Fufeng Annual Report 2017
Fufeng Annual Report 2017
2016
Contents
2 Chairman’s Statement
8 Five-year Summary
Organisation Structure
9 Corporate Information
11 Financial Highlights
12 Major Products Processing Map
13 Biographies of Directors and Senior Management
Management Discussion and Analysis
17 Business and Financial Review
31 Other Financial Information
32 Outlook
33 Recent Development and Future Plan
Reports and Financials
37 ESG Report
47 Corporate Governance Report
56 Directors’ Report
65 Independent Auditor’s Report
69 Consolidated Financial Statements
151 Share Information
152 Glossary
2 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Chairman’s Statement
Dear Shareholders, 2016 was a year of reform in the China corn market.
The Northeast China and Inner Mongolia Autonomous
On behalf of the Board of Directors (the “Board”), I am Region altered the corn temporary storage policy to a new
pleased to present to you the results of Fufeng Group mechanism of “market acquisition” plus “subsidy”. The
Limited for the year ended 31 December 2016. liberalisation and marketisation of the corn policy allowed
Fufeng to fully capitalise on its advantage in strategic
Results for the Year production base layout. During the year, the Group greatly
2016 was a year offering great opportunities for Fufeng benefited from a substantial reduction in the purchase price
in terms of favorable timing, location and strong team. of corn, achieving a greater competitiveness of our export
Favorable timing came from the historic opportunities in the products. More importantly, our purchase prices of corn
corn processing and bio-fermentation sector thanks to China in the two plants of Hulunbeir and Inner Mongolia saw a
corn market reform and the emerging effect of industry far greater reduction. With the change of situation brought
consolidation. Favorable location refers to the fact that the forth by the implementation of this policy, we are optimistic
Group fully capitalised on the advantages of its strategic of our expansion in different bio-fermentation products and
layout of production bases under the China corn market maintaining a better position over our competitors in the
reform. Favorable strong team stands for our continuously long run.
optimised team of management yielding concrete,
sustainable benefits through meticulous management and
production technology enhancement.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 3
Chairman’s Statement
Years of industry consolidation has brought about further Fully leveraging the Group’s regional layout advantage under
market concentration, a more consolidated position of the the China corn market reform:
Group in the industry, an improving business environment,
and the emerging results after consolidation. As part of Fufeng’s development strategy, we have been
invested the largest production capacity of MSG and amino
In 2016, all of the Group’s MSG production bases acid in Northeast China. Generally speaking, the region
completed the first phase of production technology has a great advantage in purchasing price of raw materials.
enhancement. The respective enhancement of production However, due to various factors in the past, this advantage
efficiency has also yielded additional economic benefits has not been fully utilised. Since the corn temporary storage
for the Group at a faster pace, which gave an impressive policy was cancelled in the second half of 2016, the
demonstration of our meticulous management projects market price of corn was more directed by corn supply and
launched in recent years. In particular, economic benefits demand. The price of corn in Northeast China experienced a
can be derived upon the commencement of the second substantial slide, making the cost of corn there much lower
phase of technology enhancement for MSG production in than in other regions. This gave us a greater competitive
2017. advantage in the business of MSG and threonine, which in
turn generated better profits. We are confident that the new
As at 31 December 2016, the audited turnover of the Group situation of raw materials will sustain our distinct advantage.
amounted to approximately RMB11.8 billion, representing
an increase of about 5.1% compared to 2015. Net profit Increasing efficiency by carrying out meticulous
was approximately RMB1,092.5 million, representing an management:
increase of about 111.6% compared to 2015.
In the past year, we have recruited a number of high-
The Board recommends the payment of a final dividend of quality management personnel, including our new Chief
HK7.8 cents per share, with the paid interim dividend and Executive Officer as well as senior executives for the sales
the final dividend to be paid totaling HK11.6 cents per share. team. They have extensive experience and management
insight in related industrial chain and distribution fields
Achievements and Growth Dynamics and are conducive to intensifying the Group’s meticulous
Enhancing competitiveness and profitability through management, particularly as the restructuring and upgrading
production technology enhancement: of the sales system and the reform of fertiliser business will
be initiated in 2017.
In the first half of 2016, we completed the first phase
of technology enhancement for MSG production in our During the year, we, active in leveraging favorable interest
Hulunbeir Plant, and the relevant accomplishment gradually rates from home and abroad, completed a few beneficial
took effect in 2016, including greater competitiveness gained projects of debt refinancing and reduced the overall debt
from cost savings and a higher profit derived from higher level through the application of the Group’s cash flow, thus
output. This momentum has already emerged in the first half slashing finance costs during the period.
of 2016 while the technology enhancement in the IM Plant
was completed at the end of 2016. The related technology
enhancement for production boosted the efficiency of our
MSG business to a new level and further strengthened our
market share.
4 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Chairman’s Statement
Chairman’s Statement
Chairman’s Statement
Adjustment to Capital Structure • Starting from 2017, we will make great efforts to
By vigorously capitalising on the favorable interest rate integrate our distribution network from across the
environment inside and outside the PRC during the year, country and improve our sales team. This will involve
we completed a number of favorable refinancing activities the comprehensive integration of important segments
for our debts and slashed the overall debt level by using of our national MSG and bio-fermentation market.
the Group’s cash flow, which substantially reduced finance We seek to form alliance with competitive distributors
costs during the period. By the end of 2016, we had who will extend our market leadership from the
improved our gearing ratio to a level which can be sustained production end to the sales end of the industrial
chain, so that we can achieve better price and lock
in the long term as believed by the management.
in greater profits in the industrial chain in the future.
In the meantime, we will boost our sales capability by
During the year, the Group’s total assets and total
increasing the coverage of our direct sales network
borrowings were approximately RMB14,456.1 million and
across China and improving the quality of our sales
approximately RMB3,100.0 million, respectively. The gearing
personnel. The measures aim to create cross sellings
ratio (the Group’s total interest-bearing borrowings over total
and more profitable product mixes through more
assets) was approximately 21.4%, representing a decline of
technical proposals and services. We believe that
6.3 percentage points as compared with 2015. Cash and
considerable value still awaits us for exploration in
bank balances amounted to approximately RMB1,422.1
the sales end of bio-fermentation.
million, representing an increase of 39.6% as compared with
2015. • In 2017, we plan to proceed with the second phase
of production technology enhancement (regarding
Outlook for 2017 the transformation of extraction technology for MSG
2017 ushers in a great trend for Fufeng. We will proactively production). Relevant technology enhancement
seize the business opportunities on low cost of corn, launch will improve the quality of products. On the same
our second phase of production technology enhancement, basis, productivity will be enhanced whilst the unit
and materialise the reorganisation and integration of our production costs will be reduced significantly.
sales system. Hence, I believe that Fufeng will embrace lots
of business opportunities in the next one or two years. • For high-end amino acid, we will further develop
new products and improve the quality of our existing
We will implement the following measures in 2017: products.
• To seize the historic opportunities brought by the • For food and beverage retail business, we will launch
reform of the China corn market, we have planned more products, improve the gross profit margin of
to construct a new production base in Qiqihar our product series and portfolio, and tap into the
City, Heilongjiang Province for the development of experience of our new senior management to further
crystallised sugar and animal nutrition products. market development and improve profit margin.
Chairman’s Statement
Appreciation
In 2017 Fufeng will celebrate its tenth anniversary of being a
listing company, and we have witnessed the growth of the
Company from a top-10 Chinese MSG manufacturer to a
global leader of multiple bio-fermentation products. In the
next decade, I will lead the Group to evolve into a world-
renowned biological company and play a significant role in
the industrial chains of seasoning, human nutrition, animal
nutrition and plant nutrition. On behalf of the Board, I am
grateful to our shareholders, customers, business partners
and all the stakeholders for their long-term support. I would
also like to thank our Board members and all the staff for
their commitment and dedication. Let us join hands to make
a greater success of the next decade.
Li Xuechun
Chairman
21 March 2017
8 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Five-Year Summary
Year
2012 2013 2014 2015 2016
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Financial ratio
Earnings per share (Basic) (RMB Cents) 23.03* 25.13 29.98 24.36 51.37
Gross profit margin (%) (Note 1) 15 19 19 16 20
ROE (%) (Note 2) 11 11 12 9 16
Current ratio (Note 3) 0.75 1.08 1.07 0.88 0.99
Inventory turnover days (Day) (Note 4) 55 60 79 86 97
Debtors’ turnover days (Day) (Note 5) 63 58 33 27 25
Trade receivable turnover days (Day) (Note 6) 9 12 12 13 13
Creditors’ turnover days (Day) (Note 7) 55 49 60 49 58
Trade payable turnover days (Day) (Note 8) 55 48 40 47 48
Gearing ratio (%) (Note 9) 37 36 33 28 21
`
Notes:
* Restated
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 9
Corporate Information
HULUNBEIR
PLANT
IM
PLANT
SHANDONG
PLANT
BAOJI
PLANT
XINJIANG
PLANT
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 11
Financial Highlights
10,000 1,000
8,399.2
8,000 800
6,416.4 626.4
6,000 600
506.1 516.3
426.6
4,000 400
2,000 200
0 0
2010 2011 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016
Threonine 1.8%
5.6%
19.7%
8.6%
4.4% 15.1%
5.3% 1.7%
Starch
sweeteners 5.4% 6.4% 7.0%
Employee 6.9%
11.7%
benefits 7.3% 2015 52.4%
2015 54.4% MSG 0.7%
% 58.4%
12.5%
Corn refined 57.2% 1 0%
1.0% Corn
products
4.3%
% Depreciation 10
7.7% 1.0% kernels
9.5%
04
0.4% 0.4%
Soybeans
8.6% 1.0%
5.2% Sulphuric 1.2%
Fertilisers acid
1.7% 10.7%
Glutamic acid 4.8% Liquid
ammonia
Xanthan gum Coal
2016
2016
12 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Steam
Electricity Coal
Fermentation Tank
Corn kernels
Corn refinery
Fermentation technology
by-products
Cornstarch
Amino acid Xanthan gum
Segment Segment
Corn Corn Corn
germ bran protein
Cornstarch + yeast
Corn oil syrup
Threonine Pharmaceuticals
Synthetic
ammonia
High-end
amino acid Xanthan gum
Waste Glutamic
Products residue acid
Starch
sweeteners
Chicken MSG
Raw material powder
Bricks
Fertilisers
Executive Directors 李德衡 (Li Deheng), aged 48, is an executive Director and
李學純 (Li Xuechun), aged 65, is the principal founder a deputy executive general manager of the Group who is
of the Group, the chairman of the Company and an responsible for the general operation of production and
executive Director. Mr. Li is also a director of Acquest purchasing of the Group. He is also a director of Shandong
Honour, Summit Challenge, Absolute Divine, Expand Base, Fufeng, Baoji Fufeng, IM Fufeng and Hulunbeir Fufeng.
Fufeng Singapore, Shandong Fufeng, Baoji Fufeng, IM Mr. Li graduated from the 山東聊城師範學院 (Shandong
Fufeng, Hulunbeir Fufeng, Xinjiang Fufeng and Shenhua Liaocheng Teacher’s College) in 1992 and obtained a
Pharmaceutical. Mr. Li is responsible for the strategic bachelor’s degree in chemistry education. He joined the
planning and formulation of overall corporate development Group in January 2001 and was appointed as a director of
policy of the Group. Mr. Li obtained a bachelor’s degree Shandong Fufeng in November 2003 and has over 16 years
in industrial fermentation from 山東輕工業學院 (Shandong of experience in business management. Mr. Li Deheng is the
Institute of Light Industry) in 1982. Mr. Li is 山東省第 brother-in-law of Mr. Li Xuechun. Mr. Li is interested in 100%
十二屆人大代表 (a member of the Shandong Province of the issued share capital of Empire Spring Investments
12th People’s Congress), as well as being honored with Limited, which in turn is interested in 33,320,160 Shares,
“Outstanding Achievement” by the government of Shandong representing approximately 1.57% of the issued share
Province in April 2003. In the same year, he was also labeled capital of the Company.
as “Model Labour” of Shandong Province. Mr. Li first joined
山東福瑞酒廠 (Shandong Furui Brewery Group) in 1982 as 徐國華 (Xu Guohua), aged 48, is an executive Director
a factory manager. Mr. Li established the Group by starting and vice general manager of the Group who is responsible
set up Shandong Fufeng in June 1999. He was appointed as for Shenhua Pharmaceutical and the research and
a director of Shandong Fufeng upon its establishment. He development of the Group. Mr. Xu is also a director of
has 35 years of experience in the fermentation industry. Mr. Shandong Fufeng, Baoji Fufeng, IM Fufeng, Hulunbeir
Li is the sole director of and is beneficially interested in the Fufeng and Shenhua Pharmaceutical. Mr. Xu graduated
entire issued share capital of Motivator Enterprises Limited from 山東輕工業學院 (Shandong Institute of Light Industry)
which in turn is interested in approximately 46.63% of the majoring in fermentation and economics management in
issued share capital of the Company and is a controlling July 1991 and 2003 respectively. He completed his study
shareholder of the Company. He is the father of 李廣玉 (Li in fermentation engineering from 天津科技大學 (Tianjin
Guangyu) (an executive Director) and the brother-in-law of University of Science and Technology) in September 2004.
李德衡 (Li Deheng) (an executive Director). Mr. Xu has been elected to stand as the executive council
member of the China Fermentation Industry Association
in 2004 and prior to that was invited in 2002 to be a
member of the Amino Acid Technology Committee under
the China Fermentation Industry Association. Mr. Xu first
joined Shandong Furui Brewery Group in 1991. Mr. Xu
joined the Group in June 1999 and has over 26 years of
experience in the fermentation industry. He was also one of
the initial management Shareholders. Mr. Xu was appointed
as a director of Shandong Fufeng in May 2002. Mr. Xu
is interested in 100% of the issued share capital of Best
Range Investments Limited, which in turn is interested in
28,320,160 Shares, representing approximately 1.33% of
the issued share capital of the Company.
14 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
齊慶中 (Qi Qing Zhong), aged 62, was appointed as an International in Greater China, and the Asia Pacific Region.
Independent non-executive Director on 1 November 2014. Mr. Zhao would be responsible for the Group’s operation
Mr. Qi has over 32 years experience in the management of management and business strategy, implementing decisions
the corporation in fermentation and food industry. Mr. Qi and plans approved by the Board, making day-to-day
has extensive experience in various management practices operational and management decision and coordinating
including strategy development, promotion and brand overall business operations. Mr. Zhao was granted an option
management and industrial operation management. Mr. Qi to subscribe the 5,000,000 Shares pursuant to the Post-
graduated in Institute of Light Industry, Dalian (Faculty of IPO Share Option Scheme, represented 0.24% of the issued
Food Engineering, Professional of Fermentation) in 1982. Mr. share capital of the Company.
Qi currently works as a chief secretary and a chief executive
officer of China Food Additives & Ingredients Association. 陳奕祺 (Chan Yick Kei), aged 37, is a chief financial officer
Mr. Qi is also in position of Deputy Director of the Committee of the Group who was appointed on 1 January 2015. Mr.
on Food Additions in National Standard Review Committee Chan graduated from the London School of Economics
of Food Safety. Mr. Qi does not have any relationship and Political Science with a bachelor degree of accounting
with any directors, senior management, substantial or and finance. Mr. Chan has 15 years of corporate finance
controlling shareholders of the Company. He did not have and M&A experience. Prior to joining us he was a director
any directorships in other listed public companies in the and head of consumer and retail sector, Asia at Deutsche
last three years nor has held any other position with the Bank and before that he was a Vice President at the
Company and any of its subsidiaries. Mr. Qi was granted investment banking department of Credit Suisse. Mr. Chan
an option to subscribe the 300,000 Shares pursuant to is responsible for matters relating to corporate finance,
the Post-IPO Share Option Scheme, represented 0.01% capital markets, investor relations, corporate development
of the issued share capital of the Company. Except for the and assists in strategic planning, as well as other financial
above, Mr. Qi does not have any interests in the shares of management duties. Mr. Chan was granted an option to
the Company within the meaning of Part XV of the Securities subscribe the 6,000,000 Shares pursuant to the Post-IPO
and Future Ordinance. Share Option Scheme, represented 0.28% of the issued
share capital of the Company.
Senior Management
趙強 (Zhao Qiang), aged 49, is a chief executive officer of 來鳳堂 (Lai Fengtang), aged 48, is a general manager of
the Group. Mr. Zhao has over 21 years of experience in Shandong Fufeng who is currently in charge of the operation
sales and operation in the food and beverage industry with of Shandong Fufeng. Mr. Lai graduated from 中國西北大
a strong track record of leading and developing successful 學 (Northwest University of China) in 1998. He first joined
food businesses in Greater China and across Asia Pacific. Shandong Furui Brewery Group in 1991. Mr. Lai joined the
Before joining the Company, Mr. Zhao was the Chief Group in June 1999 and has over 25 years of experience
Operation Officer and the Chief Executive Officer of Lee in the fermentation industry. Mr. Lai is the sole director of
Kum Kee Sauce Group since 2011 to 2015. During a career and is interested in 14.3% of the issued share capital of
spanning more than 20 years, Mr. Zhao has held a range Hero Elite, which in turn is interested in 69,120,000 Shares,
of senior leadership, strategy development and operation representing 3.25% of the issued share capital of the
management positions with PepsiCo Group and Kraft Foods Company.
16 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
潘悅洪 (Pan Yuehong),aged 52, is the vice general manager 唐永強 (Tang Yongqiang), aged 42, is the vice general
of the Group. Mr. Pan graduated from 山東輕工業學院 manager of the Group responsible of new project
(Shandong Institute of Light Industry) in 1988, majoring in development. Mr. Tang graduated from 西北工業大學
fermentation. Mr. Pan joined 山東福瑞酒廠 (Shandong Furui (Northwestern Polytechnical University) in 1997, majoring
Brewery Group) in 1988, and later joined the Group in June in machinery manufacturing industry and equipment. Mr.
1999. With nearly 29 years of experience in the fermentation Tang joined 山東福瑞酒廠 (Shandong Furui Brewery Group)
industry, he is mainly responsible for the Group’s sales and in 1997, and later joined the Group in June 1999. With
marketing activities. Mr. Pan is the sole director of and is 19 years of experience in the industry management, he is
interested in 14.3% of the issued share capital of Advanced mainly responsible for the project development of the Group.
Quality Limited, which in turn is interested in 69,120,000
Shares, representing 3.25% of the issued share capital of 趙蘭坤 (Zhao Lankun), aged 44, is a general manager of
the Company. Hulunbeir Fufeng who is currently in charge of the operation
of Hulunbeir Fufeng. Mr. Zhao graduated from 青島化工學
王均成 (Wang Juncheng), aged 49, is the general manager 院 (Institute of Chemical Technology of Qingdao) in 1994,
of IM Fufeng. Mr. Wang graduated from 中國海洋大學 majoring in chemical equipment and machinery. Mr. Zhao
(Ocean University of China) in 1990, majoring in marine joined Shandong Furui Brewery Group in 1994, and later
biology. Mr. Wang joined 山東福瑞酒廠 (Shandong Furui joined the Group in June 1999. With nearly 23 years of
Brewery Group) in 1990, and later joined the Group in June experience in industrial management. Mr. Zhao is interested
1999. With 27 years of experience in fermentation industry, in 14.3% of the issued share capital of Hero Elite, which in
he is mainly responsible for the operation of IM Fufeng. turn is interested in 69,120,000 Shares, representing 3.25%
of the issued share capital of the Company.
