Labixiaoxin Snacks Group Limited — Annual Report 2020

Apr 29, 2021

Contents

• Corporate Information
• Financial Highlights
• Financial Summary
• Chairman's Statement
• Management Discussion and Analysis
• Biographical Details of Directors and Senior Management

Corporate Information

• Corporate Governance Report
• Directors' Report
• Independent Auditors' Report
• Consolidated Statement of Profit or Loss and Other Comprehensive Income
• Consolidated Statement of Financial Position
• Consolidated Statement of Changes in Equity
• Consolidated Statement of Cash Flows
• Notes to the Consolidated Financial Statements

Labixiaoxin Snacks Group Limited ANNUAL REPORT 2020

Corporate Information

REGISTERED OFFICE

Clarendon House 2 Church Street Hamilton HM 11 Bermuda

HEADQUARTERS AND PRINCIPAL PLACE OF BUSINESS IN THE PRC

Wuli Industrial Area Jinjiang, Fujian PRC

PLACE OF BUSINESS IN HONG KONG

Unit 2108, 21/F, Island Place Tower, 510 King's Road, North Point, Hong Kong

PLACE OF LISTING AND STOCK CODE

The Stock Exchange of Hong Kong Limited Stock code: 1262

COMPANY WEBSITE

http://www.lbxxgroup.com (information contained in this website does not form part of this annual report)

BOARD OF DIRECTORS

Executive Directors

Zheng Yu Huan (Chairman) Zheng Yu Shuang (Chief Executive Officer) Zheng Yu Long

Non-Executive Director

Li Hung Kong (Vice-Chairman)

Independent Non-Executive Directors

Li Biao Sun Kam Ching Chung Yau Tong

COMPANY SECRETARY

Chan Yee Lok

AUTHORIZED REPRESENTATIVES

Zheng Yu Shuang Chan Yee Lok

AUDIT COMMITTEE

Chung Yau Tong (Chairman) Li Biao Sun Kam Ching

REMUNERATION COMMITTEE

Sun Kam Ching (Chairman) Zheng Yu Long Chung Yau Tong

Corporate Information

NOMINATION COMMITTEE

Li Biao (Chairman) Zheng Yu Shuang Chung Yau Tong

AUDITORS

HLB Hodgson Impey Cheng Limited 31st Floor, Gloucester Tower The Landmark, 11 Pedder Street Central, Hong Kong

LEGAL ADVISOR

Sidley Austin Level 39, Two International Finance Centre 8 Finance Street Central, Hong Kong

PRINCIPAL SHARE REGISTRAR

Conyers Corporate Services (Bermuda) Limited Clarendon House 2 Church Street Hamilton HM 11 Bermuda

HONG KONG SHARE REGISTRAR

Tricor Investor Services Limited Level 54, Hopewell Centre 183 Queen's Road East Wanchai Hong Kong

PRINCIPAL BANKERS

Construction Bank of China, Jinjiang Branch Construction Bank Building Zeng Jin Area, Qing Yang Jinjiang, Fujian PRC

Ping An Bank Co., Ltd., Quanzhou Branch 1/F, Jun Yi Building, 311 Fengze Street Quanzhou, Fujian PRC

China CITIC Bank, Quanzhou Branch 1-2/F, Renmin Yinhang Building Quanzhou, Fujian PRC

Financial Highlights

Net Prot/

Net Prot/

Note: EBITDA/(LBITDA) refers to profit/(loss) before interests, income tax, depreciation, amortisation, gain on disposal of a subsidiary, writtenoff of property, plant and equipment, reversal/(provision) of impairment losses on loan receivable and loss on the remeasurement of asset classified as held for sale.

Financial Summary

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

	Year ended 31 December
	2020	2019	2018	2017	2016
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
Revenue	508,838	466,570	502,802	902,795	892,854
Gross profit	166,544	139,005	128,119	203,245	220,445
Profit/(Loss) before taxation	15,976	(153,264)	(191,901)	(327,892)	(635,630)
Taxation	(45,379)	(16,846)	12,307	38,487	33,964
Loss and total comprehensive loss for the year	(29,403)	(170,110)	(179,594)	(289,405)	(601,666)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

			As at 31 December
	2020	2019	2018	2017	2016
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
Assets
Non-current assets	523,845	787,137	1,169,947	1,250,131	1,362,192
Current assets	1,005,395	698,719	524,400	746,343	871,066
Total assets	1,529,240	1,485,856	1,694,347	1,996,474	2,233,258
Equity
Total equity	467,844	497,247	667,357	850,266	1,139,671
Liabilities
Non-current liabilities	15,846	15,864	19,233	231,540	231,540
Current liabilities	1,045,550	972,745	1,007,757	914,668	862,047
Total liabilities	1,061,396	988,609	1,026,990	1,146,208	1,093,587
Total equity and liabilities	1,529,240	1,485,856	1,694,347	1,996,474	2,233,258

Chairman's Statement

Dear shareholders,

I am pleased to present the annual report of Labixiaoxin Snacks Group Limited (the "Company", together with its subsidiaries, the "Group") for the year ended 31 December 2020 and extend my gratitude to all the shareholders on behalf of the board (the "Board") of directors (the "Director(s)") of the Company.

Year 2020 was a challenging year for us. Due to the outbreak of the Novel Coronavirus ("COVID-19") in the last quarter of year 2019, the Group's production and sales were partially disrupted during the first quarter of year 2020. In addition, the consumer sentiment in the People's Republic of China (the "PRC") was weak during the first half of year 2020 due to the COVID-19 pandemic. The consumer sentiment in the PRC gradually recovered in the second half of year 2020 due to the stabilization of the COVID-19 pandemic in the PRC. To cope with the negative impacts on the Group's sales due to the COVID-19 pandemic, the Group began to strengthen its e-commerce and new retail channels and launched more advertising and promotion activities both online and offline during the year. These measures had positively boosted our sales performance during this difficult year.

During the year ended 31 December 2020, sales of the Group's products was RMB508.8 million, representing an increase of approximately 9.0% as compared to the year ended 31 December 2019 as a result of the aforesaid measures implemented by the Group. The gross profit margin of the Group for the year ended 31 December 2020 increased by approximately 2.9 percentage points, as compared to year 2019 due to the Group having eliminated most of its low margin products in the previous year. The Group's advertising and promotion expenses increased by approximately 1.0% to RMB35.0 million during the year under review as the Group had launched more advertising and promotion activities both online and offline during the year. For the year ended 31 December 2020, the Group recorded a net loss of RMB29.4 million, a decrease of 82.7% from the net loss of RMB170.1 million for the year ended 31 December 2019.

During the year under review, the Group has disposed the entire equity interest of Tianjin Huakunda Supply Chain Management Co., Ltd., an indirect wholly-owned subsidiary of the Company, to an independent third party at a consideration of approximately RMB288.1 million (subject to adjustment), pursuant to the terms and conditions of the equity transfer agreement dated 27 July 2020. The disposal was completed on 30 December 2020 and a gain on disposal of RMB141.7 million was recorded for the year ended 31 December 2020. The net sales proceeds will be applied to repay the borrowings of the Group, use for the Group's business development and use for the general working capital of the Group. This disposal has definitely strengthened the liquidity of the Group and allowed the Group to capitalise on any potential investment opportunities in the future.

During the year ended 31 December 2020, the Group had spent RMB9.1 million in capital expenditures mainly for the upgrade of production lines in various production plants. In year 2020, the Group had recorded RMB12.5 million net operating cash outflow. As at 31 December 2020, the gearing ratio of the Group was 147.6%. The Group is committed to maintaining sufficient cash and available banking facilities for its working capital requirements and for capitalising on any potential investment opportunities in the future.

With the consumer sentiment in the PRC started to recover from the COVID-19 pandemic, the market demand for the Group's snack products is expected to increase during the year ending 31 December 2020. The Directors considered that the outbreak of COVID-19 may have short-term pressure on the Group's business. However, it may also lead to an upgrade and consolidation opportunities of the food industry. As such, the Directors consider this is a good opportunity for the Group to expand its market share by further enhancing its e-commerce platform. The Directors considered that a steady and healthy recovery of PRC's economy and our business may happen in the short to medium term. To build a solid foundation for mid-to-long term growth, the Group will continue committing to (i) take proactive steps in marketing its brand image and products in 2021 and onwards, (ii) launch new snacks products from time to time to offer better choices to the consumers and (iii) restructure and consolidating its production facilities to enhance its production and logistic efficiency. The Directors believe that these measures will bring positive impacts to the Group's financial performance in the longer run.

Chairman's Statement

While the near-term outlook for the snacks products sector of the PRC remains challenging, the country's ongoing economic reforms and the continuous expansion of middle and upper class population will propel growth in retail consumption in the long run. Therefore, the Directors are cautiously optimistic to the long term development of the Group's business.

The Group cannot overcome the difficulties without a strong and committed management team. Therefore I would like to take this opportunity to thank the Board and my best team of colleagues for providing me with unceasing support during this challenging year. I greatly appreciate your efforts, commitment and unstinting enthusiasm. I look forward to seeing your continuous involvement in our road ahead.

Yours sincerely

ZHENG YU HUAN

Chairman

BUSINESS REVIEW

During the year ended 31 December 2020, Labixiaoxin Snacks Group Limited (the "Company" and together with its subsidiaries, the "Group") has recorded revenue of approximately RMB508.8 million, representing an increase of approximately 9.0% as compared with the corresponding period of last year. The increase in the recorded revenue was mainly due to increase in sales of jelly products as the Group began to strengthen its e-commerce and new retail channels and launched more advertising and promotion activities both online and offline during the year under review. The Group's gross profit for the year ended 31 December 2020 increased by approximately RMB27.5 million when as compared with year 2019.

For the year ended 31 December 2020, the Group recorded a net loss of RMB29.4 million, a decrease of approximately 82.7% from the net loss of RMB170.1 million in last year. The decrease in the net loss was mainly due to i) the improvement in the sales of the Group's products during the year under review; ii) a gain on disposal of a PRC subsidiary; and iii) absence of loss on re-measurement of asset classified as held for sale during the year under review.

REVENUE

Revenue of the Group increased by approximately 9.0% to RMB508.8 million for the year ended 31 December 2020 when compared with year 2019. The increase in the recorded revenue was mainly due to increase in sales of jelly products as the Group began to strengthen its e-commerce and new retail channels and launched more advertising and promotion activities both online and offline during the year. As at 31 December 2020, the Group had a total number of 1,206 distributors (As at 31 December 2019: 845).

Jelly products

Revenue of jelly products increased by approximately 10.0% from RMB349.2 million for the year ended 31 December 2019 to RMB384.2 million for the year ended 31 December 2020, primarily due to the Group having strengthen its e-commerce and new retail channels and launched more advertising and promotion activities both online and offline during the year. During the year ended 31 December 2020, revenue attributable to jelly snacks increased by approximately 4.6% to RMB237.5 million while sales attributable to jelly beverages increased by approximately 20.0% to RMB146.7 million.

Confectionary products

Revenue of confectionary products decreased by approximately 1.5% from RMB105.7 million for the year ended 31 December 2019 to RMB104.1 million for the year ended 31 December 2020, which was primarily due to the Group having shifted its focus to promote jelly products and bean curd products.

Beverage products

Revenue of beverages products of the Group decreased by approximately 33.3% to RMB5.2 million during the year ended 31 December 2020, which was primarily due to the Group having shifted its focus to promote jelly products and bean curd products.

Other snacks products

For the year ended 31 December 2020, revenue of other snacks products increased by approximately 292.3% to RMB15.3 million mainly due to significant increase in sales of bean curd products. Other snacks products includes cakes, breads, bean curd products, egg rolls etc. The Group launched various new bean curd products during the year under review and these products were well received by the customers. The Group will continue to develop new healthy snacks products to meet the different taste of the customers.

COST OF SALES AND GROSS PROFIT

Cost of sales increased by approximately 4.5% to RMB342.3 million for the year ended 31 December 2020. The increase in cost of sales was mainly attributable to the corresponding increase in revenue due to the reasons mentioned above.

SELLING AND DISTRIBUTION EXPENSES

Selling and distribution expenses increased by approximately 3.4% to RMB77.2 million for the year ended 31 December 2020. While the Group had launched more advertising and promotion activities both online and offline during the year to mitigate the negative impacts brought by the COVID-19 pandemic, the Group had proactively identify cheaper advertising channels for promoting its products. As a result, advertising and promotion expenses increased by approximately 1.0% to RMB35.0 million during the year under review.

