Fufeng Annual Report 2017

年報 Annual Report
Fufeng Group Limited

阜豐集團有限公司
2016 2016
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
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.
Sustainable Development MSG

We attach great importance to sustainable development. In respect of the MSG business, we completed the first
The Group has continuously invested in energy- phase of the production technology enhancement during
saving equipment. Its production facilities, with low the year. At the same time, by fully leveraging our cost
carbon emissions, aim to minimise the impact of our advantages, the extra output unleashed by production
business on the environment. The Group has also technology enhancement also successfully secured a
placed great emphasis on green production. We greater market share as well as increased the Group’s
continuously achieved energy-saving and emission revenue. In addition, benefiting from a significant decrease in
reduction while the clean production technology was corn costs, the profit margin of our MSG business witnessed
enhanced. Xinjiang Fufeng Biotechnologies Co., Ltd. a remarkable increase, providing a golden development
was nominated by the Economic and Informatization opportunity for our major line of business.
Commission of Xinjiang Uygur Autonomous Region as
one of the fourth batch of pilot enterprises for recycling The annual ASP of MSG was approximately RMB5,910
economy in the industrial economic field in 2016. The Group per tonne, representing a decrease of about 12.4% as
reduced the environmental impact of waste water, exhaust, compared with the ASP in 2015. The sales volume of MSG
greenhouse gases, and hazardous and non-hazardous achieved approximately 1,084,308 tonnes, representing
wastes generated during the course of production and an increase of about 14.4% as compared with 2015. The
operation. During the year, Baoji Fufeng Biotechnologies revenue of MSG accounted for 54.4% of the total revenue.
Co., Ltd. undertook technical upgrading of the existing flue
gas treatment facilities to conform to the Group’s long-term Amino Acid
strategy. In addition, the company also extracts feed and Threonine: we have achieved great success in the production
fertiliser processing from wastewater through resources expansion in respect to threonine, which was attributable
recycling. The biogas generated during the course of waste to the successful layout of production bases and a closer
water treatment is collected and used for production. cooperation with Ajinomoto Group. Amidst considerable
earnings of the threonine business, the Group managed to
2016 Overview expand the production capacity of threonine. During the
Currently our business involves four key segments: year, the output of threonine successfully increased from
approximately 54,098 tonnes to approximately 126,821
• Food additives: key products include MSG, chicken tonnes, with sales volume amounting to approximately
powder, crystallised sugar, corn oil etc. 119,145 tonnes. During the year, the revenue of threonine
amounted to about RMB1,012.8 million.
• Animal nutrition: key products include threonine,

High-end Amino Acid: after years of cultivation, we
tryptophan, corn refined products etc.
experienced a remarkable breakthrough in production
process and market sentiment, achieving an increase
• Colloid: key products include xanthan gum, welan
in both sales volume and amount. In addition, with the
gums etc.
successful launch of two new products, namely pectin and
polyglutamic acid, our high-end amino acid product portfolio
• High-end amino acid: key products include valine,
has been further diversified. We will continue to deepen
leucine, isoleucine, glutamine, hyaluronic acid, pectin
our high-end amino acid business, for example, through
etc.
quality improvement, technical sellings, cross sellings and
the launch of new products, so as to continuously increase
the profits from this line of business. During the year, the
revenue of high-end amino acid amounted to RMB663.7
million.
By-products Strategic Investment

Other by-products: based on sound management and full Co-developing the polylactide acid market with COFCO:
utilisation of advantages in raw materials, earnings from
fertilisers and other by-products witnessed noticeable We joined hands with COFCO for equity investment in Jilin
improvement. COFCO Biomaterial Company Limited (吉林中糧生物材料
有限公司) to co-develop the polylactide acid business at the
Xanthan Gum end of the year. We invested RMB30 million to hold 30%
In respect to the xanthan gum business, though market interest of the company, while COFCO holds 40%.
conditions were still sluggish due to a price war triggered
by competitors and the slow recovery of the oil industry, it Jilin COFCO Biomaterial Company Limited is an associated
is pleasing to note that we had proactively sorted out the company focusing on manufacturing polylactide acid (PLA),
customers with better profit margins and terminated the a bio-based material. With corn as its major raw material,
relationships with the loss-making customers. Our strategy PLA is a new type of environmentally degradable material
helped us reverse the unfavorable situation and realise which can be converted into biological fertiliser. It does
our objective of a moderate profit, which is better than the not cause harm to the environment and conforms to the
goal we set in mid-2016. In the second half of 2016, we concept of environmental protection.
witnessed a healthier trend in xanthan gum prices. Though a
significant price recovery requires more time, we believe that PLA boasts a huge potential market according to external
the market conditions have been under control within the studies. It is predicted that successful development of this
short term, with the tough situation of xanthan gum behind product market will lead to more than 10 million tonnes of
us. In the upcoming year, we will adopt various measures sales of PLA in the global market, or a market worth over
to grow our long-term competitiveness in the xanthan gum RMB100 billion. PLA is supported by relevant policies as
business and intensively explore the food market, which the use of non-degradable materials are explicitly prohibited
features a stable profitability in the long run and wait for the in such fields as packaging in many developed countries
recovery of the oil end-market. and regions. Some provinces in the PRC have also adopted
relevant policies and launched the ban on free plastic bags.
The annual ASP of xanthan gum was approximately The PLA products have a wide range of applications and
RMB10,738 per tonne, representing a decrease of about enormous market potential. They are widely used in various
28.5% as compared with the ASP in 2015. The sales volume fields including biomedical and daily-use macromolecular
of xanthan gum achieved approximately 50,762 tonnes, material.
representing a decrease of about 20.1% as compared with
2015. The revenue of xanthan gum accounted for 4.8% of
the total revenue.
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.
Meanwhile, the Group is in the process of in-depth

communication with leading biotech firms worldwide,
to seek greater, more comprehensive development
in animal nutrition.
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
Five-Year Summary
Year
2012 2013 2014 2015 2016
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Operating results – Summary
Turnover 11,111,920 11,366,722 11,297,696 11,225,722 11,803,131

Gross profit 1,637,455 2,099,443 2,166,865 1,802,491 2,406,373
Profit before income tax 490,213 634,697 774,176 679,774 1,301,898
Profit attributable to Shareholders 426,553 506,132 626,428 516,261 1,092,512
Balance sheets – Summary
Non-current assets 7,665,681 8,170,547 9,334,995 9,220,961 9,516,968

Current assets 4,305,271 4,448,621 4,359,282 4,629,217 4,939,134
Total assets 11,970,952 12,619,168 13,694,277 13,850,178 14,456,102
Non-current liabilities 2,417,222 3,689,594 4,258,072 2,761,158 2,647,336
Current liabilities 5,758,722 4,110,788 4,067,139 5,281,961 4,992,902
Net assets 3,795,008 4,818,786 5,369,066 5,807,059 6,815,864
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:
1. Gross profit margin is equal to gross profit divided by turnover.

2. Return on equity is equal to profit attributable to shareholders divided by total equity.
3. Current ratio is equal to current assets divided by current liabilities.
4. The number of inventory turnover days is equal to inventories before provisions at the end of year divided by the cost of sales for the corresponding
year and then multiplied by 366 days.
5. The number of debtors’ turnover days is equal to trade and notes receivables at the end of year divided by the turnover for the corresponding year and
then multiplied by 366 days.
6. The number of trade receivable turnover days is equal to trade receivable at the end of year divided by the turnover for the corresponding year and
then multiplied by 366 days.
7. The number of creditors’ turnover days is equal to trade and notes payables at the end of year divided by the cost of sales for the corresponding year
and then multiplied by 366 days.
8. The number of trade payable turnover days is equal to trade payable at the end of year divided by the cost of sales for the corresponding year and then
multiplied by 366 days.
9. Gearing ratio is equal to total borrowings at the end of the year divided by total assets at the end of the corresponding year.
* Restated
Corporate Information
Executive Directors Remuneration Committee

Mr. Li Xuechun Mr. Sun Yu Guo (Chairman)
Mr. Li Deheng Ms. Zheng Yu
Mr. Xu Guohua Mr. Qi Qing Zhong
Mr. Li Guangyu
Mr. Wang Longxiang (resigned on 25 July 2016) Nomination Committee
Mr. Feng Zhenquan (resigned on 19 September 2016) Mr. Li Xuechun (Chairman)
Mr. Sun Yu Guo
Independent Non-executive Directors Ms. Zheng Yu
Mr. Sun Yu Guo Mr. Qi Qing Zhong
Ms. Zheng Yu Mr. Wang Longxiang (resigned on 25 July 2016)
Mr. Qi Qing Zhong
Principal Bankers in the PRC
Registered Office China Construction Bank
Cricket Square Bank of China
Hutchins Drive, P.O. Box 2681 Agriculture Bank of China
Grand Cayman KY1-1111 China Merchants Bank
Cayman Islands Shanghai Pudong Development Bank
Principal Place of Business in the PRC Principal Bankers in Hong Kong

Western section of Huaihai Road Bank of China (Hong Kong) Limited
Junan, Shandong, 276600 Mizuho Bank Limited
PRC Hang Seng Bank Limited
Principal Place of Business Independent Auditor

in Hong Kong PricewaterhouseCoopers
Suite 1102, 11th Floor, Chinachem Century Tower
178 Gloucester Road, Wanchai, Hong Kong Principal Share Registrar
Royal Bank of Canada Trust Company (Cayman) Limited
Company Secretary and
Qualified Accountant Branch Share Registrar
Mr. Lee Wai Yin CPA FCCA Tricor Investor Services Limited
Authorised Representatives ADRs Information

Mr. Li Xuechun US Exchange: OTC
Mr. Lee Wai Yin CUSIP: 35953H105
ADR: Ordinary Shares 1:20
Audit Committee
Mr. Sun Yu Guo (Chairman) Stock Code
Ms. Zheng Yu 546
Mr. Qi Qing Zhong
Website
www.fufeng-group.com
HULUNBEIR
PLANT
IM
PLANT
SHANDONG
PLANT
BAOJI
PLANT
XINJIANG
PLANT
Financial Highlights
Turnover Growth Profit Attributable to Shareholders
RMB million RMB million

11,803.1
12,000 11,366.7 11,297.7 11,225.7 1,200
11,111.9 1,092.5
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
Revenue Analysis Production Cost Analysis
High-end amino Others

acid products Others
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
Major Products Processing Map
Steam
Electricity Coal
Thermal power plant
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
Maltose Crystallised Crystallised

syrup glucose glucose
syrup
Agricultural Frozen Sauce Canned Beverage Healthcare Oil drilling Pharmaceuticals

planting food food products and mining
Milk Ice Milk

cream products
Biographies of Directors and

Senior Management
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.
Biographies of directors and Senior management
李廣玉 (Li Guangyu), aged 38, is an executive Director and 鄭豫 ( Z h e n g Y u ) , a g e d 4 9 , w a s a p p o i n t e d a s a n

a vice general manager of the Group who is responsible for Independent non-executive Director in December 2012. Ms.
the product import and export business of the Group. Mr. Li Zheng was a Managing Director at PineBridge Investments
has over 11 years of experience in the fermentation industry. (formerly known as the AIG Global Investments), in charge
Mr. Li graduated from 華東政法大學研究生院 (East China of private equity investment in Greater China from 2008
University of Political Science and Law Graduate School) in to 2011. She also has over 17 years experience in the
2006 and obtained a master’s degree in Laws. Mr. Li is the management consulting industry through her service at
son of Mr. Li Xuechun. Mr. Li is not interested in any shares the Boston Consulting Group and then at Roland Berger
of the Company pursuant to Part XV of the Securities and Strategy Consultants as its senior partner responsible for
Future Ordinance. the industrial and automotive industries practice in Greater
China. Ms. Zheng has extensive experience in various
Independent Non-executive Directors management practices including strategy development,
孫玉國 (Sun Yu Guo), aged 62, was appointed as an brand management, organizational restructuring, global
Independent non-executive Director on 23 November sourcing, joint venture strategy, and project management
2015. Mr. Sun has over 31 years experience in the field of for both global and Chinese clients. Her industry experience
accounting and financial management. Mr. Sun is the non includes automotive, industrial goods, consumer electronics,
– profession member of The Chinese Institute of Certified retail and fast moving consumer goods, education,
Public Accountant and The Chinese Institute of Certified media and publishing, etc. Prior to her investment and
Public Valuator. Prior to his retirement in February 2014, Mr. management consulting career, she has also worked in the
Sun was an executive director and vice president of Tsingtao computer industry in both China and the United States. Ms.
Brewery Company Limited with rich experience in financial Zheng received a bachelor’s degree of science in Computer
management and capital management. He ever served as Science in Beijing Normal University and her Master of
Deputy Department Head in Finance Bureau of Qingdao, Business Administration from the University of Texas at
and Department Head in State-owned Assets Supervision Austin in the U.S. Ms. Zheng does not have any relationship
and Administration Commission of the People’s Government with any Directors, senior management, substantial or
of Qingdao (the “SASACQ”). Mr. Sun was awarded China controlling shareholders of the Company. Ms. Zheng is also
Annual Figure as Chief Financial Officer in 2004, and a non-executive director of Minth Group Limited (Stock
National Pioneer in Accounting in 2008. code: 425) in current, save as disclosed above, she did
not have any directorships in other listed public companies
Mr. Sun does not have any relationship with any directors, in the last three years nor has held any other position with
senior management, substantial or controlling shareholders the Company and any of its subsidiaries. Ms. Zheng was
of the Company. Mr. Sun was an executive director of granted an option to subscribe the 300,000 Shares pursuant
Tsingtao Brewery Company Limited (stock code: 0168. to the Post-IPO Share Option Scheme, represented 0.01%
HK) up to June 2014, save as disclosed above, he did not of the issued share capital of the Company. Except for
have any directorships in other listed public companies in the above, Ms. Zheng does not have any interests in the
the last three years nor has held any other position with the shares of the Company within the meaning of Part XV of the
Company and any of its subsidiaries. Mr. Sun was granted Securities and Future Ordinance.
an option to subscribe the 300,000 Shares pursuant to the
Post-IPO Share Option Scheme, represented 0.01% of the
issued share capital of the Company. Except for the above,
Mr. Sun does not have any interests in the shares of the
Company within the meaning of Part XV of the Securities
and Futures Ordinance.
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.
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.
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.
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
an increase in gross profit and gross profit margin in its 3,000
Amino acid segment, mainly due to increasing contribution 2,000
from the sales of MSG, threonine and high-end amino acid 1,000
products. The expansion of high-end amino acid products 0

2011 2012 2013 2014 2015 2016
continued to increase its revenue contribution to the Group,
especially after the commencement of operations at the new For the year of 2016, revenue for the Group remained
production facility in the Xinjiang Plant. relatively stable at approximately RMB11,803.1 million as
compared to approximately RMB11,225.7 million for the
Our xanthan gum business, another key business segment year of 2015. The slight increase in revenue was primarily
of the Group, recorded a significant decrease in the ASP and caused by the increase in the sales volume of MSG and
gross profit margin due to weakness in the global economy the increase of the revenue from threonine and high-end
and oil industry in particular. We have adjusted part of the amino acid products, which was offset by the decrease in
production capacity in Xinjiang Plant to produce gellan gum the ASP and sales volume of xanthan gum. MSG industry
and high-end amino acid products and have temporarily consolidation gradually aided the improvement in the
suspended part of the production capacity for maintenance business environment, coupled with a decrease in the price
in IM Plant. The production capacity of xanthan gum will of corn kernels, which led to a decrease in production costs.
temporarily be reduced to 73,000 tonnes per annum. The
Group, as one of the top three xanthan gum manufacturers Although ASP and sales volume of xanthan gum decreased
in the world, continued to dominate the global market share significantly as the global oil industry remained weak, the
in 2016. Group was able to maintain market share of xanthan gum
as a market leader during 2016. In addition, the market
condition of the global oil industry stabilised at the end of
2016 and therefore the market condition of xanthan gum
has returned to stability as well.
The Group’s overall gross profit significantly increased from

approximately RMB1,802.5 million in 2015 to approximately
RMB2,406.4 million in 2016. This represents an increase
of 33.5%, primarily due to MSG industry consolidation
gradually aiding the improving business environment,
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.
Market Overview products, a relatively new product of the Group, continued