嚴紀文 (Yan Jiwen), aged 50, is the general manager of
Baoji Fufeng. Mr. Yan graduated from 山東輕工業學院 Company Secretary and Qualified
(Shandong Institute of Light Industry) in 2005, majoring Accountant
in economic management. Mr. Yan joined 山東福瑞酒廠 李偉然 (Lee Wai Yin), aged 47, is the qualified accountant
(Shandong Furui Brewery Group) in 1988, and later joined and company secretary of the Company since August 2008.
the Group in June 1999. He has accumulated 29 years of Mr. Lee graduated from the Hong Kong Shue Yan College in
experience in the industry and is mainly responsible for the 1993 with a diploma in accountancy and is a fellow member
operation of Baoji Fufeng. Mr. Yan is the sole director of and of the Association of Chartered Certified Accountants and
is interested in 16.0% of the issued share capital of Excel an associate of the Hong Kong Institute of Certified Public
Energy Limited, which in turn is interested in 61,747,200 Accountants. Mr. Lee has more than 23 years of working
Shares, representing 2.90% of the issued share capital of experience in finance and accounting including some with
the Company. international accounting firms. Mr. Lee was granted an
option to subscribe the 1,800,000 Shares pursuant to the
Post-IPO Share Option Scheme, represented 0.08% of the
issued share capital of the Company.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 17
Business and Financial Review industries. Only by continuously upgrading our product
Overview quality and expanding our product range can we transform
2016 was a year offered great opportunities for Fufeng gradually from the traditional, bulk-trade enterprise towards
in terms of timing, favourable location and a significant a modern, high-tech and high value-added supplier of
enhanced management team. The PRC and global biochemical products.
economies continued to face difficulties and challenges
in 2016. The Group, as the industry leader, managed to In addition, 2016 was a year for our production
achieve strong results in its core business and also further technology enhancement and product development.
consolidated its leadership position in the market. In Our newly enhanced production technology of MSG
addition, the Group made considerable strides in developing further strengthened our competitive cost advantages
high-value fermentation products allowing us to further by reducing production costs and increasing production
diversify our revenue stream, enhance profitability and yield. Implementation of the first phase of newly enhanced
provide impetus for the long-term sustainable growth of the production technology in our plants was completed in 2016.
Group.
MSG industry consolidation gradually aided the improvement
In 2016, the Group benefited from the achieved results in the business environment, coupled with a decrease in the
of industry consolidation in the past few years. We price of corn kernels during 2016, which led to a decrease
actively strengthened our competitiveness and constantly in production costs and increase in the gross profit margin
improved the production technology to achieve better cost- of our key products. The Group was able to record a
effectiveness and more actively expand the Amino acid significant increase in its overall gross profit and net profit
segment business. The strategy of our product development during 2016 compared to the corresponding year of 2015.
is mainly divided into four categories: 1. Food additives Even though overall revenue of the Group remained fairly
(key products include MSG, chicken powder, crystallised stable during 2016 compared to 2015, the Group was
sugar, corn oil etc.), 2. Animal nutrition (key products include able to rely on the growth products such as threonine and
threonine, tryptophan, corn refined products etc.), 3. Colloid high-end amino acids and effective implementation of cost
(key products include xanthan gum, welan gum etc.), and 4. controls to increase overall profitability. The high-end amino
High-end amino acid (key products include valine, leucine, acid products successfully expanded in terms of product
isoleucine, glutamine, hyaluronic acid, pectin etc.). development and market share, and we are more confident
that we can become one of the world’s leading suppliers of
The Group continued to strategically utilise the production threonine and high-end amino acid products.
facility and capacity of each plant in order to match ongoing
market demand. The Group has also actively explored the In terms of production capacity, the annual production
development of new high-end products, in order to improve capacity of MSG, threonine and high-end amino acid were
product diversity and increase sales and penetration in the increased during 2016. The overall production capacity of
health and wellness, pharmaceutical and skincare related the Group in 2016 remained almost fully operational.
18 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Our Amino acid segment is primarily made up of our MSG, The table below illustrates the trend of the Group’s revenue
threonine and high-end amino acid products. In terms in the past six years:
of MSG business, there was a decrease in ASP of MSG
RMB (Million)
in 2016 as costs of main raw materials, especially corn 11,803.1
12,000 11,111.9 11,366.7 11,297.7 11,225.7
kernels, fell during the year. The ASP of MSG remained
11,000
at a relatively low level and the Group continued to
10,000
face lackluster conditions in the domestic catering and
9,000 8,399.2
consumer markets as well as pricing pressure due to market 8,000
competition. Despite the market conditions, the Group was 7,000
able to maintain its leadership in terms of market share and 6,000
sales volume by leveraging its cost advantages to adopt 5,000
competitive pricing. The Group was, however, able to record 4,000
from the sales of MSG, threonine and high-end amino acid 1,000
coupled with a decrease in the price of corn kernels and Animal nutrition and high-end amino acid business
the improvement of efficiency of production by means of In addition, we continued the development of our threonine
our production technology enhancement and expansion of product. Threonine is a type of amino acid which is used as
production capacity, which led to a decrease in production animal feed additives. During the year, the Group achieved
costs and increase in the gross profit contribution of the great success in the production expansion in respect to
sales of threonine, MSG, starch sweeteners and high- threonine, which was attributable to the successful layout of
end amino acid products. This was partially offset by the production bases and a closer cooperation with Ajinomoto
decrease in gross profit margin of sales of xanthan gum. Group. Amidst considerable earnings of the threonine
business, the Group managed to expand the production
In 2016, the ASP of the Group’s MSG decreased by 12.4% capacity of threonine. The total sales amount of threonine
compared to 2015 mainly as the average price of corn reached approximately RMB1,012.8 million in 2016.
kernels decreased. In addition, the ASP of the Group’s Compared to 2015, it represented an increase of 70.3%. In
xanthan gum decreased by 28.5% compared to 2015 due the 2016, the Group sold about 119,145 tonnes of threonine
to intense competition and weak market conditions in the as compared to the sales volume of about 53,605 tonnes in
global oil industry. 2015.
In view of the challenging market conditions, the Group also The high-end amino acid business, as part of our Amino acid
has had to continue actively implementing cost controls and segment, is the Group’s new growth driver. The Group’s
also managed to undertake a technology enhancement to its high-end amino acid products are developed using different
production processes, which contributed to improvements types of corn-based biochemical products by leveraging the
in production efficiency and cost structure. The significantly Group’s fermentation technology. The high-end amino acid
increased gross profit margin of Amino acid segment in products include valine 纈氨酸, leucine 亮氨酸, isoleucine
2016 demonstrates the Group’s ability to leverage its 異亮氨酸, glutamine 谷氨醯胺 and hyaluronic acid 透明質
economies of scale and production capabilities to manage 酸, etc. During the year, the total sales amount of high-end
its costs effectively. amino acid products reached approximately RMB663.7
million. Compared to 2015, it represented an increase of
The production and sales volume of MSG increased by 35.3%. Our high-end amino acid products generally enjoy
approximately 17.4% and 14.4% in 2016 as compared higher profitability and focus on the health and wellness
to 2015, respectively. The production volume of MSG and pharmaceutical materials industries. The short-term
increased as a result of the technology enhancement of goal of the Group is to become one of the world’s top three
its production processes which led to the production yield producers and suppliers by market share for several of
increase of MSG during the year. our key amino acid product types. The development and
production of these products will add further diversity to the
The production and sales volume of xanthan gum Group’s product and revenue mix. The Group also plans to
decreased by approximately 37.0% and 20.1% in 2016 extend its business scope from the production and sales of
compared to 2015, respectively. The production volume of typical amino acid products for bulk trade to those of high-
xanthan gum decreased primarily as a result of low market end products.
demand. Therefore, the Group temporarily suspended part
of the production lines of xanthan gum, which were for Overall, the diversity of the Group’s product portfolio
maintenance or were changed to produce other profitable has allowed the Group to maintain its revenue growth
products such as gellan gum and other high-end amino acid momentum in 2016.
products.
It is expected that such development and production of
these products will further diversify the Group’s product and
revenue mix and it is the goal of the Group to become one
of the key producers and suppliers in terms of global market
share.
20 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
The performance of the Group in terms of gross profit and in our plants, gross profit margin of our MSG noticeably
gross profit margin was significantly improved, mainly due increased. Moreover, the increase in sales volume of our
to the effect from an increase in gross profit margin of high-end amino acid products and threonine also brought
our Amino acids segment, which was partially offset by a additional growth momentum to our Amino acids segment.
decrease in gross profit margin of xanthan gum. As MSG On the other hand, the market competition of xanthan gum
industry consolidation gradually aided the improvement intensified, resulting in the ASP of xanthan gum decreasing
in the business environment and main raw material costs, significantly in 2016. These are discussed in more details in
especially corn kernels, decreased in 2016, the ASP of the following sections.
MSG trended downwards. As a result of our production
technology enhancement being continuously implemented
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 21
The improving business environment, coupled with corn remaining relatively stable in 2016, the net profit attributable
kernel costs significantly decreasing and increasing of to the Shareholders for 2016 significantly increased by
production efficiency in 2016, led to the gross profit margin approximately 111.6% as compared to 2015.
of Amino acid segment increasing in 2016. However,
part of contribution was offset by the effect of the weak Segment Highlights
performance of our Xanthan gum segment. In addition, The Group’s products are primarily organised into two
finance costs also decreased during the year as the Group business segments, namely Amino acid segment and
has fully repaid the senior notes and increased working Xanthan gum segment. The Amino acid segment includes
capital from operations, with the objective of maintaining MSG, fertilisers, threonine, high-end amino acid products
total borrowings at a lower level and reduce the finance and other related products while the Xanthan gum segment
costs of the Group. With selling and administrative expenses represents the production and sale of xanthan gum.
The table below highlights the operating results of the above segments:
Revenue 11,240,665 562,466 11,803,131 10,256,444 969,278 11,225,722 9.6 (42.0) 5.1
Gross profit 2,316,680 89,693 2,406,373 1,447,537 354,954 1,802,491 60.0 (74.7) 33.5
Gross profit margin 20.6% 15.9% 20.4% 14.1% 36.6% 16.1% 6.5 ppts. (20.7) ppts. 4.3 ppts.
The sections below describe the performance of each the revenue of threonine and high-end amino acid products.
segment in more detail. The revenue of MSG was stable primarily due to the effect of
an increase in the sales volume of MSG offset by the effect
Amino acid segment from a decrease in ASP during the year. The sales volume
Revenue and average selling price of MSG was about 1,084,308 tonnes in 2016, representing
Revenue generated from the sale of the Amino acid segment an increase of 14.4% as compared with 2015, mainly due
products increased to RMB11,240.7 million in 2016, to the production technology enhancement which increased
representing an increase of RMB984.2 million, or 9.6%, as production yield and strengthened our competitive
compared with 2015, mainly attributed to the increase in advantage.
The table below sets out the revenue of the products in this segment for the years ended 31 December 2016 and 2015:
Set out below is a chart showing the ASP of the Group’s MSG products for each quarter from the first quarter of 2014 to the
fourth quarter of 2016:
RMB/Tonne 7,209
7,047
6,907
6,748 6,798
6,265
6,187
6,115 6,091
5,969 5,996
5,691
1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16
MSG
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 23
advantage to realise the Group’s development strategy of new health and wellness products and high-end amino acid
“Low Investment – High Return”. products which use our new specialty ingredients such as
hyaluronic acid, with the aim of improving product diversity
In 2016, the Group, through our wholly-owned subsidiary and increasing sales and penetration in health and wellness,
Shenhua Pharmaceutical, actively developed and promoted pharmaceutical and skin care related industries.
During the year ended 31 December 2016, gross profit and The Group has maintained its competitive pricing strategy
gross profit margin of MSG increased due to the cost of corn in order to expand market share after industry consolidation
kernels decreasing and the implementation of production in recent years. As market conditions gradually return to
technology enhancement. In addition, increasing gross normality and with the gradual resumption of growth in the
profit contribution from high-end amino acid products and future, we believe that the ASP for MSG should witness a
threonine, which have higher gross profit margins, resulted return to stability going forward.
in an increase in the overall gross profit margin of the Amino
acid segment. Gross profit increased to RMB2,316.7 million The Group expects that our pricing power and leading
and gross profit margin increased by 6.5 percentage points market position for MSG can be maintained or improved
to 20.6%. from current levels in 2017.
21.6%
19.5%
16.4%
15.5% 15.7%
12.9%
12.6%
9.8%
1H 13 2H 13 1H 14 2H 14 1H 15 2H 15 1H 16 2H 16
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 25
The above chart shows the changes in gross profit term market fluctuation has affected our results, the Group
margin from 2013 to 2016. As the government policy was believes that the industry demand and supply has stabilised
changed, the average price of corn kernels has decreased and expects that the ASP of MSG will stabilise or gradually
significantly since the fourth quarter of 2015. As such, the improve. In addition, the Group will continue to launch high-
Group adopted a competitive pricing strategy to significantly end amino acid products which have higher profit margins
lower the ASP of MSG, with an aim to further strengthen and the Group believes that such increasing diversity in the
its market share and leading position. Although the short product mix will help to improve its gross profit margin in this
segment.
Production costs
Energy
• Coal 923,716 10.2 784,449 9.0 17.8
Corn kernels decrease of 22.3% from 2015, which was mainly due to the
During 2016, corn kernels accounted for approximately change of PRC government policy.
53.4% (2015: 60.1%) of the total production cost of
this segment. The average price of corn kernels was The cost of corn kernels as a percentage of total production
approximately RMB1,408 per tonne in 2016, representing a costs decreased by 6.7 percentage points, which was due
to the decrease in average price of corn kernels during
2016.
26 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
The following chart shows the price trend of corn kernels from the first half of 2013 to the second half of 2016:
RMB/Tonne
1,693
1,469
1,351
1H 13 2H 13 1H 14 2H 14 1H 15 2H 15 1H 16 2H 16
Liquid ammonia Based on the market situation, the average unit cost of coal
Liquid ammonia accounted for approximately 1.2% (2015: in Shaanxi and Inner Mongolia increased during the year. On
1.0%) of total production cost in this segment in 2016. The the contrary, the average unit cost of coal in Hulunbeir and
Group witnessed fluctuation in the average unit cost of liquid Xinjiang decreased in 2016. Our average coal costs were
ammonia in 2016. The average price of liquid ammonia still at a low level which reflected that the competitive cost
amounted to RMB1,853 per tonne in 2016, representing a advantages from Hulunbeir Plant and Xinjiang Plant were
decrease of approximately RMB168 per tonne or 8.3% from fully realised during the year.
2015. However, as the cost of corn kernels as a percentage
of total production cost decreased due to lower average The Group’s major production bases in Inner Mongolia,
price, the cost of liquid ammonia as a percentage of total Hulunbeir and Xinjiang, with access to lower-cost coal, are
production costs still increased by 0.2 percentage points. instrumental in strengthening the Group’s pricing power.
The chart below shows coal costs at each of our plants in
Sulphuric acid Shaanxi, Inner Mongolia, Hulunbeir and Xinjiang:
Sulphuric acid accounted for approximately 1.1% (2015:
1.1%) of total production cost in this segment in 2016. RMB/Tonne
0
1H 2015 2H 2015 1H 2016 2H 2016
Coal
Shaanxi Inner Mongoila Hulunbeir Xinjiang
Coal accounted for about 10.2% (2015: 9.0%) of total
production cost in this segment in 2016. The average unit
cost of coal was RMB155 per tonne in 2016, representing
a slight decrease of RMB4 per tonne or 2.5% from 2015.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 27
Production
The annual designed production capacity, the actual production output and the utilisation rate of each of the major products
for this segment were as follows:
MSG
Annual designed production capacity (Note) 1,130,000 940,000 20.2
Actual production output 1,120,396 954,700 17.4
Utilisation rate 99.2% 101.6%
Glutamic acid
Annual designed production capacity (Note) 926,667 760,000 21.9
Actual production output 927,436 766,917 20.9
Utilisation rate 100.1% 100.9%
Fertilisers
Annual designed production capacity (Note) 950,000 950,000 –
Actual production output 891,823 897,542 (0.6)
Utilisation rate 93.9% 94.5%
Starch sweeteners
Annual designed production capacity (Note) 260,000 260,000 –
Actual production output 257,145 238,393 7.9
Utilisation rate 98.9% 91.7%
Utilisation rates remained high in 2016, which was the same case in 2015.
28 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Revenue generated from xanthan gum decreased by 42.0% The Group’s exports of xanthan gum also decreased in
to RMB562.5 million in 2016, from RMB969.3 million in terms of the percentage contribution to total sales. Export
2015. The decrease in revenue was due to the decrease in sales of xanthan gum contributed approximately 91.1%
ASP and sales volume resulting from weak market demand. and 84.1% of total sales of xanthan gum in 2015 and 2016,
The significant decrease in the ASP of xanthan gum was respectively.
due to intense competition and weak market conditions in
the global oil industry in 2016.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 29
Tonne RMB/Tonne
36,000 36,000
33,629
32,063
31,235 31,454
29,122
28,432
29,000 29,000
25,485 25,277
26,120
21,677
24,408
22,000 19,624 22,000
17,301
8,000 8,000
1,000 1,000
1H 2013 2H 2013 1H 2014 2H 2014 1H 2015 2H 2015 1H 2016 2H 2016
Global demand for xanthan gum fluctuated during the Gross profit and gross profit margin
year. The market demand was still weak in the second Gross profit of the Xanthan gum segment decreased by
half of 2016 and the Group expects this to continue in the about 74.7% from approximately RMB355.0 million in
foreseeable future as demand remains stable at a low level 2015 to approximately RMB89.7 million in 2016. Gross
in the oil industry as well as other sectors. profit margin decreased as well, by 20.7 percentage points
to 15.9% in 2016, reflecting weakness in global market
demand and a depressed oil industry.
30 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Production costs
Energy
• Coal 84,253 17.5 112,616 14.5 (25.2)
PLA boasts huge potential market according to external With MSG industry consolidation generally being completed,
studies. It is predicted that successful development of this the Group expects the operating environment will continue
product market will lead to more than 10 million tonnes of to improve in 2017. The Group will keep abreast of the
PLA in the global market, or a market worth over RMB100 market and seize opportunities to continue to increase
billion. PLA is supported by relevant policies as the use our market share by leveraging on our economies of scale
of non-degradable materials are explicitly prohibited in in the MSG business. As a market leader, the Group will
such fields as packaging in many developed countries and strive to play its part in creating a sustainable competitive
regions. Some provinces in the PRC have also adopted environment for the MSG business.
relevant policies and launched the ban on free plastic bags.
The PLA products have a wide range of applications and The Group will continuously explore the development of new
enormous market potential. They are widely used in various high-end polymer materials such as gellan gum, hyaluronic
fields including biomedical and daily-use macromolecular acid and amino acid products, in order to improve product
material. class and increase sales and penetration in health and
wellness products, pharmaceutical entities, and the skincare
Proposed Spin-off products field. Only by continuously upgrading our product
As set out in the voluntary announcement of the Company quality and expanding our product range can we transform
dated 11 May 2016, the Company has informed the gradually from the traditional, bulk-trade enterprise towards
Shareholders that the Stock Exchange of Hong Kong a modern, high-tech and high value-added supplier of
Limited stopped the review of the spin-off application and biochemical products.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 33
Recent Development and Future Plan For food and beverage retail business, we will launch more
To seize the historic opportunities brought by the reform products, improve the gross margin of our product series
of the China corn market, we have started to research the and portfolio, and tap into the experience of our new senior
feasibility of undertaking the new corn processing and bio- management to further market development and improve
fermentation project by the end of 2016, with efforts to profit margins.
search for favorable locations and resource partners.
Strengthen our management team
Meanwhile, the Group is in the process of in-depth To achieve the coming targets, the Group has improved and
communication with leading biotech firms worldwide to will keep improving its management structure, nourishing
seek greater, more comprehensive development in animal and attracting talents and further enhancing its corporate
nutrition. culture. The Group has appointed professional management
and instituted strategy consultation with an aim to review,
Starting from 2017, we will make great efforts to integrate integrate and strengthen the Group’s existing management
our distribution network from across the country and system, human resource system and corporate culture of
improve our sales team. This will involve the comprehensive the Board, which will bring a positive effect for the Group’s
integration of important segments of our national MSG development in the long run.
and bio-fermentation markets. We seek to form alliances
with competitive distributors who will extend our market Plan to construct a new corn processing project
leadership from the production end to the sales end of the The company has plans to construct a new corn processing
industrial chain, so that we can achieve higher prices and project in Qiqihar City, Heilongjiang Province, for crystallised
lock in greater profits in the industrial chain in the future. sugar and animal nutrition products. The first phase of the
In the meantime, we will boost our sales capabilities by project is planned to start construction in 2017 with estimate
increasing the coverage of our direct sales across China and production capacity of 100,000 tonnes of crystallised sugar
improving the quality of our sales personnel. The measures and 100,000 tonnes of threonine. Total estimate capital
aim to create cross sellings and more profitable product expenditure is expected to be around RMB1 billion. In 2018,
mixes through more technical proposals and services. We we plan to build another 100,000 tonnes of production
believe that considerable value still awaits us for exploration capacity of lysine and other products, with total capital
in the sales end of bio-fermentation. expenditure also estimated at RMB1 billion.