The general market demand for the Group's products has remained weak. In addition, the PRC's economy has not fully recovered from the COVID-19 pandemic. While the Group will continue to exercise tight costs control on advertising and promotion expenses, the Group will continue to enhance its media exposure and arrange on-site promotion for new or core products with an objective to bring positive message to its consumers and enhance brand recognition within the market with an objective to bring long-term benefits to the Group's development.

ADMINISTRATIVE EXPENSES

Administrative expenses of the Group decreased by approximately 1.0% to RMB105.7 million for the year ended 31 December 2020, which had no significant changes from last year.

WRITTEN-OFF OF PROPERTY, PLANT AND EQUIPMENT

With a view to better utilizing the Group's production capacity and reduce operational costs, the Group moved the production facilities in its Tianjin plant to its Fujian and Anhui plants in year 2019. The surplus machineries were disposed of or written-off and a loss on written-off of property, plant and equipment of RMB67.3 million was recorded for the year ended 31 December 2019.

During the year under review, Tianjin Huakunda Supply Chain Management Co., Ltd. ("Huakunda"), the then subsidiary of the Company holding the Tianjin plant, commenced the redevelopment of its factory premises to cater for production and supply chain base for "New Retail" distribution channels and therefore certain of the original building structures of the factory premises were demolished (the "Demolition"). As a result of the Demolition, the original buildings demolished with net book value of RMB66.0 million has been written-off during the year under review.

GAIN ON DISPOSAL OF A SUBSIDIARY

On 27 July 2020, Labixiaoxin (Tianjin) Co., Ltd., an indirect wholly-owned subsidiary of the Company (the "Vendor"), Labixiaoxin (Fujian) Food Stuff Industry Co., Ltd., an indirect wholly-owned subsidiary of the Company (the "Vendor's Guarantor"), Lucky Gamma Offshore Holdings (HK) Limited, an independent third party (the "Purchaser") and Huakunda, the then indirect wholly-owned subsidiary of the Company (the "Target Company") (collectively, the "Parties") entered into an equity transfer agreement (the "Equity Transfer Agreement"), pursuant to which, the Purchaser has conditionally agreed to acquire, the Vendor has conditionally agreed to sell the entire equity interest in the Target Company at the consideration of RMB288.2 million, pursuant to the terms and conditions of the Equity Transfer Agreement. The disposal was completed on 30 December 2020 and a gain on disposal of approximately RMB141.7 million was recorded for the year ended 31 December 2020.

INCOME TAX EXPENSE

The Group's income tax expense during the year under review was mainly due to derecognition of the deferred tax assets for the tax losses of the Group's subsidiaries in the PRC and the provision of income taxes for the disposal of Huakunda.

NET LOSS FOR THE YEAR

For the year ended 31 December 2020, the Group recorded a net loss of RMB29.4 million, a decrease of approximately 82.7% from the net loss of RMB170.1 million in last year. The decrease in the net loss was mainly due to i) the improvement in the sales of the Group's products during the year under review; ii) a gain on disposal of a subsidiary; and iii) the absence of loss on re-measurement of asset classified as held for sale during the year under review.

FINANCIAL REVIEW

Financial resources and liquidity

The Group mainly finances its operations and capital expenditures by cash and bank balances, operating cash flows, bank borrowings and loan from a director.

As at 31 December 2020, the cash and bank balances amounted to RMB258.8 million (As at 31 December 2019: RMB24.8 million). The increase in cash and bank balances was mainly due to proceeds received from the disposal of the entire equity interest of a subsidiary during the year under review. The bank borrowings of the Group increased by RMB17.6 million during the year ended 31 December 2020.

As at 31 December 2020, the Group's gearing ratio (total borrowings divided by total equity) was 147.6% (As at 31 December 2019: 141.9%). The Group maintained sufficient cash and available banking facilities for its working capital requirements and for capitalizing on any potential investment opportunities in the future. The Group will from time to time make prudent financial arrangements and decisions to address changes in the domestic and international financial environment.

Cash flow

The Group recorded net cash outflow from operating activities of RMB12.5 million for the year ended 31 December 2020 (2019: inflow of RMB35.0 million). The Group has generated RMB300.9 million from investing activities for the year ended 31 December 2020 mainly due to RMB272.0 million net cash inflow on disposal of a subsidiary. The Group has net cash outflow from financing activities of RMB54.5 million for the year ended 31 December 2020 which was mainly due to repayment of matured bank borrowings and the loan from an independent third party.

Capital expenditure

During the year ended 31 December 2020, the Group incurred RMB9.1 million in capital expenditure mainly for the upgrade of production lines of the production plants.

Inventory analysis

The Group's inventories primarily consist of finished goods of jelly products, confectionary products, beverage products and other snacks products, as well as raw materials and packaging materials. As at 31 December 2020, the balance increased by RMB20.4 million from the beginning of the year. The increase in inventory level was mainly due to expected improvement in sales performance during the Chinese lunar new year in February 2021. The inventories turnover days for the years ended 31 December 2020 and 2019 were 67 days and 63 days, respectively.

Trade receivables

Trade receivables mainly represent the balance due from wholesale distributors. The Group typically sells its products on credit and grant 180 days credit to most of the wholesale distributors. The balance increased by RMB53.1 million from the beginning of the year 2020 mainly due to increase in sales in the second half of year 2020 as compared to the corresponding period of year 2019. This was mainly due to increase in sales of jelly products as the Group began to strengthen its e-commerce and new retail channels and launched more advertising and promotion activities both online and offline during the year under review. The trade receivable turnover days for the years ended 31 December 2020 and 2019 were 197 days and 168 days, respectively. Subsequent to the year ended 31 December 2020 and up to the date of this report, approximately RMB81.2 million of the trade receivables were settled by the wholesale distributors.

Asset classified as held for sale

(i) On 15 May 2019, an indirect wholly-owned subsidiary of the Company (the "Vendor") and Fujian Jinjiang Au Dian Supply Chain Management Company Limited, an independent third party (the "Purchaser") entered into the transfer agreement (the "Transfer Agreement"), pursuant to which the Vendor has conditionally agreed to sell, and the Purchaser has conditionally agreed to purchase, the land use right located in Jinjiang Food Industrial Park in Jinjiang City, Fujian Province, the PRC (the "FJ Land Right") for a consideration of RMB180,000,000. Pursuant to the Transfer Agreement, both the Vendor and the Purchaser will liaise with Fujian Jinjiang Industrial Park Construction and Development Company Limited (the "Jinjiang Construction"), a company controlled by Jinjiang City People's Government, regarding the transfer of the FJ Land Right. The Vendor will arrange for the termination of the FJ Land Right with Jinjiang Construction and the Purchaser will enter into an agreement with Jinjiang Construction regarding the new pre-registration contractual right to acquire the FJ Land Right. As at the date of this annual report, the transfer as contemplated under the Transfer Agreement has not been completed. For more details, please refer to the announcement dated 15 May 2019 and the circular dated 24 June 2019. The loss on the remeasurement of asset classified as held for sale of RMB46,690,000 has been recognised during the year ended 31 December 2019.

Pursuant to the Extension Announcement dated on 31 December 2020, as additional time is required by the Purchaser and Vendor for the fulfilment of the conditions precedent to the Transfer Agreement, the Long Stop Date shall be further extended to 30 June 2021.

(ii) On 10 November 2020, an indirect wholly-owned subsidiary of the Company (the "Vendor"), entered into the First Provisional Agreement (the "First Provisional Agreement") with First Purchaser (the "First Purchaser"), pursuant to which the Vendor has agreed to sell, and the First Purchaser has agreed to purchase, the First Property (the "First Property") at a consideration of HK\$11,500,000 (equivalent to approximately RMB10,000,000); and

The Vendor entered into the Second Provisional Agreement (the "Second Provisional Agreement") with the Second Purchaser (the "Second Purchaser"), pursuant to which the Vendor has agreed to sell, and the Second Purchaser has agreed to purchase, the Second Property (the "Second Property") at a consideration of HK\$11,500,000 (equivalent to approximately RMB10,000,000).

The disposal transactions have been completed on 29 January 2021. For more details, please refer to the announcement of the Company dated 10 November 2020.

Trade payables and bills payable

Trade payables mainly represent the balances due to the Group's suppliers who generally grant credit terms ranging from 30 days to 60 days to the Group. The Group also used bank bills to settle trade payables. As at 31 December 2020, bills payable of the Group amounting to RMB81.3 million were secured by pledged bank deposits of RMB40.9 million. As at 31 December 2020, the bills payable were with maturity period within 1 year.

Trade payables turnover days (including trade payables and bills payable) for the years ended 31 December 2020 and 2019 were 175 days and 306 days respectively.

Foreign exchange fluctuations

The Group earns revenue and incur costs and expenses mainly in Renminbi. The Group is exposed to certain foreign exchange fluctuations arising mainly from the exposure of Renminbi against Hong Kong dollar and US dollar. During the year ended 31 December 2020, the Group did not enter into forward contracts to hedge the foreign exchange exposures as the Directors considered the financial benefits of such forward contracts may not outweigh their costs. The Company will continue to monitor foreign exchange changes to best preserve the Group's cash value.

Charges on assets

As at 31 December 2020, land and building of the Group in Hong Kong with net book value of RMB6.0 million was pledged as security for mortgage loan (31 December 2019: RMB6.4 million).

Contingent liabilities

As at 31 December 2020, the Group had no contingent liabilities (31 December 2019: Nil).

EMPLOYMENT AND REMUNERATION POLICY

As at 31 December 2020, the Group had approximately 1,060 employees (including part-time employees) (2019: 1,120 employees) and the total remuneration expenses for the year ended 31 December 2020 amounted to RMB72.1 million. The employees' salaries are reviewed and adjusted annually based on employee's performance and experience. The Group's employee benefits include performance bonus, mandatory provident fund for Hong Kong employees, social insurance packages for the PRC employees and education subsidy to encourage continuous professional development of staff.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES

Neither the Company nor its subsidiaries purchased, sold or redeemed any of the Company's listed securities during the year ended 31 December 2020.

SIGNIFICANT INVESTMENTS AND MATERIAL ACQUISITION AND DISPOSAL OF SUBSIDIARIES AND ASSOCIATED COMPANIES

During the year ended 31 December 2020, the Group has disposed the entire equity interest of Tianjin Huakunda Supply Chain Management Co., Ltd., an then indirect wholly-owned subsidiary of the Company and held an industrial complex in Tianjin, to an independent third party (the "Disposal"). The Disposal was completed on 30 December 2020. Save as the Disposal, there was no significant investments, material acquisition and disposal of subsidiaries and associated companies during the year ended 31 December 2020 (2019: Nil). Further, there was no plan authorised by the Board for other material investments or additional capital assets as at the date of this report.

PROSPECTS

Due to the outbreak of the COVID-19 pandemic since the last quarter of year 2019, the Group's production and sales were partially disrupted during the first quarter of year 2020. The consumer sentiment in the PRC gradually recovered in the second half of year 2020 due to the stabilization of the COVID-19 pandemic in the PRC. To cope with the negative impacts on the Group's sales due to the COVID-19 pandemic, the Group began to strengthen its e-commerce and new retail channels and launched more advertising and promotion activities both online and offline during the year 2020. These measures had positively boosted the Group's sales performance during this difficult year.

Although the economy of the PRC rebounded with a good momentum, the Directors considered that a complete and strong recovery of PRC's economy and the Group's business may not happen in the short term.

To build a solid foundation for mid-to-long term growth, the Group is committed to (i) taking proactive steps in marketing its brand image and products in 2021 and onwards, (ii) launching new snacks products from time to time to offer better choices to the consumers and (iii) promoting its products through e-commerce and new retail channels. The Directors believe that these measures will bring positive impacts to the Group's financial performance in the longer run.

While the near-term outlook for the snacks products sector of the PRC remains challenging, the country's ongoing economic reforms and the continuous expansion of middle and upper class population will propel growth in retail consumption in the long run. Therefore, the Directors are cautiously optimistic to the long term development of the Group's business.

Key Risks and Uncertainties

The Group's financial condition, results of operations, businesses and prospects may be affected by a number of risks and uncertainties. The followings are the key risks and uncertainties identified by the Group. There may be other risks and uncertainties in addition to those shown below which are not known to the Group or which may not be material now but could turn out to be material in the future.

Business Risk

The snack food industry is subject to changes in consumer perception, preferences and tastes. The Group's business and financial performance depends on factors which may affect the level and pattern of consumer spending in the PRC. Such factors include consumer preferences and tastes, consumer confidence, consumer income and consumer perceptions of the safety and quality of the Group's products.