Amino acid segment to increase its revenue contribution to the Group.
Our Amino acid segment is primarily made up of our MSG,
threonine and high-end amino acid products. In terms of Xanthan gum segment
MSG business, there was a decrease in the ASP of MSG in Our xanthan gum business, another key business segment
2016 as costs of main raw materials, especially corn kernels, of the Group, recorded a significant decrease in the ASP
significantly decreased during the year. The ASP of MSG and gross profit margin, whilst the market demand of
remained at a relatively low level and the Group continued xanthan gum was generally weak. We have adjusted part
to face lackluster conditions in the domestic catering and of the production capacity in Xinjiang Plant to produce
consumer markets. As market conditions improved after gellan gum and high-end amino acid products at the
industry consolidation was completed, the Group was able beginning of 2016 and have temporarily suspended part of
to maintain its leadership in terms of market share and sales the production capacity for maintenance in IM Plant since
volume and also increase gross profit margin by leveraging the second quarter of 2016. The production capacity will
its cost advantages to adopt competitive pricing. The temporarily be reduced to 73,000 tonnes per annum. The
Group was able to record an increase in gross profit and Group, as one of the top three xanthan gum manufacturers
gross profit margin in its Amino acid segment, mainly due in the world, continued to maintain the global market leading
to increasing contribution from the sales of MSG, threonine position in 2016. As global market condition of oil industry
and high-end amino acid products. The high-end amino acid returned to stability at the end of year, the ASP of xanthan
gum also stabilised and showed a slight upward trend at the
end of 2016.
Operational Review of the Group

Certain indicative operational figures of the Group are set out below:
Turnover/Gross profit/Gross profit margin of the Group
Years ended 31 December Change

2016 2015 %
Turnover (RMB’000) 11,803,131 11,225,722 5.1

Gross profit (RMB’000) 2,406,373 1,802,491 33.5
Gross profit margin (%) 20.4 16.1 4.3 ppts.
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
Profit attributable to the Shareholders
Years ended 31 December

2016 2015 Change
RMB’000 RMB’000 %
As reported 1,092,512 516,261 111.6
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:
Year ended 31 December 2016 Year ended 31 December 2015 Increase/(Decrease)

Amino Xanthan Amino Xanthan Amino Xanthan
acid gum Group acid gum Group acid gum Group
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 % % %
audited audited audited audited audited audited audited audited audited
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.
Segment results 1,482,307 39,923 757,638 289,006 95.6 (86.2)
Segment net assets

Assets 9,919,823 3,769,193 8,668,125 3,861,218 14.4 (2.4)
Liabilities 4,833,050 908,334 5,051,084 1,030,067 (4.3) (11.8)
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:

2016 2015 Change
Product RMB’000 RMB’000 %
MSG 6,415,119 6,418,049 (0.0)

Corn refined products 1,473,794 1,314,548 12.1
Threonine 1,012,837 594,830 70.3
High-end amino acid products 663,744 490,732 35.3
Starch sweeteners 642,086 724,002 (11.3)
Fertilisers 614,964 483,257 27.3
Glutamic acid 200,834 42,068 377.4
Corn oil 27,995 35,937 (22.1)
Compound seasoning 15,169 16,117 (5.9)
Others 174,123 136,904 27.2
11,240,665 10,256,444 9.6
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
MSG Starch sweeteners

The Group maintained its market leadership in the Turnover of starch sweeteners decreased by about 11.3% in
MSG business through increased marketing efforts and 2016, primarily due to a fall in the ASP of starch sweeteners
competitive pricing. While the ASP decreased by 12.4%, by 15.8% from approximately RMB2,954 per tonne in
from approximately RMB6,744 per tonne in 2015 to 2015 to approximately RMB2,486 per tonne in 2016, whilst
approximately RMB5,910 per tonne in 2016, turnover of demand for our starch sweetener was stable during this
MSG in 2016 slightly decreased, mainly due to the effect year.
of sales volume increasing by 14.4% to approximately
1,084,308 tonnes compared to 2015, offset by the decrease Threonine
in ASP of MSG during the year. Threonine is a relatively new product of the Group, with
annual production capacity increased to approximately
In 2016, the Group also strengthened the export of MSG 136,000 tonnes since the end of 2015. Threonine is
and sales and marketing efforts in the promotion of its U classified as a major type of our product of animal nutrition
Fresh Series products to retail customers. The export of in Amino acid segment. It is an essential amino acid which
MSG in term of sales volume increased by 7.2% in 2016, maintains body protein balance and promotes the growth of
which export sales amounted to about RMB1,079.0 million. living things and our threonine is mainly used as animal feed
additives.
Fertilisers
During the year, the Group continuously developed high The total revenue of threonine increased by about 70.3% in
value-added fertiliser products, and the ASP of fertilisers 2016 as compared to the year of 2015, primarily as a result
increased from approximately RMB380 per tonne in 2015 to of increased sales volume of threonine from approximately
approximately RMB549 per tonne in 2016, representing an 53,605 tonnes in 2015 to approximately 119,145 tonnes in
increase of about 44.5%, while the sales volume decreased 2016, which was offset by the decrease in ASP of threonine
in line with prevailing market conditions. The revenue of by 23.7% from approximately RMB11,097 per tonne in
fertilisers amounted to approximately RMB615.0 million 2015 to approximately RMB8,473 per tonne in 2016.
for the year ended 31 December 2016 as compared to
approximately RMB483.3 million for 2015. High-end amino acid products
The high-end amino acid products business is the new
Corn refined products growth driver of the Group. The total sales amount of high-
As the average price of corn kernels decreased in 2016, end amino acid products including valine, leucine, isoleucine,
the ASP of corn refined products also decreased in 2016. glutamine and hyaluronic acid, increased to approximately
However, with the volume of consumption for production RMB663.7 million in 2016 as compared to approximately
increasing, revenue of corn refined products increased by RMB490.7 million in 2015. The high-end amino acid market
approximately 12.1% for the year ended 31 December 2016 is one of the key markets that the Group remains focused
as compared with the corresponding year of 2015. on developing and strengthening. The Group aims to create
a series of high-end amino acid products by capitalising on
our research and development capabilities and resources
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.
Gross Profit and Gross Profit Margin

The gross profit of this segment is set out below:

2016 2015 Change
Gross profit (RMB’000) 2,316,680 1,447,537 60.0%
Gross profit margin (%) 20.6 14.1 6.5 ppts.
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.
Trend of Gross Profit Margin of Amino Acid Segment
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
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

2016 2015 Change
RMB’000 % RMB’000 % %
Major raw materials

• Corn kernels 4,821,570 53.4 5,239,431 60.1 (8.0)
• Liquid ammonia 110,124 1.2 90,709 1.0 21.4
• Sulphuric acid 97,885 1.1 96,858 1.1 1.1
Energy
• Coal 923,716 10.2 784,449 9.0 17.8
Depreciation 688,643 7.6 629,582 7.2 9.4

Employee benefits 590,911 6.5 579,173 6.6 2.0
Others 1,793,563 20.0 1,299,532 15.0 38.0
Total cost of production 9,026,412 100.0 8,719,734 100.0 3.5
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.
The following chart shows the price trend of corn kernels from the first half of 2013 to the second half of 2016:
Price Trend of Corn Kernels
RMB/Tonne
1,930 1,919 1,928

1,900
1,837
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
The average unit cost of sulphuric acid decreased to

300
approximately RMB213 per tonne in 2016, which represents 240 253
186 194 183 184
a decrease of approximately RMB27 per tonne, or 11.3% 200
154
166 171
148
120 128 118
112 107 107
from 2015. 100
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.
Other production costs

Certain machineries mainly used for Amino acid segment were impaired amounting to RMB119.8 million in 2016 (2015:
RMB60,000) because of high production cost and those machineries are now idle. Moreover, the increase in cost of
depreciation and employee benefits was mainly due to gradually increased production capacity of the new Baoji Plant since
the second half of 2015.
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:

2016 2015 Change
Product Tonnes Tonnes %
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
Fertilisers
Annual designed production capacity (Note) 950,000 950,000 –
Actual production output 891,823 897,542 (0.6)
Starch sweeteners
Annual designed production capacity (Note) 260,000 260,000 –
Actual production output 257,145 238,393 7.9
Note: The annual designed production capacity is expressed on a pro-rata basis.
Utilisation rates remained high in 2016, which was the same case in 2015.
Xanthan gum Segment

Operation results
The table below set out the sales amount, ASP, gross profit, gross profit margin and utilisation rate of xanthan gum for the
years ended 31 December 2016 and 2015:
Years ended 31 December Change

2016 2015 %
Revenue (RMB’000) 562,466 969,278 (42.0)
ASP (RMB/tonne) 10,738 15,013 (28.5)
Gross profit (RMB’000) 89,693 354,954 (74.7)
Gross profit margin (%) 15.9 36.6 (20.7) ppts.
Annual designed production capacity (tonnes) (Note) 73,000 87,500 (16.6)

Actual production output (tonnes) 53,000 84,162 (37.0)
Note: The annual designed production capacity is expressed on a pro-rata basis.
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.
Sales volume and ASP
Sales Volume vs. ASP of Xanthan Gum
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
15,000 12,932 15,000

11,522
10,643
8,000 8,000
1,000 1,000
1H 2013 2H 2013 1H 2014 2H 2014 1H 2015 2H 2015 1H 2016 2H 2016
Sales volume (tonne) ASP (RMB/tonne)
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.
Production costs

2016 2015 Change
RMB’000 % RMB’000 % %
Major raw materials

• Corn kernels 165,144 34.3 307,644 39.6 (46.3)
• Soybeans 36,332 7.5 68,164 8.8 (46.7)
Energy
• Coal 84,253 17.5 112,616 14.5 (25.2)
Depreciation 42,586 8.8 65,037 8.4 (34.5)

Employee benefit 61,353 12.7 89,061 11.5 (31.1)
Others 91,697 19.2 133,719 17.2 (31.4)
Total cost of production 481,365 100.0 776,241 100.0 (38.0)
Corn kernels in 2015 to approximately RMB3,789 per tonne in 2016,

In 2016, corn kernels represented approximately 34.3% representing a decrease of 10.5%.
(2015: 39.6%) of the total production cost of this
segment. The average price of corn kernels for 2016 was Coal
approximately RMB1,596 per tonne, which represents a In 2016, coal accounted for approximately 17.5% (2015:
decrease of approximately RMB223 per tonne, or 12.3%, 14.5%) of the total production cost of this segment. The
from that in 2015. The cost of corn kernels as a percentage average unit cost of coal was approximately RMB141
of total production costs remained at around 34.3%. The per tonne in 2016, which represents a slight increase of
cost amount incurred of corn kernels decreased 46.3% from approximately RMB6 per tonne, or 4.4%, from that of 2015.
approximately RMB307.6 million in 2015 to approximately The Group continued to take full advantage of the relatively
RMB165.1 million in 2016, mainly due to the average price low coal cost that the Group was able to source and utilise
of corn kernels decreasing and consumption volume of locally in its IM Plant and Xinjiang Plant.
production decreasing as the production volume of xanthan
gum was significantly reduced in 2016. Other production costs
The cost of depreciation in 2016 decreased compared with
Soybeans 2015 mainly due to part of production capacity of xanthan
During 2016, soybeans accounted for approximately 7.5% gum changed to produce other high-end amino acid
(2015: 8.8%) of the total production cost of this segment. products. Depreciation accounted for approximately 8.8%
The decrease in proportion was mainly due to the decrease (2015: 8.4%) of the total production cost of this segment.
in soybean prices from approximately RMB4,233 per tonne
Other Financial Information Depreciation

Selling and marketing expenses Depreciation expense of the Group increased by
An increase in selling and marketing expenses was mainly approximately RMB79.7 million, or approximately
due to an increase in transportation costs, which was in line 10.7%, from approximately RMB746.8 million in 2015 to
with the increase in sales volume of our major products. approximately RMB826.5 million in 2016. The increase was
Marketing and promotional expenses also increased as part mainly due to the gradually increased production capacity of
of a campaign to strengthen the Group’s brand. the new Baoji Plant after relocation and additional production
capacity of threonine having commenced operation since
Administrative expenses the end of 2015.
Administrative expenses increased by approximately
RMB3.3 million, or 0.6%, in 2016. Administrative expenses Income tax expense
remain stable during 2016. The income tax expenses for the year of 2016 mainly
represented the PRC Enterprise Income Tax (“EIT”).
Finance costs (net)
The finance costs (net) of the Group in 2016 included Two subsidiaries of the Group including Shandong Fufeng
two main parts: interest expense and exchange gain or and Shenhua Pharmaceutical, have obtained the approvals
loss on financial activities. Interest expense decreased to become a new and high-technology enterprise and
by approximately RMB120.6 million, which includes the had been entitled to a preferential income tax rate of 15%
interest penalty of early redemption of the senior notes of (2015: 15%). The qualification of new and high-technology
approximately RMB35.3 million, or approximately 40.0%, enterprise is subject to renewal for each three years interval.
when compared with 2015 due to the repayment of senior
notes being fully completed at the end of 2015 and a According to the Caishui (2011) No. 58 “The notice on the
decrease in bank borrowings as our working capital from tax policies of further implementation of the western region
operations increased during the year. During 2016, the development strategy issued by the Ministry of Finance,
Group recorded an exchange loss on financing activities the State Administration of Taxation and the General
amounting to approximately RMB37.5 million, mainly due to Administration of Customs” (財稅[2011]58號“關於深入實施
the exchange loss of current bank borrowings denominated 西部大開發戰略有關稅收政策問題的通知”), companies set
in USD. up in the western region and falling into certain encouraged
industry catalogue promulgated by the PRC government will
Staff costs be entitled to a preferential tax rate of 15%.
Staff costs of the Group decreased by approximately
RMB17.1 million, or approximately 1.7%, from approximately Four subsidiaries of the Group, including Baoji Fufeng, IM
RMB996.9 million in 2015 to approximately RMB979.8 Fufeng, Hulunbeir Fufeng and Xinjiang Fufeng, were set up in
million in 2016. The staff costs are maintained in a stable the western development region and fall into the encouraged
level. industry catalogue, and therefore they are entitled to the
above said preferential tax rate of 15% (2015: 15%).
The other subsidiaries of the Group in the PRC are subject

to an income tax rate of 25% (2015: 25%).
Strategic Investment returned the application form to Shenhua Health Holding

Co-developing the polylactide acid market with China Limited on 29 March 2016. Although it is still the intention
National Cereals, Oils and Foodstuffs Corporation: of the Company to continue proceeding with the Proposed
Spin-off, the Company, having consulted with professional
We joined hands with China National Cereals, Oils and advisors, thinks it would be prudent and in the best interest
Foodstuffs Corporation for equity subscription in Jilin of our shareholders to wait for the conclusion of the ongoing
COFCO Biomaterial Company Limited (吉林中糧生物材 listing regulation consultation before making a decision as
料有限公司) to co-develop the polylactide acid business. to whether to proceed with the Proposed Spin-off or not.
The Group invested RMB30 million to hold 30% interest in Should the Company decide to restart the Proposed Spin-
the company, whereas China National Cereals, Oils and off, the Company would issue further announcement(s) in
Foodstuffs Corporation holds 40%. Jilin COFCO Biomaterial accordance with the requirements of the Listing Rules.
Company Limited is an associated company focusing on
manufacturing polylactide acid (PLA), a bio-based material. Outlook
With corn as its major raw material, PLA is a new type of Looking ahead to 2017, it is expected that the Chinese
environmentally degradable material which can be converted economy will continue to grow at a slow pace. The ongoing
into biological fertiliser. It does not cause harm to the lack of consumer confidence and the slowdown in the
environment and conforms to the concept of environmental growth of economy will continue to affect the catering
protection. industry.
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.
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.
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.
Medium-term Notes Employees