In the second half of 2017, we plan to proceed with the Overseas market expansion
second phase of production technology enhancement The Group has increased efforts to develop and expand
(regarding the enhancement of extraction technology for the foreign MSG and xanthan gum markets by focusing on
MSG production). Such relevant technology enhancement establishing overseas sales branches and offices. In 2016,
will improve the quality of products. On the same basis, the Group strengthened promotional activities in the Middle
production yield will be enhanced whilst the unit production East, Europe, Africa and South America. The objective is to
costs will be reduced significantly. provide customers with better after-sales service, improve
customer relationships, and enhance our reputation.
For high-end amino acids, we will further develop new
products and improve the quality of our existing products.
34 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Liquidity and financial resources The Directors believe that the Group’s liquidity position is
As at 31 December 2016, the Group’s cash and bank relatively stable and that the Group has sufficient banking
balances were approximately RMB1,422.1 million (2015: facilities to repay or renew existing short term bank loans
RMB1,019.1 million) whereas current bank borrowings and other borrowings.
and current other borrowing (including the balances
of convertible bonds and medium-term notes) were Material acquisition or disposal of subsidiary and
approximately RMB1,176.8 million and Nil (2015: RMB344.8 associated company
million and RMB1,501.1 million) respectively and non-current On 22 August 2016, a wholly owned subsidiary of the
bank borrowings and non-current other borrowings (including Company, Shandong Fufeng Fermentation Co, Ltd, entered
the balances of convertible bonds and corporate bonds) into sale and purchase agreement to sell its wholly owned
were approximately Nil and RMB1,923.2 million (2015: companies, Junan Beifang Properties Company Limited
RMB1,005.5 million and RMB986.7 million), respectively. and Junan Beibu Properties Company Limited, for a total
cash consideration of approximately RMB164.1 million.
Convertible Bonds Junan Beifang Properties Company Limited and Junan
The Group issued RMB975.0 million in convertible bonds Beibu Properties Company Limited are investment holding
with a fixed coupon rate of 3.0% per year on 27 November companies and held a parcel of land located at Longshan
2013 with 5-year terms (“2013 CB”). The yield to maturity Road (Northern section), Junan County, Shandong Province,
rate of 2013 CB is 4.5% per annum. The net proceeds in the PRC (莒南縣縣城隆山路北段). The aggregate site area of
amount of approximately USD155 million from the issue of the Land is approximately 148,748.6 square metres, and the
the 2013 CB were used to repay the syndicated bank loan land is designated for commercial use.
at the end of 2013. During the year ended 31 December
2016, no conversion had taken place. The current Except for the above, the Group had no other material
outstanding amount of 2013 CB amounts to approximately acquisition or disposal of subsidiaries or associated
RMB931.9 million. companies for the year ended 31 December 2016.
In accordance with the “Environmental, Social and Governance Reporting Guide” of the Stock Exchange of Hong Kong
Limited, the Company prepared its 2016 ESG Report for the period from 1 January 2016 to 31 December 2016, covering
its subsidiaries 山東阜豐發酵有限公司 (Shandong Fufeng Fermentation Co., Ltd.), 寶雞阜豐生物科技有限公司 (Baoji Fufeng
Biotechnologies Co., Ltd.), 內蒙古阜豐生物科技有限公司 (Neimenggu Fufeng Biotechnologies Co., Ltd.), 呼倫貝爾東北阜豐
生物科技有限公司 (Hulunbeir Northeast Fufeng Biotechnologies Co., Ltd.) and 新疆阜豐生物科技有限公司 (Xinjiang Fufeng
Biotechnologies Co., Ltd.). To the best knowledge of Fufeng Group, sustainable development is indispensable to the Group’s
long-term development in respect of environmental protection and social contribution. The Report illustrates the Company’s
belief and practice of sustainable development and social responsibility from both environmental and social perspectives.
A Environment
As for environmental protection, Fufeng Group continues to invest in energy-saving equipment. Its low-carbon
emission production facilities are designed to minimise the environmental impact of the Company’s business. The
Company attaches great importance to green production, and continuously advances its technology in energy-
saving, emissions reduction and clean production.
All the companies have established the environmental management system established by the Company based on
the ISO 14001: 2004 standard, followed by documentation, implementation, and continuous improvement or renewal
and regular third-party certification in order to obtain an authentication certificate for their respective systems.
A1 Emission
Fufeng Group complies with the requirements of laws and regulations, such as the Environmental Protection
law of People’s Republic of China (《中華人民共和國環境保護法》) to reduce the environmental impact
arising from sewage, exhaust, greenhouse gases, hazardous and non-hazardous wastes during the
production and operation of the Company.
As for exhaust, Fufeng Group strictly complies with the requirements of laws and regulations, such as
the Law of the People’s Republic of China on the Prevention and Control of Atmospheric Pollution (《中華
人民共和國大氣污染防治法》). Each of the companies has an exhaust treatment leadership group to fully
assume the responsibility of treating the Company’s exhaust. The companies also have developed targeted
management systems on reducing exhaust, such as the Environmental Protection Management System,
the Desulfurization and Denitrification Process Management System on Boiler Procedures and the Exhaust
Treatment and Control Procedures, and related operating regulations, such as the Desulfurization Operating
Regulation and the Denitration Operating Regulation. In addition, Fufeng has an accountability system in place
for environmental protection targets, to require the companies to adopt effective measures for treating exhaust
emissions so that such emissions meet the Emission Standard of Air Pollutants from Thermal Power Plants (GB
13223-2011) and the Emission Standard of Air Pollutants from Industrial Furnaces (GB 9078-1996). Automatic
closed handling facilities should be adopted to load and unload raw materials for production and products. All
the exhaust emitted from production equipment shall be collected and treated by scientific measures, such
as recovery, absorption adsorption and catalytic combustion, to meet emission standards. Direct discharge
without treatment is strictly prohibited.
As for sewage, the Company is in strict compliance with the requirements of laws and regulations, such
as the Law of the People’s Republic of China on the Prevention and Control of Water Pollution 《
( 中華人民
共和國水污染防治法》). All the companies have specialised environmental protection treatment workshops,
reclaimed-water reuse workshops and corresponding professional management teams. The companies, also
furnished with professional sewage treatment devices and equipment, reduce sewage production in such
approaches as level-based water consumption and reclaimed-water reuse. In addition, the Company has
transformed its sewage treatment facilities to ensure that the discharged sewage meets national and local
standards, such as the Pollutants Emission Standard for the MSG Industry 《
( 味精工業污染物排放標準》) and
the “Pollutants Discharge Standard for Urban Sewage Treatment Plants” 《( 城鎮污水處理廠污染物排放標準》).
38 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
All the companies have standardised their sewage treatment processes and administrative measures, by
formulating sewage discharge management regulations such as the Environmental Protection Management
System and the Administrative Measures on Sewage Discharge for Environmental Protection Treatment
Plants, as well as the assessment standards on environmental protection such as the Assessment Rules on
the Environmental Protection in Workshops. These regulations aim to strengthen the management of internal
and external sewage discharge, strictly control various types of sewage discharge, avoid random or excessive
discharge of the water treatment system, eradicate sewage pollution accidents, ensure the standard
discharge of production sewage and prevent water pollution.
As for greenhouse gas emissions, all the companies have actively responded to the requirements of
national and local governments, by completing the review on corporate greenhouse gas emissions and
submitting such results to regulatory authorities. The Company’s greenhouse gas emissions are mainly from
fossil fuel combustion, industrial production process and potential outsourcing electricity. All the companies
reduce greenhouse gas emissions by less energy consumption, higher energy efficiency and enhanced energy
management.
As for waste discharge, the Company strictly complies with the requirements of the Law of the People’s
Republic of China on the Prevention and Control of Solid Waste Pollution 《( 中華人民共和國固體廢物污染環
境防治法》) and the Administrative Measures on Municipal Solid Waste 《 ( 城市生活垃圾管理辦法》). In order
to provide more effective control over the storage and treatment of solid wastes and achieve the objectives
of energy saving and less environmental pollution, all the companies under Fufeng have formulated waste
management systems, such as the Administrative Measures on Solid Wastes, the Hazardous Solid Waste
Management System and the Administrative Measures on Industrial and Domestic Waste Disposal.
Hazardous wastes should be processed by relevant waste disposal parties recognised by the Chinese
environmental protection bureau. The clearance and treatment of hazardous wastes should be recorded, with
such records to be compiled and kept by the department that generates the hazardous wastes.
Factories shall categorise the waste acid, waste lye, residual liquid or organic solvent generated during
production and equipment maintenance, and reuse them for production; alternatively, the above mentioned
waste items, upon processing and treatment, shall be sold to qualified companies for reuse, without being
discharged at random. The exhaust and sewage generated during equipment maintenance should undergo
centralised collection and processing, without causing secondary pollution.
Non-hazardous wastes should undergo classified collection and storage at a fixed location, while recyclable
wastes can be collected by recycling companies or internally recycled and reused. For example, coal ash and
cinder can be used to produce construction materials such as cement and hollow bricks, to reduce resource
consumption. Non-recyclable wastes should be regularly cleared by municipal waste disposal agencies.
A2 Use of Resources
Fufeng Group strictly executes the policies, regulations and standards on energy conservation provided
by national, local and industrial authorities, such as the Law of the People’s Republic of China on Energy
Conservation (《中華人民共和國節約能源法》). Centered on raising the user efficiency of resources,
Fufeng lays its emphases on saving energy, water, materials and land, comprehensive use of resources,
and development of circular economy. The Company facilitates its sustainable development with better
management measures, an enhanced awareness of saving resources, and efficient and cyclic use of
resources. The Company strictly manages its use of resources, to ensure reasonable use of resources in the
course of operation and avoid waste.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 39
As for energy saving, each of the companies under Fufeng has established its own energy-saving
management and leadership group with relevant departments’ heads as the group members, and set up
energy saving offices. All functional departments and units have specific full/part-time personnel in charge
of energy saving in addition to a three-level energy-saving management network formed and the relevant
personnel from the production department responsible for detailed energy-saving work. At the same time,
apart from the establishment of energy saving agencies and management systems, leadership groups for
energy-saving management have also been formed, with group leaders being the persons in charge of the
respective companies. All the companies further implement national energy policies, regulations and standards
on the basis of perfecting the organization system; developed and implemented energy management
standards; formulated energy conservation programs and plans; executed the technical standards on energy
management; organised energy conservation inspections; monitored the measurement and statistics of
energy consumption; organised energy-saving technical trainings and promotions; and launched energy-
saving initiatives to further improve the Company’s energy management system.
In order to strive for its industrial leadership in terms of energy consumption per unit product, Fufeng conducts
quota-based management of energy consumption for processes and products during production, with a
letter of responsibility signed, energy saving tasks and targets assigned to all levels, and energy consumption
pegged to remuneration and performance. The department of energy-saving technology management has
established a cost control management system and formulated a cost assessment and evaluation system,
under which detailed assessment indicators are provided for the regular evaluation and assessment of relevant
workshops, departments and responsible persons. Workshop consumption indicators have been formulated,
with their execution assessed. Energy statistics positions have been established, with special personnel
responsible for preparing the accounts of energy consumption and costs. During the production process,
attentive to minor amendments and changes, Fufeng has been continuously engaged in optimising, balancing
and transforming its existing production processes and systems, to reduce the consumption of water,
electricity and gas, with effective preventive measures formulated and implemented to eliminate leakage.
In order to strengthen energy management, reduce material consumption, eliminate waste and improve
energy efficiency, according to the national energy guidelines and policies and energy management
standards, all the companies have developed regulations and systems in respect of saving energy and water,
including the Working System for Corporate Energy Management, the Management System on Energy Saving
and Reducing Consumption, the Control Procedures for Energy Monitoring, Measurement and Analysis, the
Energy Management Regulations and the Energy Conservation Management System.
As for water conservation, in order to implement the policy on water conservation, scientific management
has been applied to the use of water resources to reduce the Company’s ineffective water expenses,
achieve water conservation and reduce production costs. While strengthening the establishment of water-
saving infrastructure, the Company actively develops corresponding management systems to help boost the
staff’s awareness and action of saving water and cherishing water resources. In this way, staff members fully
understand that water conservation is for people to use water in a reasonable and highly efficient way, without
wasting it.
B Society
Fufeng Group attaches great importance to talents, cherishes the efforts and contribution of staff, and believes that
talent decides the Company’s future. Fufeng Group will continue to increase its investment in the growth of talents.
Fufeng Group would spare no effort in providing a development platform and growth opportunities for staff with
a “fighter” spirit, and meeting the diverse needs of the staff within a reasonable range. Fufeng Group encourages
competition, develops an evaluation and incentive mechanism that is objective, fair, just and open, and achieves
scientific distribution of human resources through reasonable competition.
40 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
B1 Employment
In accordance with the requirements of laws and regulations, such as the Labor Law of the People’s Republic
of China (《中華人民共和國勞動法》) and the Labor Contract Law of the People’s Republic of China (《中華
人民共和國勞動合同法》), the Company has formulated the Recruitment Process System, which regulates
the employment process, authority and recruitment principles during the recruitment process. In strict
compliance with relevant national laws and regulations, the Company adheres to the principles of justice,
fairness and equality, regardless of gender, ethnicity and other differences. In order to regulate staff entry,
post adjustment and resignation management, Fufeng Group has formulated the Regulations on Staff Entry,
Post Adjustment and Resignation Management of Fufeng Group, according to relevant national laws and
regulations and with consideration of the actual situation of the Group. The Regulations specifies staff entry,
post adjustment and resignation management according to laws and regulations.
The Company has formulated competitive remuneration policies and systems, including the Management
Regulations on the Probation and Remuneration of the Intermediate and Senior Staff of Fufeng Group
and the Staff Compensation Management System of Fufeng Group Limited. The average remuneration of
staff is 20% higher than the local average. The Fufeng Group staff compensation policy mainly consists of
three remuneration systems, including an annual-salary remuneration system for management personnel, a
hierarchy-based remuneration system for technicians and a four-tier remuneration system for general staff.
The Company offers its staff paid holidays, including annual leave, sick leave, marriage leave, maternity leave,
funeral leave and work injury leave. In order to regulate the use of such holidays, Fufeng has formulated its
Staff Leave System according to relevant national laws and regulations and with consideration of the actual
situation of the Group.
The Group has formulated the Fufeng Group Administrative Measures on Echelon Talents, to establish and
improve its talent echelon management mechanism, effectively select and train the echelon talent team, and
meet the Group’s demand for healthy and continuous development. The echelon talents are composed of
three teams, i.e. reserve talents, junior management personnel (C1-C7) and junior technicians (CJ1-CJ7).
The Company provides its entire staff with a scheme for equal development and spares no efforts to create
a dynamic work environment. Staff members comprise various ethnic minority groups. Fufeng Group has
established a variety of welfare policies for the staff to work happily and cohesively as a group, and attracts
them to grow together with the Company. The welfare package includes benefits on festivals and holidays,
monthly special and birthday, as well as contribution of pension insurance, medical insurance, unemployment
insurance, work-related injury insurance, maternity insurance and housing provident fund for all staff. Besides,
staff members are offered life convenience amenities in respect of accommodation, dining, bathing and hair-
cutting.
Furthermore, the companies have established their systems on safety patrols and inspections,
such patrols to be carried out each day and such inspections to take place every month. As for the
hidden perils in safe production, the Company sticks to its principle of “Accuracy, Precision and
Meticulousness” to timely identify such perils that exist in workshops, produce a rectification notice for
them in respect of their problems, and assign a specific person to take charge of rectification work and
request the responsible unit to complete such rectification within a specified timeframe, and carry on
such rectification.
The Company has offered relevant work protection equipment to positions with different occupational
safety hazards; such equipment has reached all relevant staff, so as to reduce and prevent the health
damage of work environment on the staff. Meanwhile, the Company has equipped each workshop
with emergency response items such as first-aid kits and medicine boxes, conducted regular checks,
and timely handled any damage or deficiency once spotted. The Company, furnished with fire service
installations according to requirements, has also trained its staff on how to use such installations to an
extent that every staff member is an effective user. The Company attaches great importance to drills
by regularly organising the staff for the application of fire service installations and the emergency drills
for fire escape, leakage of hazardous chemicals and fire accidents. The drills have effectively improved
the staff in terms of their ability of emergency response, handling, self-rescue and escape.
42 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
The objectives for Fufeng Group to provide four categories of training to constantly improve the staff’s work
skills:
• Orientation for new staff members: New staff members should receive training before formally starting
their work. The orientation is to help familiarise new staff members with corporate environment as soon
as possible, so that they can smoothly fit into their positions and integrate into the team of Fufeng.
The orientation includes an introduction of the Group and its companies, the development history of
Fufeng Group, corporate values, safety knowledge, the basic requirements of the position, and other
knowledge that new staff should learn.
• Work competency training: The Company organises its staff members for work competency training
so that they meet the job requirements in respect of work competency and such competency satisfies
the demands of company development.
• Systematic training for improving professional skills: Departments and offices of the Group provide
systematic and targeted training to continuously improve the professional competency of staff
members in respective systems.
• Management Knowledge Enrichment Training for Management Personnel: Each year, the Group and
its companies provide a variety of training on management knowledge, to continuously improve the
management capability of management personnel at all levels.
The Company has formulated “Fufeng Group Management Regulation on Lecturers”, to build a team of
lecturers for the Group, proceed with training effectively and raise the awareness of learning among leaders
and average staff. The intermediate management and technicians of the companies with a specialty and the
willingness to teach may go through appraisals before being employed as internal lecturers. These lecturers
are subject to a credit mechanism based on their levels and an annual appraisal of lecturer qualification in
every September.
With a few years of development, the Business School of Fufeng Group has established a complete training
system and a course database based on the training undertaken in recent years. Currently, the Business
School, apart from providing training for management personnel at all levels, has set up its WeChat platform
for the public, in a bid to share learning resources such as “WeChat Courses”.In addition, “WeChat Courses”
(WeChat account name for the public: jtshangxueyuan), a platform set up by the Fufeng Business School,
regularly publishes video lectures.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 43
B4 Labor Standards
Fufeng Group prohibits the employment of child labor and forced labor, in accordance with such laws and
regulations as the Labor Contract Law of the People’s Republic of China (《中華人民共和國勞動合同法》).
As required in Fufeng Group System on the Recruitment Process, the Company shall strictly complies with
international labor standards, with new staff to be at least 18 years old. Staff working hours are formulated
in strict compliance with relevant national laws and regulations. Staff members take leave according to law
with their time of rest taken into proper consideration. The Company also has a human resources attendance
system that effectively manages the staff’s working hours and dates of rest, to ensure the work-life balance of
the staff. To avoid forced overtime work, staff shall be arranged for overtime work (if required) on a voluntary
basis, with such work hours and pay in conformity with local regulations.
The Company has formulated its product acceptance standards, to make sure that the products procured
meet the demands on quality, safety and environmental protection. For instance, Neimenggu Fufeng
Biotechnologies Co., Ltd. provides its acceptance standard on corns, which includes such indicators as water
content, impurities and mold. Baoji Fufeng Biotechnologies Co., Ltd. provides its acceptance standard on
coal, which includes indicators such as sulphur and water content. The Company provides corresponding
reception standards on different procured products, to make sure that such products meet its production
requirements. In the meantime, the procured products are required to be environmentally friendly. For
instance, the Baoji subsidiary requires the sulfur content in coal to fall below 0.6%.