Industrial Risk

The snack food industry is subject to potential food safety and health issues with the raw materials and finished products. If the Group's raw materials or finished products are alleged or found to be spoiled, contaminated, tampered with, incorrectly labeled, unsafe or otherwise associated with food safety incidents, the Group could be subject to product liability claims, adverse publicity and regulatory investigation, intervention or penalties, product returns, any of which may result in increased costs as well as damage to the Group's brands and reputation. Food safety and health issues may arise with respect to the Group's products as a result of numerous factors, many of which may be outside of the Group's control, including as a result of actions by the suppliers, subcontracting manufacturers and distributors of the Group, as well as their sub-distributors.

Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Responsibility for managing operational risks basically rests with every function at divisional and departmental levels. The Group recognises that operational risks cannot be eliminated completely and that it may not always be cost effective to do so.

Key functions in the Group are guided by their operating procedures, limits of authority and reporting framework. The Group will identify and assess key operational exposures from time to time and report such risk issues to senior management as early as possible so that appropriate risk response can be taken.

Financial Risk

The financial risk management of the Group is set out in Note 4 to the consolidated financial statements.

DIRECTORS

ZHENG YU HUAN Chairman and Executive Director

Mr. Zheng Yu Huan, aged 50, is an executive Director. He was appointed as the chairman of the Board of Directors of the Company since 17 March 2015. He was appointed as a Director on 15 June 2004 and was re-designated as an executive Director on 23 September 2011. Mr. Zheng is primarily responsible for the Group's overall management in particular on sales and marketing operations, including formulating the advertising and promotional programs. Mr. Zheng is one of the founders of the Group's jelly products business and is also a director of a number of the Group's subsidiaries including LBXX International and Timeluck. Mr. Zheng has over 22 years of experience in sales and marketing of snack food products. He joined the Group in 2000 as a deputy general manager of LBXX Fujian.

From 1996 to 2000, Mr. Zheng was a general manager of the sales and marketing department of Jinjiang Weili Foods Co., Ltd.(晉江 市味力食品有限公司). Mr. Zheng received his master's degree in business administration from Renmin University of China(中國 人民大學)in 2006. Mr. Zheng graduated from an executive development program for senior management from Xiamen University (廈門大學)in December 2010. Mr. Zheng has also assumed several social positions, such as a representative of the Eleventh Jinjiang Chinese People's Political Consultative Conference(中國人民政治協商會議第十一屆福建省晉江市委員會)since 2006, the vice president of the Sixth Fujian Provincial Youth Federation(第六屆福建省青年聯合會), and member of the Tenth Fujian Provincial Youth Federation(第十屆福建省青年聯合會). He was recognized as one of the China Industrial Economy Top 10 Outstanding Youth(中國工業經濟十大傑出青年)in December 2009 by China Industrial Forum(中國工業論壇). Mr. Zheng is the brother of Mr. Zheng Yu Long, Mr. Zheng Yu Shuang and the brother-in-law of Mr. Li Hung Kong.

ZHENG YU SHUANG Chief Executive Officer and Executive Director

Mr. Zheng Yu Shuang, aged 52, is the chief executive officer of the Group and an executive Director. He was appointed as a Director on 1 June 2004 and was re-designated as an executive Director on 23 September 2011. Mr. Zheng is primarily responsible for the overall operations of the Company. He is the head of the Group's production department and oversees the quality control department. Mr. Zheng is one of the founders of the Group's jelly products business and is also a director of the Group's subsidiaries, including LBXX Investments, LBXX Holdings, LBXX International, LBXX Sichuan, LBXX Anhui, LBXX Fujian, LBXX Tianjin and Timeluck.

Mr. Zheng has over 24 years of experience in the manufacture of snack food products. He joined the Group in 2000 as the general manager of LBXX Fujian. From 1994 to 2000, Mr. Zheng was a general manager of the production and quality control department of Jinjiang Weili Foods Co., Ltd.(晉江市味力食品有限公司). Mr. Zheng received his master's degree in business administration from Renmin University of China(中國人民大學)in May 2006. He received a certificate qualifying as a senior quality control inspector(高 級質量(品質)管理師)from China Professional Development Centre(中國專業人才庫管理中心)in July 2009. Mr. Zheng has also assumed several social positions, such as the honorary chairman of Jinjiang Food Industry Association(晉江市食品行業協會)from 2007 to 2010, a member of the Tianjin Chinese People's Political Consultative Conference(天津市人民政治協商會議)from 2008 to 2012, and the vice-chairman of China National Confectionary Association(中國食協糖果專業委員會)from May 2010 to May 2013. Mr. Zheng is the brother of Mr. Zheng Yu Long and Mr. Zheng Yu Huan and the brother-in-law of Mr. Li Hung Kong.

ZHENG YU LONG Executive Director

Mr. Zheng Yu Long, aged 55, is an executive Director. He was appointed as a Director on 1 June 2004 and was re-designated as an executive Director on 23 September 2011. Mr. Zheng is primarily responsible for the overall operations, strategic planning and business development of the Group. He is also actively involved in the marketing of the products and branding of the Group, and procurement of raw materials from suppliers. Mr. Zheng is a key contact person between the Group and its business partners. He is one of the founders of the Group's jelly products business and is also a director of the Group's subsidiary, Timeluck. Mr. Zheng joined the Group in 2000 as a managing director of LBXX Fujian. Mr. Zheng has over 26 years of experience in the marketing and manufacturing of snack food products. Since joining the Group in 2000, Mr. Zheng has dedicated the past 20 years to expand and promote the Group's business from a manufacturer of jelly products to a recognized snack food brand in China. From 1991 to 2000, Mr. Zheng was the general manager of Jinjiang Weili Foods Co., Ltd.(晉江市味力食品有限公司), where he was responsible for the daily operations, sales, production, procurement and business development of this company. Through such experiences, Mr. Zheng has developed extensive relationships with the industry partners and is able to keep abreast of the latest development of the snack food industry. Mr. Zheng Yu Long was brought up in the PRC. Mr. Zheng has never been a full time government official of any country, or a full time employee of any state or government-owned/operated entity for a substantial period of time. Mr. Zheng is the brother of Mr. Zheng Yu Shuang and Mr. Zheng Yu Huan and the brother-in-law of Mr. Li Hung Kong.

LI HUNG KONG Vice Chairman and Non-Executive Director

Mr. Li Hung Kong, aged 52, is the vice-chairman and non-executive Director. He was appointed as a Director on 1 June 2004 and was re-designated as a non-executive Director on 23 September 2011. He is an experienced entrepreneur who has over 24 years of experience in investing and managing manufacturing business. He is also a director of the Group's subsidiaries, including LBXX Investments, LBXX Holdings, LBXX Fujian and Timeluck. Mr. Li joined the Group in 2000 as a director of LBXX Fujian. Prior to joining the Group, Mr. Li founded the following companies in the 1990s, Jinjiang Xingtai Packing Wear Co., Ltd.(晉江市興泰包裝用品有 限公司), Fujian Huatai Packing Co., Ltd.(福建華泰包裝用品有限公司), companies engaged in the paper packaging business, and Jen Yuon Trading Co.(晉融貿易公司), a company engaged in commercial trading, and has been as a director in each of these companies since their establishment. Mr. Li is a brother-in-law of Mr. Zheng Yu Long, Mr. Zheng Yu Shuang and Mr. Zheng Yu Huan.

LI BIAO Independent Non-Executive Director

Mr. Li Biao, aged 54, is the independent non-executive Director. He was appointed as an independent non-executive Director on 7 August 2020. Mr. Li has over 20 years of experience in the food industry.

Mr. Li graduated from the department of business administration of Beihang University(北京航空航天大學)and has previously worked at state-owned enterprises and government offices in the People's Republic of China. Mr. Li is currently the deputy chief editor of China Food Safety Post(中國食品安全報社), a supervisor of State Administration for Market Regulation(國家市場監督管理局) and an officer of the quality and marketing committee of China Association for Quality Promotion(中國質量萬里行促進會). Mr. Li is also the deputy executive officer and secretary general of the brand promotion committee of China Academy of Management Science (中國管理科學研究院), the secretary general of National Nutrition and Safety Industry Committee(全國營養健康產業委員會), and the secretary general of China Food Safety Annual Conference(中 國食品安全年會).

SUN KAM CHING Independent Non-Executive Director

Ms. Sun Kam Ching, aged 48, is the independent non-executive Director. She was appointed as an independent non-executive Director on 23 September 2011. Ms. Sun has over 22 years of experience in business administration and financial management. Ms. Sun joined Jinjiang Aile Group(晉江愛樂集團)("Jinjiang Aile") in 1996 and held various positions in Jinjiang Aile, including the head of the sales department of Jinjiang Aile Shoes and Clothing Co., Ltd.(晉江愛樂鞋服公司), a subsidiary of Jinjiang Aile, from 1996 to 2000, the chief sales planning officer of Jinjiang Aile since 2003, and the chief financial officer of Jinjiang Aile since 2005. Ms. Sun has also been responsible for the image consultancy of Jinjiang Aile and is involved in the management of certain subsidiaries of Jinjiang Aile, including Jinjiang Aile Holiday Hotel(晉江愛樂假日酒店)and Shishi Aile Holiday Hotel(石獅愛樂假日酒店)since 2000. Ms. Sun was an independent non-executive director of China Creative Home Group Limited (stock code: 1678.HK) from 20 December 2013 to 5 September 2019. Ms. Sun received a bachelor's degree in business administration from the Huaqiao University(華僑大學) in 1994. She also attended the training courses for independent non-directors conducted by the Shenzhen Stock Exchange in 2008.

CHUNG YAU TONG Independent Non-Executive Director

Mr. Chung Yau Tong, aged 49, is the independent non-executive Director. He was appointed as an independent non-executive Director on 23 September 2011. Mr. Chung has 25 years of experience in audit practice, financial management and compliance assurance of listed companies in Hong Kong. From 1994 to 2000, Mr. Chung was with PricewaterhouseCoopers, where he last held the position of a manager. Mr. Chung was with CITIC 21CN Company Limited (Stock code: 00241) from 2000 to 2005, where he last held the position as the group financial controller. He was a qualified accountant of Gome Electrical Appliances Holding Company Limited (Stock code: 00493) from 2005 to March 2007. Mr. Chung was the financial controller and company secretary of Vongroup Limited (Stock code: 00318) from March 2007 to December 2007. He currently serves as the financial controller and company secretary of Chaoyue Group Limited (a company listed on the Main Board of the Stock Exchange and now known as International Business Settlement Holdings Limited, stock code: 00147) since 2008. Mr. Chung received a bachelor's degree in business administration from The University of Hong Kong in 1994. He is a fellow of the Association of Chartered Certified Accountants and a certified public accountant of the Hong Kong Institute of Certified Public Accountants.

SENIOR MANAGEMENT

Mr. Chan Yee Lok, aged 46, is the Chief Financial Officer and Company Secretary of the Company since November 2014. He is responsible for the Group's overall accounting, finance and company secretarial matters. Prior to joining the Group in August 2014, Mr. Chan had worked in international accounting firms and companies listed on the Main Board of the Stock Exchange and possessed over 22 years of accounting, financing, auditing and company secretarial experience. Mr. Chan graduated from the City University of Hong Kong with a bachelor's degree with honours in accountancy in 1997. He is an associate of the Hong Kong Institute of Certified Public Accountants and a fellow of the Association of Chartered Certified Accountants.

Mr. Lian Xi, aged 58, is the head of the Group's sales and marketing department. He is responsible for the overall sales and marketing of the Group's products. He has over 21 years of experience in the food production industry. Mr. Lian joined us in 2002 as the production manager of LBXX Fujian. From 1984 to 1992, Mr. Lian worked at Fujian Pharmaceutical(福州製藥廠)where he last held the position of an assistant engineer. Prior to joining the Group in 2002, Mr. Lian was the manager of the marketing department and the deputy manager of the sales department of Fujian Lv De Biology Holding Ltd.(福建綠得生物股份有限公司). Mr. Lian received his bachelor's degree in light industrial machinery from Fuzhou University(福州大學)in 1984, his postgraduate certificate in business administration from the Open University of Hong Kong in 2001, and his master's degree in business administration from the Open University of Hong Kong in 2003.

Mr. Chen Jian Ming, aged 56, is the head of the Group's procurement department. He is primarily responsible for the sourcing and procurement of raw materials for the Group. He has over 21 years of commercial and banking experience. Mr. Chen joined the Group in 2010. Prior to joining the Group, Mr. Chen served in various positions at China Construction Bank, Quanzhou branch(中國建設 銀行泉州分行)between January 1990 and October 2010, including deputy branch manager, deputy manager and manager of the credit department. Mr. Chen received a bachelor's degree in finance from the Hunan University(湖南大學)through online courses in July 2005. He is also recognized as a qualified professional in economics(經濟師)by the Ministry of Human Resources and Social Security of the People's Republic of China(中華人民共和國人事部).