In April 2013, IM Fufeng issued a medium-term notes at par As at 31 December 2016, the Group had approximately
value of RMB600 million, which was dominated in RMB with 7,000 employees. Employees’ remuneration has been paid
a fixed interest of 5.11% per annum. The notes matured in accordance with relevant policies in the PRC. Appropriate
in three years from the issue date and net proceeds were salaries and bonuses were paid which are commensurate
used to repay certain short-term bank loans and for general with the actual practices of the Group. Other corresponding
working capital purposes. It was fully repaid in April 2016. benefits include pension, unemployment insurance, housing
allowance, etc. Please refer to the paragraph headed “Share
Corporate Bonds Option Scheme” under the “Other information” section
On 5 November 2015, IM Fufeng issued corporate bonds at below for the share options granted to certain Directors and
par value of RMB1 billion, which was denominated in RMB employees of the Group pursuant to the Pre-IPO and Post-
with a fixed interest of 3.98% per annum. The corporate IPO share option schemes.
bonds mature in three years from the issue date. The net
proceeds were used to repay certain short-term bank loans
and for general working capital purposes.
Contingent Liabilities Foreign exchange exposure

As at 31 December 2016, the Group had no material The Directors do not consider that the exposure to foreign
contingent liabilities. exchange risk is significant to the Group’s operation as the
Group operated mainly in the PRC and most of the Group’s
Charges on assets transactions, assets and liabilities were denominated in RMB.
As at 31 December 2016, approximately RMB307.5 million Foreign currencies were, however, received for the export
of restricted bank deposits (2015: certain leasehold land, sales of products and foreign currency bank borrowings.
property, plant and equipment of the Group amounted to Such proceeds were subject to foreign exchange risk before
RMB110.2 million) were pledged to certain banks to secure receiving and converting them into RMB. The Group slowed
bank borrowings of approximately RMB307.5 million (2015: down the exchange settlement as a result of the devaluation
RMB420.0 million) of the Group. of the RMB. The Group manages foreign exchange risk
arising from proceeds from bank borrowings by remitting the
The convertible bonds issued in 27 November 2013 are necessary funds to the PRC and using the proceeds based
secured by the pledge of the capital stock of certain on operational needs and foreign exchange market situation.
subsidiaries of the Company, which are Acquest Honour The Group did not use any derivatives to hedge its exposure
Holdings Limited, Summit Challenge Limited, Absolute to foreign exchange risk for the year ended 31 December
Divine Limited and Expand Base Limited. The guarantors are 2016.
all holding companies that collectively control the operation
and assets of its PRC subsidiaries of the Group. American Depositary Receipt Facility
The Company has established a sponsored, unlisted
Gearing ratio American Depositary Receipt (“ADR”) facility, which has
As at 31 December, 2016, the total assets of the Group become effective on 19 June 2009. The Depositary is the
amounted to approximately RMB14,456.1 million (2015: Bank of New York Mellon. Each of the ADRs represents 20
RMB13,850.2 million) whereas the total borrowings ordinary shares of the Company. In the forming of the facility
amounted to approximately RMB3,100.0 million (2015: adopted by the Company, the ADRs will be issued against
RMB3,838.1 million). The gearing ratio was approximately ordinary shares trading on the Main Board of the Stock
21.4% (2015: 27.7%). The gearing ratio is calculated based Exchange of Hong Kong Limited that have been deposited
on the Group’s total interest-bearing borrowings over total with a custodian bank under the facility. The ADRs will be
assets. traded in the U.S. in an over-the-counter market.
Dividend and dividend policy Audit Committee

The Board recommended the declaration of a final dividend The Company has established an audit committee in
of HK7.8 cents per share, subject to Shareholders’ approval compliance with the Listing Rules. The audit committee
at the annual general meeting. comprises three Independent non-executive Directors,
and is responsible for reviewing the Group’s audit, interim
The final dividend will be payable on or about 15 June 2017 and annual accounts of the Group and the system of risk
to Shareholders whose names appear on the register of management and internal control. The audit committee has
members of the Company on 24 May 2017. reviewed the Group’s consolidated financial statements for
the year ended 31 December 2016, including the accounting
Purchase, redemption or sales of listed securities principles and practices adopted by the Group.
of the Company
Neither the Company, nor any of its subsidiaries purchased, Closure of register of members
redeemed or sold any of the Company’s listed securities The register of members of the Company will be closed from
during the year ended 31 December 2016. 9 May 2017 to 12 May 2017 (both dates inclusive), during
which period no transfer of shares will be registered. In
Corporate governance report order to determine the identity of members who are entitled
The listing of the Shares on the Main Board of the Stock to attend and vote at the annual general meeting to be
Exchange took place on 8 February 2007 and the Directors held on 12 May 2017, all transfers of shares accompanied
are of the opinion that the Company’s corporate governance by the relevant share certificates must be lodged with the
practices are based on the principles and code provisions Company’s branch registrar in Hong Kong. Tricor Investor
(“Code Provisions”) set out in the Code of Corporate Services Limited at Level 22, Hopewell Centre, 183 Queen’s
Governance Practices (the “Former CG Code”) which was Road East, Hong Kong not later than 4:30 p.m. on 8 May
subsequently revised as the Corporate Governance Code 2017.
(the “Revised CG Code”) contained in Appendix 14 of the
Rules Governing the Listing of Securities on the Stock The register of members of the Company will be closed
Exchange (“Listing Rules”) and came into full effect on 1 April from 22 May 2017 to 24 May 2017 (both dates inclusive),
2012. During the year of 2016, the Company has complied during which no transfer of shares will be registered. In order
with the Code Provisions of the Revised CG Code except for to qualify for the proposed final dividend, all transfers of
the following: shares accompanied by the relevant share certificates must
be lodged with the Company’s branch registrar in Hong
Code provision A.6.7 of the Revised Code: The Independent Kong. Tricor Investor Services Limited at Level 22, Hopewell
non-executive Directors and the non-executive Directors Centre, 183 Queen’s Road East, Hong Kong not later than
should attend the general meetings of the Company. 4:30 p.m. on 19 May 2017.
However, due to other commitments, the Independent
non-executive Directors, Mr. Qi Qing Zhong did not attend Annual general meeting
the annual general meeting of the Company held on 12 The annual general meeting is expected to be held on 12
May 2016. All the Directors have given the Board and the May 2017. A notice convening the annual general meeting
committees of which they are members the benefit of their will be dispatched to the Shareholders in due course.
skills, expertise and varied backgrounds and qualifications
through regular attendance and active participation.
The Directors will also endeavor to attend future general
meetings and develop a balanced understanding of the
views of Shareholders.
2016 Environmental, Social and

Governance Report
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》).
2016 Environmental, Social and Governance Report
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.
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.
A3 Environmental and Natural Resources

Upon assessment, the Company has no significant impact of environmental and natural resource use. The
Company is active in practicing the concept of green development and promoting the green development of
the industrial chain.
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.
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.
B2 Health and Safety

With safe production as its first priority, Fufeng Group strictly complies with relevant laws and regulations
including the Labor Law of the People’s Republic of China (《中華人民共和國勞動法》), the Law of the
People’s Republic of China on Work Safety (《中華人民共和國安全生產法》) and the Law of the People’s
Republic of China on the Prevention and Control of Occupational Diseases (《中華人民共和國職業病防治
法》). The Group is committed to providing a healthy, safe and comfortable work environment for its staff.
Conscientious in implementing the guidelines and policies on safe production provided by superior authorities,
the Company lays its work emphasis on enhancing management and striving for implementation, with its
work guidelines of perfecting a safety organization, offering better training to all the staff and scrutinizing safety
hazards. The Company is strict in carrying out a corporate accountability mechanism for safe production.
Under the mechanism, appointed at each level is a person in charge of safe production who is required to
sign a responsibility certificate for safe production, subject to a complete set of management systems on safe
production.
(1) Developing a Management System for Occupational Health and Safety

Committed to providing a healthy, safe and comfortable work environment for their staff, all the
companies under Fufeng Group have adopted GB/T 28001: 2011 Standard of Occupational Health
and Safety Management System. The System has been established, followed by documentation,
implementation, and continuous improvement or renewal and regular third-party certification in order
to obtain its own authentication certificate.
(2) Policies and Systems on Safe Production

Active in standardising safe production, the companies have established robust regulations and
systems on safe production and the management of preventing and treating occupational diseases,
such regulations and systems including the Management System on Safe Production Responsibilities,
the Management System on Safety Training and Education, the Management System on Major
Sources of Danger, the Fire Safety Management System, and the Safety Management Regulation on
Hazardous Chemicals. Also in place are a series of management systems on safe operation, such as
hot work, temporary electric application, and work at heights.
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.
(3) Occupational Health

The companies have established the Management System on Preventing and Treating Occupational
Diseases, in an effort to prevent, control and eliminate occupational hazards, and protect the health of
their staff. The System clarifies the responsibilities of each department, and requires that staff should
be provided with publicity, education and training on occupational safety and hygiene as well as the
prevention and treatment of occupational diseases, during the pre-employment stage and throughout
the employment period. Clear warning signs and Chinese descriptions should be provided at positions
where occupational hazards exist, with such personnel to be offered work protection and first-aid
supplies in line with national standards. The personnel engaged in hazardous operation should be
provided with pre-employment and yearly occupational health checks; comprehensive precautions
should be adopted, together with advanced technology, process, equipment and non-toxic materials,
all to reduce and eliminate occupational hazards.
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.
B3 Development and Training

One important principle for Fufeng Group’s staff management is to provide staff members, the Group’s
valuable resource, with systematic training to improve their work skills constantly and to attain a harmonious
balance between staff growth and company development. Hence, the Company has formulated Fufeng
Group Management Regulation on Training to establish and complement the Group’s management system on
training and plan staff learning. The regulation enables staff members to keep improving their professionalism,
work skills and overall qualities and better meet the demands arising from the Group’s continuous and fast
development. The Group’s training involves its general manager, deputy general managers and business
school, as well as the human resources departments and management personnel at all levels of the
companies under the Group.
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.
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.
B5 Supply Chain Management

Neimenggu Fufeng Biotechnologies Co., Ltd. has formulated the Management Regulation on Material
Procurement, to standardise the company’s domestic and international procurement of raw materials, and to
timely provide raw materials of proper quality and quantity and at reasonable prices. The Regulation provides
that the selection of suppliers shall be based on a comprehensive range of considerations, including supply
capacity, qualifications, production equipment, process conditions, capability of developing new products,
staff training, and system certification. Based on the above considerations, the company determines whether
to develop a long-term relationship with a supplier. In addition, the company actively promotes its standard
on the quality of raw materials among the suppliers, and offers them necessary help in respect of quality
and technical services so that the suppliers can timely deliver materials of stable quality and in line with the
company’s quality standard.
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.
(1) Management of Product Quality and Food Safety

Fufeng Group strictly complies with the requirements of such laws and regulations as the Product
Quality Law of the People’s Republic of China (《中華人民共和國產品質量法》), the Food Safety
Law of the People’s Republic of China 《 ( 中華人民共和國食品安全法》) and the Regulation on the
Implementation of the Food Safety Law of the People’s Republic of China (《中華人民共和國食品
安全法實施條例》). To enhance quality management and corporate efficiency, the companies have
adopted such standards as ISO 9001: 2008 Quality Management Systems, ISO 22000: 2005 Food
Safety Management Systems, the HACCP System and Application Guidelines, CCAA 0011-2014
(CNCA/CTS 0017-2008A) Food Safety Management System: Requirements on MSG Manufacturers,
CCAA 0014-2014 (CNCA/CTS 0020-2008A) Food Safety Management System: Requirements on
the Manufacturers of Food and Feed Additives, and GB/T19630–2011 Organic Products. Based on
the above systems, the companies have established their certification systems on quality, food safety
management and organic products, followed by documentation, implementation, and continuous
improvement or renewal, so that the quality and healthy products are provided and the effective
implementation of the companies’ policies on quality and food safety are ensured.
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.
(2) Customer Services

In accordance with the requirements of laws and regulations such as the Law of the People’s Republic
of China on the Protection of Consumer Rights and Interests (《中華人民共和國消費者權益保護法》),
Fufeng Group focuses on providing more robust aftersales services for its customers. To this end, the
Group has strengthened its after-sales service team and put more emphasis on providing solutions to
customer application. The Group has purchased a variety of experiment equipment for its laboratories
to simulate customer application, so as to ensure the delivery of faster and effective solutions.
Meanwhile, the Group also focuses on the R&D and promotion of customised products and provides
better alternative products for customers.
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.
(3) Advertisement and Trademark

The Company has formulated its Management System on the Use of Trademarks, to regulate the
trademark management of the Company, establish and maintain the corporate reputation, ensure
product quality and protect the exclusive rights of the trademarks, so that the Company can
continuously maintain and improve the value of its trademarks as intangible assets. The System
specifies the management regulations on trademark registration, operation, printing and protection.
The Company has the Brand Protection Control Procedures in place, to ensure compliance with the
brand protection policies and higher awareness of brand protection, so that the trademark property
rights of the Fufeng brand are well protected from infringement. According to the Fufeng Group VI
Manual Management Regulations, the Group has enhanced its examination and approval, design,
inspection and acceptance, modification, supplementation, supervision and management on the VI
system.
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.
(4) Privacy Protection

The Company has prepared the Measures on Commercial Secrets Management and the Management
System of Commercial Secrets Protection, in accordance with relevant laws and regulations in the PRC
and the Management Regulations on Corporate Intellectual Property Rights, in order to strengthen
the management of the commercial secrets of the Company and protect its legal rights. The Group
has established its internal confidential system and requires all the personnel to sign a non-disclosure
agreement, while certain core technicians are required to sign the Non-competition Agreement.
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.
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.
Corporate Governance Report
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.
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.
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.
The Directors are regularly briefed on the amendments to Board Meetings

or updates on the relevant laws, rules and regulations. In The chairman is responsible for the leadership of the Board,
addition, the Company has been encouraging the Directors ensuring the effectiveness of the Board in all aspects of
its role, setting agenda for board meetings, and taking
and senior executives to enrol in a wide range of professional
into account any matters proposed by other Directors for
development courses or and seminars relating to the
inclusion in the agenda. Agenda and related board papers
Listing Rules, companies ordinance or act and corporate
are circulated at least 7 days before the time of a board or
governance practices organised by professional bodies and
committee meeting where possible.
independent auditors so that they can continuously update
and further improve their relevant knowledge and skills.
The chairman is also responsible for making sure all
Directors are properly briefed on issues arising at board
From time to time, Directors are provided with written
meetings. The chairman also ensures that the Directors
materials to develop and refresh their professional skills; the
receive accurate, timely and clear information. Directors are
company secretary also organises and arranges seminars encouraged to update their skills, knowledge and familiarity
on the latest development of applicable laws, rules and with the Company through their initial induction, ongoing
regulations for the Directors to assist them in discharging participation at board and committee meetings, and through
their duties. meeting key people at head office and in the divisions.
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.
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.
payable of the Group for the service related to the projects

of internal control review. The risk management and internal control systems of the
Group are designed to manage rather than eliminate the
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.
Independent non-executive Directors, Mr. Sun Yu Guo, Mr.