Additionally, all the suppliers are required to sign an Agreement against Commercial Bribery, so that both
parties can undertake business cooperation in tendering, procurement, infrastructure and sales in a standard
manner and in the spirit of fair cooperation, in order to combat and prevent unfair competition. Meanwhile, the
procurement staff members are required to sign a Fufeng Group Letter of Undertaking for the Clean Practice
of the Procurement and Supply System.
B6 Product Responsibility
For years, Fufeng Group has spared no effort in ensuring the quality and safety of products such as MSG. In
terms of hardware, the companies under Fufeng always ensure their factories and equipment in compliance
with the sanitation and safety requirements on food production, with investment on building world-class MSG
production lines. In terms of software, the companies have fully implemented a series of management systems
of international standard and passed certification, all to ensure strict control and process management from
raw materials entering the factory, production process control, products delivered from the factory, to the
aftersales stage. The efforts also ensure the quality and safety of products such as MSG.
44 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
The Company tests its products in a process which includes testing of raw materials, process
testing and testing upon entry into the warehouse. The quality control department of the Company
has designated the testing standards and approaches and provided a complete set of monitoring
equipment; the Company has obtained for its testing laboratory a CNAS certificate of national certified
laboratory, and all the testing personnel have obtained corresponding qualification certificates. The
Company regularly sends its products for food safety testing via external third-party testing platforms.
The Company has formulated Fufeng Group Management Measures for Quality-related Reward and
Punishment, in a bid to enhance product quality management, effectively trace and address quality
issues, and provide greater quality monitoring across the production process. Centered on meeting
customer demands, the Measures specify the extent of influence of quality accidents and the elements
that affect quality. The Company has also formulated the Quality Standards on Finished Products and
Semi-finished Products, to regulate semi-finished products over the production process and ensure
product quality from the source.
In order to provide better customer services, the Group has established an aftersales service
department specifically for the gum business, to cater to the customised demands on gum products.
In addition to the new department, the Group’s laboratories for gum applications provides follow-up on
the technical problems that customers may encounter when using the products, to provide satisfactory
solutions for customers.
The Group has prepared the Process of Handling Complaints on Product Quality. Besides, the
Company solicits customer feedback through various channels, such as complaints hotline 400, sales
feedback and company mail box. The Company timely refers the issues reflected to its corresponding
departments for handling and the quality management department for the approval of such handling
results.
All the companies have set up the Product Recall Procedure. The Procedure specifies the scope
of responsibilities and operation procedures, to safeguard public health and safety and protect the
economic benefits of customers and the corporate image of the Company. Product recall drills are
held at least once a year to ensure that the Procedure is effective and feasible.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 45
The Company has established the Identifications and Retrospective Control Procedures, which carries
out proper identifications on raw and auxiliary materials, semi-finished goods and finished goods used
in the products and their supervision and condition examination, so as to ensure the traceability of
the production and sales procedures of the products. Thus, any unexpected use and delivery can be
prevented.
B7 Anti-Corruption
Good morality, integrity and an anti-corruption system are essential foundations for the sustainable and
healthy development of the Group. The Company strictly complies with the requirements of laws and
regulations, such as the “Company Law of the People’s Republic of China” (《中華人民共和國公司法》),
the “Tendering and Bidding Law of the People’s Republic of China” (《中華人民共和國招標投標法》), the
“Anti-Unfair Competition Law of the People’s Republic of China” (《中華人民共和國反不正當競爭法》) and
the “Interim Provisions on Banning Commercial Bribery Acts” (《關於禁止商業賄賂行為的暫行規定》). The
Company has also established the Administrative Measures on Corruption-free Business Practice of Fufeng
Group so as to enhance the cohesion and strength of the Group, raise the awareness of integrity and self-
discipline among leaders and other staff members, and regulate business activities. Regulations are drawn
on the prevention, investigation and punishment of corruptive activities. The Company has put more efforts
in creating a corruption-free environment and enhancing the training on occupational morality so as to raise a
sense of clean conduct and integrity among staff members. The Company and its staff members have entered
into the Letter of Undertaking for the Clean Practice, and established a rotation system for sensitive positions
and whistleblowing procedures, with corruptive behavior punished.
The Company has established the Anti-corruption Management Regulation and the Anti-corruption
Agreement, to enhance the integrity management and strength of the marketing team, enhance the self-
discipline awareness and legal concepts among staff members, regulate the conduct of the marketing
personnel, and restrain the improper practices between the Company and its customers during the course
of business. For its risk prevention, better discipline and an enhanced anti-corruption culture, the Company
carries out self-censorship, self-examination, self-rectification, mutual evaluation and mutual reporting once
or twice a year, before a conclusion and report is made on such campaigns. In addition, the Company has a
sales management department to oversee the behavior of the sales and marketing personnel.
46 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
The department of audit supervision carries out audit tasks, and performs audit supervision and services
according to the requests of the management of the Group and its annual audit schedule. The department,
mainly through its audit supervision and services, strengthens the internal management and process control
of the Group, regulates its operation of economic activities, consolidate its execution capabilities to tackle and
prevent corruption, and guard against potential risks and perils, so that the safety of the capital and assets
of the Company are assured and its long and short term goals can be achieved. With regard to this mission,
the department of audit supervision mainly carries out audit supervision, including annual audit, and audit on
specific projects and resignation of the intermediate and senior management.
The Company holds special lectures for its staff members on the Prevention of Duty-related Crimes in
Private Enterprises, and interpreting criminal acts such as duty encroachment, funds misappropriation, bribe
acceptance by corporate personnel and infringement of commercial secrets, so as to regulate the behaviors
of the staff members and draw their attention towards such issues on a long-term basis.
B8 Community Investment
Bearing in mind its corporate social responsibilities and missions, Fufeng Group endeavors to serve society
with a positive attitude and within the Group’s ability, and actively participates in charitable events to contribute
to the society. Committed to taking effective measures, the Company regularly evaluates the relationship
between its business activities and social interests, and spares no efforts in promoting the development and
betterment of society along with the corporate development. Meanwhile, the Company also shoulders its
social responsibilities as a corporate citizen.
In 2007, the Chairman funded RMB2,000,000 to establish the “Xuechun Sponsorship and Bursary Fund”
(“學純獎助學基金”), which was designated to subsidise students from poor families with excellent academic
results obtained in the National College Entrance Examination. Currently, more than 1,200 people have
benefited from the Fund.
Baoji Fufeng Biotechnologies Co., Ltd., Neimenggu Fufeng Biotechnologies Co., Ltd., Hulunbeir Northeast
Fufeng Biotechnologies Co., Ltd. and Xinjiang Fufeng Biotechnologies Co., Ltd. have also brought the care of
Fufeng to schools, poor households and Islamic associations, by donating funds and goods.
Besides, the Fertilisers Business Department regularly organises farmers to visit the Company’s fertiliser
manufacturing workshops and sewage treatment workshops for understanding the fertiliser manufacturing
process. The Company regularly holds talks for farmers, illustrating the planting rules and procedures and
fertilising methods. Meanwhile, the staff members of the Company also reach out to fields to discuss with
farmers regarding the application of fertilisers and issues arising from such application, so as to address the
problems encountered during the practical application.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 47
The Company is committed to maintaining a high standard For details of the Directors’ biographical information, please
of corporate governance practices. Continuous efforts are refer to the section headed “Biographies of Directors and
made to review and enhance the Group’s internal controls Senior Management”.
and procedures in light of changes in regulations and
developments in best practices. Responsibilities, Accountabilities
and Contributions of the Board and
Corporate Governance Code Management
The Company’s corporate governance practices are based The Board is collectively responsible for promoting the
on the principles and code provisions (“Code Provisions”) success and interest of the Group through its leadership and
set out in the Code of Corporate Governance Practices (the supervision. The principal tasks of the Board are to:
“Former CG Code”) which was subsequently revised as
the Corporate Governance Code (the “Revised CG Code”) – provide entrepreneurial leadership for the Company
contained in Appendix 14 of the Rules Governing the Listing with a framework of prudent and effective controls
of Securities on the Stock Exchange (“Listing Rules”) and which enables risks to be assessed and managed;
came into full effect on 1 April 2012. During the year of
2016, the Company has complied with the Revised CG – set the Company’s strategic aims, ensuring that the
Code for the year from 1 January 2016 to 31 December necessary financial and human resources are in place
2016 except for the following: for the Company to meet its objectives and review its
management performance; and
Code provision A.6.7 of the Revised Code: The Independent
non-executive Directors and the non-executive Directors
– set the Company’s values and standards and ensure
should attend the general meetings of the Company.
that its obligations to its Shareholders and others are
However, due to other commitments, the Independent
understood and met.
non-executive Director, Mr. Qi Qing Zhong did not attend
the annual general meeting of the Company held on 12
No event or condition of material uncertainties was found
May 2016. All the Directors have given the Board and the
that may cast significant doubt about the Company’s
committees of which they are members the benefit of their
ability to continue as a going concern during the Year.
skills, expertise and varied backgrounds and qualifications
The Directors were responsible for the preparation and
through regular attendance and active participation.
the true and fair presentation of the financial statements of
The Directors will also endeavor to attend future general
the Company, in all material respects, in accordance with
meetings and develop a balanced understanding of the
applicable regulatory requirements.
views of Shareholders.
Board of Directors
The Board comprises (i) four executive Directors, Mr.
Li Xuechun, Mr. Li Deheng, Mr. Xu Guohua, and Mr. Li
Guangyu; and (ii) three Independent non-executive Directors,
Mr. Sun Yu Guo, Mr. Qi Qing Zhong and Ms. Zheng Yu. Mr.
Li Xuechun is the chairman of the Board. Mr. Li Xuechun is
the father of Mr. Li Guangyu and the brother-in-law of Mr. Li
Deheng. Mr. Wang Longxiang resigned the position of the
executive director and the chief executive office of the Group
on 25 July 2016. The Group has appointed Mr. Zhao Qiang
as the chief executive officer on 9 November 2016.
48 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
The Division of Responsibilities Between The duties of the General Manager include taking
the Chairman and the Chief Executive responsibility for the Group’s operation and management;
Officer (General Manager) (internally implementing decisions and plans approved by the Board;
designated as General Manager of the making day-to-day operational and managerial decision; and
Group) coordinating overall business operations.
The roles of the Chairman and the Chief Executive Officer
(General Manager) (internally designated as General Manager Independent Non-Executive Directors
of the Group) should be separated. Mr. Li Xuechun, being Independent non-executive Directors have been appointed
the chairman of the Group, is responsible for the orderly for a term of two years. They are subject to retirement and
conduct and operation of the Board while Mr. Zhao Qiang, re-election in accordance with the Company’s Articles of
being the General Manager of the Group, is responsible Association.
for the daily operations of the Group. The division of
responsibilities between the Chairman and the General In accordance with the independence guidelines set out in
Manager is clearly established. Rule 3.13 of the Listing Rules, the Board is of the view that
all independent non-executive directors are independent
The main duties of the Chairman include providing leadership and the Company has received an annual confirmation of
for and overseeing the functioning of the Board; formulating independence from each of the Independent non-executive
overall strategies and policies of the Company; ensuring Directors of the Company pursuant to the Listing Rules. As
that all directors of the Board are properly briefed on issues the three Independent non-executive Directors, representing
arising at Board meetings and giving each director an over one-third of the Board, constituted a proper balance
opportunity to express his view at board meetings; ensuring of power maintaining full and effective control of both the
that directors receive adequate information, which must be Group and its executive management.
complete and reliable, in a timely manner; ensuring that the
Board works effectively and discharges its responsibilities; Company Secretary
ensuring that all key and appropriate issues are discussed by The Company Secretary is a full time employee of the
the Board in a timely manner; drawing up and approving the Company and reports to the Chairman of the Board and
agenda for each board meeting taking into account, where the General Manager. He is responsible for advising the
appropriate, any matters proposed by the other directors Board on governance matters. For the year under review,
for inclusion in the agenda; taking responsibility for ensuring the Company Secretary has more than 23 years of working
that good corporate governance practices and procedures experience in finance and accounting including over 10
are established; encouraging all directors to make a full years experience as company secretary of Hong Kong
and active contribution to the Board’s affairs and take the Listing Company. He confirmed he has taken no less than
lead to ensure that the Board acts in the best interests of 15 hours of relevant professional training.
the Company; ensuring that appropriate steps are taken to
provide effective communication with Shareholders and that
views of Shareholders are communicated to the Board as a
whole; and facilitating the effective contribution of directors
and ensuring constructive relations between executive
directors and non-executive directors.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 49
Skills, Knowledge, Experience and According to the records maintained by the Company, the
Attributes of Directors Directors received the following training with an emphasis
All Directors of the Board had served in office during the on the roles, functions and duties of a director of a listed
year. Every Director commits to give sufficient time and company in compliance with the new requirement of the CG
attention to the affairs of the Company. The Directors Code on continuous professional development during the
year:
also demonstrate their understanding and commit to high
standards of corporate governance. The executive Directors
Corporate Governance/
bring their perspectives to the Board through their deep
Updates on laws, rules
understanding of the Group’s business. The Independent
and regulations
non-executive Directors contribute their own skills and Read Attend
experience, understanding of local and global economies, Director materials workshops
and knowledge of capital markets to the Group’s business.
Executive Directors
The Company is responsible for arranging and funding
Mr. Li Xuechun ✓ ✓
suitable continuous professional development programmes
Mr. Li Deheng ✓ ✓
for all Directors to hone and refresh their knowledge and
Mr. Xu Guohua ✓ ✓
skills. Mr. Li Guangyu ✓ ✓
Mr. Wang Longxiang
Directors’ Induction and Continuous (resigned on 25 July 2016) ✓ ✓
Professional Development Mr. Feng Zhenquan (resigned
Upon appointment to the Board, each newly appointed on 19 September 2016) ✓ ✓
Director receives a comprehensive induction package
covering business operations, policy and procedures of the Independent non-executive
Company as well as the general, statutory and regulatory Directors
obligations of being a Director to ensure that he/she is Mr. Sun Yu Guo ✓ ✓
Mr. Qi Qing Zhong ✓ ✓
sufficiently aware of his/her responsibilities under the Listing
Ms. Zheng Yu ✓ ✓
Rules and other relevant regulatory requirements.
All Directors have access to the services of the company Regular Board meetings will be held at least four times
secretary who regularly updates the Board on governance a year and the Board will convene other meetings when
and regulatory matters. Any Director, who wishes to do so in necessary. Before a Board meeting is convened, relevant
the furtherance of his or her duties, may seek independent documents will be sent to the Directors for their review
professional advice through the chairman at the Company’s pursuant to the Listing Rules and the Code. For the year
expense. The availability of professional advice extends to ended 31 December 2016, eight regular Board meetings
the Audit, Remuneration and other Committees. were held. Individual attendance of each director at the
Board meeting during 2016 is set out below:
Minutes of Board meetings are taken by the company
secretary or the secretary to the Board and, together with Attendance/Number of Board Meetings in 2016
any supporting Board papers, are available to all Board
members. Board meetings are structured to encourage Attendance/
open and frank discussions to ensure the non-executive Number of
Directors provide effective enquiries to each executive Director Board Meetings
Director. When necessary, the Independent non-executive
Executive Directors
Directors meet privately to discuss matters which are
Mr. Li Xuechun (Chairman) 8/8
relevant to their specific responsibility.
Mr. Li Deheng 8/8
Mr. Xu Guohua 7/8
In furtherance of good corporate governance, the Board has
Mr. Li Guangyu 7/8
established three committees: Audit Committee, Nomination
Mr. Wang Longxiang
Committee and Remuneration Committee. All committees
(resigned on 25 July 2016) 3/8
have its terms of reference which fulfill the principles set out
Mr. Feng Zhenquan
in the CG Code. The secretary of the Board takes minutes
(resigned on 19 September 2016) 4/8
of the meetings of these committees and the work of these
committees is reported to the Board.
Independent non-executive Directors
Mr. Sun Yu Guo 8/8
Directors’ and Officers’ Liability Ms. Zheng Yu 8/8
Insurance and Indemnity Mr. Qi Qing Zhong 7/8
The Company has arranged appropriate liability insurance
to indemnify its Directors and officers in respect of legal
actions against the Directors. Throughout the year, no claim
had been made against the Directors and the officers of the
Company.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 51
Model Code on Securities Transactions The principal functions of the Audit Committee are to review
The Company has adopted the Model Code. Having made the Group’s audit, interim and annual accounts of the Group
specific enquiry of all Directors, the Directors have complied and the system of risk management and internal control of
with the Model Code since the Listing Date. the Group.
Accountability and Auditor’s The Audit Committee meetings will be held at least twice
Remuneration a year. For year ended of 31 December 2016, two Audit
The Directors acknowledge their responsibility for Committee meetings were held with Mr. Sun Yu Guo, Mr.Qi
preparation of consolidated financial statements of the Qing Zhong and Ms. Zheng Yu attended all the meetings.
Group. This responsibility has also been mentioned in the
independent auditor’s report on page 65. The purpose of the meetings was to review the Group’s
results for the year 2015, the interim results for the year
The Board had conducted a review on the system of 2016 as well as discussing the risk management assessment
risk management and internal control of the Group and and the internal control review and the audit of the Group.
considers that the system of risk management and internal The Group’s 2015 annual report and 2016 interim report
control is effectively operated. have been reviewed by the Audit Committee, which was of
the opinion that such reports were prepared in accordance
The professional fee payable to the auditors of the Group in with the applicable accounting standards and requirements.
respect of the audit and non-audit services provided by the
auditors of the Group is as follows: Risk Management and Internal Control
The Board acknowledges that an effective system of internal
Amount control and risk management practices are essential in
Type of services (RMB’000) ensuring good corporate governance and pursuing the
achievement of the strategic goals of the Group. The Board
Audit services 4,357
also acknowledges that it is the Board’s responsibility to
Non-audit services 1,980
ensure that the Group maintains sound and effective internal
6,337 controls to safeguard the assets of the Group at all times, it
has conducted a review of the risk management and internal
Non-audit services mainly represented the professional fee control systems during the year under review.
Audit Committee risk of failure to achieve business objectives, and can only
The Audit Committee, established with written terms of provide reasonable and not absolute assurance against
reference in compliance with the Code, comprises three material misstatement or loss.
Risk Management
Team
Management
Level
Business Unit
Person in Charge
The Board and Audit Committee oversee the structure managing the risks identified in activities and operations.
and performance of the risk management functions, and Risk Management Team is responsible for reporting risk
assess the effectiveness of the underlying risk management management status to the Board and Audit Committee.
system.
The four key steps in the risk management process are:
The Risk Management Team of the Group (“Risk
Management Team”) comprises an executive Director and • Risk identification and assessment – identify
management personnel from the Group. The team aims the key risks of the Group and analyse the risk by
to promote the awareness of risk management in daily considering the possibility of occurrence and the
operations. The Risk Management Team is responsible impact to the Group;
for coordinating and conducting risk assessments in
accordance with the Risk Management Manual. • Risk handling – adopt an appropriate risk
management strategy (i.e. risk response) for each
Management of business units work together with the key risk;
Risk Management Team to perform risk assessment at
operational level, and is responsible for monitoring and
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 53
• Risk monitoring – apply monitoring mechanism to Review the effectiveness of the risk management and
ensure the risk response are operated effectively; internal control systems
The Risk Management Team assisted by professional
• Risk reporting – summarise the result of risk accounting firms has made the annual risk assessment
assessment and report to Risk Management Team. during the year. It is reported to Audit committee. Key risks
are identified and their responsive mitigating controls are
In the risk management process, the top risks within the documented in the risk registers and reported to the Board
Group are identified and assessed; and the respective by the Audit committee and Risk Management Team.
risk management measures as well as the corresponding
mitigating controls are discussed, agreed and implemented For the year ended 31 December 2016, the Board has
by the management. Risk assessment results are reported conducted the review of risk management and internal
by Risk Management Team to the Board and Audit control system functions of the Group and considered they
Committee annually. are effective and adequate. The review covers all material
controls, including financial, operational and compliance
Internal Control controls, and risk management functions. No significant
The Company has established internal audit function and areas of concern that may affect the Company to achieve
regularly carries out reviews on the effectiveness of the strategic goals have been identified.
internal control in order to ensure that they are able to meet
and deal with the dynamic and ever changing business During the review of risk management and internal control
environment. systems of the Group, the Board has assessed the
adequacy of resources, staff qualifications, experience,
In addition, the Board and the Audit Committee have also training programmes and budget of the Group’s accounting
appointed professional accounting firms to take turns to and financial reporting function and considered that these
review, on behalf of the Board and the Audit Committee, resources are properly allocated.
the effectiveness of the internal control system for all the
principal business of the Group. The Audit Committee Disclosure of inside information
formulates and approves the scope of review for the The Company has established policies and internal controls
professional accounting firms, who have already reported for the handling and dissemination of inside information to
to the Board and the Audit Committee on the main results ensure that disclosures are made and/or announcements
of internal control review. According to the results, there is are published on a timely basis in accordance with the
room for improvement, but no material issues. The Group applicable laws and regulations. The Company has
will provide proper follow-up on all the recommendations by implemented procedures for responding to external
the professional accounting firms, to ensure the execution enquiries about the Group’s affairs and has in place a strict
of such recommendations within a reasonable timeframe. prohibition on unauthorised use of inside information.
