of Sales Unit: RMB 164 Lu Thai Textile Co., Ltd. Interim Report 2020 Reporting Period Same period of last year Item Operating revenue Cost of sales Operating revenue Cost of sales Main operations 1,433,647,769.93 1,095,226,641.53 2,354,610,227.06 1,732,468,733.73 Other operations 90,838,559.05 86,137,915.68 133,719,339.31 115,399,718.04 Total 1,524,486,328.98 1,181,364,557.21 2,488,329,566.37 1,847,868,451.77 Information about performance obligations: Naught Information in relation to the transaction price apportioned to the residual contract performance obligation: As at the end of the Reporting Period, the revenue amount corresponding to the contract performance obligation yet to be fulfilled or yet to be completed under a signed contract is RMB 0.00, including RMB 0.00 expected to be recognized as revenue in the year, RMB 0.00 expected to be recognized as revenue in the year, and RMB 0.00 expected to be recognized as revenue in the year. Other notes: Naught 5. Investment Income Unit: RMB Item Reporting Period Same period of last year Long-term equity investment income 150,000,000.00 150,000,000.00 accounted by cost method Long-term equity investment income -3,579,523.35 5,083,101.54 accounted by equity method Investment income from holding of trading 1,382,405.99 financial assets Investment income from disposal of trading 150,939,587.24 463,217.37 financial assets Total 297,360,063.89 156,928,724.90 6. Other XV. Supplementary Materials 1. Items and Amounts of Non-recurring Profit or Loss √ Applicable □ Not applicable Unit: RMB Item Amount Note Gains/losses from the disposal of non-current assets -503,782.07 Government grants recognized in the current period, except for those acquired in the ordinary 37,754,439.82 165 Lu Thai Textile Co., Ltd. Interim Report 2020 course of business or granted at certain quotas or amounts according to the government’s unified standards Gain/loss from change of fair value of trading financial assets and liabilities, and derivative financial assets and liabilities, and investment gains from disposal of trading financial assets and 9,613,583.08 liabilities, and derivative financial assets and liabilities, and investment in other debt obligations, other than valid hedging related to the Company’s common businesses Other non-operating income and expense other than the above -108,188.60 Less: Income tax effects 7,325,580.81 Non-controlling interests effects 3,416,485.37 Total 36,013,986.05 -- Explain the reasons if the Company classifies an item as an non-recurring gain/loss according to the definition in the Explanatory Announcement No. 1 on Information Disclosure for Companies Offering Their Securities to the Public—Non-recurring Gains and Losses, or classifies any extraordinary gain/loss item mentioned in the said explanatory announcement as a recurrent gain/loss item □ Applicable √Not applicable 2. Return on Equity and Earnings Per Share Weighted average EPS (Yuan/share) Profit as of Reporting Period ROE (%) EPS-basic EPS-diluted Net profit attributable to ordinary shareholders of the 1.85% 0.17 0.16 Company Net profit attributable to ordinary shareholders of the 1.39% 0.13 0.12 Company after deduction of non-recurring profit or loss 3. Other 166 Lu Thai Textile Co., Ltd. Interim Report 2020 Part XII Documents Available for Reference 1. The financial statements signed and stamped by the Company’s legal representative, Chief Accountant and Financial Manager; 2. The originals of all the Company’s announcements and documents disclosed to the public during the Reporting Period on Securities Times, Shanghai Securities News, China Securities Journal and Ta Kung Pao. Chairman of the Board: Liu Zibin Lu Thai Textile Co., Ltd. 28 August 2020 167