Qi Qing Zhong and Ms. Zheng Yu. Mr. Sun Yu Guo is the
chairman of the Audit Committee.
Risk management and internal control framework

Risk Management
In order to continuously improve the risk management and internal control systems, as well as to enhance the level of
management and risk prevention capabilities, the Company has developed a risk management manual (“Risk Management
Manual”), established risk management strategy and structure, as well as defined the measures for risk assessment and risk
management reporting procedures during the year under review. The organisational structure for risk management is set out as
follows:
Board Level Board and Audit Committee
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
• 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.
Remuneration Committee Nomination Committee

The Remuneration Committee established in compliance The Company has established a Nomination Committee
with the Code, comprises an executive Director, Mr. Li on 20 March 2012 in compliance with the Code. The
Xuechun and three Independent non-executive Directors, Nomination Committee is responsible for the appointing of
Mr. Sun Yu Guo, Mr. Qi Qing Zhong and Ms. Zheng Yu. new directors either to fill casual vacancies or as additional
Mr. Sun Yu Guo is the chairman of the Remuneration Board members. The Nomination Committee comprises one
Committee. executive Director, Mr. Li Xuechun and three Independent
non-executive Directors, Mr. Sun Yu Guo, Mr. Qi Qing
The principal functions of the Remuneration Committee Zhong and Ms. Zheng Yu. Mr. Li Xuechun is the chairman of
are to review, develop and approve the Group’s policy on the Nomination Committee. For year ended of 31 December
remuneration of all Directors and senior management for 2016, no Nomination Committee meetings were held.
the purpose of retaining and attracting talent to manage
the Group effectively. The Directors and their associates Shareholders’ Rights
do not participate in the decisions in relation to their own The Company recognises the importance of good
remuneration. The Remuneration Committee considers communications with the Shareholders and the investment
factors such as salaries paid by comparable companies, community and also recognises the value of providing
time commitment and responsibilities of the directors current and relevant information to Shareholders and the
and senior management, employment conditions else investors. The Board has established a Shareholders’
where in the Group and desirability of performance-based communication policy setting out the principles of the
remuneration so as to align management incentives with Company in relation to the Shareholders’ communication,
Shareholders’ interests. with the objective of ensuring the Shareholders and investors
are provided with ready, equal and timely access to current
The Remuneration Committee meetings will be held at and relevant information about the Company.
least once a year. For year ended of 31 December 2016,
one Remuneration Committee meeting was held. All The Company maintains on-going dialogue with
Remuneration committee members attended the meeting. Shareholders to communicate with them and encourage
The meeting of the Remuneration committee was duly held their participation through annual general meetings or other
for reviewing and determination of the annual remuneration general meetings.
packages of the executive Directors. The Remuneration
committee consults the chairman and general manager Registered Shareholders are notified by post for the
about its proposals relating to the remuneration of other Shareholders’ meetings. Notice of meeting contains agenda,
executive Directors. proposed resolutions and postal voting form.
All registered Shareholders are entitled to attend annual and

extraordinary general meetings, provided that their shares
have been recorded in the Register of Shareholders.
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
March 2015 Annual Results Roadshow,

Investor Relations and Communications Hong Kong, Singapore
The Company recognises the importance of efficient and
effective communications with the investor community.
April Essence International & Zhixin Caijing
Briefings and meetings with institutional investors are
Hong Kong Stock Connect Strategic
conducted regularly to provide them with up-to-date and
Forum, Shanghai
comprehensive information about the Group’s development.
Reverse Roadshow by J.P. Morgan,
Besides, the Company facilitates the initiation and coverage
New York
of the Company published by research analysts of well-
received investment banks which are instrumental in
May Reverse Roadshow by Daiwa, Tokyo
providing investors with independent and professional
evaluations of the Company. Moreover, the Group
June J.P. Morgan Global China Summit 2016,
participates in different international forums and overseas
Beijing
non-deal roadshows to elaborate on the Group’s business
development plans to global investors. Furthermore, the
August 2016 Interim Results Roadshow,
Company arranges site visits for investors to our main plants
Hong Kong, Singapore
in China. Last but not least, the Company has established
Reverse Roadshow by CICC, Shanghai
a function dedicated to investor relations and engaged an
external public relations company to take care of investor
November CICC Hong Kong Stock Investment Forum,
relations matters. The Company also maintains a website
Shanghai
(http://www.fufeng-group.com) which renders Shareholders,
Reverse Roadshow by CICC, Beijing
investors and the general public direct access to the
information of the Company on a timely basis.
December HTSC 2016 Investment Forum, Shenzhen
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.
Interim dividend declared and paid after the interim period

Distributable Reserves
As at 31 December 2016, the Company’s reserves
of HK3.8 cents (equivalent to RMB3.26 cents (2015: HK4.5
available for distribution to the Shareholders amounted to
cents (equivalent to RMB3.72 cents) per Share totaling
RMB214,991,000 (2015: RMB333,024,000).
HKD80,814,000 (equivalent to RMB95,701,000) The Board
recommends the payment of a final dividend of HK7.8 cents
Directors
per Share (equivalent to RMB6.94 cents) per Share totaling
As at the date of this report, the Board comprised:
HKD165,881,000 (equivalent to RMB147,651,000) for the
year ended 31 December 2016.
Executive Directors
Mr. Li Xuechun (Chairman)
Material Acquisitions or Disposal of Mr. Li Deheng
Subsidiaries and Associated Companies Mr. Xu Guohua
On 22 August 2016, a wholly owned subsidiary of the Mr. Li Guangyu
Group, Shandong Fufeng Fermentation Co, Ltd, entered into Mr. Wang Longxiang (resigned on 25 July 2016)
a sale and purchase agreement to sell its two wholly-owned Mr. Feng Zhenquan (resigned on 19 September 2016)
companies, Junan Beifang Properties Company Limited
and Junan Beibu Properties Company Limited, for a total Independent Non-executive Directors
consideration of approximately RMB164.1 million. Junan Mr. Sun Yu Guo
Beifang Properties Company Limited and Junan Beibu Mr. Qi Qing Zhong
Properties Company Limited are two investment holding Ms. Zheng Yu
companies and held parcels of land located at Longshan
Road (Northern section), Junan County, Shandong Province, Biographical details of the directors of the Group are set out
PRC* (莒南縣縣城隆山路北段). The aggregate site area of in the section headed “Biographies of Directors and Senior
the land is approximately 148,748.6 square metres, and the Management”.
land is designated for commercial use.
According to Article 87 of the articles of association of the
Except for the above, the Group had no other material Company, Mr. Li Deheng and Mr. Qi Qing Zhong should
acquisitions or disposal of subsidiaries or associated retire by rotation and, being eligible, consider to offer
themselves for re-election at the forthcoming annual general
companies for the year ended 31 December 2016.
meeting of the Company.
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.
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.
Directors’ Report
Relationship With Suppliers, Customers and Other Stakeholders

The Group understands the importance of maintaining a good relationship with its suppliers and customers to meet its
immediate and long-term goals. The Group maintains a good relationship with suppliers and customers. During the Year,
there was no material and significant dispute between the Group and its suppliers and/or customers.
Directors’ Interests in Shares

The interest and short positions of the Directors and chief executive of the Company in the shares, underlying shares and
debentures of the Company or any of its associated corporations (within the meaning of the SFO) as at 31 December 2016, as
recorded in the register required to be kept under section 352 of the SFO or as otherwise notified to the Company and the
Stock Exchange pursuant to the Model Code were as follows:
Long position
Percentage of
interests to
total issued
Number and share capital
Name of Director Name of company Capacity class of securities (approximate)
Li Xuechun The Company Interests of controlled 991,638,461 Shares 46.63%

corporation (Note 1)
Li Deheng The Company Interests of controlled 33,320,160 Shares 1.57%

Xu Guohua The Company Interests of controlled 28,320,160 Shares 1.33%

Sun Yu Guo The Company Beneficial interest (Note 4) 300,000 Shares 0.01%
Zheng Yu The Company Beneficial interest (Note 5) 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.
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.
Interests of Person Holding 5% or More Interests

As at 31 December 2016, the interests and short positions of the persons, other than a Director or chief executive of the
Company, in the Shares and underlying Shares as recorded in the register required to be kept under section 336 of the SFO
were as follows:
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.
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.
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:
Number of share options

Revised/
Adjusted
At Granted Exercised Lapsed At exercise
Director and eligible 1 January during during during 31 December Date of price Exercise
employees Note 2016 the year the year the year 2016 grant (HKD) period
Eligible employees A 16,600,000 – – (7,000,000) 9,600,000 9/4/2015 5.69 9/4/2016 –

8/4/2020
Sun Yu Guo (Independent B – 300,000 – – 300,000 9/11/2016 3.50 9/11/2018 –
non-executive Director) 8/11/2022
Zheng Yu (Independent B – 300,000 – – 300,000 9/11/2016 3.50 9/11/2018 –
Qi Qingzhong (Independent B – 300,000 – – 300,000 9/11/2016 3.50 9/11/2018 –
Eligible employees B – 13,800,000 – (800,000) 13,000,000 9/11/2016 3.50 9/11/2018 –
8/11/2022
Eligible employees C – 300,000 – – 300,000 30/12/2016 3.82 30/12/2018 –
29/12/2022
16,600,000 15,000,000 – (7,800,000) 23,800,000
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
Average share price HKD4.89

Exercise price HKD5.69
Expected life of options 5.0 years
Expected volatility 43.11%
Expected dividend yield 2.26%
Risk free rate 0.99%
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
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

Major Customers and Suppliers Sufficiency of Public Float

The aggregate sales attributable to the Group’s largest As at 21 March 2017, being the latest practicable date prior
customer and five largest customers taken together were to the issue of this annual report, to the best knowledge of
less than 30% of the total sales for the year 2016. the Directors and based on the information publicly available
to the Company, there was sufficient public float as required
The aggregate purchases attributable to the Group’s five by the Listing Rules.
largest suppliers taken together were less than 30% of the
Group’s total purchases for the year 2016. Purchase, Redemption or Sales of Listed
Securities of the Company
Management Contracts Neither the Company, nor any of its subsidiaries purchased,
No contracts concerning the management and redeemed or sold any of the Company’s listed securities
administration of the whole or any substantial part of the during the year ended 31 December 2016.
business of the Company were entered into or existed
during the year.
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.

The listing of the Shares on the Main Board of the Stock
Exchange took place on 8 February 2007 and the Directors
are of the opinion that the Company has complied with the
Code Provisions as set out in the Code since then.
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.
On behalf of the Board
Li Xuechun
Chairman
21 March 2017
Independent Auditor’s Report
To the Shareholders of Fufeng Group Limited

(Incorporated in the Cayman Islands with limited liability)
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:
• the consolidated balance sheet as at 31 December 2016;

• the consolidated income statement for the year then ended;
• the consolidated statement of comprehensive income for the year then ended;
• the consolidated statement of changes in equity for the year then ended;
• the consolidated cash flow statement for the year then ended; and
• the notes to the consolidated financial statements, which include a summary of significant accounting policies.
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.
Basis for Opinion

We conducted our audit in accordance with Hong Kong Standards on Auditing (“HKSAs”) issued by the HKICPA. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated
Financial Statements section of our report.
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.
Independent Auditor’s Report (Continued)
Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
consolidated financial statements of the current period. We considered Revenue Recognition as a significant matter that was
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on this matter.
Key Audit Matter How our audit addressed the Key Audit Matter
Revenue recognition We evaluated and validated management’s key controls

that are present in the Group’s sales process from end-to-
Refer to note 2.25 and note 5 to the Group’s consolidated end, from customer order’s approval, sales recording, all
financial statements. the way through to reconciliations with cash receipts and
customers’ records.
Revenue from sales of goods amounted to RMB11,803
million for the year ended 31 December 2016. Revenue We conducted testing of sales revenue recorded covering
is recognised when the amount and the related costs different products, locations and customers, by examining
are reliably measured, and the risks and rewards of the relevant supporting documents including customer
the underlying products have been transferred to the orders, goods delivery notes and customs declaration
customers. notices. In addition, we confirmed certain customers’
receivable balances at the balance sheet date and their
We focused on this area due to the huge volume of transaction amounts during the year, and tested the
revenue transactions generated from sales of numerous reconciliations between the book amounts and confirmed
kinds of products to a large number of customers that amounts if these were different. The items tested were
occurred in many different locations. In relation to export selected on a sample basis by considering the amount,
sales, it usually takes more time for title of goods to pass nature and characteristics of those customers.
over to customers than domestic sales. There is potential
risk of misstatement in relation to whether revenue is Our work also included testing of a sample of manual
recognised in the correct reporting periods. revenue-related journal entries by inquiring management
of the nature of these journals and inspection of the
supporting documents.
Furthermore, one of our focused audit efforts was testing

export sales transactions that took place shortly before
and after the balance sheet date, by reconciling recognised
revenue with the goods delivery notes and customs
declaration notices to assess whether revenue was
recognised in the correct reporting periods.
We found the Group’s sales transactions being tested

were recognised in a manner consistent with the Group’s
revenue recognition accounting policy.
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.
Responsibility of Directors and Audit Committee for the Consolidated Financial

Statements
The directors of the Company are responsible for the preparation of the consolidated financial statements that give a
true and fair view in accordance with HKFRSs issued by the HKICPA and the disclosure requirements of the Hong Kong
Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to fraud or error.
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.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
We report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or
accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance, but
is not a guarantee that an audit conducted in accordance with HKSAs will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial
statements.
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.
• 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
Hong Kong, 21 March 2017

Consolidated Income Statement

For the year ended 31 December 2016

2016 2015
Note RMB’000 RMB’000
Revenue 5 11,803,131 11,225,722

Cost of sales 8 (9,396,758) (9,423,231)
Gross profit 2,406,373 1,802,491
Selling and marketing expenses 8 (816,603) (708,931)

Administrative expenses 8 (516,315) (512,997)
Other operating expenses 8 (29,252) (47,375)
Other income 6 363,855 440,503
Other gains – net 7 102,361 59,783
Operating profit 1,510,419 1,033,474
Finance income 11 9,466 14,412

Finance costs 11 (218,634) (368,112)
Finance costs – net 11 (209,168) (353,700)
Share of profit of investments accounted for using the equity method 12b 647 –
Profit before income tax 1,301,898 679,774
Income tax expense 13 (209,386) (163,513)
Profit for the year and attributable to the Shareholders 1,092,512 516,261
Earnings per share for profit attributable to

the Shareholders during the year
(expressed in RMB cents per share)
– basic 14 51.37 24.36
– diluted 14 47.79 24.14
The notes on pages 75 to 150 are an integral part of these consolidated financial statements.
Consolidated Statement of Comprehensive Income


2016 2015
RMB’000 RMB’000
Profit for the year 1,092,512 516,261
Other comprehensive income for the year – –
Total comprehensive income for the year 1,092,512 516,261
Total comprehensive income attributable to the Shareholders 1,092,512 516,261
Consolidated Balance Sheet

As at 31 December 2016
As at 31 December
2016 2015
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
Assets of disposal group classified as held for sale 23 – 204,512
4,939,134 4,629,217
Total assets 14,456,102 13,850,178
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
Total equity 6,815,864 5,807,059
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
Consolidated Balance Sheet (Continued)

As at 31 December 2016
As at 31 December
2016 2015
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
Liabilities of disposal group classified as held for sale 23 – 56,471
4,992,902 5,281,961
Total liabilities 7,640,238 8,043,119
Total equity and liabilities 14,456,102 13,850,178
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
Consolidated Statement of Changes in Equity

Attributable to the Shareholders

Share Share Other Retained
capital premium reserves earnings Total
Note RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Balance at 1 January 2015 205,243 638,986 190,377 4,334,460 5,369,066
Comprehensive Income
Profit for the year 26 – – – 516,261 516,261
Total comprehensive income – – – 516,261 516,261
Transactions with owners

Profit appropriation 26, 27 – – 46,154 (46,154) –
Employee share option schemes:
– Proceeds from shares issued 24, 27 688 14,656 (4,029) – 11,315
– Value of employee services 25, 27 – – 9,317 – 9,317
– Expiry of share options issued 26, 27 – – (10,597) 10,597 –
Conversion of convertible bonds 24, 27 1,347 55,980 (3,567) – 53,760
Repurchase of shares of the Company 24, 26 (56) (1,805) – 1,861 –
Dividends 24 – (152,660) – – (152,660)
Total transactions with owners 1,979 (83,829) 37,278 (33,696) (78,268)
Balance at 31 December 2015 207,222 555,157 227,655 4,817,025 5,807,059
Comprehensive Income
Profit for the year 26 – – – 1,092,512 1,092,512
Total comprehensive income – – – 1,092,512 1,092,512
Transactions with owners

Profit appropriation 26, 27 – – 86,924 (86,924) –
– Value of employee services 25, 27 – – 8,811 – 8,811
– Expiry of share options issued 26, 27 – – (3,410) 3,410 –
Dividends 24 – (92,518) – – (92,518)
Total transactions with owners – (92,518) 92,325 (83,514) (83,707)
Balance at 31 December 2016 207,222 462,639 319,980 5,826,023 6,815,864
Consolidated Cash Flow Statement


2016 2015
Cash flows from operating activities

Cash generated from operations 33(a) 2,477,975 1,604,195
Interest paid (166,930) (292,245)
Income tax paid (221,104) (163,312)
Net cash flows generated from operating activities 2,089,941 1,148,638
Cash flows from investing activities

Investment in an associate (30,000) –
Payments for leasehold land 16 (80,726) (83,246)
Purchases of property, plant and equipment (1,311,614) (829,830)
Purchases of intangible assets 18 (6,445) (2,642)
Urban planning related government grants received – 227,862
Proceeds from disposal of property, plant and equipment 33(c) 1,652 77
Proceeds from disposal of subsidiaries, net of cash 33(b) 164,133 298,750
Assets-related government grants received 122,759 213,851
Interest received 11 9,466 14,412
Proceeds from term deposits 149,000 14,453
Placement of term deposits (2,000) (169,100)
Net cash used in investing activities (983,775) (315,413)
Cash flows from financing activities

Net proceeds from shares issued – 11,315
Proceeds from issuance of corporate bonds 29 – 986,000
Dividends paid to the Company’s shareholders (92,518) (152,660)
Proceeds from bank borrowings 1,277,096 3,075,887
Repayments of bank borrowings (1,507,938) (2,911,180)
Redemption of senior notes – (1,849,071)
Redemption of convertible bonds 29 – (13,200)
Repayments of medium-term notes (600,000) –
Net cash used in financing activities (923,360) (852,909)
Net increase/(decrease) in cash and cash equivalents 182,806 (19,684)
Cash and cash equivalents at beginning of the year 22 741,287 796,564

Transferred from/(to) disposal group classified as held for sale 35,593 (35,593)
Cash and cash equivalents at end of the year 22 959,686 741,287
Notes to the Consolidated Financial Statements

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.
2. Summary of Significant Accounting Policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out
below. These policies have been consistently applied to all the years presented, unless otherwise stated.
2.1 Basis of preparation

The consolidated financial statements of the Company have been prepared in accordance with all applicable
Hong Kong Financial Reporting Standards (“HKFRS”) and the disclosure requirements of the Hong Kong
Companies Ordinance. The consolidated financial statements have been prepared under the historical cost
convention.
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.
Notes to the Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

2.1 Basis of preparation (Continued)
Changes in accounting policy and disclosures
(a) New amendments of HKFRSs adopted by the Group in 2016
The following new amendments of HKFRSs which are relevant to the Group’s operations are effective
for the first time for the financial year beginning on 1 January 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 HKFRS 7 ‘Financial instruments: Disclosures’ clarifies that the additional

disclosure required by the amendments to HKFRS 7 ‘Disclosure – Offsetting financial
assets and financial liabilities’ is not specifically required for all interim periods, unless
required by HKAS 34.
– 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.