The Board and the Audit Committee are of the view that the
main part of the Group’s internal control system has been
implemented on a reasonable basis.
54 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Annual and interim reports offer comprehensive operational In order to enable Shareholders to exercise their rights in
and financial performance information to Shareholders an informed manner, and to allow them to engage actively
and the annual general meeting of the Company provides with the Company, a shareholders communication policy of
a forum for Shareholders to exchange views directly with the Company has been established. Shareholders may at
the Board, which together help enhance and facilitate any time send their enquiries and concerns to the Company
communication with Shareholders. Shareholders who are via the Company’s website at www.fufeng-group.com.
unable to attend a general meeting may complete and return Shareholders may also make enquiries with the Board at the
to the Company’s Share Registrar the proxy form enclosed general meetings of the Company.
with notice of meeting to give proxy to their representatives,
another Shareholder or chairman of the meetings. 2016 Investor Relations Events and Activities
Directors’ Report
The Board has the pleasure in presenting the report and the Reserves
audited financial statements of the Group for the year ended Movements in the reserves of the Group and of the
31 December 2016. Company during the year are set out in Notes 26, 27 and 37
to the financial statements.
Principal Activities
The principal activity of the Company is investment holding. Property, Plant and Equipment
The activities of its subsidiaries are set out in Note 12 to the Details of the movement in property, plant and equipment of
consolidated financial statements. the Group and of the Company are set out in Note 17 to the
financial statements.
Result and Appropriations
Results of the Group for the year ended 31 December 2016 Share Capital
are set out under the consolidated income statement on Details of the movement in share capital of the Company are
page 69. set out in Note 24 to the financial statements.
Directors’ Report
The Director, Mr. Li Deheng, proposed for re-election at In 2016, the Group benefited from the achieved results
the forthcoming annual general meeting has a service of industry consolidation in the past few years. We
contract with the Company for an initial term of three actively strengthened our competitiveness and constantly
years commencing from the Listing Date and renewable improved the production technology to achieve better cost-
automatically for successive terms of one year each effectiveness and more actively expand the Amino acid
commencing from the day following the expiry of the then segment business. The strategy of our product development
current term unless and until (i) terminated by either party is mainly divided into four categories: 1. Food additives
there to giving not less than three months’ prior written (key products include MSG, chicken powder, crystallised
notice with the last day of the notice falling on the last day sugar, corn oil etc.), 2. Animal nutrition (key products include
of the initial term or any time thereafter; or (ii) the Director threonine, tryptophan, corn refined products etc.), 3. Colloid
not being re-elected as a Director or being removed (key products include xanthan gum, welan gum etc.), and 4.
by shareholders at general meeting of the Company in High-end amino acid (key products include valine, leucine,
accordance with its articles of association. isoleucine, glutamine, hyaluronic acid, pectin etc.).
The Independent non-executive Director, Mr. Qi Qing The Group continued to strategically utilitse the production
Zhong, proposed for re-election at the forthcoming annual facility and capacity of each plant in order to match ongoing
general meeting has renewed into a service contract with market demand. The Group has also actively explored the
the Company for two years commencing form 1 November development of new high-end products, in order to improve
2016 and is subject to the requirement on rotation, removal, product diversity and increase sales and penetration in the
vacation or termination of office according to the articles health and wellness, pharmaceutical and skincare related
of association of the Company, the relevant laws and the industries. Only by continuously upgrading our product
Listing Rules. quality and expanding our product range can we transform
gradually from the traditional, bulk-trade enterprise towards
As at 31 December 2016, there was no service contract a modern, high-tech and high value-added supplier of
which was not determinable by the employer within one biochemical products.
year without payment of compensation (other than statutory
compensation) between any company in the Group and any In addition, 2016 was a year for our production
Director proposed for re-election at the forthcoming annual technology enhancement and product development.
general meeting. Our newly enhanced production technology of MSG
further strengthened our competitive cost advantages
No contracts of significance in relation to the Group’s by reducing production costs and increasing production
business to which the Company or any of its fellow yield. Implementation of the newly enhanced production
subsidiaries was a party and in which a Director of the technology in our plants was completed in 2016.
Company had a material interest, whether directly or
indirectly, subsisted during or at the end of the financial year.
Business Review
2016 was a year offering great opportunities for Fufeng
in terms of timing, favourable location and a significant
enhanced management team. The PRC and global
economies continued to face difficulties and challenges
in 2016. The Group, as the industry leader, managed to
achieve strong results in its core business and also further
consolidated its leadership position in the market. In
addition, the Group made considerable stride in developing
high-value fermentation products allowing us to further
diversify our revenue stream, enhance profitability and
provide impetus for the long-term sustainable growth of the
Group.
58 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Directors’ Report
MSG industry consolidation gradually aided the improvement Our Amino acid segment is primarily made up of our MSG,
in the business environment, coupled with a decrease in threonine and high-end amino acid products. In terms
the price of corn kernels and the improvement of efficiency of MSG business, there was a decrease in ASP of MSG
of production by means of our production technology in 2016 as costs of main raw materials, especially corn
enhancement and expansion of production capacity during kernels, fell during the year. The ASP of MSG remained
2016, which led to a decrease in production costs and at a relatively low level and the Group continued to
increase in the gross profit margin of our key products. face lackluster conditions in the domestic catering and
The Group was able to record a significant increase in its consumer markets as well as pricing pressure due to
overall gross profit and net profit during 2016 compared market competition. Despite the market conditions, the
to the corresponding year of 2015. Even though overall
Group was able to maintain its leadership in terms of market
revenue of the Group remained fairly stable during 2016
share and sales volume by leveraging its cost advantages
compared to 2015, the Group was able to rely on new
to adopt competitive pricing. The Group was, however,
products such as threonine and high-end amino acids and
able to record an increase in gross profit and gross profit
effective implementation of cost controls to increase overall
margin in its Amino acid segment, mainly due to increasing
profitability. The high-end amino acid products successfully
contribution from the sales of MSG, threonine and higher
expanded in terms of product development and market
margin products. The high-end amino acid products
share, and we are more confident that we can become one
of the world’s leading providers of threonine and high-end continued to increase its revenue contribution to the Group
amino acid products. especially after the commencement of operations at the new
production facility in the Xinjiang Plant.
In terms of production capacity, the annual production
capacity of MSG, threonine and high-end amino acid were Our xanthan gum business, another key business segment
increased during 2016. The overall production capacity of of the Group, recorded a significant decrease in the average
the Group in 2016 remained almost fully operational. selling price and gross profit margin, due to weakness in
the global economy and oil industry in particular. We have
In addition, the Group has continuously invested in adjusted part of the production capacity in Xinjiang Plant to
energy-saving equipment. Its production facilities, with produce gellan gum and high-end amino acid products and
low carbon emissions, aim to minimise the impact of have temporarily suspended part of the production capacity
our business on the environment. The Company has for maintenance in IM Plant. The production capacity of
also placed great emphasis on green production. We xanthan gum will temporarily be reduced to 73,000 tonnes
continuously achieved energy-saving and emission per annum. The Group, as one of the top three xanthan
reduction while the clean production technology was gum manufacturers in the world, continued to dominate the
enhanced. Xinjiang Fufeng Biotechnologies Co., Ltd. global market share in 2016.
was nominated by the Economic and Informatization
Commission of Xinjiang Uygur Autonomous Region as Compliance With Relevant Laws and
one of the fourth batch of pilot enterprises for recycling Regulations
economy in the industrial economic field in 2016. The Group The Group recognises the importance of compliance with
reduced the environmental impact of waste water, exhaust, regulatory requirements and the risk of non-compliance
greenhouse gases, and hazardous and non-hazardous with relevant requirements could lead to adverse impact
wastes generated during the course of production and on business operation and financial position of the Group.
operation. During the year, Baoji Fufeng Biotechnologies During the year, as far as the Company is aware, there was
Co., Ltd. undertook technical upgrading of the existing flue no material breach of or non-compliance with applicable
gas treatment facilities to conform to the Group’s long-term laws and regulations by the Group that has a significant
strategy. In addition, the company also extracts feed and impact on the business and operations of the Group.
fertiliser processing from wastewater through resources
recycling. The biogas generated during the course of waste
water treatment is collected and used for production.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 59
Directors’ Report
Long position
Percentage of
interests to
total issued
Number and share capital
Name of Director Name of company Capacity class of securities (approximate)
Sun Yu Guo The Company Beneficial interest (Note 4) 300,000 Shares 0.01%
Qi Qing Zhong The Company Beneficial interest (Note 6) 300,000 Shares 0.01%
Notes:
1. The interest in these Shares is held by Motivator Enterprises Limited, the entire issued share capital of which is wholly and beneficially owned by Mr.
Li Xuechun, an executive Director and the chairman of the Company. Accordingly, Mr. Li Xuechun is deemed to be interested in all Shares held by
Motivator Enterprises Limited under the SFO.
2. The interest in these Shares is held by Empire Spring Investments Limited, the entire issued shares capital of which is wholly and beneficially owned
by Mr. Li Deheng, an executive director of the Company. Accordingly, Mr Li Deheng is deemed to be interested in all Shares held by Empire Spring
Investments Limited under the SFO.
3. The interest in these Shares is held by Best Range Investments Limited, the entire issued shares capital of which is wholly and beneficially owned
by Mr. Xu Guohua, an executive director of the Company. Accordingly, Mr Xu Guohua is deemed to be interested in all Shares held by Best Range
Investments Limited under the SFO.
60 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Directors’ Report
4. These shares represented the Shares which might be allotted and issued to Mr. Sun Yu Guo, an Independent non-executive Director who was
appointed on 23 November 2015, upon the exercise in full of the option granted to him.
5. These shares represented the Shares which might be allotted and issued to Ms. Zheng Yu, an Independent non-executive Director who was appointed
on 31 December 2012, upon the exercise in full of the option granted to her.
6. These shares represented the Shares which might be allotted and issued to Mr. Qi Qing Zhong, an Independent non-executive Director who was
appointed on 1 November 2014, upon the exercise in full of the option granted to him.
Save as disclosed above, for the year ended 31 December 2016, none of the Directors or the chief executive of the
Company had an interest or short position in any shares, underlying shares or debentures of the Company or any of its
associated corporations (within the meaning of Part XV of the SFO) as recorded in the register of interests required to be
kept by the Company pursuant to section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange
pursuant to the Model Code.
Long position
Percentage of
interests to
Class and total issued
Name of Group number of share capital
Name member Capacity securities (approximate)
Motivator Enterprises Limited The Company Beneficial interests 991,638,461 Shares 46.63%
(Note 1)
Shi Guiling (Note 2) The Company Interests of spouse 991,638,461 Shares 46.63%
Treetop Asset Management SA The Company Beneficial interests 269,198,850 Shares 12.66%
Notes:
1. The interest in these Shares is held by Motivator Enterprises Limited, the entire issued share capital of which is wholly and beneficially owned by Mr.
Li Xuechun, an executive Director and the chairman of the Company. Accordingly, Mr. Li Xuechun is deemed to be interested in all Shares held by
Motivator Enterprises Limited under the SFO.
2. Ms. Shi Guiling is the spouse of Mr. Li Xuechun. Accordingly, she is also deemed to be interested in the 963,342,461 Shares held by Motivator
Enterprises Limited, which in turn is also deemed to be interested by Mr. Li Xuechun under the SFO.
Save as disclosed above, for the year ended 31 December 2016, according to the register of interests required to be kept
by the Company under section 336 of the SFO, there was no person who had any interest or short position in the shares or
underlying shares of the Company.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 61
Directors’ Report
Arrangements to Purchase Shares or (c) any supplier of goods or services to any member of
Debentures the Group or any Invested Entity;
Save as disclosed in the below section of share options
(d) any customer of any member of the Group or any
regarding, no time during the year was the Company, or
Invested Entity; and
any of its subsidiaries or the Company’s holding Company,
a party to any arrangements to enable the Directors to
(e) any consultant, adviser, manager, officer or entity
acquire benefits by means of the acquisition of shares in, or
that provide research, development or other
debentures of, the Company or any other body corporate, technological support to the Group or any Invested
and neither the Directors nor the chief executive, nor any Entity.
of their spouses or children under the age of 18, had any
right to subscribe for the securities of the Company, or had The total number of shares issued and which may fall to be
exercised any such right. issued upon exercise of the share options and the share
options granted under any other share option scheme of
Share Option Scheme the Group (including both exercised or outstanding share
On 10 January 2007, the Shareholders approved the options) to each grantee in any 12-month period shall not
adoption of the Post-IPO Share Option Scheme (the “Share exceed 1% of the issued share capital of the Company for
Option Scheme”). A summary of the principal terms of the the time being.
Share Option Scheme, as disclosed in accordance with the
Listing Rules, are as follow: In respect of any particular option, the Directors shall be
entitled at any time within 10 years commencing on 8
The purpose of the Share Option Scheme is to enable the February 2007 to make an offer for the grant of a share
Group to grant the share options to the eligible participants option. For any option granted under the Share Option
for their contribution to the Group and/or to enable the Scheme, the maximum period as the Directors may
Group to recruit and retain high-calibre employees and determine shall not be later than 10 years. There is no
attract human resources that are valuable to the Group and minimum period required under the Share Option Scheme
any Invested Entity. for holding of the share options before it can be exercised.
As at 31 December 2016, the Share Option Scheme has a
Under the Share Option Scheme, the Directors may grant remaining life of up to 7 February 2017.
share options to the following persons or entities (the “Eligible
Participants”) to subscribe for shares in accordance with An offer of the grant of the option shall be regarded as
the provisions of the Share Option Scheme and the Listing having been accepted when the duplicate of the letter by the
Rules: grantee together with a remittance in favour of the Company
of HKD1.00 by way of consideration for the grant thereof is
(a) any employee (whether full-time or part-time and received by the Company.
including any executive Director but not any non-
executive Director) of the Group or any entity in which The exercise price shall not be less than the highest of
any member of the Group holds an equity interest (the (i) the closing price of the shares as stated in the Stock
“Invested Entity”); Exchange’s daily quotation sheet on the date of grant; (ii) the
average closing price of the shares as stated in the Stock
(b) any non-executive Director (including Independent Exchange’s daily quotation sheet for the five business days
non-executive Directors) of the Group or any Invested immediately preceding the date of grant; and (iii) the nominal
Entity; value of a share.
62 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Directors’ Report
Pursuant to a resolution in writing passed by all shareholders on 10 January 2007, the scheme mandate limit for the Share
Option Scheme allow the Company to issue a maximum of 160,000,000 share options under the Share Option Scheme,
representing 7.52% of the issued share capital of 2,126,684,633 Shares of the Company as at 31 December 2016.
As at 31 December 2016, the outstanding number of the shares available for issue under the Share Option Scheme is
136,403,000, representing 6.41% of the issued share capital of 2,126,684,633 Shares of the Company as at 31 December
2016.
The Company granted options to subscribe for an aggregate of 16,600,000 Shares, 14,700,000 Shares and 300,000 Shares
on 9 April 2015, 9 November 2016 and 30 December 2016 respectively to Directors and eligible employees. Details of the
share options granted and outstanding for the period ended 31 December 2016, are as follows:
A) The total fair value, which was determined by an independent qualified appraiser using Binominal Option Pricing
Model, of the options granted as at the grant dates is approximately RMB30,216,000. The following assumptions
were adopted to calculate the fair value of the options on the grant date:
Granted on
9 April 2015
Directors’ Report
B) The total fair value, which was determined by an independent qualified appraiser using Binominal Option Pricing
Model, of the options granted as at the grant dates is approximately RMB17,515,000. The following assumptions
were adopted to calculate the fair value of the options on the grant date:
Granted on
9 November 2016
C) The total fair value, which was determined by an independent qualified appraiser using Binominal Option Pricing
Model, of the options granted as at the grant dates is approximately RMB414,000. The following assumptions were
adopted to calculate the fair value of the options on the grant date:
Granted on
30 December 2016
Directors’ Report
Pre-emptive Rights
There are no provisions for pre-emptive rights under
the articles of the association of the Company and the
Companies Law of the Cayman Islands.
Subsequent Events
Details of the significant events occurring after the balance
sheet date are set out in Note 36 to the consolidated
financial statements.
Auditor
A resolution to reappoint PricewaterhouseCoopers as
independent auditor of the Company will be proposed at the
forthcoming annual general meeting.
Li Xuechun
Chairman
21 March 2017
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 65
Opinion
We have audited
The consolidated financial statements of Fufeng Group Limited (the “Company”) and its subsidiaries (the “Group”) set out on
pages 69 to 150, which comprise:
Our opinion
In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the
Group as at 31 December 2016, and of its consolidated financial performance and its consolidated cash flows for the year
then ended in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of
Certified Public Accountants (“HKICPA”) and have been properly prepared in compliance with the disclosure requirements of
the Hong Kong Companies Ordinance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Group in accordance with the HKICPA’s Code of Ethics for Professional Accountants (“the
Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code.
66 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Key Audit Matter How our audit addressed the Key Audit Matter
Other Information
The directors of the Company are responsible for the other information as set out in the Company’s 2016 Annual Report.
The other information comprises all of the information included in the annual report other than the consolidated financial
statements and our auditor’s report thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form
of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but
to do so.
The audit committee is responsible for overseeing the Group’s financial reporting process.
As part of an audit in accordance with HKSAs, we exercise professional judgment and maintain professional scepticism
throughout the audit. We also:
• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient
and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
68 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by the directors.
• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant
doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements
or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease
to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a
manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction,
supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with the audit committee regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the audit committee with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on
our independence, and where applicable, related safeguards.
From the matters communicated with the audit committee, we determine those matters that were of most significance in
the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe
these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Dou Wang, Angel.
PricewaterhouseCoopers
Certified Public Accountants
Share of profit of investments accounted for using the equity method 12b 647 –
Profit for the year and attributable to the Shareholders 1,092,512 516,261
The notes on pages 75 to 150 are an integral part of these consolidated financial statements.
70 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
The notes on pages 75 to 150 are an integral part of these consolidated financial statements.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 71
As at 31 December
2016 2015
Note RMB’000 RMB’000
ASSETS
Non-current assets
Leasehold land payments 16 1,413,942 1,510,060
Property, plant and equipment 17 7,858,775 7,566,778
Intangible assets 18 9,108 1,051
Investments accounted for using the equity method 12b 30,647 –
Deferred income tax assets 31 184,396 143,072
Long-term bank deposits 22 20,100 –
9,516,968 9,220,961
Current assets
Inventories 21 2,481,911 2,191,849
Trade and other receivables 20 1,035,076 1,213,787
Cash and bank balances 22 1,422,147 1,019,069
4,939,134 4,424,705
4,939,134 4,629,217
EQUITY
Capital and reserves attributable to the Shareholders
Share capital 24 207,222 207,222
Share premium 24 462,639 555,157
Other reserves 27 319,980 227,655
Retained earnings 26 5,826,023 4,817,025
LIABILITIES
Non-current liabilities
Deferred income 30 707,501 752,287
Borrowings 29 1,923,185 1,992,221
Deferred income tax liabilities 31 16,650 16,650
2,647,336 2,761,158
72 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
As at 31 December
2016 2015
Note RMB’000 RMB’000
Current liabilities
Trade, other payables and accruals 28 3,721,615 3,311,193
Current income tax liabilities 94,494 68,377
Borrowings 29 1,176,793 1,845,920
4,992,902 5,225,490
4,992,902 5,281,961
The notes on pages 75 to 150 are an integral part of these consolidated financial statements.