Save as otherwise disclosed, there is no relationship (including financial, business, family or other material/relevant relationship) between any members of the Board, and no information relating to the Directors which is required to be disclosed pursuant to Rules 13.51(2) and 13.51B(1) of the Listing Rules.

The Board of is pleased to present this Corporate Governance Report in the Group's annual report for the year ended 31 December 2020.

CORPORATE GOVERNANCE PRACTICES

The Company is committed to promoting stringent corporate governance practices and procedures with a view to safeguarding the interests of shareholders as well as enhancing investor confidence and the Company's accountability and transparency. The Company set out its corporate governance practices with reference to the Corporate Governance Code (the "CG Code") as set out in Appendix 14 to the Listing Rules. During the year ended 31 December 2020, the Company has complied with all the code provisions set forth under the CG Code and there has been no deviation from the code provisions throughout the year ended 31 December 2020.

The Company continues to review its corporate governance practices regularly to ensure compliance with the CG Code.

THE BOARD OF DIRECTORS

Responsibilities

The Board is responsible for overseeing the overall development of the Company's business with the objectives of enhancing shareholders' value including setting and approving the Company's strategic implementation, considering substantial investments, reviewing the Group's financial performance and developing and reviewing the Group's policies and practices on corporate governance. The Board has delegated to the chief executive officer of the Group (the "Chief Executive Officer"), of which the Directors also undertake, and through him, to the senior management the authority and responsibility for the day-to-day management and operation of the Group. In addition, the Board has established Board committees and has delegated to these Board committees various responsibilities as set out in their respective terms of reference. The Board directly, and indirectly through its Board committees, leads and provides direction to management by laying down strategies and overseeing their implementation, monitors the Group's operational and financial performance, and ensures that sound internal control and risk management systems are in place.

All Directors shall ensure that they carry out duties in good faith, in compliance with applicable laws and regulations, and in the interests of the Company and its shareholders at all times.

The Company has arranged for appropriate insurance cover for directors' and officers' liabilities in respect of legal actions against its directors and senior management arising out of corporate activities.

Board Composition

As at the date of this Annual Report, the Board comprises seven members in total, with three executive directors, one non-executive director and three independent non-executive directors.

The composition of the Board during the year ended 31 December 2020 and up to the date of this Annual Report is set out below:

Executive Directors

Mr. Zheng Yu Huan (Chairman) Mr. Zheng Yu Shuang (Chief Executive Officer) Mr. Zheng Yu Long

Non-Executive Directors

Mr. Li Hung Kong (Vice-Chairman) Mr. Ren Yunan (resigned on 7 August 2020)

Independent Non-Executive Directors

Mr. Li Zhi Hai (resigned on 7 August 2020) Mr. Li Biao (appointed on 7 August 2020) Ms. Sun Kam Ching Mr. Chung Yau Tong

The biographical details of the current Board members are set out under the section headed "Directors and Senior Management" on pages 18 to 21 of this Annual Report.

The list of Directors (by category) is also disclosed in all corporate communications issued by the Company pursuant to the Listing Rules from time to time. The independent non-executive Directors are expressly identified in all corporate communications pursuant to the Listing Rules.

During the year ended 31 December 2020, the Board at all times met the requirements of the Listing Rules relating to the appointment of at least three independent non-executive Directors with at least one independent non-executive Director possessing appropriate professional qualifications or accounting or related financial management expertise, and the independent non-executive Directors represented over one-third of the Board.

The Company has received written annual confirmation from each independent non-executive Director of his/her independence pursuant to the requirements of the Listing Rules. The Company considers all independent non-executive Directors to be independent in accordance with the independence guidelines as set out in the Listing Rules.

All Directors, including non-executive Directors and independent non-executive directors, have brought a wide spectrum of valuable business experience, knowledge and professionalism to the Board for its efficient and effective functioning. Independent nonexecutive directors are invited to serve on the Audit, Remuneration and Nomination Committees of the Company.

Mr. Zheng Yu Long, Mr. Zheng Yu Shuang and Mr. Zheng Yu Huan are brothers and Mr. Li Hung Kong is a brother-in-law of Mr. Zheng Yu Long, Mr. Zheng Yu Shuang and Mr. Zheng Yu Huan. Save as disclosed, there is no other relationship among the members of the Board.

Chairman and Chief Executive Officer

During the year ended 31 December 2020, the roles and duties of the Chairman and the Chief Executive Officer of the Company are carried out by different individuals and have been clearly defined in writing.

The Chairman of the Board is Mr. Zheng Yu Huan, and the Chief Executive Officer is Mr. Zheng Yu Shuang. The positions of Chairman and Chief Executive Officer are held by separate persons in order to preserve independence and to maintain a balance of views and judgement. With the support of the senior management, the Chairman is responsible for ensuring that the Directors receive adequate, complete and reliable information in a timely manner and appropriate briefing on issues arising at Board meetings. The Chief Executive Officer focuses on implementing objectives, policies and strategies approved and delegated by the Board. He is in charge of the Company's day-to-day management and operations. The Chief Executive Officer is also responsible for developing strategic plans and formulating the organisational structure, control systems and internal procedures and processes for the Board's approval.

Appointment and Re-election of Directors

Each of the executive and non-executive Directors has entered into a service agreement for a term of three years, and the appointment may be terminated by not less than three month's written notice; while each of the independent non-executive Directors has entered into a letter of appointment for a term of one year. The appointment may be terminated by not less than three months' written notice.

In accordance with the Company's Bye-laws, all Directors are subject to retirement by rotation at least once every three years and any new Director appointed by the Board to fill a causal vacancy or as an addition to the Board shall submit himself/herself for re-election by shareholders at the first general meeting after appointment.

The procedures and process of appointment, re-election and removal of Directors are laid down in the Company's Bye-laws. The Nomination Committee is responsible for reviewing the Board composition, monitoring the appointment and succession planning of Directors and assessing the independence of independent non-executive Directors.

Board Meetings

Board Practices and Conduct of Meetings

Annual meeting schedules and draft agenda of each meeting are normally made available to Directors in advance. Notice of regular Board meetings is served to all directors at least 14 days before the meeting. For other Board and committee meetings, reasonable notice is generally given.

Board papers together with all appropriate, complete and reliable information are sent to all Directors at least 3 days before each Board meeting or committee meeting to keep Directors apprised of the latest developments and financial position of the Company and to enable them to make informed decisions. The Board and each Director also have separate and independent access to the senior management where necessary.

The senior management, including Chief Executive Officer, Chief Financial Officer and Company Secretary, attend all regular Board meetings and where necessary, other Board and committee meetings, to advise on business developments, financial and accounting matters, statutory and regulatory compliance, corporate governance and other major aspects of the Company.

The Company Secretary is responsible for taking and keeping minutes of all Board meetings and committee meetings. Draft minutes are normally circulated to the Directors for comment within a reasonable time after each meeting and final versions are open for Directors' inspection.

The Company's Bye-laws contain provisions requiring Directors to abstain from voting and not to be counted in the quorum at meetings for approving transactions in which such Directors or any of their associates have a material interest.

Directors' Attendance Records

During the year ended 31 December 2020, 5 Board meetings were held for reviewing and approving the financial and operating performance, and considering and approving the overall strategies and policies of the Company.

The attendance records of each Director at the Board meetings and the 2020 annual general meeting (the "2020 AGM") during the year ended 31 December 2020 are set out below:

	Attendance/Number of Meetings
Name of Directors	Board Meetings	2020 AGM
Mr. Zheng Yu Huan	5/5	1/1
Mr. Zheng Yu Shuang	5/5	1/1
Mr. Zheng Yu Long	5/5	1/1
Mr. Li Hung Kong	5/5	0/1
Mr. Ren Yunan (resigned on 7 August 2020)	3/3	1/1
Mr. Li Zhi Hai (resigned on 7 August 2020)	3/3	1/1
Mr. Li Biao (appointed on 7 August 2020)	2/2	N/A
Ms. Sun Kam Ching	5/5	0/1
Mr. Chung Yau Tong	5/5	1/1

Continuous Professional Development

Directors must keep abreast of their collective responsibilities and are encouraged to participate in continuous professional development to develop and refresh their knowledge and skills. The Company would provide to each newly appointed Director or alternative Director an induction package covering the summary of the responsibilities and liabilities of a director of a Hong Kong listed company, the Group's businesses and the statutory regulatory obligations of a director of a listed company as well as the Company's constitutional documents to ensure that he/she is sufficiently aware of his/her responsibilities and obligations under the Listing Rules and other regulatory requirements. The Group also provided briefings and other training to develop and refresh the Directors' knowledge and skills from time to time. Further, the Company continuously updates the Directors on the latest developments regarding the Listing Rules and other applicable regulatory requirements, to ensure compliance and enhance their awareness of good corporate governance practices.

During the year ended 31 December 2020, some of the Directors attended external seminars and/or conferences to update their general business and economic knowledge or statutory requirements, Listing Rules and other relevant topics related to listed company. The Directors also read materials in relation to regular update to statutory requirements, the Listing Rules and other relevant topics related to listed company.

Name of Directors	Types of training
Mr. Zheng Yu Huan	A,B
Mr. Zheng Yu Shuang	A,B
Mr. Zheng Yu Long	A,B
Mr. Li Hung Kong	A,B
Mr. Ren Yunan (resigned on 7 August 2020)	B
Mr. Li Zhi Hai (resigned on 7 August 2020)	B
Mr. Li Biao (appointed on 7 August 2020)	A,B
Ms. Sun Kam Ching	A,B
Mr. Chung Yau Tong	A,B

A: attending in-house/external seminars and/or conferences

B: reading newspapers, journals and updates relating to the economy, general business, director's training and responsibilities etc.

During the year ended 31 December 2020, the Company Secretary has taken not less than 15 hours of relevant professional training.

Model Code for Securities Transactions

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") as set out in Appendix 10 to the Listing Rules and devised its own code of conduct regarding directors' dealings in the Company's securities (the "Company Code") on terms no less exacting than the Model Code as set out in Appendix 10 to the Listing Rules.

Specific enquiry has been made of all the Directors and the Directors have confirmed that they have complied with the Model Code and the Company Code throughout the year ended 31 December 2020.

The Company has also established written guidelines on no less exacting terms than the Model Code (the "Employees Written Guidelines") for securities transactions by employees who are likely to be in possession of unpublished inside information of the Company.

No incident of non-compliance of the Employees Written Guidelines by the employees was noted by the Company during the year ended 31 December 2020.

DELEGATION BY THE BOARD

The Board undertakes responsibility for decision making in major Company matters, including the approval and monitoring of all policy matters, overall strategies and budgets, internal control and risk management systems, material transactions (in particular those that may involve conflict of interests), financial information, appointment of directors and other significant financial and operational matters.

All Directors have full and timely access to all relevant information as well as the advice and services of the Company Secretary, with a view to ensuring that Board procedures and all applicable laws and regulations are followed. Each Director is normally able to seek independent professional advice in appropriate circumstances at the Company's expense, upon making request to the Board.

The day-to-day management, administration and operation of the Company are delegated to the Chief Executive Officer and the senior management. The delegated functions and responsibilities are periodically reviewed. Approval has to be obtained from the Board prior to any significant transactions entered into by the aforesaid officers. The Board also has the full support of the Chief Executive Officer and the senior management for the discharge of its responsibilities.

BOARD COMMITTEES

As an integral part of sound corporate governance practices, the Board has established three committees, namely, the Nomination Committee, the Remuneration Committee and the Audit Committee, for overseeing particular aspects of the Company's affairs. All Board committees of the Company are established with defined written terms of reference, which are available to shareholders on the Company's website. Each of the Nomination Committee, the Remuneration Committee and the Audit Committee is provided with sufficient resources to discharge its duties and, upon reasonable request, is able to seek independent professional advice in appropriate circumstances, at the Company's expenses.

Nomination Committee

As at the date of this Annual Report, the Nomination Committee comprises three members, namely Mr. Zheng Yu Shuang, Mr. Li Biao and Mr. Chung Yau Tong, the majority of which are independent non-executive Directors, with Mr. Li Biao acting as the chairman of the Nomination Committee. Prior to the appointment of Mr. Li Biao as an independent non-executive Director on 7 August 2020, Mr. Li Zhi Hai acted as the chairman of the Nomination Committee. The principal duties of the Nomination Committee include reviewing the Board composition, making recommendations to the Board on the appointment and succession planning of directors, and assessing the independence of the independent non-executive directors.