Changes in accounting policy and disclosures (Continued)
(b) New standards and amendments of HKFRSs which have been issued and are relevant to the Group’s
operations and effective for the financial year beginning after 1 January 2016 and have not been early
adopted by the Group
• Amendments to HKAS 12, ‘Income taxes’ on the recognition of deferred tax assets for
unrealised losses clarify how to account for deferred tax assets related to debt instruments
measured at fair value. The amendments are effective for annual periods beginning on or after
1 January 2017.
• Amendments to HKAS 7 – Statement of cash flows introducing an additional disclosure that

will enable users of financial statements to evaluate changes in liabilities arising from financing
activities. The amendment is part of the HKICPA’s Disclosure Initiative, which continues to
explore how financial statement disclosure can be improved. The amendment is effective for
annual periods beginning on or after 1 January 2017.
• HKFRS 15 ‘Revenue from Contracts with Customers’ establishes a comprehensive framework

for determining when to recognise revenue and how much revenue to recognise through a
5-step approach: (1) Identify the contract(s) with customer; (2) Identify separate performance
obligations in a contract (3) Determine the transaction price (4) Allocate transaction price to
performance obligations and (5) recognise revenue when performance obligation is satisfied.
The core principle is that a company should recognise revenue to depict the transfer of
promised goods or services to the customer in an amount that reflects the consideration to
which the company expects to be entitled in exchange for those goods or services. It moves
away from a revenue recognition model based on an ‘earnings processes’ to an ‘asset-liability’
approach based on transfer of control.
HKFRS 15 provides specific guidance on capitalisation of contract cost and licence

arrangements. It also includes a cohesive set of disclosure requirements about the nature,
amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts
with customers.
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.


adopted by the Group (Continued)
• HKFRS 9 ‘Financial Instruments’ replaces the whole of HKAS 39.
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.


adopted by the Group (Continued)
• Amendments to HKFRS 2 ‘Classification and Measurement of Share-based Payment
Transactions’ clarify the measurement basis for cash-settled share-based payments and
the accounting for modification from cash-settled awards to equity-settled awards. It also
introduces an exception to the principles in HKFRS 2 that requires an award to be treated
as if it is wholly equity-settled, where an employer is obliged to withhold an amount for the
employee’s tax obligation associated with a share-based payment and pay that amount to the
tax authority. HKFRS 2 is effective for annual periods beginning on or after 1 January 2018.
• 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.
• Amendments to HKFRS 10 and HKAS 28 ‘Sale or contribution of assets between an investor

and its associate or joint venture’ address an inconsistency between HKFRS 10 and HKAS 28
in the sale and contribution of assets between an investor and its associate or joint venture.
A full gain or loss is recognised when a transaction involves a business. A partial gain or loss
is recognised when a transaction involves assets that do not constitute a business, even if
those assets are in a subsidiary. The effective date of HKFRS 10 and HKAS 28 has now been
deferred.
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.


2.2 Subsidiaries
(a) Consolidation
A subsidiary is an entity (including a structured entity) over which the Group has control. The Group
controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries
are consolidated from the date on which control is transferred to the Group. They are deconsolidated
from the date that control ceases.
(b) Business combinations

The Group applies the acquisition method to account for business combinations. The consideration
transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities
incurred to the former owners of the acquiree and the equity interests issued by the Group. The
consideration transferred includes the fair value of any asset or liability resulting from a contingent
consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed
in a business combination are measured initially at their fair values at the acquisition date.
The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition

basis. Non-controlling interests in the acquiree that are present ownership interests and entitle their
holders to a proportionate share of the entity’s net assets in the event of liquidation are measured at
either fair value or the present ownership interests’ proportionate share in the recognised amounts of
the acquiree’s identifiable net assets. All other components of non-controlling interests are measured
at their acquisition date fair value, unless another measurement basis is required by HKFRS.
Acquisition-related costs are expensed as incurred.
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.


2.2 Subsidiaries (Continued)
(b) Business combinations (Continued)
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree
and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of
the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred,
non-controlling interest recognised and previously held interest measured is less than the fair value
of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is
recognised directly in the consolidated income statement.
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.
(c) Disposal of subsidiaries

When the Group ceases to have control, any retained interest in the entity is re-measured to its fair
value at the date when control is lost, with the change in carrying amount recognised in profit or loss.
The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained
interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised
in other comprehensive income in respect of that entity are accounted for as if the Group had directly
disposed of the related assets or liabilities. It means the amounts previously recognised in other
comprehensive income are reclassified to profit or loss or transferred to another category of equity as
specified/permitted by applicable HKFRSs.
(d) Separate financial statements

Investments in subsidiaries are accounted for at cost less impairment. Cost also includes direct
attributable costs of investment. The results of subsidiaries are accounted for by the company on the
basis of dividend and receivable.
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.


2.3 Associates
An associate is an entity over which the group has significant influence but not control, generally
accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are
accounted for using the equity method of accounting. Under the equity method, the investment is initially
recognised at cost, and the carrying amount is increased or decreased to recognise the investor’s share of
the profit or loss of the investee after the date of acquisition.
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’s share of post-acquisition comprehensive income is recognised in consolidated statement of

comprehensive income, and its share of post-acquisition movements in other comprehensive income is
recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the
investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate,
including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred
legal or constructive obligations or made payments on behalf of the associate.
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.
2.4 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and
assessing performance of the operating segments, has been identified as the executive directors that make
strategic decisions.


2.5 Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the
currency of the primary economic environment in which the entity operates (the “functional currency”).
The consolidated financial statements are presented in RMB, which is the Company and its
subsidiaries’ functional and the Group’s presentation currency.
(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year-end exchange rates of monetary assets
and liabilities denominated in foreign currencies 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”.
2.6 Leasehold land payments

Leasehold land payments represent up-front prepayments made for the usage of leasehold land in the PRC
less accumulated amortisation and any impairment losses.
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.
2.7 Property, plant and equipment

Property, plant and equipment, comprising plant and building, machinery, furniture and fixtures and vehicles,
are stated at historical cost less depreciation and impairment losses. Historical cost includes expenditure that is
directly attributable to the acquisition of the items.
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.


2.7 Property, plant and equipment (Continued)
Depreciation on property, plant and equipment, except for construction in progress, is calculated using the
straight-line method to allocate their costs to their residual values over their estimated useful lives, as follows:
Plant and building 15~20 years

Machinery 8~10 years
Furniture and fixtures 3~8 years
Vehicles 5~8 years
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”.
2.8 Intangible assets

(a) Patents
Separately acquired patents are shown at historical cost. Patents have a finite useful life and are
carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated using
the straight-line method to allocate the cost of patents over their estimated beneficial period of 20
years.
(b) Computer software

Acquired computer software is capitalised on the basis of the costs incurred to acquire and bring to use
the specific software. These costs are amortised over their estimated useful lives, which do not exceed
10 years.


2.9 Impairment of non-financial assets
Assets that are subject to amortisation are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for
the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows
(cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for
possible reversal of the impairment at each reporting date.
2.10 Disposal groups held for sale

Disposal groups are classified as held for sale when their carrying amount is to be recovered principally
through a sale transaction and a sale is considered highly probable. The disposal groups assets (except for
certain assets as explained below), are stated at the lower of carrying amount and fair value less costs to
sell. Deferred tax assets, assets arising from employee benefits, financial assets (other than investments in
subsidiaries and associates) and investment properties, which are classified as held for sale, would continue
to be measured in accordance with the policies set out elsewhere in Note 2.


2.11 Financial Assets
(a) Classification
The Group classifies its financial assets under the category of loans and receivables. The classification
depends on the purpose for which the financial assets were acquired. Management determines the
classification of its financial assets at initial recognition.
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.
(b) Recognition and measurement

Regular way purchases and sales of financial assets are recognised on the trade-date – the date on
which the Group commits to purchase or sell the asset. Financial assets are derecognised when the
rights to receive cash flows have expired or have been transferred and the Group has transferred
substantially all risks and rewards of ownership. Loans and receivables are initially recognised at fair
value plus transaction costs and subsequently carried at amortised cost using the effective interest
method.
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.
(c) Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the consolidated balance sheet
when there is a legally enforceable right to offset the recognised amounts and there is an intention to
settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable
right must not be contingent on future events and must be enforceable in the normal course of
business and in the event of default, insolvency or bankruptcy of the Company or the counterparty.


2.12 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted
average method. The cost of finished goods and work in progress comprises raw materials, direct labour,
other direct costs and related production overheads (based on normal operating capacity). It excludes
borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less
applicable variable selling expenses.
2.13 Trade and other receivables

Trade receivables are amounts due from customers for merchandise sold or services performed in the
ordinary course of business. If collection of trade and other receivables is expected in one year or less (or
in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are
presented as non-current assets.
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.


2.14 Cash and bank balances
Cash and bank balances includes cash and cash equivalents, term deposits over 3 months and within one
year and restricted bank deposits.
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.
2.15 Share capital

Ordinary shares are classified as equity.
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.
2.16 Trade and other payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of
business from suppliers. Trade payables are classified as current liabilities if payment is due within one year
or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current
liabilities.
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.


2.18 Borrowing costs
General and specific borrowing costs directly attributable to the acquisition, construction or production of
qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their
intended use or sale, are added to the cost of those assets, until such time as the assets are substantially
ready for their intended use or sale.
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.
2.19 Compound financial instruments

Compound financial instruments issued by the Group comprise convertible bonds that can be converted to
share capital at the option of the holder, and the number of shares to be issued does not vary with changes in
their fair value.
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.


2.20 Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the consolidated
income statement, except to the extent that it relates to items recognised in other comprehensive income or
directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity,
respectively.
(a) Current income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively
enacted at the balance sheet date in the countries where the Company and its subsidiaries operate
and generate taxable income. Management periodically evaluates positions taken in tax returns
with respect to situations in which applicable tax regulation is subject to interpretation. It establishes
provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
(b) Deferred income tax

Inside basis differences
Deferred income tax is recognised, using the liability method, on temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial
statements. However, the deferred income tax is not accounted for if it arises from initial recognition
of an asset or liability in a transaction other than a business combination that at the time of the
transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using
tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are
expected to apply when the related deferred income tax asset is realised or the deferred income tax
liability is settled.
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.
Outside basis differences

Deferred income tax liabilities are provided on taxable temporary differences arising from investments
in subsidiaries, except for deferred income tax liability where the timing of the reversal of the temporary
difference is controlled by the Group and it is probable that the temporary difference will not reverse in
the foreseeable future.
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.


2.20 Current and deferred income tax (Continued)
(c) Offsetting
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset
current income tax assets against current income tax liabilities and when the deferred income taxes
assets and liabilities relate to incomes taxes levied by the same taxation authority on either the taxable
entity or different taxable entities where there is an intention to settle the balances on a net basis.
2.21 Employee benefits – pension

The companies within the Group operate various pension schemes. In accordance with the rules and
regulations in the PRC, the employees of the Group’s subsidiaries established in the PRC participate in
defined contribution retirement benefit plans organised by the various local PRC governments. These local
PRC governments undertake to assume the retirement benefit obligations of all existing and future retired
employees payable under the plans described above. The assets of these plans are held separately from
those of the Group in an independent fund managed by the PRC government.
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.
2.22 Share-based payments

(a) Equity-settled share-based payment transactions
The Group operates three equity-settled, share-based compensation plans, under which the Group
receives services from employees as consideration for equity instruments (options) of the Group. The
fair value of the employee services received in exchange for the grant of the options is recognised
as an expense. The total amount to be expensed is determined by reference to the fair value of the
options granted, including the impact of any service and non-market performance vesting conditions (for
example, remaining an employee of the entity over a specified time period).
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.


2.22 Share-based payments (continued)
(a) Equity-settled share-based payment transactions (continued)
At the end of each reporting period, the Group revises its estimates of the number of options that
are expected to vest based on the non-marketing vesting conditions. It recognises the impact of
the revision to original estimates, if any, in the consolidated income statement, with a corresponding
adjustment to equity.
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).
(b) Share-based payment transactions among group entities

The grant by the Company of options over its equity instruments to the employees of subsidiaries
undertakings in the Group is treated as a capital contribution. The fair value of employee services
received, measured by reference to the grant date fair value, is recognised over the vesting period as
an increase to investment in a subsidiary, with a corresponding credit to equity in the parent company
accounts.
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.
2.24 Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the
grant will be received and the Group will comply with all attached conditions.
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.


2.24 Government grants (Continued)
Government grants related to the acquisition of property, plant and equipment are included in non-current
liabilities as deferred income and are credited to the consolidated income statement on a straight-line basis
over the expected lives of the related assets.
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.
2.25 Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable, and represents amounts
receivable for goods supplied, stated net of discounts returns and value added taxes. The Group recognises
revenue when the amount of revenue can be reliably measured; when it is probable that future economic
benefits will flow to the entity; and when specific criteria have been met for each of the Group’s activities, as
described below. The Group bases its estimates of return on historical results, taking into consideration the
type of customer, the type of transaction and the specifics of each arrangement.
(a) Sales of goods

Sales of goods are recognised when the Group has delivered products to the customer, the customer
has accepted the products and collectability of the related receivables is reasonably assured.
(b) Interest income

Interest income is recognised using the effective interest method.
2.26 Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are
classified as operating leases. Payments made under operating leases (net of any incentives received from the
lessor) are charged to the consolidated income statement on a straight-line basis over the period of the lease.
2.27 Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be
confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within
the control of the Group. It can also be a present obligation arising from past events that is not recognised
because it is not probable that outflow of economic resources will be required or the amount of obligation
cannot be measured reliably.
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.


2.27 Contingent liabilities and contingent assets (Continued)
A contingent asset is a possible asset that arises from past events and whose existence will be confirmed
only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the
Group.
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.
2.28 Research and development

Research expenditure is recognised as an expense as incurred. Costs incurred on development projects
(related to the design and testing of new or improved products) are recognised as intangible assets when the
following criteria are fulfilled:
(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;
(c) there is an ability to use the intangible asset;
(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.
2.29 Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s and Company’s
financial statements in the period in which the dividends are approved by the Company’s shareholders, or
directors, where applicable.