The financial statements on pages 69 to 150 were approved by the Board of Directors on 21 March 2017 and were signed
on its behalf.
Li Xuechun Li Deheng
Director Director
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 73
Comprehensive Income
Profit for the year 26 – – – 516,261 516,261
Comprehensive Income
Profit for the year 26 – – – 1,092,512 1,092,512
The notes on pages 75 to 150 are an integral part of these consolidated financial statements.
74 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
The notes on pages 75 to 150 are an integral part of these consolidated financial statements.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 75
1. General Information
Fufeng Group Limited (the “Company”) and its subsidiaries (together, the “Group”) manufacture and sell fermentation-
based food additive, biochemical products and starch-based products. The Group has manufacturing plants in
Shandong Province, Shaanxi Province, Jiangsu Province, Inner Mongolia Autonomous Region and Xinjiang Uygur
Autonomous Region of the People’s Republic of China (the “PRC”) and sells mainly to customers located in the PRC.
The Company is a limited liability company incorporated in the Cayman Islands. The address of its registered office is
Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands.
The Company has its shares listed on The Stock Exchange of Hong Kong Limited.
These consolidated financial statements are presented in Renminbi (“RMB”), unless otherwise stated. These
consolidated financial statements have been approved for issue by the Board of Directors (the “Board”) on 21 March
2017.
The preparation of financial statements in conformity with HKFRS requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement in the process of applying the
Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.
76 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
• Annual improvements 2014 include changes from the 2012–2014 cycle of the annual
improvements project that effective for annual periods beginning on or after 1 January 2016:
– Amendment to HKFRS 5 ‘Non-current assets held for sale and discontinued operations’
clarifies that when an asset (or disposal group) is reclassified from ‘held for sale’ to
‘held for distribution’, or vice versa, this does not constitute a change to a plan of sale
or distribution, and does not have to be accounted for as such. This means that the
asset (or disposal group) does not need to be reinstated in the financial statements as
if it had never been classified as ‘held for sale’ or ‘held for distribution’ simply because
the manner of disposal has changed. It also explains that the guidance on changes in a
plan of sale should be applied to an asset (or disposal group) which ceases to be held
for distribution but is not classified as ‘held for sale’.
– Amendment to HKAS 19 ‘Employee benefits’ clarify that when determining the discount
rate for post-employment benefit obligations, it is the currency that the liabilities are
denominated in that is important, not the country where they arise. The assessment of
whether there is a deep market in high-quality corporate bonds is based on corporate
bonds in that currency, not corporate bonds in a particular country. Similarly, where
there is no deep market in high-quality corporate bonds in that currency, government
bonds in the relevant currency should be used.
– Amendment to HKAS 34 ‘Interim financial reporting’ clarifies that what is meant by the
reference in the standard to ‘information disclosed elsewhere in the interim financial
report’. It also amends HKAS 34 to require a cross-reference from the interim financial
statements to the location of that information.
• Amendment to HKAS 27 ‘Equity method in separate financial statements’ allows entities to use
equity method to account for investments in subsidiaries, joint ventures and associates in their
separate financial statements.
The adoption of the above new amendments of HKFRSs starting from 1 January 2016 did not give rise
to any significant impact on the Group’s results of operations and financial position for the year ended
31 December 2016.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 77
HKFRS 15 replaces the previous revenue standards: HKAS 18 ‘Revenue’ and HKAS 11
‘Construction Contracts’, and the related Interpretations on revenue recognition: HK(IFRIC) 13
‘Customer Loyalty Programmes’, HK(IFRIC) 15 ‘Agreements for the Construction of Real Estate’,
HK(IFRIC) 18 ‘Transfers of Assets from Customers’ and SIC-31 ‘Revenue – Barter Transactions
Involving Advertising Services’. HKFRS 15 is effective for annual periods beginning on or after 1
January 2018.
78 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
HKFRS 9 has three financial asset classification categories for investments in debt instruments:
amortised cost, fair value through other comprehensive income (“OCI”) and fair value through
profit or loss. Classification is driven by the entity’s business model for managing the debt
instruments and their contractual cash flow characteristics. Investments in equity instruments
are always measured at fair value. However, management can make an irrevocable election to
present changes in fair value in OCI, provided the instrument is not held for trading. If the equity
instrument is held for trading, changes in fair value are presented in profit or loss. For financial
liabilities there are two classification categories: amortised cost and fair value through profit or
loss. Where non-derivative financial liabilities are designated at fair value through profit or loss,
the changes in the fair value due to changes in the liability’s own credit risk are recognised in
OCI, unless such changes in fair value would create an accounting mismatch in profit or loss,
in which case, all fair value movements are recognised in profit or loss. There is no subsequent
recycling of the amounts in OCI to profit or loss. For financial liabilities held for trading (including
derivative financial liabilities), all changes in fair value are presented in profit or loss.
HKFRS 9 introduces a new model for the recognition of impairment losses – the expected
credit losses (ECL) model, which constitutes a change from the incurred loss model in HKAS
39. HKFRS 9 contains a ‘three stage’ approach, which is based on the change in credit quality
of financial assets since initial recognition. Assets move through the three stages as credit
quality changes and the stages dictate how an entity measures impairment losses and applies
the effective interest rate method. The new rules mean that on initial recognition of a non-credit
impaired financial asset carried at amortised cost a day-1 loss equal to the 12-month ECL is
recognised in profit or loss. In the case of accounts receivable this day-1 loss will be equal to
their lifetime ECL. Where there is a significant increase in credit risk, impairment is measured
using lifetime ECL rather than 12-month ECL.
HKFRS 9 applies to all hedging relationships, with the exception of portfolio fair value hedges of
interest rate risk. The new guidance better aligns hedge accounting with the risk management
activities of an entity and provides relief from the more ‘rule-based’ approach of HKAS 39.
HKFRS 9 is effective for annual periods beginning on or after 1 January 2018.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 79
• HKFRS 16, ‘Leases’ addresses the definition of a lease, recognition and measurement of
leases and establishes principles for reporting useful information to users of financial statements
about the leasing activities of both lessees and lessors. A key change arising from HKFRS 16
is that most operating leases will be accounted for on balance sheet for lessees. The standard
replaces HKAS 17 ‘Leases’, and related interpretations. HKFRS 16 is effective for annual
periods beginning on or after 1 January 2019.
The Group will apply the new standards and amendments described above when they become
effective. The Group is in the process of making an assessment on the impact of these new
standards and amendments and does not anticipate that the adoption when they become
effective will result in any material impact on the Group’s results of operations and financial
position.
80 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s
previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any
gains or losses arising from such re-measurement are recognised in profit or loss.
Any contingent consideration to be transferred by the Group is recognised at fair value at the
acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed
to be an asset or liability is recognised in accordance with HKAS 39 in profit or loss. Contingent
consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted
for within equity.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 81
Intra-group transactions, balances and unrealised gains on transactions between group companies
are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an
impairment of the transferred asset. When necessary, amounts reported by subsidiaries have been
adjusted to conform with the Group’s accounting policies.
Impairment testing of the investments in subsidiaries is required upon receiving dividends from these
investments if the dividend exceeds the total comprehensive income of the subsidiary in the period the
dividend is declared or if the carrying amount of the investment in the separate financial statements
exceeds the carrying amount in the consolidated financial statements of the investee’s net assets
including goodwill.
82 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate
share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss
where appropriate.
The Group determines at each reporting date whether there is any objective evidence that the investment in
the associate is impaired. If this is the case, the group calculates the amount of impairment as the difference
between the recoverable amount of the associate and its carrying value and recognises the amount adjacent
to ‘share of profit of investments accounted for using equity method’ in the consolidated income statement.
Profits and losses resulting from upstream and downstream transactions between the group and its associate
are recognised in the group’s financial statements only to the extent of unrelated investor’s interests in the
associates. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of
the asset transferred. Accounting policies of associates have been changed where necessary to ensure
consistency with the policies adopted by the Group.
Gain or losses on dilution of equity interest in associates are recognised in the consolidated income statement.
Foreign exchange gains and losses that relate to borrowings are presented in the consolidated income
statement within “Finance costs – net”. All other foreign exchange gains and losses are presented in
the consolidated income statement within “Other gains – net”.
Amortisation on leasehold land payments is calculated using the straight-line method to allocate their costs
over their estimated useful lives of 40 to 70 years.
Construction in progress includes plant under construction and machinery under installation and testing and
which, upon completion, management intends to hold as property, plant and equipment. They are carried at
cost which includes cost of construction, plant and equipment and other direct cost plus borrowing costs that
used to finance these projects during the construction period less accumulated impairment losses if any. No
depreciation is provided for construction in progress. The relevant assets are transferred to property, plant
and equipment at cost less accumulated impairment losses when they become available for their intended use.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to the
Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to
the consolidated income statement during the financial period in which they are incurred.
84 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each
reporting period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying
amount is greater than its estimated recoverable amount (Note 2.9).
Gains and losses on disposals are determined by comparing the proceeds with carrying amount. These are
included in the consolidated income statement under “Other gains – net”.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. They are included in current assets, except for maturities greater
than 12 months after the end of the reporting period. These are classified as non-current assets. The
Group’s loans and receivables comprise “Trade and other receivables” (Note 2.13), “Cash and bank
balances” (Note 2.14) and “Long-term bank deposits” in the balance sheet.
The Group assesses at the end of each reporting period whether there is objective evidence that
a financial asset or Group of financial assets is impaired. Impairment testing of trade receivables is
described in Note 2.13.
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost
using the effective interest method, less provision for impairment. See Note 2.11 for further information about
the Group’s accounting for trade receivables.
The Group assesses at the end of each reporting period whether there are objective evidence that trade and
other receivables are impaired. Impairment losses of trade and other receivables are incurred only if there are
objective evidence of impairment as a result of one or more events that occurred after the initial recognition of
the assets (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of
trade and other receivables that can be reliably estimated.
Evidence of impairment may include indications that the debtors or a group of debtors is experiencing
significant financial difficulty, default or delinquency in interest or principal payments, the probability that they
will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a
measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions
that correlate with defaults.
The amount of the loss is measured as the difference between the asset’s carrying amount and the present
value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at
the asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the
loss is recognised in the consolidated income statement within “Administrative expenses”.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s
credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated
income statement.
88 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
In the consolidated statement of cash flow, cash and cash equivalents includes cash in hand, deposits held at
call with banks, other short-term highly liquid investments with original maturities of three months or less.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds.
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost
using the effective interest method.
2.17 Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently
carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption
value is recognised in the consolidated income statement over the period of the borrowings using the effective
interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent
that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the
draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be
drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the
facility to which it relates.
The fair value of the liability portion of a convertible bond is determined using a market interest rate for an
equivalent non-convertible bond. This amount is recorded as a liability on an amortised cost basis until
extinguished on conversion or maturity of the bonds. The remainder of the proceeds is allocated to the
conversion option. This is recognised and included in shareholders’ equity, net of income tax effects.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement
of the liability for at least 12 months after the end of the reporting period.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 89
Investment income earned on the temporary investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
The liability component of a compound financial instrument is recognised initially at the fair value of a similar
liability that does not have an equity conversion option. The equity component is recognised initially at the
difference between the fair value of the compound financial instrument as a whole and the fair value of the liability
component, which is included in shareholders’ equity in other reserves. Any directly attributable transaction
costs are allocated to the liability and equity components in proportion to their initial carrying amounts.
Subsequent to initial recognition, the liability component of a compound financial instrument is measured at
amortised cost using the effective interest method. The equity component of a compound financial instrument
is not re-measured subsequent to initial recognition.
Liability component of a convertible instrument is classified as current unless the Group has an unconditional
right to defer settlement of the liability for at least 12 months after the end of the reporting period.
When convertible bonds are early redeemed or repurchased in which the original conversion privileges are
unchanged, the consideration paid and any transaction costs for the repurchase or redemption are allocated
to the liability and equity components of the instrument at the date of the transaction. The method used in
allocating the consideration paid and transaction costs to the separate components is consistent with that
used in the original allocation to the separate components of the proceeds received by the company when the
convertible instrument was issued. The amount of gain or loss related to the liability component is recognised
in “Other gains – net”. The amount of consideration related to the equity component is recognised in equity.
90 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Deferred income tax assets are recognised only to the extent that it is probable that future taxable
profit will be available against which the temporary differences can be utilised.
Deferred income tax assets are recognised on deductible temporary differences arising from
investments in subsidiaries only to the extent that it is probable the temporary difference will reverse in
the future and there is sufficient taxable profit available against which the temporary difference can be
utilised.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 91
The Group’s operating entities in Hong Kong participate in a mandatory provident fund (“MPF scheme”) for its
employees in Hong Kong. Both the entities and the employees are required to contribute 5% of the salaries
of the employees, up to a maximum of HKD1,500 per head per month. The assets of MPF scheme are held
separately from those of the entities in an independent administrated fund.
The Group has no further obligation for post-retirement benefits beyond the contributions made. The
contributions to these plans and MPF Scheme are recognised as employee benefit expense when incurred.
Non-market vesting conditions are included in assumptions about the number of options that are
expected to vest. The total amount expensed is recognised over the vesting period, which is the period
over which all of the specified vesting conditions are to be satisfied.
In addition, in some circumstances employees may provide services in advance of the grant date and
therefore the grant date fair value is estimated for the purposes of recognising the expense during the
period between service commencement period and grant date.
92 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
When the options are exercised, the Company issues new shares. The proceeds received net of any
directly attributable transaction costs are credited to share capital (nominal value).
2.23 Provisions
Provisions for environmental restoration, restructuring costs and legal claims are recognised when: the Group
has a present legal or constructive obligation as a result of past events; it is probable that an outflow of
resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring
provisions comprise lease termination penalties and employee termination payments. Provisions are not
recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is
determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood
of an outflow with respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation using a pre-tax rate that reflects current market assessments of the time value of money and the
risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest
expense.
Government grants related to costs are deferred and recognised in the consolidated income statement over
the period necessary to match them with the costs that they are intended to compensate.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 93
Government grants related to urban planning of local PRC governments are recorded under other payables
when the Group received such compensation in advance. Such amount will either be netted off with the
carrying amount of the specified disposal assets, or be transferred to deferred income and be amortised in the
consolidated income statement on future development of the related assets.
A contingent liability is not recognised but is disclosed in the notes to the consolidated financial statements.
When a change in the probability of an outflow occurs so that outflow is probable, it will then be recognised as
a provision.
94 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Contingent assets are not recognised but are disclosed in the notes to the consolidated financial statements
when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.
(a) it is technically feasible to complete the intangible asset so that it will be available for use;
(b) management intends to complete the intangible asset and use it;
(d) it can be demonstrated how the intangible asset will generate probable future economic benefits;
(e) adequate technical, financial and other resources to complete the development and to use the
intangible asset are available; and
(f) the expenditure attributable to the intangible asset during its development can be reliably measured.
Other development expenditures that do not meet these criteria are recognised as an expense as incurred.
Development costs previously recognised as an expense are not recognised as an asset in a subsequent
period. Capitalised development costs are recorded as intangible assets and amortised from the point at
which the asset is ready for use on a straight-line basis over its useful life, not exceeding five years.
However, foreign currencies, mainly USD and HKD, are received from sales of products to
countries or areas outside the PRC (“Export Sales”) and issue of senior notes and draw down of
bank borrowings. Export Sales denominated in foreign currencies amounted to approximately
24% (2015: 25%) of the Group’s total revenue for the year ended 31 December 2016. The
Group manages the currency risk arising from sales of products by requesting customers to
pay in advance or keeping the credit period available to customers as short as possible in order
to reduce the impact on the fluctuation between USD, HKD and RMB to the Group. The Group
manages the currency risk arising from proceeds from senior notes and draw down of bank
borrowings by utilisation of the proceeds as soon as possible.
The exposures to the foreign exchange risks are disclosed in Notes 20, 22, 28 and 29.
At 31 December 2016, if RMB had strengthened/weakened by 10% against the USD and
HKD (pegged with USD) with all other variables held constant, the net profit for the year would
have been RMB59,322,000 lower/higher (2015: RMB3,620,000 higher/lower), mainly as a
result of foreign exchange losses/gains on translation of USD and HKD denominated cash and
cash equivalents, trade receivables, and foreign exchange gains/losses on translation of USD
denominated other payables and accruals and borrowings.
96 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Fair value interest rate risk arises from convertible bonds, senior notes, medium-term notes,
corporate bonds and bank borrowings, which bear fixed interest rates. The carrying amounts
and fair values of the non-current borrowings have been disclosed in Note 29. The Group
has not used any derivatives to hedge its exposure to interest rate risk for the year ended 31
December 2016.
At 31 December 2016, if interest rates on borrowings obtained at variable rates had been 10%
higher/lower with all other variables held constant, the net profit for the year would have been
RMB1,816,000 (2015: RMB3,918,000) lower/higher, mainly as a result of higher/lower interest
expense on floating rate borrowings.
Management monitors the funding requirements of the Group and the availability of credit facilities in
order to ensure the liquidity of the Group.
The table below analyses the Group’s non-derivative financial liabilities into relevant maturity groupings
based on the remaining period at the balance sheet date to the contractual maturity date. The amounts
disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months
equal their carrying balances, as the impact of discounting is not significant.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 97
The Group
At 31 December 2016
Borrowings 1,176,793 2,056,023 –
Interests payments on borrowings (i) 90,754 69,050 –
Trade and other payables
(excluding non-financial liabilities) 2,432,950 – –
At 31 December 2015
Borrowings 964,287 835,477 2,212,766
Interests payments on borrowings (i) 146,643 107,389 69,106
Trade and other payables
(excluding non-financial liabilities) 2,163,992 – –
(i) The interests on borrowings are calculated based on bank borrowings, convertible bonds,
corporate bonds and medium-term notes held as at 31 December 2016 and 2015 without
taking into account of future issues. Floating-rate interests are estimated using current interest
rate as at 31 December 2016 and 2015 respectively.
98 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The Group monitors capital on the basis of the gearing ratio. This ratio is equal to total borrowings divided by
total assets at the end of corresponding year.
The Group’s strategy is to maintain the gearing ratio below 40% (2015: 40%). The gearing ratios at 31
December 2016 and 2015 were as follows:
2016 2015
RMB’000 RMB’000
Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level
3).
As at 31 December 2016 and 2015, the Group did not have any financial instruments carried at fair value.
The carrying value less impairment provision of trade and other receivables, cash and cash equivalents and
short-term bank deposits approximated their fair values. The fair value of financial liabilities for disclosure
purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is
available to the Group for similar financial instruments.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 99
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are
addressed below.
Management judgment is required in the area of asset impairment particularly in assessing: (i) whether an
event has occurred that may indicate that the related assets values may not be recoverable; (ii) whether the
carrying value of an asset can be supported by the recoverable amount, being the higher of fair value less
costs to sell or net present value of future cash flows which are estimated based upon the continued use
of the asset in the business; and (iii) the appropriate key assumptions to be applied in preparing cash flow
projections including whether these cash flow projections are discounted using an appropriate rate. Changing
the assumptions selected by management in assessing impairment, including the discount rates or the growth
rate assumptions in the cash flow projections, could materially affect the net present value in the impairment
test and as a result affect the Group’s financial condition and results of operations. If there is a significant
adverse change in the projected performance and resulting future cash flow projections, it may be necessary
to take an impairment charge to the consolidated statement of comprehensive income.
5. Segment Information
The chief operating decision-maker has been identified as the executive directors. The executive directors review the
Group’s internal reporting in order to assess performance and allocate resources. The Board has determined the
operating segments based on these reports.