During the year ended 31 December 2020, the Nomination Committee was primarily responsible for:

• reviewing the structure, size and composition (including the skills, knowledge and experience) of the Board on a regular basis and making recommendations to the Board regarding any proposed changes;
• identifying individuals suitably qualified to become Board members and selecting or making recommendations to the Board on selection of individuals nominated for directorships;
• assessing the independence of independent non-executive Directors, having regard to the requirements under the applicable laws, rules and regulations; and
• making recommendations to the Board on relevant matters relating to the appointment or re-appointment of Directors and succession planning for Directors and, in particular, the chairman and the Chief Executive Officer.

Nomination Policy

The Nomination Committee shall nominate suitable candidates to the Board for it to consider and make recommendations to the Shareholders for election as Directors at general meetings or appoint as Directors to fill casual vacancies. When the Nomination Committee considers it appropriate, it invites nominations of candidates from Board members or any person and makes recommendations for the Board's consideration and approval.

In assessing the suitability of a proposed candidate, the Nomination Committee would consider factors including:

• (a) reputation for integrity;

• (b) experience in food and beverages industry and/or business strategy, management, legal and financial aspects;

• (c) whether the proposed candidate is able to assist the Board in effective performance of its responsibilities;

• (d) the perspectives and skills that the proposed candidate is expected to bring to the Board;
• (e) diversity in all its aspects, including but not limited to gender, age, cultural and educational background, ethnicity, professional experience, skills, knowledge and length of service;
• (f ) commitment in respect of available time and relevant interest; and
• (g) in the case of selection for independent non-executive Directors, the independence of the proposed candidate.

These factors are for reference only, and not meant to be exhaustive and decisive. The Nomination Committee has the discretion to nominate any person, as it considers appropriate.

Board Diversity Policy

The Board adopted the board diversity policy (the "Policy") in accordance with the requirement set out in the CG Code. The Policy aims to set out the approach to achieve diversity on the Board. All Board appointments shall be based on meritocracy, and candidates shall be considered against objective criteria, having due regard for the benefits of diversity on the Board. Selection of candidates shall be based on a range of diversity perspectives, including but not limited to, gender, age, cultural and educational background, ethnicity, professional experience, skills, knowledge and length of service. The ultimate decision shall be based on merit and contribution that the selected candidates shall bring to the Board. The Nomination Committee monitors, from time to time, the implementation of the Policy, and reviews, as appropriate, the Policy to ensure the effectiveness of the Policy. The Nomination Committee will continue to give adequate consideration to these measurable objectives when making recommendations of candidates for appointment to the Board.

The Nomination Committee will meet at least once per year according to its terms of reference. A Nomination Committee meeting was held during the year ended 31 December 2020, details of attendance are set out below:

	Attendance/
Nomination Committee Members	Number of Meeting
Mr. Li Zhi Hai (replaced by Mr. Li Biao on 7 August 2020) (Chairman of Nomination Committee)	1/1
Mr. Li Biao (appointed on 7 August 2020)	N/A
Mr. Zheng Yu Shuang	1/1
Mr. Chung Yau Tong	1/1

Remuneration Committee

The Remuneration Committee comprises three members, namely Mr. Zheng Yu Long, Ms. Sun Kam Ching, and Mr. Chung Yau Tong, the majority of which are independent non-executive directors, with Ms. Sun Kam Ching acting as the chairman of the Remuneration Committee. The Remuneration Committee is responsible for making recommendations to the Directors' remuneration and other benefits.

The remuneration of all Directors is subject to regular monitoring by the Remuneration Committee to ensure that level of their remuneration and compensation are reasonable. Their written terms of reference are in line with the provisions of the CG Code. Pursuant to Code Provision B.1.3 of the CG Code, the Remuneration Committee would make available its terms of reference, explaining its role and the authority delegated to it by the Board.

During the year ended 31 December 2020, the Remuneration Committee was primarily responsible for:

• making recommendations to the Board on the Company's policy and structure for all remunerations of Directors and senior management and on the establishment of formal and transparent procedures for developing policies on all such remunerations;
• making recommendations to the Board on the remuneration packages of individual executive Directors and senior management;
• reviewing and approving performance-based remunerations by reference to corporate goals and objectives resolved by the Board from time to time;
• reviewing and approving compensation payable to executive Directors and senior management members of the Company in connection with any loss or termination of their office or appointment to ensure that such compensation is determined in accordance with relevant contractual terms and that such compensation is fair and not excessive for the Company;
• reviewing and approving compensation arrangements relating to dismissal or removal of Directors for misconduct to ensure that such arrangements are determined in accordance with relevant contractual terms and that any compensation payment is reasonable and appropriate; and
• ensuring that no Director or any of his/her associates is involved in deciding his/her own remuneration.

The Remuneration Committee held one meeting during the year ended 31 December 2020 and the details of attendance are set out below:

	Attendance/
Remuneration Committee Members	Number of Meeting
Ms. Sun Kam Ching (Chairman of Remuneration Committee)	1/1
Mr. Zheng Yu Long	1/1
Mr. Chung Yau Tong	1/1

Audit Committee

As at the date of this Annual Report, the Audit Committee comprises three members, namely Mr. Li Biao, Ms. Sun Kam Ching, and Mr. Chung Yau Tong, all of which are independent non-executive directors, with Mr. Chung Yau Tong acting as the chairman of the Audit Committee. Prior to the appointment of Mr. Li Biao as an independent non-executive Director on 7 August 2020, Mr. Li Zhi Hai was a member of the Audit Committee. The primary duties of the Audit Committee are to review the financial information and reporting process, risk management and internal control systems and to provide advice and comments to the Board.

During the year ended 31 December 2020, the Audit Committee was primarily responsible for:

• making recommendations to the Board on the appointment, re-appointment and removal of the external auditor, and approving the remuneration and terms of engagement of the external auditor, and any questions of resignation or dismissal of the external auditor;

• reviewing and monitoring the external auditor's independence and objectivity and the effectiveness of the audit process in accordance with applicable standards;

• developing and implementing policy on the engagement of an external auditor to supply non-audit services;

• monitoring integrity of financial statements of the Company and the Company's annual report and accounts and half-year reports and reviewing significant financial reporting judgements contained in them;
• reviewing the Company's financial controls, internal control and risk management systems;
• discussing with management the risk management and internal control systems and ensuring that management has discharged its duty to have effective systems;
• considering major investigation findings on risk management and internal control matters as delegated by the Board or on its own initiative and management's response to these findings;
• ensuring co-ordination between the internal and external auditors, and ensuring that the internal audit function is adequately resourced and has appropriate standing within the Company, and reviewing and monitoring its effectiveness;
• reviewing the Group's financial and accounting policies and practices;
• reviewing the Group's connected transactions;
• reviewing the external auditor's management letter, any material queries raised by the auditor to the management in respect of the accounting records, financial accounts or systems of control and management's response; and
• ensuring that the Board provides a timely response to the issues raised in the external auditor's management letter.

The Audit Committee held two meetings during the year ended 31 December 2020 and the details of attendance are set out below:

	Attendance/
Audit Committee Members	Number of Meeting
Mr. Chung Yau Tong (Chairman of Audit Committee)	2/2
Mr. Li Biao (appointed on 7 August 2020)	1/1
Mr. Li Zhi Hai (resigned on 7 August 2020)	1/1
Ms. Sun Kam Ching	2/2

Corporate Governance Functions

During the year ended 31 December 2020, the Audit Committee was also responsible for determining the policy for the corporate governance of the Company performing the corporate governance duties as below:

• developing and reviewing the Group's policies and practices on corporate governance and make recommendations;

• reviewing and monitoring the training and continuous professional development of the Directors and senior management;

• reviewing and monitoring the Group's policies and practices on compliance with all legal and regulatory requirements (where applicable);
• developing, reviewing and monitoring the code of conduct and compliance manual (if any) applicable to employees and Directors of the Group; and
• reviewing the Group's compliance with the CG Code and disclosure requirements in the Corporate Governance Report.

ACCOUNTABILITY AND AUDIT

Directors' Responsibilities for Financial Reporting in respect of Financial Statements

The Directors acknowledge their responsibility for preparing the financial statements of the Company for the year ended 31 December 2020. The Board is responsible for presenting a balanced, clear and understandable assessment of annual and interim reports, announcements of inside information and other disclosures required under the Listing Rules and other statutory and regulatory requirements.

The management of the Company has provided to the Board such explanation and information as necessary to enable the Board to carry out an informed assessment of the Company's financial statements, which are put to the Board for approval.

Risk management and Internal Controls

The Board acknowledges its responsibility for the risk management and internal control systems and reviewing their effectiveness. Such systems are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss.

The Board has the overall responsibility for evaluating and determining the nature and extent of the risks it is willing to take in achieving the Company's strategic objectives, and establishing and maintaining appropriate and effective risk management and internal control systems. The Audit Committee assists the Board in leading the management and overseeing their design, implementation and monitoring of the risk management and internal control systems.

The Company has developed and adopted various risk management procedures and guidelines with defined authority for implementation by key business processes and office functions. All departments conducted internal control assessment on a regular basis to identify risks that potentially impact the business of the Group and various aspects including key operational and financial processes, regulatory compliance and information security. Self-evaluation has been conducted annually to confirm that control policies are properly complied with by each department. The management has reported to the Board and the Audit Committee on the effectiveness of the risk management and internal control systems during the year ended 31 December 2020.

The internal audit department of the Company is responsible for providing internal audit function and performing independent review of the adequacy and effectiveness of the risk management and internal control systems. The Company has also engaged an external consulting firm to conduct a review of the effectiveness of the system of internal control of the major operating subsidiaries of the Group including recommendations to enhance the overall internal control system for the year ended 31 December 2020.

The Board, as supported by the Audit Committee as well as the management report and the findings of the internal audit department and the external consulting firm, reviewed the risk management and internal control systems, including the financial, operational and compliance controls, of the Company during the year ended 31 December 2020, and considered that such systems are effective and adequate.

Whistleblowing procedures are in place to facilitate employees of the Company to raise, in confidence, concerns about possible improprieties in financial reporting, internal control or other matters of the Company.

The Company has developed an inside information policy which provides a general guide to the Company's Directors, officers, senior management and relevant employees in handling confidential information, monitoring information disclosure and responding to enquiries.

External Auditors and Auditors' Remuneration

The statement of the external auditors of the Company about their reporting responsibilities for the financial statements is set out in the "Independent Auditors' Report" on pages 45 to 50.

During the year ended 31 December 2020, the Group's external auditor provided the following services to the Group:

	Service fees
Type of Services	RMB'000
Statutory audit services	1,566
Non-audit services – taxation	27
Total	1,593

COMMUNICATION WITH SHAREHOLDERS AND INVESTORS/INVESTOR RELATIONS

The Company considers that effective communication with shareholders is essential for enhancing investor relations and investor understanding of the Group's business performance and strategies. The Company also recognises the importance of transparency and timely disclosure of corporate information, which will enable shareholders and investors to make the best investment decisions.

The general meetings of the Company provide a forum for communication between the Board and the shareholders face-to-face dialogue with the shareholders. The Chairman of the Board as well as the respective chairman of each of the Nomination Committee, the Remuneration Committee and the Audit Committee or, in their absence, other members of the respective committees and, where applicable, the chairman of the independent Board committee, are available to answer questions at shareholder meetings.

The annual general meeting regarding the financial results for the year ended 31 December 2020 (the "AGM") will be held on Wednesday, 23 June 2021. The notice of the AGM will be sent to shareholders at least 20 clear business days before the AGM.

SHAREHOLDER RIGHTS

Convening a special general meeting by shareholders

Procedures for shareholders to convene a special general meeting (including making proposals/moving a resolution at the special general meeting)

• Any one or more shareholders holding at the date of deposit of the requisition not less than one-tenth of the paid up capital of the Company carrying the right of voting at general meetings of the Company (the "Eligible Shareholder(s)") shall at all times have the right, by written requisition to the Board or the company secretary of the Company (the "Company Secretary"), to require a special general meeting to be called by the Board for the transaction of any business specified in such requisition, including making proposals or moving a resolution at a special general meeting.

• Eligible Shareholders who wish to convene a special general meeting for the purpose of making proposals or moving a resolution at an extraordinary/a special general meeting must deposit a written requisition (the "Requisition") signed by the Eligible Shareholder(s) concerned to the principal place of business of the Company in Hong Kong.
• The Requisition must state clearly the name of the Eligible Shareholder(s) concerned, his/her/their shareholding in the Company, the reason(s) to convene a special general meeting, the agenda proposed to be included the details of the business(es) proposed to be transacted in the special general meeting, signed by the Eligible Shareholder(s) concerned.
• If within 21 days of the deposit of the Requisition, the Board has not advised the Eligible Shareholders of any outcome to the contrary and fails to proceed to convene a special general meeting, the Eligible Shareholder(s) himself/herself/themselves may do so in accordance with the bye-laws, and all reasonable expenses incurred by the Eligible Shareholder(s) concerned as a result of the failure of the Board shall be reimbursed to the Eligible Shareholder(s) concerned by the Company.