3. Financial Risk Management

3.1 Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, fair
value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The Group’s overall risk
management programme focuses on the unpredictability of financial markets and seeks to minimise potential
adverse effects on the Group’s financial performance.
(a) Market risk

(i) Foreign exchange risk
The Directors do not consider the exposure to foreign exchange risk significant to the Group’s
operation as the Group mainly operates in the PRC with most of the transactions denominated
and settled in RMB. Therefore, the Group has not used any derivatives to hedge its exposure to
foreign exchange risk for the year ended 31 December 2016.
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.

3. Financial Risk Management (Continued)

3.1 Financial risk factors (Continued)
(a) Market risk (Continued)
(ii) Cash flow and fair value interest rate risk
As the Group has no significant interest-bearing assets except for bank deposits and balances,
the Group’s income and operating cash flows are substantially independent of changes in
market interest rates. The Group’s exposure to changes in interest rates is mainly attributable
to its borrowings. A portion of borrowings bear variable rates and expose the Group to cash
flow interest rate risk.
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.
(b) Credit risk

The Group has no significant concentrations of credit risk. The carrying amounts of cash and cash
equivalents, short-term bank deposits, and trade and other receivables represent the Group’s
maximum exposure to credit risk in relation to financial assets. The Group has policies that deposits
are placed with reputable banks. For sales of goods, customers of the Group usually pay in advance
before delivery of products. Credit will only be granted to customers with long-term relationship. The
Group performs ongoing credit evaluations of its customers’ financial conditions and generally does
not require collateral on trade receivables. Credit quality of the financial assets is disclosed in Note 19.
(c) Liquidity risk

Prudent liquidity risk management includes maintaining sufficient cash and available credit facilities to
meet obligations when they arise.
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.


3.1 Financial risk factors (Continued)
(c) Liquidity risk (Continued)
Less than Between Between

1 year 1 and 2 years 2 and 5 years
RMB’000 RMB’000 RMB’000
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 – –
Total 3,700,497 2,125,073 –
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 – –
Total 3,274,922 942,866 2,281,872
(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.


3.2 Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going
concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an
optimal capital structure to reduce the cost of capital.
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
Total borrowings (Note 29) 3,099,978 3,838,141

Total assets 14,456,102 13,850,178
Gearing ratio 21.44% 27.71%
3.3 Fair value estimation

The Group adopted the amendment to HKFRS 7 for financial instruments that are measured in the balance
sheet at fair value. This requires disclosure of fair value measurements by level of the following fair value
measurement hierarchy:
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.

4. Critical Accounting Estimates and Judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
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.
4.1 Estimated impairment of property, plant and equipment

The Group reviews property, plant and equipment for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable, in accordance with the accounting
policy stated in Note 2.9. The recoverable amount of cash-generating unit has been determined based on the
higher of value in use and fair value less costs to sell.
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.
4.2 Useful lives of plant and equipment

The Group’s management determines the estimated useful lives and related depreciation charges for its plant
and equipment. This estimate is based on the historical experience of the actual useful lives of plant and
equipment of similar nature and functions. It could change significantly as a result of technical innovations and
competitor actions in response to severe industry cycles. Management will increase the depreciation charge
where useful lives are less than previously estimated, or it will write off or write down technically obsolete
or non-strategic assets that have been abandoned or sold. For deferred government grants related to the
acquisition of property, plant and equipment, the periodic credits to consolidated income statement will also
be increased under the above mentioned circumstances when such grants are credited to the consolidated
income statement over the assets’ remaining useful lives.
4.3 Net realisable value of inventories

Net realisable value of inventories is the estimated selling price in the ordinary course of business, less estimated
costs of completion and selling expenses. These estimates are based on the current market condition and
historical experience of manufacturing and selling products of similar nature. It could change significantly as
a result of changes in customer taste and competitor actions in response to industry cycles. Management
reassesses the estimates at each balance sheet date.

4. Critical Accounting Estimates and Judgements (Continued)

4.4 PRC taxes
The Group is mainly subject to different taxes in the PRC. Significant judgment is required in determining
the provision for income taxes. There are some transactions and calculations for which the ultimate tax
determination is uncertain during the ordinary course of business. The Group recognises liabilities for
anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax
outcome of these matters is different from the amounts that are initially recorded, such differences will impact
the tax and deferred tax provisions in the period in which such determination is made.
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
– manufacturing and sales of xanthan gum.
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.

5. Segment Information (Continued)

The revenue of the Group for the years ended 31 December 2016 and 2015 are set out as follows:
2016 2015
RMB’000 RMB’000
MSG 6,415,119 6,418,049

Corn refined products 1,473,794 1,314,548
Threonine 1,012,837 594,830
High-end amino acid products 663,744 490,732
Starch sweeteners 642,086 724,002
Fertilisers 614,964 483,257
Xanthan gum 562,466 969,278
Glutamic acid 200,834 42,068
Pharmaceuticals 86,898 73,702
Synthetic ammonia 55,513 56,019
Corn oil 27,995 35,937
Others 46,881 23,300
11,803,131 11,225,722


The segment information for the year ended 31 December 2016 is as follows:
Amino acid Xanthan gum Unallocated Group

RMB’000 RMB’000 RMB’000 RMB’000
Revenue 11,240,665 562,466 – 11,803,131
Segment results 1,482,307 39,923 (11,811) 1,510,419
Finance costs – net (Note 11) (209,168)
Share of profit of investments accounted

for using the equity method (Note 12b) 647
Profit before income tax 1,301,898
Income tax expense (Note 13) (209,386)
Profit for the year attributable to

the Shareholders 1,092,512
Other segment items included in the

consolidated income statement
Depreciation (Note 17) 759,643 65,628 1,275 826,546
Amortisation of leasehold land payments
(Note 16) 22,535 4,307 86 26,928
Amortisation of intangible assets
(Note 18) 606 – – 606
Loss on disposal of property,
plant and equipment – net (Note 7) 1,594 – – 1,594
Impairment charges for property,
plant and equipment (Note 17) 119,790 – – 119,790
Capital expenditures 1,215,352 57,358 1 1,272,711
The segment assets and liabilities at 31 December 2016 are as follows:

RMB’000 RMB’000 RMB’000 RMB’000
Segment assets and liabilities
Total assets 9,919,823 3,769,193 767,086 14,456,102
Total liabilities 4,833,050 908,334 1,898,854 7,640,238



The segment information for the year ended 31 December 2015 is as follows:

RMB’000 RMB’000 RMB’000 RMB’000
Revenue 10,256,444 969,278 – 11,225,722
Segment results 757,638 289,006 (13,170) 1,033,474
Finance costs – net (Note 11) (353,700)
Profit before income tax 679,774
Income tax expense (Note 13) (163,513)
Profit for the year attributable to

the Shareholders 516,261
Other segment items included in the

consolidated income statement
Depreciation (Note 17) 680,112 65,128 1,573 746,813
Amortisation of leasehold land payments
(Note 16) 14,792 1,615 86 16,493
Amortisation of intangible assets
(Note 18) 2,788 – – 2,788
Loss on disposal of property,
plant and equipment – net (Note 7) 2,248 – – 2,248
Impairment charges for property,
plant and equipment (Note 17) 60 – – 60
Capital expenditures 988,108 59,350 80,637 1,128,095



The segment assets and liabilities at 31 December 2015 are as follows:
Disposal
Xanthan group held
Amino acid gum Unallocated for sale Group
Segment assets and liabilities
Total assets 8,668,125 3,861,218 1,116,323 204,512 13,850,178
Total liabilities 5,051,084 1,030,067 1,905,497 56,471 8,043,119
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
Amortisation of deferred income (Note 30) 172,376 231,501

Government grants related to expenses 64,346 104,237
Sales of waste products 108,388 93,041
Others 18,745 11,724
363,855 440,503

7. Other Gains – Net
2016 2015
RMB’000 RMB’000
Gain on disposal of subsidiaries/ a subsidiary (Note 33(b)) 6,472 1,125

Net foreign exchange gains (Note 15) 73,652 28,117
Gain on compensation from insurance company after offsetting losses 23,831 32,789
Loss on disposal of property, plant and equipment – net (Note 33(c)) (1,594) (2,248)
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
Changes in inventories of finished goods and work in progress (118,452) (72,744)

Raw materials and consumables used 8,000,031 8,128,134
Employee benefit expenses (Note 9) 979,829 996,935
Depreciation (Note 17) 826,546 746,813
Amortisation of leasehold land payments (Note 16) 26,928 16,493
Impairment charges for property, plant and equipment (Note 17) 119,790 60
Amortisation of intangible assets (Note 18) 606 2,788
Transportation expenses 541,939 453,117
Utilities purchased 23,905 18,070
Travelling and office expenses 43,908 40,114
Provision for inventory write-down (Note 21) 7,433 4,133
Auditors’ remuneration
– Audit services 4,357 6,605
– Non-audit services 1,980 480
Land use tax, real estate tax and other taxes 115,666 110,483
Advertisement fees 11,405 12,068
(Reversal of)/Provision for receivables impairment (Note 20) (237) 239
Plant relocation expenses 6,174 24,143
Listing expenses relating to the spin-off of Shenhua Health Group 6,514 25,855
Others 160,606 178,748
Total cost of sales, selling and marketing expenses,

administrative expenses and other operating expenses 10,758,928 10,692,534

9. Employee Benefit Expenses Including Directors’ Emoluments
2016 2015
RMB’000 RMB’000
Staff costs (including directors’ emoluments)

– Wages, salaries and allowance 849,706 849,501
– Pension costs – defined contribution plans (a) 121,312 138,117
– Share options granted to directors and employees (Note 27) 8,811 9,317
979,829 996,935
(a) Pension costs – defined contribution plans

The employees of the Group’s subsidiaries established in the PRC participated in defined contribution
retirement benefit plans organised by the relevant provincial governments under which the Group was
required to make monthly contributions to these plans at the percentages of the employees’ monthly salaries
and wages, subject to certain ceilings.
(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year ended 31 December 2016
included three directors (2015: three) whose emoluments are reflected in the analysis shown in Note 38. The
emoluments payable to the remaining two (2015: two) individual during the year are as follows:
2016 2015
RMB’000 RMB’000
Salaries and allowances 3,148 2,956

Pension costs – defined contribution plans 61 56
Share options granted 3,750 7,296
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
Emolument bands (in HK dollar)

HKD2,000,001 – HKD2,500,000 1 –
HKD5,500,001 – HKD6,000,000 1 1
HKD6,000,001 – HKD6,500,000 – 1
2 2

10. Research and Development Costs

The following amounts were recognised as expenses and charged to administrative expenses in the consolidated
income statement:
2016 2015
RMB’000 RMB’000
Raw materials and consumables used 17,998 36,067

Employee benefit expenses 13,997 14,051
Depreciation 9,088 6,101
Others 6,903 7,989
47,986 64,208
All these research costs arose from internal development activities.
11. Finance Income and Costs
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)
Net finance expenses 209,168 353,700


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
Absolute Divine BVI USD1 Investment holding in BVI
Expand Base 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

12a. Subsidiaries (Continued)
Place of
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
Shandong Fufeng Biotechnology PRC RMB5,500,000 Biological techniques research and

Development Company Limited development, promotion and
industrialisation of new biological
techniques and achievements,
information services of biological
technique in the PRC
Jiangsu Shenhua Pharmaceutical PRC RMB122,000,000 Manufacture and sales of eubacteria

Co., Ltd. (“Shenhua Pharmaceutical”) material medicine, preparations and
food additives and other related
products in the PRC
Beijing Huijinhuaying PRC RMB21,000,000 Own and operate self-used office

Commercial Co., Ltd. building
Hulunbeir Northeast Fufeng PRC RMB1,000,000,000 Manufacture and sales of starch,

Biotechnologies Co., Ltd. starch sweeteners, amino acids,
(“Hulunbeir Fufeng”) monosodium glutamate, glutamic
acid, fertilisers, and other related
products in the PRC
Fufeng (Singapore) Pte. Ltd. Singapore SGD1,300,000 Sales of monosodium glutamate

(“Fufeng Singapore”) and other related products in the
Southeast Asia

Place of
Jiangsu Fufeng PRC RMB5,000,000 Biological techniques research and

Biotechnologies Co., Ltd. development, promotion and
industrialisation of new biological
techniques and achievements,
information services of biological
technique. Sales of xanthan gum,
amino acids and starch sweeteners in
the PRC
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
Shenhua Pharmaceutical PRC RMB5,000,000 Manufacture and sales of fungal material

(Jiangsu) Co., Ltd. medicine, preparations and food
(“Jiangsu Shenhua Medical”) additives 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

Place of
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 Global Limited BVI USD100 Investment holding in BVI
Full Health (Hong Kong) Limited Hong Kong HKD100 Investment holding in Hong Kong
First Biotech Inc. US USD100,000 Sales of biological products in the US
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.
12b. Investments Accounted for Using the Equity Method

The amounts recognised in the balance sheet are as follows:
2016 2015
RMB’000 RMB’000
Associate 30,647 –
At 31 December 30,647 –

12b. Investments Accounted for Using the Equity Method (Continued)

The amounts recognised in the consolidated income statement are as follows:
2016 2015
RMB’000 RMB’000
Associate 647 –
For the year ended 31 December 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.
Nature of investment in an associate as at 31 December 2016
Place of % of
business/country ownership Nature of the Measurement
Name of entity of incorporation interest relationship method
Jilin COFCO Biomaterial

Co., Ltd. (“Jilin COFCO”) PRC 30 Note 1 Equity
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.
Summarised financial information of an associate

Set out below are the summarised financial information for Jilin COFCO as of 31 December 2016 which is accounted
for using the equity method.
Jilin COFCO
2016
RMB’000
Total assets 147,057

Total liabilities 44,900
Net assets 102,157
Revenue 1,122
Total comprehensive income 2,155

13. Taxation
(a) Income tax expense
2016 2015
RMB’000 RMB’000
Current income tax

– PRC enterprise income tax (“EIT”) 240,924 199,709
– Hong Kong income tax 4,210 31
– Singapore income tax (15) 218
– US income tax 953 –
Total current income tax 246,072 199,958

Deferred income tax (Note 31) (36,686) (36,445)
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%).

13. Taxation (Continued)

(a) Income tax expense (Continued)
The other subsidiaries of the Group in the PRC are subject to an income tax rate of 25% (2015: 25%).
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
Tax calculated at domestic tax rates applicable to

profits in the respective jurisdictions 384,057 260,433
Preferential tax of certain subsidiaries (173,515) (103,552)
Unrecognised tax losses 1,395 1,519
Expenses not deductible for tax purposes 1,435 7,488
Income not subject to tax (3,986) (2,375)
209,386 163,513
(b) Value-added tax (“VAT”)

Sales of self-manufactured products of the Company’s PRC subsidiaries are subject to VAT. The applicable
tax rates for domestic sales are 0%, 13% and 17%. Shandong Fufeng, Baoji Fufeng, IM Fufeng, Xinjiang
Fufeng and Hulunbeir Fufeng have been approved to use the “exempt, credit, refund” method on goods
exported. The tax refund rate is 13%.
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.
14. Earnings Per Share

(a) Basic
Basic earnings per share for the years ended 31 December 2016 and 2015 are calculated by dividing the
profit attributable to the Shareholders by the weighted average number of ordinary shares in issue during the
year excluding ordinary shares purchased by the Company.
2016 2015
RMB’000 RMB’000
Profit attributable to the Shareholders 1,092,512 516,261
Weighted average number of ordinary shares in issue excluding

ordinary shares purchased by the Company (thousands) 2,126,685 2,118,865
Basic earnings per share (RMB cents per share) 51.37 24.36

14. Earnings Per Share (Continued)

(b) Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares
outstanding to assume conversion of all dilutive potential ordinary shares. The Company has two categories of
dilutive potential ordinary shares: convertible bonds and share options. The convertible bonds are assumed to
have been converted into ordinary shares, and the net profit is adjusted to eliminate the interest expense less
the tax effect. For the share options, a calculation is done to determine the number of shares that could have
been acquired at fair value (determined as the average annual market share price of the Company’s shares)
based on the monetary value of the subscription rights attached to outstanding share options. The number of
shares calculated as above is compared with the number of shares that would have been issued assuming
the exercise of the share options.
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
Profit used to determine diluted earnings per share 1,150,293 579,103
Weighted average number of ordinary shares in

issue excluding ordinary shares purchased
by the Company (thousands) 2,126,685 2,118,865
Adjustments for:
– Assumed conversion of convertible bonds (thousands) 280,049 280,049
Weighted average number of ordinary shares for

diluted earnings per share (thousands) 2,406,734 2,398,914
Diluted earnings per share (RMB cents per share) 47.79 24.14
15. Net Foreign Exchange (Gains)/Losses

The exchange differences charged to the consolidated income statement are included as follows:
2016 2015
RMB’000 RMB’000
Other gains – net (Note 7) (73,652) (28,117)

Net finance expenses (Note 11) 37,481 66,361
(36,171) 38,244

16. Leasehold Land Payments

Leasehold land payments represent prepaid operating lease payments for the leasehold land (40 to 70 years) located
in Shandong Province, Shaanxi Province, Inner Mongolia Autonomous Region, Xinjiang Uygur Autonomous Region,
Jiangsu Province and Beijing in the PRC. Their net book values are analysed as follows:
2016 2015
RMB’000 RMB’000
Cost
At beginning of the year 1,546,019 1,769,714

Additions 80,726 83,246
Disposal of leasehold land to government (33) –
Disposal of subsidiaries/a subsidiary (Note 7) (162,536) (297,625)
Transferred from/(to) disposal group classified as held for sale (Note 23) 9,316 (9,316)
At end of the year 1,473,492 1,546,019
Amortisation
At beginning of the year (35,959) (21,010)

Charge for the year (Note 8) (26,928) (16,493)
Disposal of leasehold land to government 6 –
Disposal of subsidiaries/a subsidiary (Note 7) 4,875 –
Transferred (from)/to disposal group classified as held for sale (Note 23) (1,544) 1,544
At end of the year (59,550) (35,959)
Net book value
At end of the year 1,413,942 1,510,060
As at 31 December 2016, there is no leasehold land pledged as security for the Group’s borrowings (2015:
RMB110,195,000).
Amortisation expense is recorded in “Administrative expenses” in the consolidated income statement.
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.