The executive directors consider the business from a product perspective and accordingly, the Group’s operations
are mainly organised under the following business segments:
– manufacturing and sales of amino acid, including monosodium glutamate (“MSG”), corn refined products,
starch sweeteners, threonine, fertilisers, corn oil, glutamic acid, compound seasoning, high-end amino acid
products, pharmaceuticals and bricks; and
Approximately 76% (2015: 75%) of the Group’s revenue is generated from sales to customers in the PRC. The
remaining 24% (2015: 25%) of the Group’s revenue is generated from the sales to overseas countries including
mainly the United Arab Emirates, Kingdom of Saudi Arabia, the State of Qatar, Thailand and the United States of
America.
The executive directors assess the performance of the business segments based on profit before income tax without
allocation of finance costs, which is consistent with that in the consolidated financial statements.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 101
2016 2015
RMB’000 RMB’000
11,803,131 11,225,722
102 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Disposal
Xanthan group held
Amino acid gum Unallocated for sale Group
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Unallocated assets mainly comprise cash and bank balances, leasehold land payments, property, plant and
equipment and other receivables held by Beijing Huijinhuaying Commercial Co., Ltd., Baoji Dingfeng Properties Co.,
Ltd., Baoji Baofeng Properties Co., Ltd., Hulunbeir Shengmin Agricultural Development Co., Ltd. and non-PRC
established companies.
Unallocated liabilities mainly comprise bank borrowings, listing expense payables related to the spin-off of Shenhua
Health Holdings Limited and its subsidiaries (“Shenhua Health Group”), liability component of convertible bonds,
operating liabilities held by non-PRC established companies.
The Group’s revenue from its external customers in the PRC is RMB8,938,305,000 (2015: RMB8,442,697,000)
and the total revenue from external customers in Hong Kong and other countries is RMB2,864,826,000 (2015:
RMB2,783,025,000).
The Group’s total non-current assets located in the PRC other than deferred income tax assets are
RMB9,332,530,000 (2015: RMB9,077,822,000), and the total non-current assets located in Hong Kong and
Singapore other than deferred income tax assets are RMB42,000 (2015: RMB67,000).
6. Other Income
2016 2015
RMB’000 RMB’000
363,855 440,503
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 105
2016 2015
RMB’000 RMB’000
102,361 59,783
In 2016, the gain on disposal of subsidiaries arose from the disposal of 100% equity interest in Junan Beifang
Properties Co., Ltd. and Junan Beibu Properties Co., Ltd., indirectly held subsidiaries of the Company, to a third
party company at a total cash consideration of RMB164,133,000 (2015: RMB298,750,000 of disposal of Junan
Beicheng Properties Co., Ltd.) (Note 33(b)). The only assets of Junan Beifang Properties Co., Ltd. and Junan
Beibu Properties Co., Ltd. included the parcels of leasehold land with carrying values of RMB111,253,000 and
RMB46,408,000, respectively (2015: RMB297,625,000) (Note 16). The disposal resulted in a gain of RMB6,472,000
(2015: RMB1,125,000) recognised in the consolidated income statements for the year ended 31 December 2016.
8. Expenses by Nature
2016 2015
RMB’000 RMB’000
2016 2015
RMB’000 RMB’000
979,829 996,935
2016 2015
RMB’000 RMB’000
6,959 10,308
For the years ended 31 December 2016 and 2015, no emoluments were paid by the Group to any of
the directors or the five highest paid individuals as inducement to join or upon joining the Group or as
compensation for loss of office.
The remunerations paid to the above non-director individuals for the years ended 31 December 2016 and
2015 fell within the following bands.
Number of individuals
2016 2015
2 2
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 107
2016 2015
RMB’000 RMB’000
47,986 64,208
2016 2015
RMB’000 RMB’000
Finance expenses:
Interest expense
– Bank borrowings 68,149 85,171
– Senior notes – 78,350
– Medium-term notes 10,926 32,492
– Convertible bonds (Note 29(c)) 57,781 63,026
– Corporate bonds 44,297 7,377
Net foreign exchange losses on financing activities (Note 15) 37,481 66,361
Loss on early redemption of senior notes – 35,335
218,634 368,112
Finance income:
– Interest income on bank deposits and bank balances (9,466) (14,412)
12a. Subsidiaries
As at 31 December 2016, the Company had direct and indirect interests in the following wholly-owned subsidiaries:
Place of
incorporation/ Issued and Principal activities &
Name establishment paid capital place of operation
Directly held:
Acquest Honour The British Virgin USD2 Investment holding in BVI
Islands (“BVI”)
Shenhua Health Holdings Limited Cayman Islands USD1 Investment holding in Cayman Islands
Indirectly held:
Summit Challenge BVI USD1 Investment holding in BVI
Profit Champion International Ltd. Hong Kong HKD2 Investment holding in Hong Kong
(“Profit Champion”)
Full Profit Investment (Group) Ltd. Hong Kong HKD2 Investment holding in Hong Kong
(“Full Profit”)
Trans-Asia Capital Resources Ltd. Hong Kong HKD2 Investment holding in Hong Kong
(“Trans-Asia”)
Fufeng International Trade Hong Kong HKD2 Investment holding in Hong Kong
(Hong Kong) Limited
(“Fufeng International”)
Shandong Fufeng Fermentation PRC RMB370,500,000 Manufacture and sales of glutamic acid,
Co., Ltd. (“Shandong Fufeng”) monosodium glutamate, corn refined
products, xanthan gum, fertilisers,
starch sweetener and other related
products in the PRC
Baoji Fufeng Biotechnologies PRC HKD250,000,000 Manufacture and sales of glutamic acid,
Co., Ltd. (“Baoji Fufeng”) monosodium glutamate, corn refined
products, fertilisers and other related
products in the PRC
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 109
Place of
incorporation/ Issued and Principal activities &
Name establishment paid capital place of operation
Neimenggu Fufeng Biotechnologies PRC HKD640,000,000 Manufacture and sales of glutamic acid,
Co., Ltd. (“IM Fufeng”) monosodium glutamate, corn refined
products, xanthan gum, fertilisers,
starch sweeteners and other related
products, autoclaved aerated
concrete block in the PRC
Place of
incorporation/ Issued and Principal activities &
Name establishment paid capital place of operation
Hulunbeir Shengmin Agricultural PRC RMB10,000,000 Does not carry out any business
Development Co., Ltd. activities currently
Xinjiang Fufeng Biotechnologies PRC RMB500,000,000 Manufacture and sales of amino acids,
Co., Ltd. (“Xinjiang Fufeng”) xanthan gum, and other related
products in the PRC
Junan Beifang Properties PRC RMB5,000,000 Does not carry out any business
Co., Ltd. (a) activities currently
Junan Beibu Properties PRC RMB5,000,000 Does not carry out any business
Co., Ltd. (b) activities currently
Baoji Dingfeng Properties PRC RMB10,000,000 Does not carry out any business
Co., Ltd. activities currently
Baoji Baofeng Properties PRC RMB10,000,000 Does not carry out any business
Co., Ltd. activities currently
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 111
Place of
incorporation/ Issued and Principal activities &
Name establishment paid capital place of operation
Fufeng Marketing and Sales PRC RMB220,000,000 Sales of monosodium glutamate and
Co., Ltd. other related products in the PRC
Fufeng (Hong Kong) Import and Hong Kong HKD2 Sales of monosodium glutamate and
Export Company., Ltd. other related products abroad
Full Health (Hong Kong) Limited Hong Kong HKD100 Investment holding in Hong Kong
Fufeng Co., Ltd. (c) Japan JPY1,000,000 Sales of biological products in the Japan
Qingdao Yuemei Cosmetics Co., Ltd. (d) PRC RMB12,485,000 Sales of cosmetic products in the PRC
(a) Junan Beifang Properties Co., Ltd. was established on 17 July 2014, with a registered capital of
RMB5,000,000. It was wholly-owned by Shandong Fufeng. It was disposed in August 2016 as described in
Note 33(b).
(b) Junan Beibu Properties Co., Ltd. was established on 17 July 2014, with a registered capital of RMB5,000,000.
It was wholly-owned by Shandong Fufeng. It was disposed in August 2016 as described in Note 33(b).
(c) Fufeng Co., Ltd. was established on 25 February 2016, with a registered capital of JPY1,000,000. It is wholly-
owned by Trans-Asia.
(d) Qingdao Yuemei Cosmetics Co., Ltd. was established on 31 May 2016, with a registered capital of
RMB50,000,000 and paid-up capital of RMB12,485,000. It is wholly-owned by Shandong Fufeng.
2016 2015
RMB’000 RMB’000
Associate 30,647 –
At 31 December 30,647 –
112 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
2016 2015
RMB’000 RMB’000
Associate 647 –
Investment in an associate
Set out below is the associate of the Group as at 31 December 2016. The associate has share capital consisting
solely of ordinary shares, which are held directly by the Group.
Place of % of
business/country ownership Nature of the Measurement
Name of entity of incorporation interest relationship method
Note 1 Jilin COFCO manufactures products and provides services relating to bio-based plastics. It is a strategic business partner for the Group,
providing access to the market of new products.
Jilin COFCO is a private company and there is no quoted market price available for its shares. There are no
contingent liabilities relating to the Group’s interest in the associate.
Jilin COFCO
2016
RMB’000
13. Taxation
(a) Income tax expense
2016 2015
RMB’000 RMB’000
209,386 163,513
The Company was incorporated in the Cayman Islands as an exempted company with limited liability under
the Companies Law (Law 3 of 1961, as consolidated and revised) of the Cayman Islands and is exempted
from payment of the Cayman Islands income tax.
The Group’s subsidiary in Hong Kong is subject to income tax at a rate of 16.5% (2015: 16.5%) on the
estimated assessable profit for the year ended 31 December 2016.
The Group’s subsidiary in Singapore is subject to income tax at a rate of 17% (2015: 17%) for the year ended
31 December 2016.
The Group’s subsidiary in United States is subject to state income tax at a rate of approximately 8.84% (2015:
8.84%) and a federal income tax at a rate of approximately 39% (2015: 39%) for the year ended 31 December
2016.
The Group’s subsidiaries in the PRC are subject to PRC EIT which is calculated based on the applicable tax
rate of 25% on the assessable profits of subsidiaries established in the PRC in accordance with PRC tax laws
and regulations.
Two subsidiaries of the Group including Shandong Fufeng and Shenhua Pharmaceutical have obtained the
approvals to become a new and high-technology enterprise and are entitled to a preferential income tax rate
of 15% (2015: 15%). The qualification of new and high-technology enterprise is subject to renewal for each
three years interval.
According to the Caishui (2011) No. 58 “The notice on the tax policies of further implementation of the
western region development strategy issued by the Ministry of Finance, the State Administration of Taxation
and the General Administration of Customs” (財稅[2011]58號“關於深入實施西部大開發戰略有關稅收政策
問題的通知”), companies set up in the western region and falling into certain encouraged industry catalogue
promulgated by the PRC government will be entitled to a preferential tax rate of 15%. Four subsidiaries of the
Group including Baoji Fufeng, IM Fufeng, Hulunbeir Fufeng and Xinjiang Fufeng, were set up in the western
development region and fall into the encouraged industry catalogue, and therefore they are entitled to the
above said preferential tax rate of 15% (2015: 15%).
114 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
The taxation on the Group’s profit before income tax differs from the theoretical amount that would arise using
the statutory tax rate as follows:
2016 2015
RMB’000 RMB’000
209,386 163,513
Input VAT on purchases of raw materials, fuel, utilities, certain fixed assets and other production materials
(merchandise, transportation costs) are deductible from output VAT. VAT payable/(recoverable) is the net
difference between output VAT and deductible input VAT.
2016 2015
RMB’000 RMB’000
Basic earnings per share (RMB cents per share) 51.37 24.36
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 115
For the year ended 31 December 2016, outstanding share options issued in April 2015, November 2016 and
December 2016 are not included in calculation of diluted earnings per share. Because the average market
price of ordinary shares for the year ended 31 December 2016 did not exceed the exercise prices of each
tranche of the share options, hence the share options are anti-dilutive and are not included in the calculation
of the diluted earnings per share.
2016 2015
RMB’000 RMB’000
Earnings
Profit attributable to the Shareholders 1,092,512 516,261
Interest expense on convertible bonds (net of tax) 57,781 62,842
Diluted earnings per share (RMB cents per share) 47.79 24.14
2016 2015
RMB’000 RMB’000
(36,171) 38,244
116 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
2016 2015
RMB’000 RMB’000
Cost
Amortisation
As at 31 December 2016, there is no leasehold land pledged as security for the Group’s borrowings (2015:
RMB110,195,000).
As at 31 December 2016, the Group was still in the process of applying for the ownership certificates for various
parcels of leasehold land with a total carrying amount of RMB227,308,000 (2015: RMB345,977,000), of which
RMB14,850,000 (2015: RMB162,537,000) had relevant signed contracts with the local government.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 117
2016
Plant and Furniture Construction
building Machinery and fixtures Vehicles in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Cost
At 1 January 2016 3,202,633 7,001,972 184,290 56,017 323,543 10,768,455
Additions 20,037 352,782 14,683 7,510 790,528 1,185,540
Transfer upon completion 201,850 542,073 – – (743,923) –
Disposals (509) (637) – (2,831) (11,366) (15,343)
Transferred from disposal group classified
as held for sale (Note 23) 48,847 55,937 1,883 807 12,705 120,179
Accumulated depreciation
At 1 January 2016 (450,973) (2,519,411) (132,328) (36,092) – (3,138,804)
Charge for the year (Note 8) (205,535) (601,638) (14,119) (5,254) – (826,546)
Disposals 76 112 – 543 – 731
Transferred to disposal group classified
as held for sale (Note 23) (18,722) (32,968) (913) (171) – (52,774)
2015
Plant and Furniture Construction
building Machinery and fixtures Vehicles in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Cost
At 1 January 2015 2,667,071 6,573,751 184,961 48,307 578,863 10,052,953
Additions 62,589 330,346 1,599 9,919 637,754 1,042,207
Transfer upon completion 544,864 335,505 – – (880,369) –
Disposals (23,044) (181,693) (387) (1,402) – (206,526)
Transferred to disposal group classified as
held for sale (Note 23) (48,847) (55,937) (1,883) (807) (12,705) (120,179)
Accumulated depreciation
At 1 January 2015 (345,801) (2,033,734) (107,151) (33,372) – (2,520,058)
Charge for the year (Note 8) (124,538) (591,889) (26,347) (4,039) – (746,813)
Disposals 644 73,244 257 1,148 – 75,293
Transferred to disposal group classified
as held for sale (Note 23) 18,722 32,968 913 171 – 52,774
2016 2015
RMB’000 RMB’000
826,546 746,813
(c) During the year ended 31 December 2014, the Group received RMB635,791,000 from the local PRC
governments as a compensation for disposal of property, plant and equipment related to plant relocation. As
at 31 December 2015, RMB484,647,000 had been applied to compensate the disposal of property, plant
and equipment during 2015 and the remaining balance of RMB151,144,000 was recorded in “Trade, other
payables and accruals” as at 31 December 2015 (Note 28). During the year ended 31 December 2016, further
assets amount to RMB11,366,000 were disposed and the compensation balance was reduced by the same
amount accordingly.
(d) Certain machineries mainly used in the Amino acid segment were impaired in 2016 because of high
production costs such that the related machineries were idle for a long period. The Group did not expect
any future benefits or residual value that could be recovered from these machineries because they had been
highly corroded during the production process, and therefore a full impairment of RMB119,790,000 (2015:
RMB60,000) (Note 8) was provided during the year ended 31 December 2016, which was recorded in “Cost
of sales” in the consolidated income statement.
(e) As at 31 December 2016, plant and buildings of the Group with a total net book value of RMB229,077,000
were without real estate titles and the Group is in the process to secure the relevant real estate certificates
(2015: RMB44,815,000).
120 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
At 1 January 2015
Cost 18,928 2,733 21,661
Accumulated amortisation (23) (227) (250)
Accumulated impairment (18,857) – (18,857)
At 31 December 2015
Cost 20,312 3,991 24,303
Accumulated amortisation (98) (2,940) (3,038)
Accumulated impairment (17,996) – (17,996)
Transferred to disposal group classified as
held for sale (Note 23) (2,113) (105) (2,218)
At 31 December 2016
Cost 18,329 10,201 28,530
Accumulated amortisation (225) (3,419) (3,644)
Accumulated impairment (17,996) – (17,996)
Transferred from disposal group classified as
held for sale (Note 23) 2,113 105 2,218
The carrying amount of the patents has been reduced to its recoverable amount through recognition of an impairment
loss.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 121
Group 1 – Bank acceptance notes for which the repayments are guaranteed by large state-owned banks.
Group 2 – Trade receivables due from customers with no defaults in the past.
Group 3 – Trade receivables due from customers with some defaults in the past.
2016 2015
RMB’000 RMB’000
787,464 817,907
The Group categorises its cash in bank and bank deposits in banks into the following:
• Group 1 – Major international banks (Hang Seng Bank, ABN AMRO Bank N.V, The Hong Kong and Shanghai
Banking Corporation Limited, The Royal Bank of Scotland, Citi Bank, United Overseas Bank and Standard
Chartered Bank, Mizuho Bank, East West Bank, Sumitomo Mitsui Banking Corporation)
• Group 2 – Top 4 banks in the PRC (China Construction Bank, Bank of China, Agricultural Bank of China and
Industrial and Commercial Bank of China)
2016 2015
RMB’000 RMB’000
1,441,857 1,018,535
122 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
2016 2015
RMB’000 RMB’000
1,035,076 1,213,787
(a) As at 31 December 2016 and 2015 the ageing analysis of trade receivables based on invoice date was as
follows:
2016 2015
RMB’000 RMB’000
388,654 399,614
The Group generally sells its products to domestic customers and receives settlement either in cash or in the
form of bank acceptance notes (Note (c)) upon delivery of goods. The bank acceptance notes usually have
maturity dates within six months. Certain major customers in the PRC and overseas with good repayment
history are offered credit terms of not more than three months.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 123
2016 2015
RMB’000 RMB’000
50,127 27,795
As at 31 December 2016, trade receivables of RMB285,000 (2015: RMB4,749,000) were impaired and fully
provided for impairment. The individually impaired receivables relate to customers who were in unexpectedly
difficult economic situations and were therefore provided for. During 2016, the Group reversed impairment
provision of RMB237,000 after receipt of those related receivables. Due to the uncollectible situation, the
Group wrote off the corresponding impairment provision amounted to RMB4,227,000.
Movements on the Group’s provision for impairment of trade receivables are as follows:
2016 2015
RMB’000 RMB’000
As at 1 January – 4,510
Transferred from/(to) disposal group classified as held for sale
(Note 23) 4,749 (4,749)
(Reversal of)/Provision for receivables impairment (Note 8) (237) 239
Receivables written-off during the years as uncollectible (4,227) –
At 31 December 285 –
124 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
(d) Trade and other receivables are unsecured and interest-free. The carrying amounts of trade and other
receivables approximate their fair values as at the balance sheet date.
(e) The carrying amounts of the Group’s trade and other receivables excluding prepayments were denominated
in the following currencies:
2016 2015
RMB’000 RMB’000
878,829 964,846
The maximum exposure to credit risk at the reporting date was the carrying value of each class of receivables
mentioned above. The Group does not hold any collateral as security.
21. Inventories
2016 2015
RMB’000 RMB’000
2,481,911 2,191,849
As at 31 December 2016, the Group had provision for finished goods write-down amounted to RMB7,433,000 (2015:
RMB4,133,000). During 2016, the Group reversed the opening provision for inventories write-down amounted to
RMB4,133,000 and provided for a new provision of RMB7,433,000, which was included in “Cost of sales” in the
consolidated income statement.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 125
2016 2015
RMB’000 RMB’000
7,881,579 8,055,390
2016 2015
RMB’000 RMB’000
959,686 741,287
Term deposits over 3 months and within one year 2,000 145,000
Total long-term bank deposits and cash and bank balances (b) 1,442,247 1,019,069
(a) The restricted bank deposits were used for the following purposes:
2016 2015
RMB’000 RMB’000
460,461 132,782
126 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
22. Long-Term Bank Deposits and Cash and Bank Balances (Continued)
(b) Total long-term bank deposits and cash and bank balances are denominated in the following currencies:
2016 2015
RMB’000 RMB’000
1,442,247 1,019,069
(c) The Group’s long-term bank deposits and cash and bank balances denominated in RMB were deposited with
banks in the PRC. Conversion of these RMB denominated balances into foreign currencies is subject to the
rules and regulations of foreign exchange control promulgated by the PRC government.