Making enquiry to the Board

Shareholders of the Company may send their enquiries and concerns to the Board by addressing them to the principal place of business of the Company in Hong Kong by post to Unit No. 8, 21/F, Island Place Tower, Island Place, 510 King's Road, North Point, Hong Kong or by email to 1262@lbxxgroup.com.

INVESTOR RELATIONS

Amendments to the bye-laws and adoption of new bye-laws of the Company

At the annual general meeting of the Company held on 31 May 2013, the shareholders approved the amendments to the bye-laws and adoption of new bye-laws of the Company. The details of the major amendments are set out in the circular of the Company dated 30 April 2013. No significant changes was made to the Company's bye-laws during the year ended 31 December 2020.

Investors Communication Policy

The Company regards the communication with institutional investors as important means to enhance the transparency of the Company and collect views and feedbacks from institutional investors. To promote effective communication, the Company maintains a website at http://www.lbxxgroup.com, where up-to-date information and updates on the Company's business operations and developments, financial information, corporate governance practices and other information are posted are available for public access.

During the year ended 31 December 2020, the Directors and senior management of the Company participated in numerous investor conferences/meetings. In addition, the Company also maintains communication with the media through press conferences, news releases to the media and on the Company's website, and answering enquiries from the media, if applicable.

Disclaimer

The contents of this section headed "Shareholders' Rights" are for reference and disclosure compliance purposes only. The information does not represent and should not be regarded as legal or other professional advice from the Company to the shareholders. Shareholders should seek their own independent legal or other professional advice as to their rights as shareholders of the Company. The Company disclaims all liabilities and losses incurred by its shareholders in reliance on any contents of this section headed "Shareholders' Rights".

Directors' Report

The Board of Directors (the "Board") is pleased to present their report and the audited consolidated financial statements of the Group for the year ended 31 December 2020.

PRINCIPAL ACTIVITIES

The Company is an investment holding company. The activities of its principal subsidiaries are set out in Note 34 to the consolidated financial statements.

The principal activities of the Group are the manufacturing and sale of jelly products, confectionary products, beverages products and other snack products in the PRC.

BUSINESS REVIEW AND PERFORMANCE

A review of the business of the Group and a discussion and analysis of the Group's performance during the year ended 31 December 2020 and a discussion on the Group's future business development and outlook of the Company's business, possible risks and uncertainties that the Group may be facing and important events affecting the Company occurred during the year ended 31 December 2020 are provided in the section headed "Chairman's Statement" on pages 6 and 7 and the section headed "Management Discussion and Analysis" on pages 10 to 17 of this Annual Report. An account of the Company's relationships with its key stakeholders is included in the paragraph headed "Relationships with Employees, Suppliers and Customers" of the report of the Directors on pages 34 to 44 of this Annual Report.

An analysis of the Group's performance during the year ended 31 December 2020 using financial performance indicators is provided in the section headed "Management Discussion and Analysis" on pages 10 to 17 of this Annual Report.

In addition, more details regarding the Group's performance by reference to environmental and social-related key performance indicators and policies, as well as compliance with relevant laws and regulations which have a significant impact on the Company are provided in the paragraph headed "Environmental, Social and Governance" of the report of the Directors on pages 34 to 44 of this Annual Report.

RESULTS AND APPROPRIATIONS

The results of the Group for the year ended 31 December 2020 are set out in the consolidated statement of profit or loss and other comprehensive income on page 51.

DIVIDEND

The Directors do not recommend the payment of a dividend for the year ended 31 December 2020 (2019: Nil).

There is no arrangement under which a shareholder has waived or agreed to waive any dividend.

DIVIDEND POLICY

The Group does not set any dividend payout ratio. The payment and amounts of dividends (if any) depend on the Group's results of operations, cash flows, financial position, statutory and regulatory restrictions on the dividend paid by the Group, future prospects and other factors which the Group considers relevant. The declaration, payment and amount of dividends will be subject to the discretion of the Board. The proposed payment of dividends is also subject to the absolute discretion of the Board and any declaration of final dividend for the year will be subject to the approval of the Shareholders. The Board will review the dividend policy on an annual basis.

CLOSURE OF REGISTER OF MEMBERS

In order to determine the identity of the shareholders who are entitled to attend and vote at the forthcoming AGM, the register of members of the Company will be closed from Friday, 18 June 2021 to Wednesday, 23 June 2021 (both dates inclusive), during which period no transfer of shares will be registered. In order to be eligible to attend and vote at the forthcoming AGM, all transfers accompanied by the relevant share certificates must be lodged with the Company's Hong Kong branch share registrar and transfer office, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen's Road East, Hong Kong, not later than 4:30 pm on Thursday, 17 June 2021.

PROPERTY, PLANT AND EQUIPMENT

Details of movements in property, plant and equipment of the Group during the year ended 31 December 2020 are set out in Note 15 to the consolidated financial statements.

BORROWINGS

Particular of the borrowings of the Group as at 31 December 2020 is set out in Note 26 to the consolidated financial statements.

SHARE CAPITAL

Details of the share capital of the Company are set out in Note 28 to the consolidated financial statements.

RESERVES

The movements in the reserves of the Group during the year ended 31 December 2020 are set out on page 54 of the consolidated financial statements.

FINANCIAL SUMMARY

A summary of the results and the assets and liabilities of the Group for the last five financial years is set out on page 5 of the Annual Report.

DIRECTORS

The Directors during the year ended 31 December 2020 and up to the date of this report were:

Executive Directors:

Mr. Zheng Yu Huan (Chairman) Mr. Zheng Yu Shuang (Chief Executive Officer) Mr. Zheng Yu Long

Non-Executive Directors:

Mr. Li Hung Kong (Vice-Chairman) Mr. Ren Yunan (resigned on 7 August 2020)

Independent Non-Executive Directors:

Mr. Li Zhi Hai (resigned on 7 August 2020) Mr. Li Biao (appointed on 7 August 2020) Ms. Sun Kam Ching Mr. Chung Yau Tong

In accordance with bye-law 84 of the Company's Bye-law, Mr. Zheng Yu Long and Mr. Chung Yau Tong shall retire from office as Directors by rotation at the forthcoming AGM, whereas Mr. Li Biao shall retire at the forthcoming AGM pursuant to bye-law 83(2) of the Company's Bye-law. All retiring Directors, being eligible for re-election, will offer themselves for re-election at the forthcoming AGM.

Biographical details of Directors are set out on pages 18 to 21 of this Annual Report.

DIRECTORS' EMOLUMENTS

The emoluments of the Directors had been determined with reference to the Director's duties, responsibilities, performance and the results of the Group. Details of the remuneration of the Directors are set out in Note 29 to the consolidated financial statements.

INDEPENDENT NON-EXECUTIVE DIRECTORS

The Company had received, from each of the independent non-executive Directors, an annual confirmation of independence pursuant to Rule 3.13 of the Rules Governing the Listing Securities on the Stock Exchange of Hong Kong Limited (the "Listing Rules"). The Company is satisfied with the independent status and considered all of the independent non-executive Directors are independent in accordance with the guidelines set out in the Listing Rules.

DIRECTORS' SERVICE CONTRACTS

None of the Directors proposed for re-election at the forthcoming AGM has an outstanding service contract which is not terminable by the Company or any of its subsidiaries within one year without payment of compensation, other than statutory compensation.

CONNECTED TRANSACTIONS

On 31 December 2020, the Company entered into a loan agreement with Mr. Zheng Yu Long, an executive director of the Company, pursuant to which Mr. Zheng Yu Long agreed to extend a loan facility of up to RMB60,000,000 to the Company. As at 31 December 2020, the Company had drawn down an aggregate amount of RMB48,298,000. The amount is unsecured, repayable on 31 December 2021 and bears fixed interest at 2% per annum.

Under the Listing Rules, Mr. Zheng Yu Long is a connected person of the Company and the loan facilities above constitute connected transaction for the Company under Chapter 14A of the Listing Rules. Since such transactions are conducted on normal commercial terms or better and are not secured by the assets of the Group, they are fully exempted from Shareholders' approval, annual review and announcement requirements according to Rule 14A.90 of the Listing Rules.

Save as otherwise, the Group has no other connected transactions under Chapter 14A of the Listing Rules which was entered into and/or subsisted during the year ended 31 December 2020.

DIRECTORS' INTERESTS IN CONTRACTS

Save as disclosed in the section headed "Connected Transactions" above, no transaction, arrangement or contract of significance to which the Company or any of its subsidiaries was a party and in which a Director of the Company had a material interests, whether directly or indirectly, subsisted as at 31 December 2020 or at any time during the year ended 31 December 2020.

DIRECTORS' INTERESTS IN COMPETING BUSINESSES

None of the Directors of the Company or any of their respective associates have engaged in any business that competes or is likely compete, either directly or indirectly, with the business of the Group or have any other conflict of interests with the Group.

PERMITTED INDEMNITY PROVISION

Each Director or other officer of the Company shall be entitled to be indemnified and secured harmless out of the assets and profits of the Company from and against all actions, costs, charges, losses, damages and expenses which he or she may incur or sustain in or about the execution of the duties of his or her office or otherwise in relation thereto in accordance with the Bye-laws.

Directors' Report

DIRECTORS' INTERESTS IN SHARES AND UNDERLYING SHARES

As at 31 December 2020, the respective interests and short positions of the Directors and the chief executive and their associates in the shares of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the "SFO")) (a) which were required to be notified to the Company and The Stock Exchange of Hong Kong Limited (the "Stock Exchange") pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO); or (b) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies as set forth in Appendix 10 of the Listing Rules (the "Model Code"), were as follows:

(i) Long position in shares and underlying shares of the Company

			Approximate percentage of
Name of Director/		Number of	interest in the
Chief Executive	Nature of interest	shares interested	Company	Note
Zheng Yu Long	Interest of a controlled corporation	610,915,527	45.97%	1
	Beneficial owner	119,935,060	9.02%	2
Zheng Yu Shuang	Interest of a controlled corporation	610,915,527	45.97%	1
Zheng Yu Huan	Interest of a controlled corporation	610,915,527	45.97%	1
Li Hung Kong	Interest of a controlled corporation	610,915,527	45.97%	1

Notes:

• (1) The 610,915,527 Shares are beneficially owned by Alliance Food And Beverages (Holding) Company Limited ("Alliance Holding"), a company which is owned as to 28% by each of Zheng Yu Long, Zheng Yu Shuang, Zheng Yu Huan and as to 16% by Li Hung Kong. Accordingly, each of Zheng Yu Long, Zheng Yu Shuang, Zheng Yu Huan and Li Hung Kong is deemed to be interested in the shares held by Alliance Holding for the purpose of the SFO.
• (2) In addition to the 610,915,527 Shares held through Alliance Holding, Zheng Yu Long is also personally and beneficially interested in 119,935,060 Shares.

Directors' Report

(ii) Long position in shares and underlying shares of the associated corporation

		Total number of shares held in associated	Approximate percentage of issued share capital of associated
Name of Director	Name of associated corporation	corporation	corporation
Zheng Yu Long	Alliance Holding	28	28%
Zheng Yu Shuang	Alliance Holding	28	28%
Zheng Yu Huan	Alliance Holding	28	28%
Li Hung Kong	Alliance Holding	16	16%

Save as disclosed above, as at 31 December 2020, none of the Directors and the chief executive of the Company had any interest or short position in the shares, underlying shares and debentures of the Company or any of its associated corporation (within the meaning of Part XV of the SFO), (a) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO) or (b) which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or (c) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code.

SHARE OPTIONS

On 23 September 2011, a share option scheme (the "Share Option Scheme") was conditionally adopted by the written resolutions of the shareholders of the Company. The Share Option Scheme shall expire on 22 September 2021.

The Share Option Scheme is a share incentive scheme prepared in accordance with Chapter 17 of the Listing Rules and is established to recognise and acknowledge the contributions of the Eligible Participants (as defined in the paragraph below) to the Group. The Share Option Scheme will provide the Eligible Participants an opportunity to have a personal stake in our Company with the view to (i) motivating the Eligible Participants to optimize their performance efficiency to the benefit of the Group; and (ii) attracting and retaining or otherwise maintaining an on-going business relationship with the Eligible Participants whose contributions are or will be beneficial to the long-term growth of the Group.

The Directors may, at their discretion, invite any Directors, employees and officers of any member of the Group and any advisors, consultants, distributors, contractors, contract manufacturers, agents, customers, business partners, joint venture business partners and service providers of any member of the Group who the Board considers, in its sole discretion, have contributed or will contribute to the Group (collectively, the "Eligible Participants") to participate in the Share Option Scheme.