17. Property, Plant and Equipment
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
At 31 December 2016 3,472,858 7,952,127 200,856 61,503 371,487 12,058,831
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)
At 31 December 2016 (675,154) (3,153,905) (147,360) (40,974) – (4,017,393)
Provision for impairment loss

At 1 January 2016 (17,567) (29,341) (115) (709) (15,141) (62,873)
Impairment charge (Note 8) (45,633) (73,875) (79) – (203) (119,790)
At 31 December 2016 (63,200) (103,216) (194) (709) (15,344) (182,663)
Net book value

At 31 December 2016 2,734,504 4,695,006 53,302 19,820 356,143 7,858,775

17. Property, Plant and Equipment (Continued)
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)
At 31 December 2015 3,202,633 7,001,972 184,290 56,017 323,543 10,768,455
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
At 31 December 2015 (450,973) (2,519,411) (132,328) (36,092) – (3,138,804)
Provision for impairment loss

At 1 January 2015 (17,567) (29,341) (115) (709) (15,081) (62,813)
Impairment charge (Note 8) – – – – (60) (60)
At 31 December 2015 (17,567) (29,341) (115) (709) (15,141) (62,873)
Net book value

At 31 December 2015 2,734,093 4,453,220 51,847 19,216 308,402 7,566,778

17. Property, Plant and Equipment (Continued)

(a) As at 31 December 2016, no plant and machinery was pledged as security for the Group’s borrowings (2015:
Nil).
(b) Depreciation expense included in the consolidated income statement is as follows:
2016 2015
RMB’000 RMB’000
Cost of sales 731,229 694,619

Administrative expenses 95,317 52,194
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).

18. Intangible Assets

Computer
Patents software Total
RMB’000 RMB’000 RMB’000
At 1 January 2015
Cost 18,928 2,733 21,661
Accumulated amortisation (23) (227) (250)
Accumulated impairment (18,857) – (18,857)
Net book amount 48 2,506 2,554
Year ended 31 December 2015

Opening net book amount 48 2,506 2,554
Additions 1,384 1,258 2,642
Amortisation (75) (2,713) (2,788)
Write-off 861 – 861
held for sale (Note 23) (2,113) (105) (2,218)
Closing net book amount 105 946 1,051
At 31 December 2015
Cost 20,312 3,991 24,303
Accumulated amortisation (98) (2,940) (3,038)
held for sale (Note 23) (2,113) (105) (2,218)
Net book amount 105 946 1,051
Year ended 31 December 2016

Opening net book amount 105 946 1,051
Additions 130 6,315 6,445
Amortisation (127) (479) (606)
Transferred from disposal group classified as
held for sale (Note 23) 2,113 105 2,218
Closing net book amount 2,221 6,887 9,108
At 31 December 2016
Cost 18,329 10,201 28,530
Accumulated amortisation (225) (3,419) (3,644)
Transferred from disposal group classified as
held for sale (Note 23) 2,113 105 2,218
Net book amount 2,221 6,887 9,108
The carrying amount of the patents has been reduced to its recoverable amount through recognition of an impairment
loss.

19. Credit Quality of Financial Assets

Trade and notes receivables
The credit quality of financial assets that are neither past due nor impaired can be assessed by types of the financial
assets and by reference to historical information about counterparty default rates. The Group categorises its trade
and notes receivables into the following:
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
Group 1 398,810 418,293

Group 2 388,369 399,614
Group 3 285 –
787,464 817,907
Long-term bank deposits and cash and bank balances

The management considers the credit risks in respect of cash and bank balances are relatively minimal as each
counter party either has a high credit rating or is a state-owned PRC bank. The management believes the PRC
government is able to support the state-owned PRC banks in the event of a liquidity difficulty.
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)
• Group 3 – Other state-owned banks in the PRC
2016 2015
RMB’000 RMB’000
Group 1 41,582 70,497

Group 2 755,031 591,776
Group 3 645,244 356,262
1,441,857 1,018,535

20. Trade and Other Receivables
2016 2015
RMB’000 RMB’000
Trade receivables (a) 388,654 399,614

Less: provision for impairment of trade receivables (b) (285) –
Trade receivables – net 388,369 399,614

Notes receivable (c) 398,810 418,293
Deposits and others 63,041 74,423
Loans to employees 1,715 1,402
– Loans to key management – –
– Loans to other employees 1,715 1,402
Value-added tax for future deduction 26,894 71,114
Trade and other receivables excluding prepayments 878,829 964,846
Prepayments for raw materials 156,247 248,941
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
Within 3 months 309,683 348,549

3 ~12 months 64,622 48,562
Over 12 months 14,349 2,503
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.

20. Trade and Other Receivables (Continued)

(b) As at 31 December 2016, trade receivables of RMB50,127,000 (2015: RMB27,795,000) were past due but
not impaired. These relate to a number of independent customers for whom there is no significant financial
difficulty and based on past experience, the overdue amounts can be recovered. The ageing analysis of these
trade receivables is as follows:
2016 2015
RMB’000 RMB’000
Past due within 3 months 33,736 16,897

Past due in 3 ~12 months 16,391 10,898
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 –

20. Trade and Other Receivables (Continued)

(c) As at 31 December 2016, notes receivable were all bank acceptance notes aged less than six months,
including a total amount of RMB387,239,000 (2015: RMB353,519,000) that have been endorsed.
(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
– RMB 583,715 629,939

– USD 295,114 334,907
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
Raw materials 1,081,626 928,716

Work-in-progress 78,434 88,728
Finished goods 1,321,851 1,174,405
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.

21. Inventories (Continued)

The cost of inventories recognised in the consolidated income statement is as follows:
2016 2015
RMB’000 RMB’000
Cost of sales 7,832,560 7,999,307

Administrative expenses 49,019 56,083
7,881,579 8,055,390
22. Long-Term Bank Deposits and Cash and Bank Balances
2016 2015
RMB’000 RMB’000
Long-term bank deposits 20,100 –
Cash and cash equivalents

– Cash on hand 390 534
– Cash in bank 959,296 740,753
959,686 741,287
Term deposits over 3 months and within one year 2,000 145,000
Cash and bank balances 961,686 886,287

Restricted bank deposits (a) 460,461 132,782
Total cash and bank balances 1,422,147 1,019,069
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
Issuance of bank acceptance notes 457,431 121,777

Others 3,030 11,005
460,461 132,782

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
– RMB 455,293 757,601

– USD 978,833 231,201
– HKD 7,910 29,832
– SGD 211 435
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%).
23. Current and Non-Current Assets Held for Sale

As at 31 December 2015, the assets and liabilities related to Shenhua Health Group have been presented as
a disposal group classified as held for sale following the approval via an extraordinary general meeting of the
shareholders of the Company on 26 November 2015 to spin-off Shenhua Health Group. The transaction was in the
application process as at 31 December 2015. The assets and liabilities of Shenhua Health Group were measured at
their carrying amounts, which were lower than the fair value less cost to sell as at 31 December 2015.
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.

23. Current and Non-Current Assets Held for Sale (Continued)

(a) Assets of disposal group classified as held for sale:
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
Total Assets – 204,512
(b) Liabilities of disposal group classified as held for sale:
2016 2015
RMB’000 RMB’000
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
Total liabilities – 56,471


24. Share Capital and Premium
Amount
Number
of shares Ordinary Share
(thousands) shares premium Total
RMB’000 RMB’000 RMB’000
At 1 January 2015 2,105,208 205,243 638,986 844,229

– Proceeds from shares issued 5,117 688 14,656 15,344
Conversion of convertible bonds 17,065 1,347 55,980 57,327
Repurchase of shares of the Company (705) (56) (1,805) (1,861)
Dividends – – (152,660) (152,660)
At 31 December 2015 2,126,685 207,222 555,157 762,379

Dividends – – (92,518) (92,518)
At 31 December 2016 2,126,685 207,222 462,639 669,861
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.

25. Share-Based Payment

(a) Share options granted on 14 July 2009
The Company granted to certain eligible employees share options to subscribe for an aggregate of
64,110,000 ordinary shares of the Company on 14 July 2009. These options vest in tranches over a period of
up to 4.5 years.
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 1 January 2.80 – 2.80 24,823

Exercised 2.80 – 2.80 (5,117)
Expired 2.80 – 2.80 (19,706)
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.

25. Share-Based Payment (Continued)

(b) Share options granted on 9 April 2015
16,600,000 ordinary shares of the Company on 9 April 2015. These options vest in tranches over a period of
up to 5 years. Thus, there were no options being exercised during the years ended 31 December 2016 and
2015.
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 1 January 5.69 16,600 – –

Issued 5.69 – 5.69 16,600
Forfeited 5.69 (7,000) 5.69 –
At 31 December 5.69 9,600 5.69 16,600
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
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).


(c) Share options granted on 9 November 2016
14,700,000 ordinary shares of the Company on 9 November 2016. These options vest in tranches over a
period of up to 6 years. Thus, there were no options being exercised during the year ended 31 December
2016.
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)
At 31 December 3.50 13,900
model, of the options as at the grant date was approximately RMB17,515,000. The following assumptions
Granted on
9 November 2016

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.
2016 was approximately RMB820,000.


(d) Share options granted on 30 December 2016
The Company granted to certain eligible employee share options to subscribe for an aggregate of 300,000
ordinary shares of the Company on 30 December 2016. These options vest in tranches over a period of up to
6 years. Thus, there were no options being exercised during the year ended 31 December 2016.
as follows:
2016
Average
exercise
price in HKD
per share Options
option (thousands)
At 1 January – –
Issued 3.82 300
At 31 December 3.82 300
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

2016 was approximately RMB10,000.

26. Retained Earnings
The Group
2016 2015
RMB’000 RMB’000
At 1 January 4,817,025 4,334,460
Profit for the year 1,092,512 516,261

Profit appropriation to statutory reserves (Note 27) (86,924) (46,154)
Expiry of share options issued 3,410 10,597
Repurchase of shares of the Company (Note 24) – 1,861
At 31 December 5,826,023 4,817,025
27. Other Reserves
Share-based
Convertible Capital Statutory payment
bonds reserve reserve reserve Total
(Note 29) (Note (a)) (Note (b)) (Note 25)
1 January 2015 63,198 (370,760) 483,313 14,626 190,377
Profit appropriation (Note 26) – – 46,154 – 46,154

Conversion of convertible bonds (3,567) – – – (3,567)
Employee share option schemes
– Value of employee services (Notes 9, 25) – – – 9,317 9,317
– Expiry of share options issued – – – (10,597) (10,597)
– Proceeds from shares issued – – – (4,029) (4,029)
31 December 2015 59,631 (370,760) 529,467 9,317 227,655
Profit appropriation (Note 26) – – 86,924 – 86,924

Employee share option schemes
– Value of employee services (Notes 9, 25) – – – 8,811 8,811
– Expiry of share options issued – ` – – (3,410) (3,410)
31 December 2016 59,631 (370,760) 616,391 14,718 319,980


27. Other Reserves (Continued)

(a) Capital reserve
It mainly represents reserve arising from the Group’s reorganisation completed in July 2006.
(b) Statutory reserve

In accordance with the PRC regulations and the articles of the association of the PRC companies comprising
the Group, before distributing the net profit of each year, each of the companies registered in the PRC is
required to set aside 10% of its statutory net profit for the year after offsetting any prior year’s losses as
determined under the PRC accounting regulations to the statutory surplus reserve fund. When the balance
of such reserve reaches 50% of each company’s share capital, any further appropriation is optional. The
statutory surplus reserve fund can be utilised to offset prior years’ losses or to issue bonus shares, provided
that the balance of such reserve is not less than 25% of the entity’s registered capital after the bonus issue.
28. Trade, Other Payables and Accruals
2016 2015
RMB’000 RMB’000
Trade payables (a) 1,214,352 1,195,564

Advances from customers (b) 693,249 510,875
Payables for property, plant and equipment (Note 33(d)) 746,611 866,878
Bank acceptance notes payable 255,300 47,606
Government compensation related to property,
plant and equipment disposal received in advance (Note 17) 139,778 151,144
Salaries, wages and staff welfares payables 398,146 347,628
Interest payables 12,444 33,682
Government grants received in advance 16,432 15,005
Dividends payable 407 407
Other payables and accruals 244,896 142,404
3,721,615 3,311,193

28. Trade, Other Payables and Accruals (Continued)

(a) As at 31 December 2016 and 2015, the ageing analysis of trade payables based on invoice date was as
follows:
2016 2015
RMB’000 RMB’000
Within 3 months 875,365 798,319

3 to 6 months 220,871 263,308
6 to 12 months 72,489 87,786
1 to 2 years 38,662 36,410
Over 2 years 6,965 9,741
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
Total Borrowings 3,099,978 3,838,141


29. Borrowings (Continued)

(a) Borrowings
At 31 December 2016, the Group’s borrowings were repayable as follows:
Bank borrowings Other loans

2016 2015 2016 2015
RMB’000 RMB’000 RMB’000 RMB’000
Within 1 year 1,176,793 344,808 – 1,501,112

Between 1 and 2 years – 835,477 1,923,185 –
Between 2 and 5 years – 170,000 – 986,744
1,176,793 1,350,285 1,923,185 2,487,856
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
Bank borrowings 3.08% 4.13%
The carrying amount and fair value of non-current borrowings are as follows:
Carrying amount Fair value

2016 2015 2016 2015
RMB’000 RMB’000 RMB’000 RMB’000
Bank borrowings, unsecured – 635,477 – 639,928

Bank borrowings, secured – 370,000 – 378,430
Corporate bonds (b) 991,241 986,744 988,405 979,266
Convertible bonds (c) 931,944 – 1,056,617 –
1,923,185 1,992,221 2,045,022 1,997,624
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.


(a) Borrowings (Continued)
The exposure of the Group’s borrowings to interest rate changes and the contractual repricing dates at the
end of the reporting period are as follows:
2016 2015
RMB’000 RMB’000
6 months or less 519,146 914,186

6 to 12 months 657,647 931,734
1 to 5 years 1,923,185 1,992,221
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
RMB 2,553,683 3,330,856

USD 546,295 507,285
3,099,978 3,838,141
(b) Corporate bonds

In November 2015, IM Fufeng issued corporate bonds at a par value of RMB1,000,000,000, which was
denominated in RMB with a fixed interest rate of 3.98% per annum. The bonds will mature in three years from
the issuance date. The value of the liability, net of transaction costs of RMB14,000,000, was determined at
issuance of the bonds.