(d) The weighted average effective interest rate on cash and bank balances placed with banks by the Group was
0.54% per annum for the year ended 31 December 2016 (2015: 0.49%).
However, in March 2016, the Group decided to terminate the spin-off plan following a return of the application by The
Stock Exchange of Hong Kong Limited. Accordingly, as at 31 December 2016, the assets and liabilities of Shenhua
Health Group were no longer classified as held for sale.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 127
2016 2015
RMB’000 RMB’000
ASSETS
Non-current assets
Leasehold land payments – 7,772
Property, plant and equipment – 67,405
Intangible assets – 2,218
Deferred income tax assets – 4,638
Long-term bank deposits – 20,100
– 102,133
Current assets
Inventories – 32,189
Trade and other receivables – 30,597
Cash and bank balances – 39,593
– 102,379
2016 2015
RMB’000 RMB’000
Liabilities
Non-current liabilities
Deferred income – 584
Current liabilities
Trade and other payables – 28,966
Current income tax liabilities – 1,148
Borrowings – 20,100
Current portion of deferred income – 5,673
– 55,887
Amount
Number
of shares Ordinary Share
(thousands) shares premium Total
RMB’000 RMB’000 RMB’000
The total number of authorised share capital of the Company comprised 10,000,000,000 ordinary shares with a par
value of HKD0.10 each as at 31 December 2016 and 2015.
In December 2014, the Company acquired 705,000 of its own ordinary shares through purchases on The Stock
Exchange of Hong Kong Limited. The total consideration of HKD2,349,000 (equivalent to RMB1,861,000) paid for
repurchase of these shares has been deducted from retained earnings as the shares have not been cancelled as
at 31 December 2014. In January 2015, the shares were cancelled, therefore retained earnings were credited by
RMB1,861,000 and the share premium and ordinary share capital decreased by the same amount.
According to the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of Cayman Islands and the
articles of association of the Company, dividends of the Company can be declared out of its share premium account
subject to a solvency test.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 129
As a result of the completion of the rights issue in May 2013, the exercise price of the outstanding options
was adjusted from HKD3.00 to HKD2.80, and the total number of shares to be issued upon exercise of the
outstanding options was adjusted from 45,270,000 shares to 48,486,000 shares.
Movements in the number of share options outstanding and their related weighted average exercise prices are
as follows:
2016 2015
Average Average
exercise exercise
price in HKD price in HKD
per share Options per share Options
option (thousands) option (thousands)
At 31 December – –
24,823,000 options were exercisable as at 31 December 2014. Options exercised in 2014 resulted in
18,480,000 ordinary shares being issued at a weighted average price of HKD2.80 each. The related weighted
average share price at the time of exercise was HKD3.86 per share.
As at 31 December 2015, all the share options granted on 14 July 2009 were forfeited, which were reclassified
from other reserves to retained earnings.
No attributable amount was charged to the consolidated income statement during the year ended 31
December 2016.
130 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Movements in the number of share options outstanding and their related weighted average exercise prices are
as follows:
2016 2015
Average Average
exercise exercise
price in HKD price in HKD
per share Options per share Options
option (thousands) option (thousands)
The fair value, which was determined by an independent qualified appraiser using Black-Scholes option price
model, of the options as at the grant date was approximately RMB30,216,000. The following assumptions
were adopted to calculate the fair value of the options on the grant date:
Granted on
9 April 2015
The expected volatility is determined by calculating the historical volatility of the price of listed companies
with similar business to the Group. The expected dividend yield is determined by the Directors based on the
expected future performance and dividend policy of the Group.
In December 2016, one employee resigned and thus all the related 7,000,000 share options were forfeited
during the year ended 31 December 2016, which were reclassified from other reserves to retained earnings.
The attributable amount charged to the consolidated income statement during the year ended 31 December
2016 was approximately RMB7,981,000 (2015: RMB9,317,000).
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 131
Movements in the number of share options outstanding and their related weighted average exercise prices are
as follows:
2016
Average
exercise
price in HKD
per share Options
option (thousands)
At 1 January – –
Issued 3.50 14,700
Forfeited 3.50 (800)
The fair value, which was determined by an independent qualified appraiser using Black-Scholes option price
model, of the options as at the grant date was approximately RMB17,515,000. The following assumptions
were adopted to calculate the fair value of the options on the grant date:
Granted on
9 November 2016
The expected volatility is determined by calculating the historical volatility of the price of listed companies
with similar business to the Group. The expected dividend yield is determined by the Directors based on the
expected future performance and dividend policy of the Group.
In December 2016, one employee resigned and thus all the related 800,000 share options were forfeited
during the year ended 31 December 2016, which were reclassified from other reserves to retained earnings.
The attributable amount charged to the consolidated income statement during the year ended 31 December
2016 was approximately RMB820,000.
132 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Movements in the number of share options outstanding and their related weighted average exercise prices are
as follows:
2016
Average
exercise
price in HKD
per share Options
option (thousands)
At 1 January – –
Issued 3.82 300
The fair value, which was determined by an independent qualified appraiser using Black-Scholes option price
model, of the options as at the grant date was approximately RMB414,000. The following assumptions were
adopted to calculate the fair value of the options on the grant date:
Granted on
30 December 2016
The expected volatility is determined by calculating the historical volatility of the price of listed companies
with similar business to the Group. The expected dividend yield is determined by the Directors based on the
expected future performance and dividend policy of the Group.
The attributable amount charged to the consolidated income statement during the year ended 31 December
2016 was approximately RMB10,000.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 133
The Group
2016 2015
RMB’000 RMB’000
Share-based
Convertible Capital Statutory payment
bonds reserve reserve reserve Total
(Note 29) (Note (a)) (Note (b)) (Note 25)
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
2016 2015
RMB’000 RMB’000
3,721,615 3,311,193
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 135
2016 2015
RMB’000 RMB’000
1,214,352 1,195,564
(b) Advances from customers represented cash advances received from customers for purchase of the Group’s
products and would be applied for settlement when sales occur.
(c) Trade and other payables are unsecured and interest-free. The carrying amounts of trade and other payables
approximate their fair values and are mainly denominated in RMB.
29. Borrowings
2016 2015
RMB’000 RMB’000
Non-current
Bank borrowings, unsecured – 635,477
Bank borrowings, secured – 370,000
Corporate bonds (b) 991,241 986,744
Convertible bonds (c) 931,944 –
1,923,185 1,992,221
Current
Bank borrowings, unsecured 869,295 294,808
Bank borrowings, secured 307,498 50,000
Convertible bonds (c) – 901,734
Medium-term notes (d) – 599,378
1,176,793 1,845,920
As at 31 December 2016, the bank borrowings included RMB307,498,000 borrowings which were secured
by restricted bank deposits (2015: RMB420,000,000 borrowings secured by leasehold land of the Group) (Note
16).
The weighted average effective interest rates at the balance sheet dates were as follows:
2016 2015
The carrying amount and fair value of non-current borrowings are as follows:
The fair values of the non-current corporate bonds and other bank borrowings at 31 December 2016 were
RMB988,405,000 (2015: RMB1,997,624,000). The fair value measurement of them is categorised within level
2 of the fair value hierarchy.
The fair values of the non-current convertible bonds at 31 December 2016 were RMB1,056,617,000 which
values were calculated using the market price of the convertible bonds on the date of statement of financial
position. The fair value measurement of convertible bonds and senior notes issued by the Company is
categorised within the level 1 of fair value hierarchy as they are listed on The Singapore Exchange Securities
Trading Limited.
The fair value of current borrowings equals their carrying amount, as the impact of discounting is not
significant.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 137
2016 2015
RMB’000 RMB’000
3,099,978 3,838,141
The carrying amounts of the Group’s borrowings are denominated in the following currencies:
2016 2015
RMB’000 RMB’000
3,099,978 3,838,141
The fair value of the liability component, which was included in non-current borrowings, was calculated using
a market interest rate of 5.08% for equivalent non-convertible bonds. The residual amount, representing the
value of the equity conversion option, is included in shareholders’ equity in other reserves.
The Company partially redeemed convertible bonds in October and November 2012 and March and April
2013. According to the conversion price adjustment term of the offering memorandum of 2010 CB, the
conversion price is adjusted from HKD7.03 per share to HKD6.56 per share after the Company’s rights issue
in May 2013. The remaining outstanding principal amount of 2010 CB was fully repaid on 1 April 2015.
The fair value of the liability component, which was included in non-current borrowings, was calculated using
a market interest rate of 6.06% for equivalent non-convertible bonds. The residual amount, representing the
value of the equity conversion option, is included in shareholders’ equity in other reserves.
According to the circular of 2013 CB, the bond holders had a put option right to request the Company to early
redeem the 2013 CB on 27 November 2016 by formal written notice, which will be expired after the date.
On 27 November 2016, no bond holders claimed to exercise the right. Accordingly, the balance of 2013 CB
was classified as non-current liabilities as at 31 December 2016 while as current liabilities as at 31 December
2015.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 139
Including:
– Interest payable – current portion – 2,297 2,297
– Carrying amount at 31 December 2015 – current – 901,734 901,734
Including:
– Interest payable – current portion – 2,297 2,297
– Carrying amount at 31 December 2016 – non-current – 931,944 931,944
2016 2015
RMB’000 RMB’000
707,501 752,287
The movements of the above government grants for the years ended 31 December 2016 and 2015 are as follows:
2016 2015
RMB’000 RMB’000
(a) Government grants related to income tax credit from purchasing qualified equipment represented reduction
in income tax granted to Baoji Fufeng, IM Fufeng, Hulunbeir Fufeng and Xinjiang Fufeng on the purchase of
certain qualified equipment. Such income tax credits are recognised in the consolidated income statement on
a straight-line basis over the expected lives of the related assets.
(b) Government grants related to acquisition of environmental protection and technology improvement equipment
are recorded as deferred income and amortised in the consolidated income statement on a straight-line basis
over the expected lives of the related assets.
(c) Government grants related to urban planning of local PRC governments represented grants from the
governments related to acquisition of assets. These grants received are recorded as deferred income, and will
be amortised in the consolidated income statement on future development of the related assets.
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 141
2016 2015
RMB’000 RMB’000
184,396 143,072
(16,650) (16,650)
2016 2015
RMB’000 RMB’000
Staff
Tax Unrealised Deferred pension Impairment
Losses profit income plan losses Others Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
(Charged)/Credited to
consolidated income
statement (3,413) (348) 22,591 11,400 3,319 1,426 34,975
Transferred to disposal
group classified as
held for sale (Note 23) – – (221) (1,151) (3,426) 160 (4,638)
(Charged)/Credited to
consolidated income
statement (3,364) 5,812 11,467 7,331 33,422 (18,119) 36,549
Transferred from disposal
group classified as
held for sale (Note 23) – – 221 1,151 3,426 (160) 4,638
Deferred income tax assets are recognised to the extent that the realisation of the related tax benefit through future
taxable profit is probable. The Group did not recognise deferred income tax assets in respect of operating losses
amounted to RMB15,966,000 as at 31 December 2016 (2015: RMB11,946,000) that can be carried forward to offset
against future taxable income, because it was uncertain whether there would be sufficient profit to offset in the near
future. As at 31 December 2016 and 2015, the expiry date of such tax operating losses is as follows:
2016 2015
Expiry date RMB’000 RMB’000
2016 – 1,697
2017 1,256 1,256
2018 1,468 1,468
2019 1,370 1,370
2020 6,155 6,155
2021 5,717 –
15,966 11,946
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 143
Capitalisation
of borrowing Withholding
costs tax Total
RMB’000 RMB’000 RMB’000
At 1 January 2015 2,390 16,650 19,040
Withholding tax is levied on dividends declared to foreign investors from the foreign investment enterprises established
in the PRC, in respect of earnings generated after 31 December 2007. The Group’s certain subsidiaries in the PRC
are held by companies incorporated in Hong Kong and are subject to 5% to 10% withholding tax. The Group is
therefore liable to withholding taxes on dividends to be distributed by those subsidiaries established in the PRC in
respect of earnings generated from 1 January 2008.
Deferred income tax liabilities as at 31 December 2016 of RMB316,251,000 (2015: RMB254,961,000) have not been
recognised for the withholding tax that would be payable on the unremitted earnings of the subsidiaries in the PRC,
totalling RMB6,325,020,000 (2015: RMB5,099,222,000). The Group determined that no deferred withholding tax
liabilities shall be recognised in respect of the retained profits of these PRC subsidiaries since the Group has no plan
to distribute such profits in the foreseeable future.
32. Dividends
2016 2015
RMB’000 RMB’000
216,946 102,347
The final dividends paid in 2016 were HKD27,647,000 (equivalent to RMB23,223,000) (2015: RMB73,536,000),
representing HK1.3 cents (equivalent to RMB1.09 cents per share) (2015: RMB3.49 cents) per ordinary share of the
Company.
At a meeting held on 21 March 2017, the Board proposed a final dividend of HKD165,881,000 (equivalent to
RMB147,651,000) (2015: RMB23,223,000), representing HK7.8 cents (equivalent to RMB6.94 cents) (2015:
RMB1.09 cents) per share to be distributed from the share premium account. This proposed dividend is not reflected
as a dividend payable in these financial statements, but will be reflected as an appropriation from the share premium
account for the year ending 31 December 2017.
144 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
2016 2015
RMB’000 RMB’000
2016 2015
RMB’000 RMB’000
2016 2015
RMB’000 RMB’000
34. Commitments
(a) Capital commitments
Capital expenditure contracted for at the end of the year but not yet incurred was as follows:
2016 2015
RMB’000 RMB’000
2016 2015
RMB’000 RMB’000
4,064 4,153
2016 2015
RMB’000 RMB’000
22,439 28,909
Key management are those persons having authority and responsibility for planning, directing and controlling
the activities of the Group, directly and indirectly, including directors and executive officers.
As at 31 December
2016 2015
Note RMB’000 RMB’000
ASSETS
Non-current assets
Property, plant and equipment 41 65
Investment in subsidiaries 460,066 453,788
460,107 453,853
Current assets
Loans to subsidiaries 952,428 869,698
Due from subsidiaries 907,310 1,016,249
Deposits and other receivables 693 575
Cash and cash equivalents 11,787 34,516
1,872,218 1,921,038
EQUITY
Capital and reserves attributable to the Shareholders
Share capital 207,222 207,221
Share premium 462,639 555,157
Other reserves Note (a) 74,349 68,948
Retained earnings Note (a) (247,648) (222,133)
LIABILITIES
Non-current liabilities
Borrowings 931,944 635,477
Current liabilities
Borrowings 865,757 1,096,542
Due to subsidiaries 14,173 14,174
Other payables and accruals 23,889 19,505
903,819 1,130,221
The balance sheet of the Company was approved by the Board of Directors on 21 March 2017 and was signed on
its behalf.
Li Xuechun Li Deheng
Director Director
148 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Retained Other
earnings reserves
RMB’000 RMB’000
2016
Employer’s
contribution
Other to pension
Name of Director Fees Salary benefits (i) scheme Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Executive Directors:
Li, Xuechun – 2,886 – 15 2,901
Wang, Longxiang (ii) – 1,108 – 27 1,135
Feng, Zhenquan (iii) – 825 – 34 859
Li, Deheng – 1,100 – 46 1,146
Xu, Guohua – 1,000 – 46 1,046
Li, Guangyu – 800 – 46 846
2015
Employer’s
contribution
to pension
Name of Director Fees Salary scheme Total
RMB’000 RMB’000 RMB’000 RMB’000
Executive Directors:
Li, Xuechun – 2,746 25 2,771
Wang, Longxiang – 1,901 42 1,943
Feng, Zhenquan – 1,100 42 1,142
Li, Deheng – 1,100 42 1,142
Xu, Guohua – 995 16 1,011
Li, Guangyu – 803 42 845
Independent Non-executive
Directors:
Choi, Tze Kit, Sammy (iv) 221 – – 221
Chen, Ning (v) 44 – – 44
Zheng, Yu 193 – – 193
Sun, Yuguo 17 – – 17
Qi, Qingzhong 100 – – 100
There was no bonus paid to the directors of the Company for the years ended 31 December 2016 and 2015.
No director waived or agreed to waive any remuneration for the years ended 31 December 2016 and 2015.
Share Information
Glossary
Absolute Divine Absolute Divine Limited, an indirect wholly-owned subsidiary of the Company
Acquest Honour Acquest Honour Holdings Limited, a wholly-owned subsidiary of the Company
Baoji Fufeng 寶雞阜豐生物科技有限公司 (Baoji Fufeng Biotechnologies Co., Ltd.), an indirect wholly-
owned subsidiary of the Company
Baoji Plant the production plant of the Group located at Baoji City (寶雞市) in the Shaanxi Province,
the PRC
Beijing Huijinhuaying Beijing Huijinhuaying Commercial Co., Ltd., an indirect wholly-owned subsidiary of the
Company
Code Code on Corporate Governance Practice under Appendix 14 of the Listing Rules
Expand Base Expand Based Limited, an indirect wholly-owned subsidiary of the Company
Fufeng Singapore Fufeng (Singapore) Pte. Ltd., an indirect wholly-owned subsidiary of the Company
Hero Elite Hero Elite Limited, a company with limited liability, the issued share capital of which is
owned as the 14.3% by 王龍祥 (Wang Longxiang), 14.3% by 來鳳堂 (Lai Fengtang),
14.3% by 劉振余 (Liu Zhenyu), 14.3% by 趙蘭坤 (Zhao Lankun), 10.7% by 王俊任 (Wang
Junren), 10.7% by 嚴紅偉 (Yan Hongwei), 10.7% by 李曼山 (Li Manshan) and 10.7% by
沈德權 (Shen Dequan)
Hong Kong the Hong Kong Special Administrative Region of the PRC
FUFENG GROUP LIMITED | ANNUAL REPORT 2016 153
Glossary (Continued)
Hulunbeir Plant the production plant of the Group located at Hulunbeir, Inner Monogolia Autonomous
Region, the PRC
IM Plant the production plant of the Group located at Inner Mongolia Autonomous Region, the
PRC
Listing Date 8 February 2007, the date on which the Company was listed on the Stock Exchange
Listing Rules the Rules Governing the Listing of Securities on the Stock Exchange
Model Code Model Code for Securities Transactions by Directors of Listed Issuers as set out in
Appendix 10 of the Listing Rules
MSG monosodium glutamate, a salt of glutamic acid which is commonly used as a flavour
enhancer and additive in the food industry, restaurant and household application
PRC the People’s Republic of China, which for the purpose of this annual report exclude
Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan
Shandong Fufeng 山東阜豐發酵有限公司 (Shandong Fufeng Fermentation Co., Ltd.), an indirect wholly-
owned company of the Company
Shandong Plant the production plant of the Group located at 莒南縣 (Junan County), Shandong
Province, the PRC
Shenhua Pharmaceutical 江蘇神華藥業有限公司 (Jiangsu Shenhua Pharmaceutical Co., Ltd.), a company with
limited liability established in the Jiangsu Province of the PRC, an indirect wholly-owned
subsidiary of the Company
154 FUFENG GROUP LIMITED | ANNUAL REPORT 2016
Glossary (Continued)
SFO the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
Summit Challenge Summit Challenge Limited, an indirect wholly-owned subsidiary of the Company
Xinjiang Fufeng 新疆阜豐生物科技有限公司 (Xinjiang Fufeng Biotechnologies Co., Ltd.), and indirect
wholly-owned subsidiary of the Company
Xinjiang Plant the production plant of the Group located in Urumqi, Xinjiang Uygur Autonomous
Region
USD United States dollars, the lawful currency of the United States of America
EUR Euro, the lawful currency of the participating states within the European Union
% per cent