Initially, the maximum number of shares which may be issued upon the exercise of all the options to be granted under the Share Option Scheme or any other share option schemes adopted by the Company (and to which the provisions of Chapter 17 of the Listing Rules are applicable) shall not exceed 10% of the aggregate number of the shares in issue as at the date of the Listing, which was 112,560,000 shares, representing approximately 8.5% of the issued share capital of the Company as at the date of this Annual Report. The total number of shares which may be issued upon the exercise of all the options granted and yet to be exercised under the Share Option Scheme or any other share option schemes adopted by the Company (and to which the provisions of Chapter 17 of the Listing Rules are applicable) must not exceed 30% of the aggregate number of the shares in issue from time to time.

Unless approved by the shareholders, the total number of shares issued and to be issued upon exercise of the options granted to each participant (including both exercised, cancelled and outstanding options) under the Share Option Scheme or any other share option scheme adopted by the Company (and to which the provisions of Chapter 17 of the Listing Rules are applicable) in any 12-month period must not exceed 1% of the shares in issue.

The vesting periods, exercise periods and vesting conditions may be specified by the Company at the time of the grant, and the share options shall expire no later than 10 years from the relevant date of grant. At the time of the grant of the options, the Company may specify any performance target(s) which must be achieved before the options can be exercised. The Share Option Scheme does not contain any performance targets.

The exercise price for the shares of the Company being the subject of the options shall be no less than the higher of (i) the closing price of the shares as stated in the daily quotation sheet issued by the Stock Exchange on the date of grant; (ii) the average closing price of the shares as stated in the daily quotation sheets issued by the Stock Exchange for the five Stock Exchange business days immediately preceding the date of grant; and (iii) the nominal value of a share on the date of grant.

The amount payable by a grantee on the acceptance of a grant of options is HK\$1.00.

Directors' Report

The following are details of the options granted pursuant to the Share Options Scheme but not yet exercised during the year ended 31 December 2020:

Grantee and	Date of grant	Exercise	Number of options	Number of options granted during	Number of options exercised/ cancelled/ lapsed during	Number of options not yet exercised on 31 December	Approximate percentage of shareholding upon the exercise of
position	of options	price	granted	the year	the year	2020	the options
Other employees	10 July 2015	HK\$0.89	30,000,000	–	(30,000,000)	–	N/A
Other employees	14 November 2016	HK\$0.47	30,000,000	–	–	30,000,000	2.26%
Total			60,000,000	–	(30,000,000)	30,000,000	2.26%

During the year ended 31 December 2020, no options were granted to a Director, chief executive or substantial shareholder of the Company nor an associate (as defined in the Listing Rules) of any of them.

ARRANGEMENT FOR DIRECTORS TO ACQUIRE SHARES OR DEBENTURES

Other than the option holdings disclosed above, at no time during the year was the Company, its holding company, fellow subsidiaries or subsidiaries was a party to any arrangements to enable the Directors to acquire benefits by means of the acquisition of shares in, or debt securities (including debentures) of, the Company or any other body corporate.

MANAGEMENT CONTRACTS

No contracts concerning the management and administration of the whole or any substantial part of the business of the Company were entered into or existed during the year ended 31 December 2020.

SUBSTANTIAL SHAREHOLDERS

At 31 December 2020, the following interests of 5% or more of the issued share capital of the Company were recorded in the register of interests required to be kept by the Company pursuant to Section 336 of the SFO.

Name of shareholder	Beneficial owner	Interest of a controlled corporation	Investment manager	Total interests in shares (Note 1)	Approximate percentage shareholding	Note
Alliance Holding	610,915,527	–	–	610,915,527 (L)	45.97%	2
Zheng Yu Long	119,935,060	610,915,527	–	730,850,587 (L)	54.99%	2
Zheng Yu Shuang	–	610,915,527	–	610,915,527 (L)	45.97%	2
Zheng Yu Huan	–	610,915,527	–	610,915,527 (L)	45.97%	2
Li Hung Kong	–	610,915,527	–	610,915,527 (L)	45.97%	2

Notes:

(1) The letter "L" denotes the person's long position in such securities and the letter "S" denotes the person's short position in such securities.

(2) The 610,915,527 Shares are beneficially owned by Alliance Holding, a company which is owned as to 28% by each of Zheng Yu Long, Zheng Yu Shuang, Zheng Yu Huan and as to 16% by Li Hung Kong. Accordingly, each of Zheng Yu Long, Zheng Yu Shuang, Zheng Yu Huan and Li Hung Kong is deemed to be interested in the Shares held by Alliance Holding for the purpose of the SFO.

Save as disclosed above, the Company has not been notified of any other relevant interests or short positions in the issued share capital of the Company as at 31 December 2020.

Directors' Report

SIGNIFICANT INVESTMENTS AND MATERIAL ACQUISITION AND DISPOSAL OF SUBSIDIARIES AND ASSOCIATED COMPANIES

During the year ended 31 December 2020, the Group has disposed the entire equity interest of Tianjin Huakunda Supply Chain Management Co., Ltd., an then indirect wholly-owned subsidiary of the Company and held an industrial complex in Tianjin, to an independent third party (the "Disposal"). The Disposal was completed on 30 December 2020. Save as the Disposal, there was no significant investments, material acquisition and disposal of subsidiaries and associated companies during the year ended 31 December 2020 (2019: Nil). Further, there was no plan authorised by the Board for other material investments or additional capital assets as at the date of this Annual Report.

USE OF THE PROCEEDS FROM THE DISPOSAL

The net proceeds from the Disposal, after deducting the estimated transaction costs and income taxes attributable to the Disposal of approximately RMB54,594,000, are estimated to be approximately RMB233,581,000, of which approximately RMB100,000,000 will be applied to repay the borrowings of the Group, approximately RMB60,000,000 will be applied for the Group's business development and the remaining approximately RMB73,581,000 will be used for the general working capital of the Group.

Up to 31 December 2020, approximately RMB41.8 million of the proceeds from the Disposal has been used for the repayment of borrowings. All the remaining unused net proceeds from the Disposal will be utilized in accordance with the intended use of proceeds in the coming years.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES

Neither the Company nor its subsidiaries purchased, sold or redeemed any of the Company's listed securities during the year ended 31 December 2020.

PRE-EMPTIVE RIGHTS

There are no provisions for pre-emptive rights under the Company's Bye-laws, or the laws of Bermuda, which would oblige the Company to offer new shares on a pro-rata basis to existing shareholders.

EMOLUMENT POLICY

As at 31 December 2020, the Group had approximately 1,060 employees. The Group recruited and promoted individual persons according to their strength and development potential. The emoluments of the Directors of the Company are decided by the Remuneration Committee, having regard to the market rates, workload and responsibilities and general economic situation.

LITIGATION AND ARBITRATION

As at the date of this Annual Report, there was no outstanding or pending litigation and arbitration for the Group.

SUFFICIENCY OF PUBLIC FLOAT

The Company had maintained a sufficient public float throughout the year ended 31 December 2020.

MAJOR CUSTOMERS AND SUPPLIERS

During the year ended 31 December 2020, the Group's largest customer and five largest customers accounted for approximately 5.0% (2019: 3.7%) and 15.8% (2019: 14.5%) of the Group's total turnover for the year, respectively.

During the year ended 31 December 2020, the Group's largest supplier and five largest suppliers accounted for approximately 3.7% (2019: 23.5%) and 16.3% (2019: 36.2%) of the Group's total purchases for the year, respectively.

None of the Directors, their associates or any shareholders who owned more than 5% of the Company's share capital had any interests in the five largest customers or suppliers at any time during the year ended 31 December 2020.

RELATIONSHIPS WITH EMPLOYEES, SUPPLIERS AND CUSTOMERS

The Group understands that employees are valuable assets. The Group provides competitive remuneration package to attract and motivate the employees. The Group regularly reviews the remuneration package of employees and makes necessary adjustments to conform to the market standard.

The Group's business is built on a customer-oriented culture. The Group also understands that it is important to maintain good relationship with its suppliers and customers to fulfil its immediate and long-term goals. To maintain its market competitiveness within the industry, the Group aims at delivering constantly high standards and high quality products to its customers. During the year under review, there was no material and significant dispute between the Group and its suppliers and/or customers.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE

Environmental Protection Environmental conservation remains a key focus for the Group. The conscientious use of resources and adoption of best practices across the Group's businesses underlie its commitment to safeguarding the environment. The Group encourages environmental protection and comply with environmental legislation and promote awareness towards environmental protection to the employees.

The Group puts great emphasis in environmental protection and sustainable development. Through the establishment of an ever-improving management system, enhancement on procedure monitoring, energy conversation and environment protection were strongly promoted, leading to the remarkable achievement of environmental management. Several measures have been implemented by the Group in order to promote environmental protection.

Compliance with Laws and Regulations

Compliance procedures are in place to ensure adherence to applicable laws, rules and regulations in particular, those have significant impact on the Group. The audit committee of the Company is delegated by the Board to monitor the Group's practices on compliance with legal and regulatory requirements. Any changes in the applicable laws, rules and regulations are brought to the attention of relevant employees and relevant operation units from time to time.

As far as the Company is aware, it has complied in material respects with the relevant laws and regulations that have a significant impact on the business and operation of the Company.

Directors' Report

Workplace Quality

The Group is an equal opportunity employer and does not discriminate on the basis of personal characteristics. The Group has employee handbooks outlining terms and conditions of employment, expectations for employees' conduct and behavior, employees' rights and benefits. The Group also establishes and implements policies that promote a harmony and respectful workplace.

The Group believes that employees are the valuable assets of an enterprise and regards human resources as its corporate wealth. The Group provides on-the-job training and development opportunities to enhance its employees' career progression. Through different training, staff's professional knowledge in corporate operations, occupational and management skills are enhanced. The Group also organized charitable and staff-friendly activities for employees, such as outings, sport match and health talks to provide communication opportunities among staff, which are vital to promote staff relationship and physical fitness.

Health and Safety

The Group prides itself on providing a safe, effective and congenial work environment. Adequate arrangements, training and guidelines are implemented to ensure the working environment is healthy and safe. The Group provides health and safety communications for employees to present the relevant information and raise awareness of occupational health and safety issues.

The Group values the health and well-being of staff. In order to provide employees with health coverage, staff are entitled to medical insurance benefits as well as other health awareness programs.

Training and Development

The Group is committed to the professional and personal development and growth of all employees and considers training and development a continual process. Many on– and off-the-job training courses and programs are provided to help employees develop and maintain consistency, proficiency and professionalism. Structured training programmes including courses, seminars and workshops are offered to staff at all levels with the objective of grooming and unleashing their full potential, supporting, organizational development and facilitating team synergies. Employees are encouraged to take advantage of these programmes in order to equip themselves with the skills and knowledge for expanded career opportunities within the Group.

AUDITORS

The financial statements for the year ended 31 December 2020 have been audited by HLB Hodgson Impey Cheng Limited ("HLB"). A resolution will be proposed in the forthcoming AGM to re-appoint HLB as auditors of the Company.

On behalf of the Board Labixiaoxin Snacks Group Limited

Zheng Yu Huan Chairman Hong Kong, 31 March 2021

ndmark der Street l ong 31/F, Gloucester Tower The La 11 Ped Centra Hong K

TO THE SHAREHOLDERS OF LABIXIAOXIN SNACKS GROUP LIMITED

(Incorporated in Bermuda with limited liability)

OPINION

We have audited the consolidated financial statements of Labixiaoxin Snacks Group Limited (the "Company") and its subsidiaries (collectively referred to as the "Group") set out on pages 51 to 114, which comprise the consolidated statement of financial position as at 31 December 2020, and the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

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 2020 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards ("IFRSs") issued by the International Accounting Standards Board ("IASB") 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 Hong Kong Institute of Certified Public Accountants ("HKICPA"). Our responsibilities under those standards are further described in the "Auditors' Responsibilities for the Audit of the Consolidated Financial Statements" section of our report. We are independent of the Group in accordance with the HKICPA's Code of Ethics for Professional Accountant (the "Code"), and we have fulfilled our ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

MATERIAL UNCERTAINTY RELATED TO GOING CONCERN

We draw attention to Note 3 in the consolidated financial statements, which indicates that the Group incurred a net loss of approximately RMB29,403,000 during the year ended 31 December 2020 and, as of that date, the Group's current liabilities exceeded its current assets by approximately RMB40,155,000. As stated in Note 3, these conditions, along with other matters as set forth in Note 3 to the consolidated financial statements, indicate that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

KEY AUDIT MATTERS

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were 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 these matters. In addition to the matter described in the "Material Uncertainty Related to Going Concern" section, we have determined the matters described below to be the key audit matters to be communicated in our report.