(c) Convertible bonds
Convertible bonds issued in April 2010 (“2010 CB”)
The Company issued convertible bonds with a total par value of RMB1,025,000,000 in April 2010 at a
fixed interest rate of 4.5%. The bonds will mature in five years from the issue date at their nominal value of
RMB1,025,000,000 or can be converted into the Company’s ordinary shares at the holder’s option at the
price of HKD7.03 per share. The values of the liability component and the equity conversion component, net
of transaction costs of RMB25,679,000, were determined upon issuance of the bonds.
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.
Convertible bonds issued in November 2013 (“2013 CB”)

The Company issued convertible bonds with a total par value of RMB975,000,000 in November 2013 at
a fixed interest rate of 3.0%. The bonds will mature in five years from the issue date at an amount equal to
108.31 percentage of their principal amount of RMB975,000,000, or can be converted into the Company’s
ordinary shares at the holder’s option at the price of HKD4.173 per share. The values of the liability component
and the equity conversion component, net of transaction costs of RMB23,597,000, were determined upon
issuance of the bonds. During the year ended 31 December 2015, a total of RMB53,760,000 of such
convertible bonds were converted into 17,065,033 ordinary shares of the Company. The carrying amount of
the 2013 CB as at 31 December 2016 was RMB931,944,000 (2015: RMB901,734,000).
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.


(c) Convertible bonds (Continued)
Convertible bonds issued in November 2013 (“2013 CB”) (Continued)
The convertible bonds recognised in the balance sheet are calculated as follows:
2010 CB 2013 CB Total

RMB’000 RMB’000 RMB’000
Liability component at 1 January 2015 13,314 923,499 936,813

Including:
– Interest payable – current portion 149 2,438 2,587
– Carrying amount at 1 January 2015 13,165 921,061 934,226
Interest expense on convertible bonds (Note 11) 184 62,842 63,026

Interest paid (298) (28,550) (28,848)
Settlement of final principle and interest of
convertible bonds (13,200) – (13,200)
Conversion of convertible bonds – (53,760) (53,760)
Liability component at 31 December 2015 – 904,031 904,031
Including:
– Interest payable – current portion – 2,297 2,297
– Carrying amount at 31 December 2015 – current – 901,734 901,734
Liability component at 1 January 2016 – 904,031 904,031
Interest expense on convertible bonds (Note 11) – 57,781 57,781

Interest paid – (27,571) (27,571)
Liability component at 31 December 2016 – 934,241 934,241
Including:
– Interest payable – current portion – 2,297 2,297
– Carrying amount at 31 December 2016 – non-current – 931,944 931,944
(d) Medium-term notes

In April 2013, IM Fufeng issued medium-term notes at a par value of RMB600,000,000, which was dominated
in RMB with a fixed interest rate of 5.11% per annum. The note will mature in three years from the issue date.
The value of the liability, net of transaction costs of RMB5,310,000, was determined at issue of the notes. The
medium-term notes was fully repaid on 18 April 2016.

30. Deferred Income
2016 2015
RMB’000 RMB’000
Government grants related to income tax credit from

purchasing qualified equipment (a) 71,393 100,139
Government grants related to acquisition of environmental
protection and technology improvement equipment (b) 562,709 490,094
Government grants related to urban planning of local PRC governments (c) 73,399 162,054
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
At beginning of the year 752,287 536,550

Granted during the year 121,333 453,495
Amortised as income (Note 6, 33) (172,376) (231,501)
At end of the year 707,501 752,287
(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.

31. Deferred Income Tax

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current income
tax assets against current income tax liabilities and when the deferred income tax assets and liabilities relate to
income taxed levied by the same taxation authority on either the taxable entity or different taxable entities where there
is an intention to settle the balances on a net basis. The deferred tax assets and liabilities are as follows:
2016 2015
RMB’000 RMB’000
Deferred income tax assets:

– Deferred income tax assets to be recovered after more than 12 months 112,705 72,701
– Deferred income tax assets to be recovered within 12 months 71,691 70,371
184,396 143,072
Deferred income tax liabilities:

– Deferred income tax liabilities to be settled after more than 12 months (16,650) (16,650)
– Deferred income tax liabilities to be settled within 12 months – –
(16,650) (16,650)
Deferred income tax assets, net 167,746 126,422
The gross movement on the deferred income tax account is as follows:
2016 2015
RMB’000 RMB’000
Beginning balance of the year 126,422 94,615

Credited to consolidated income statement (Note 13) 36,686 36,445
Ending balance of the year 167,746 126,422


31. Deferred Income Tax (Continued)

The movement in deferred income tax assets and liabilities during the year, without taking into consideration the
offsetting of balances within the same tax jurisdiction, is as follows:
Deferred income tax assets:
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
At 1 January 2015 7,438 1,370 45,576 26,776 8,757 23,738 113,655
(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)
At 31 December 2015 4,025 1,022 67,946 37,025 8,650 25,324 143,992
(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
At 31 December 2016 661 6,834 79,634 45,507 45,498 7,045 185,179
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

31. Deferred Income Tax (Continued)

Deferred income tax liabilities:
Capitalisation
of borrowing Withholding
costs tax Total
RMB’000 RMB’000 RMB’000
At 1 January 2015 2,390 16,650 19,040
Credited to consolidated income statement (1,470) – (1,470)
At 31 December 2015 920 16,650 17,570
Credited to consolidated income statement (137) – (137)
At 31 December 2016 783 16,650 17,433
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
Interim, paid 69,295 79,124

Final, proposed 147,651 23,223
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.

33. Cash Generated from Operations

(a) Cash generated from operations
2016 2015
RMB’000 RMB’000

Adjustments for:
– Provision for/(reversal of) inventory write-down (Note 21) 3,300 (22,522)
– (Reversal of)/Provision for receivables impairment (Note 20) (237) 239
– Impairment charge for property, plant and equipment (Note 17) 119,790 60
– Depreciation (Note 17) 826,546 746,813
– Amortisation of intangible assets (Note 18) 606 2,788
– Amortisation of leasehold land payments (Note 16) 26,928 16,493
– Amortisation of deferred income (Note 30) (172,376) (231,501)
– Gain on disposal of subsidiaries/a subsidiary – net (Note (b)) (6,472) (1,125)
– Loss on disposal of leasehold land prepayments – net (Note 16) 27 –
– Gain on compensation from insurance company after
offsetting losses (Note 7) (23,831) (32,789)
– Loss on disposal of property, plant and equipment – net (Note (c)) 1,594 2,248
– Employee share option schemes (Notes 9, 25) 8,811 9,317
– Interest income (Note 11) (9,466) (14,412)
– Interest expenses (Note 11) 181,153 301,751
– Foreign exchange losses on financing activities (Note 11) 37,481 66,361
Changes in working capital:
– Inventories (261,173) (255,503)
– Trade and other receivables 232,730 242,118
– Restricted bank deposits (327,679) 17,748
– Trade, other payables and accruals 538,345 76,337
Cash generated from operations 2,477,975 1,604,195
(b) Disposal of subsidiaries/ a subsidiary
2016 2015
RMB’000 RMB’000
Proceeds from disposal of subsidiaries/a subsidiary 164,133 298,750

Net book amount for disposal of subsidiaries/a subsidiary (Note 16) (157,661) (297,625)
Gain on disposal of subsidiaries/a subsidiary – net (Note 7) 6,472 1,125


33. Cash Generated from Operations (Continued)

(c) Proceeds from disposal of property, plant and equipment
2016 2015
RMB’000 RMB’000
Net book amount for disposals (Note 17) 14,612 131,233

Loss on disposal of property, plant and equipment – net (Note 7) (1,594) (2,248)
Decrease in other payables for government compensation related to
property, plant and equipment received in advance (Note 17, 28) (11,366) (128,908)
Proceeds from disposal of property, plant and equipment 1,652 77
(d) Major non-cash transactions

During the year ended 31 December 2016, the Group purchased property, plant and equipment which were
recorded in payables without cash outflow in the amount of RMB746,611,000 (2015: RMB866,878,000) (Note
28).
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
Purchase of property, plant and equipment

– Contracted but not yet incurred 105,021 71,329

34. Commitments (Continued)

(b) Operating lease commitments – the Group as lessee
The Group leases properties under non-cancellable lease agreements. The Group’s future aggregate minimum
lease payments under these non-cancellable operating leases were as follows:
2016 2015
RMB’000 RMB’000
No later than 1 year 3,453 3,036

Later than 1 year and no later than 5 years 611 1,117
4,064 4,153
35. Related Party Transactions and Balances

(a) Key management compensation
2016 2015
RMB’000 RMB’000
Salaries and allowances 17,564 18,859

Pension costs – defined contribution plan 684 733
Share options granted to key management (Note 27) 4,191 9,317
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.
36. Events After the Balance Sheet Date

Other than the proposed final dividend described in Note 32, there was no significant event of the Group after the
balance sheet date.

37. Balance Sheet and Reserve Movement of the Company

Balance sheet of the Company
As at 31 December
2016 2015
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
Total assets 2,332,325 2,374,891
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)
Total equity 496,562 609,193
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
Total liabilities 1,835,763 1,765,698
Total equity and liabilities 2,332,325 2,374,891
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

37. Balance Sheet and Reserve Movement of the Company (Continued)

(a) Reserve movement of the Company
Retained Other
earnings reserves
RMB’000 RMB’000
At 1 January 2015 (136,561) 77,824

Loss for the year (98,030) –
Value of employee services – 9,317
Repurchase of shares of the Company 1,861 (4,029)
Expiry of share options issued 10,597 (10,597)
Conversion of convertible bonds – (3,567)
At 31 December 2015 (222,133) 68,948
At 1 January 2016 (222,133) 68,948

Loss for the year (28,925) –
Value of employee services – 8,811
Expiry of share options issued 3,410 (3,410)
At 31 December 2016 (247,648) 74,349


38. Benefits and Interests of Directors

(a) Directors’ and chief executive’s emoluments
The emoluments of every director for the years ended 31 December 2016 and 2015 are set out as below:
2016
Employer’s
contribution
Other to pension
Name of Director Fees Salary benefits (i) scheme Total
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
Independent Non-executive Directors:

Zheng, Yu 205 – 17 – 222
Sun, Yuguo 150 – 17 – 167
Qi, Qingzhong 100 – 17 – 117
455 7,719 51 214 8,439


38. Benefits and Interests of Directors (Continued)

(a) Directors’ and chief executive’s emoluments (Continued)
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
575 8,645 209 9,429
(i) Other benefits include share option.

(ii) Resigned on 25 July 2016.
(iii) Resigned on 19 September 2016.
(iv) Resigned on 9 November 2015.
(v) Resigned on 8 June 2015.
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.
(b) Directors’ material interests in transactions, arrangements or contracts

No significant transactions, arrangements and contracts in relation to the group’s business to which the
Company was a party and in which a director of the Company had a material interest, whether directly or
indirectly, subsisted at the end of the year or at any time during the year.
Share Information
Stock Code 546
Board lot 1,000 Shares
Price and turnover
Share price Turnover

2016 High Low Share
(HKD) (HKD) (’000)
January 3.57 2.78 69,732

February 2.66 2.18 43,740
March 3.04 2.44 85,201
April 2.74 2.37 41,434
May 2.52 2.10 42,878
June 2.40 2.03 56,034
July 2.91 2.08 84,836
August 3.53 2.68 114,631
September 3.87 3.22 82,230
October 3.88 3.26 68,019
November 3.74 3.20 51,781
December 3.90 3.42 37,054
Issued capital at 31 December 2016 2,126,684,633 Shares
Closing price at 31 December 2016 HKD3.81 per Share

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
ASP average selling price(s) of the products of the Group
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
Board the board of Directors
Code Code on Corporate Governance Practice under Appendix 14 of the Listing Rules
Company Fufeng Group Limited
Director(s) the director(s) of the Company
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
Group the Company and its subsidiaries
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)
HKFRS Hong Kong Financial Reporting Standards
HKICPA Hong Kong Institute of Certified Public Accountants
Hong Kong the Hong Kong Special Administrative Region of the PRC
Glossary (Continued)
Hulunbeir Fufeng 呼倫貝爾東北阜豐生物科技有限公司 (Hulunbeir Northeast Fufeng Biotechnologies Co.,

Ltd.), an indirect wholly-owned subsidiary of the Company
Hulunbeir Plant the production plant of the Group located at Hulunbeir, Inner Monogolia Autonomous
Region, the PRC
Hulunbeir Shengmin 呼倫貝爾市晟敏農業開發有限責任公司 (Hulunbeir Shengmin Agriculture Development

Co., Ltd.), an indirect wholly-owned subsidiary of the Company
IM Fufeng 內蒙古阜豐生物科技有限公司 (Neimenggu Fufeng Biotechnologies Co., Ltd.), an

indirect wholly-owned subsidiary of the Company
IM Plant the production plant of the Group located at Inner Mongolia Autonomous Region, the
PRC
Jiangsu Fufeng 江蘇阜豐生物科技有限公司 (Jiangsu Fufeng Biotechnologies Co., Ltd.), an indirect

wholly-owned subsidiary of the Company
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
PLA Polylactic acid
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
Glossary (Continued)
SFO the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
Share(s) share(s) in the share capital of the Company
Shareholder(s) holder(s) of the Share(s)
Stock Exchange the Stock Exchange of Hong Kong Limited
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
U.S. the United States of America
RMB Renminbi, the lawful currency of the PRC
HKD Hong Kong dollars, the lawful currency of Hong Kong
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
SGD Singapore dollars, the lawful currency of Singapore
JPY Japan Yen, the lawful currency of Japan
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Fufeng Annual Report 2017

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Fufeng Annual Report 2017

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年報 Annual Report

Fufeng Group Limited

Sustainable Development MSG

• Animal nutrition: key products include threonine,

By-products Strategic Investment

Meanwhile, the Group is in the process of in-depth

Operating results – Summary

Turnover 11,111,920 11,366,722 11,297,696 11,225,722 11,803,131

Balance sheets – Summary

Non-current assets 7,665,681 8,170,547 9,334,995 9,220,961 9,516,968

1. Gross profit margin is equal to gross profit divided by turnover.

Executive Directors Remuneration Committee

Principal Place of Business in the PRC Principal Bankers in Hong Kong

Principal Place of Business Independent Auditor

Authorised Representatives ADRs Information

Turnover Growth Profit Attributable to Shareholders

RMB million RMB million

Revenue Analysis Production Cost Analysis

High-end amino Others

Major Products Processing Map

Thermal power plant

Maltose Crystallised Crystallised

Agricultural Frozen Sauce Canned Beverage Healthcare Oil drilling Pharmaceuticals

Milk Ice Milk

Biographies of Directors and

Biographies of directors and Senior management

李廣玉 (Li Guangyu), aged 38, is an executive Director and 鄭豫 ( Z h e n g Y u ) , a g e d 4 9 , w a s a p p o i n t e d a s a n

Biographies of directors and Senior management

Biographies of directors and Senior management

Management Discussion and Analysis

Management Discussion and Analysis

an increase in gross profit and gross profit margin in its 3,000

Amino acid segment, mainly due to increasing contribution 2,000

products. The expansion of high-end amino acid products 0

The Group’s overall gross profit significantly increased from

Management Discussion and Analysis

Management Discussion and Analysis

Market Overview products, a relatively new product of the Group, continued

Operational Review of the Group

Turnover/Gross profit/Gross profit margin of the Group

Years ended 31 December Change

Turnover (RMB’000) 11,803,131 11,225,722 5.1

Management Discussion and Analysis

Profit attributable to the Shareholders

Years ended 31 December

As reported 1,092,512 516,261 111.6

Year ended 31 December 2016 Year ended 31 December 2015 Increase/(Decrease)

Segment results 1,482,307 39,923 757,638 289,006 95.6 (86.2)

Segment net assets

Management Discussion and Analysis

Years ended 31 December

MSG 6,415,119 6,418,049 (0.0)

11,240,665 10,256,444 9.6

Management Discussion and Analysis

MSG Starch sweeteners

Management Discussion and Analysis

Gross Profit and Gross Profit Margin

Years ended 31 December

Gross profit (RMB’000) 2,316,680 1,447,537 60.0%

Gross profit margin (%) 20.6 14.1 6.5 ppts.

Trend of Gross Profit Margin of Amino Acid Segment

Management Discussion and Analysis

Years ended 31 December