Key audit matter How our audit addressed the key audit matter

Impairment assessment on property, plant and equipment

Refer to Note 15 of the consolidated financial statements.

As at 31 December 2020, the Group had property, plant and equipment of approximately RMB298,762,000, which mainly comprised land and buildings of approximately RMB135,002,000, plant and equipment of approximately RMB159,830,000. A recent history of losses of the subsidiaries of the Group is an indicator of impairment for property, plant and equipment and hence an impairment assessment is required. We focused on this area because the balance of property, plant and equipment was significant and these assessment process is complex and highly subjective which based on the selection of appropriate comparables and assumptions such as discount rate and future revenue. The Group engaged an external valuer to perform the valuation for the recoverable amount of the property, plant and equipment.

Our procedures in relation to management's impairment assessment included:

• Evaluating the independent valuer's competence, capabilities and objectivity;
• A s s e s s i n g t h e m e t h o d o l o g i e s u s e d a n d t h e appropriateness of the key assumption based on our knowledge of the relevant industry and using our valuation experts;
• Challenging the reasonableness of key assumptions based on our knowledge of the business and industry; and
• Checking on a sampling basis, the accuracy and relevance of the input data used.

We found that the assumptions made by management for impairment assessment were supported by the available evidence.

Key audit matter How our audit addressed the key audit matter

Allowance for expected credit losses on trade receivables

Refer to Note 19 of the consolidated financial statement.

The Group has trade receivables of approximately RMB297,633,000 (net of allowance for credit losses). Provision is made for lifetime expected credit losses on trade receivables.

Management applied judgement in assessing the expected credit losses. Receivables relating to customers with known financial difficulties or significant doubt on collection of receivables are assessed individually for provision for impairment allowance. Expected credit losses are also estimated by grouping the remaining receivables based on shared credit risk characteristics and collectively assessed for likelihood of recovery, taking into account the nature of the customer and its ageing category, and applying expected credit loss rates to the respective gross carrying amounts of the receivables. The expected credit loss rates are determined based on historical credit losses experienced from the past 3 years and are adjusted to reflect current and forward-looking information such as macroeconomic factors affecting the ability of the customers to settle the receivables.

Our procedures in relation to management's allowance for expected credit losses on trade receivables included:

• Understanding and evaluating the key controls that the Group has implemented to manage and monitor its credit risk;
• Checking on a sample basis, the ageing profile of the trade receivables as at 31 December 2020 to the underlying financial records and post year-end settlements to bank receipts;
• Inquiring of management for the status of each of the material trade receivables past due as at year end and corroborating explanations from management with supporting evidence, such as performing public search of credit profile of selected customers, understanding ongoing business relationship with the customers based on trade records, checking historical and subsequent settlement records and other correspondence with the customers; and
• Assessing the appropriateness of the expected credit loss provisioning methodology, examining the key data inputs on a sample basis to assess their accuracy and completeness, and challenging the assumptions, including both historical and forward-looking information, used for determining the expected credit losses.

We found that the management judgment and estimates used to assess the recoverability of the trade receivables and determine the allowance for expected credit losses to be supportable by available evidence.

OTHER INFORMATION

The directors are responsible for the other information. The other information comprises the information included in the annual report, but does not include the consolidated financial statements and our auditors' report thereon (the "Other Information").

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 the Other Information, we are required to report that fact. We have nothing to report in this regard.

RESPONSIBILITIES OF THE DIRECTORS AND THE AUDIT COMMITTEE FOR THE CONSOLIDATED FINANCIAL STATEMENTS

The directors are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with IFRSs issued by the IASB 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.

AUDITORS' RESPONSIBILITY 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 auditors' report that includes our opinion. We report our opinion solely to you, as a body, in accordance with Section 90 of the Bermuda Companies Act 1981, 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 aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

AUDITORS' RESPONSIBILITY FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As part of an audit in accordance with HKSAs, we exercise professional judgement and maintain professional skepticism 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 auditors' 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 auditors' 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 communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable, actions taken to eliminate threats or safeguards applied.

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 auditors' 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 director on the audit resulting in this independent auditors' report is Kwok Tsz Chun.

HLB Hodgson Impey Cheng Limited

Certified Public Accountants

Kwok Tsz Chun

Practising Certificate Number: P06901

Hong Kong, 31 March 2021

Consolidated Statement of Profit or Loss and Other Comprehensive Income

For the year ended 31 December 2020

	2020		2019
	Notes	RMB'000	RMB'000
Revenue	6	508,838	466,570
Cost of sales		(342,294)	(327,565)
Gross profit		166,544	139,005
Other income	7	16,124	16,819
Other (loss)/gain, net	8	(1,790)	444
Allowance under expected credit losses model, net of reversal		(18,234)	375
Gain on disposal of a subsidiary	27	141,659	–
Reversal of impairment loss on loan receivable	21	–	28,528
Loss on the remeasurement of asset classified as held for sale	24	–	(46,690)
Written-off of property, plant and equipment	15	(65,980)	(67,252)
Selling and distribution expenses		(77,202)	(74,637)
Administrative expenses		(105,667)	(106,758)
Operating profit/(loss)		55,454	(110,166)
Finance income		1,031	676
Finance costs		(40,509)	(43,774)
Finance costs, net	9	(39,478)	(43,098)
Profit/(loss) before taxation	10	15,976	(153,264)
Taxation	11	(45,379)	(16,846)
Loss and total comprehensive loss for the year		(29,403)	(170,110)
Loss per share attributable to equity holders of the Company
(RMB per share)	12
– Basic		(0.02)	(0.13)
– Diluted		(0.02)	(0.13)

Details of dividends to equity holders of the Company are set out in Note 13.

Consolidated Statement of Financial Position

For the year ended 31 December 2020

		2020	2019
	Notes	RMB'000	RMB'000
ASSETS
Non-current assets
Right-of-use assets	14	94,238	127,710
Property, plant and equipment	15	298,762	505,644
Deposits for property, plant and equipment	16	45,455	43,508
Deferred income tax assets	17	85,390	110,275
		523,845	787,137
Current assets
Inventories	18	63,581	43,146
Trade receivables	19	297,633	244,549
Prepayments and other receivables	20	158,424	135,921
Pledged bank deposits	22	40,916	70,270
Cash and cash equivalents	23	258,839	24,833
		819,393	518,719
Asset classified as held for sale	24	186,002	180,000
		1,005,395	698,719
Total assets		1,529,240	1,485,856
EQUITY
Capital and reserves attributable to equity holders of the Company
Share capital	28	470,030	470,030
Reserves	35	(2,186)	27,217
Total equity		467,844	497,247

Consolidated Statement of Financial Position

For the year ended 31 December 2020

		2020	2019
	Notes	RMB'000	RMB'000
LIABILITIES
Non-current liability
Deferred tax liabilities	17	15,846	15,864
		15,846	15,864
Current liabilities
Trade and other payables	25	382,595	347,855
Bank borrowings	26	642,443	624,890
Tax payable		20,512	–
		1,045,550	972,745
Total liabilities		1,061,396	988,609
Total equity and liabilities		1,529,240	1,485,856
Net current liabilities		(40,155)	(274,026)
Total assets less current liabilities		483,690	513,111

Approved and authorised for issue by the board of directors on 31 March 2021:

Zheng Yu Huan Zheng Yu Shuang

Director Director

Consolidated Statement of Changes in Equity

For the year ended 31 December 2020

					Share	Currency
	Share	Share	Merger	Statutory	option	translation	Other	Accumulated
	capital	premium	reserve	reserves	reserves	reserve	reserve	losses	Total
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
			(Note 35(a))	(Note 35(b))	(Note 35(c))
Balance as at 1 January 2019	470,030	615,656	(87,600)	170,995	17,914	(41)	858	(520,455)	667,357
Loss and total comprehensive loss for the year	–	–	–	–	–	–	–	(170,110)	(170,110)
Lapse of share option (Note 32)	–	–	–	–	(6,658)	–	–	6,658	–
Lapse of unlisted warrant (Note 29)	–	–	–	–	–	–	(858)	858	–
Balance as at 31 December 2019 and
1 January 2020	470,030	615,656	(87,600)	170,995	11,256	(41)	–	(683,049)	497,247
Loss and total comprehensive loss
for the year	–	–	–	–	–	–	–	(29,403)	(29,403)
Lapse of share option (Note 32)	–	–	–	–	(5,928)	–	–	5,928	–
Disposal of a subsidiary	–	–	–	(832)	–	–	–	832	–
Balance as at 31 December 2020	470,030	615,656	(87,600)	170,163	5,328	(41)	–	(705,692)	467,844

Consolidated Statement of Cash Flows

For the year ended 31 December 2020

	Notes	2020 RMB'000	2019 RMB'000
Cash flows from operating activities
Profit/(loss) before taxation		15,976	(153,264)
Adjustments for:
– Amortisation and depreciation – Reversal of impairment loss on loan receivable	21	52,247 –	77,664 (28,528)
– Allowances for/(reversal of ) expected credit losses on trade receivables		18,079	(375)
– Allowance for expected credit losses on other receivables		155	–
– Loss on the remeasurement of asset classified as held for sale		–	46,690
– Written-off of property, plant and equipment		65,980	67,252
– Loss/(gain) on disposal of property, plant and equipment		1,370	(403)
– Gain on disposal of a subsidiary	27	(141,659)	–
– Interest income on bank deposits		(1,031)	(676)
– Finance costs		40,509	43,774
Operating cash flow before working capital changes		51,626	52,134
– Increase in trade receivables, prepayments
and other receivables		(77,676)	(21,024)
– (Increase)/decrease in inventories		(20,435)	10,317
– Increase/(decrease) in trade and other payables	25	34,019	(6,456)
Cash (used in)/generate from operations		(12,466)	34,971
Income tax paid		–	–
Net cash (used in)/generate from operating activities		(12,466)	34,971
Cash flows from investing activities Purchase of property, plant and equipment		(2,387)	(8,808)
Deposits paid for property, plant and equipment		(6,721)	(2,236)
Proceeds from disposal of property, plant and equipment		7,657	2,436
Decrease/(increase) in pledged bank deposits		29,354	(5,311)
Interest received on bank deposits		1,031	676
Proceed from loan receivable	21	–	49,928
Net cash inflow on disposal of a subsidiary	27	271,997	–
Net cash generated from investing activities		300,931	36,685
Cash flows from financing activities
Proceeds from bank borrowings		612,910	629,900
Repayments of bank borrowings		(595,357)	(713,399)
Proceeds from loan from a director		9,387	9,413
Proceeds from loan from an independent third party		–	41,762
Repayment of loan from an independent third party		(41,762)	–
Interest paid		(39,637)	(40,006)
Net cash used in financing activities		(54,459)	(72,330)
Net increase/(decrease) in cash and cash equivalents		234,006	(674)
Cash and cash equivalents as at the beginning of the year		24,833	25,507
Cash and cash equivalents as at the end of the year		258,839	24,833

For the year ended 31 December 2020

1. GENERAL INFORMATION

Labixiaoxin Snacks Group Limited (the "Company") was incorporated in Bermuda on 4 May 2004 and domiciled in Bermuda. The Company's immediate and ultimate holding company is Alliance Food and Beverages (Holding) Company Limited, a company incorporated in the British Virgin Islands (the "BVI"). The address of the Company's registered office is Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. The address of its principal place of business is Wuli Industrial Area, Jinjiang, Fujian, the People's Republic of China (the "PRC"(中國福建省晉江市五里工業園區) ) .

The Company is an investment holding company. The principal activities of the Company and its subsidiaries (collectively referred to as the "Group") are manufacturing and sales of jelly products, confectionary products, beverages products and other snacks products.

The Company's shares are listed on the main board of The Stock Exchange of Hong Kong Limited (the "Stock Exchange").

The consolidated financial statements are presented in thousands of units of Renminbi ("RMB'000"), which is also the functional currency of the Company, unless otherwise stated. The consolidated financial statements have been approved for issue by the Board of Directors on 31 March 2021.

2. APPLICATION OF AMENDMENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRSs")

Amendment to IFRSs that are mandatorily effective for the current year

In the current year, the Group has applied the Amendments to References to the Conceptual Framework in IFRSs and a number of amendments to IFRSs issued by the International Accounting Standards Board (the "IASB"), for the first time, which are mandatorily effective for the annual period beginning on or after 1 January 2020 for the preparation of the Group's consolidated financial statements:

Amendments to IAS 1 and IAS 8 Definition of Material Amendments to IFRS 3 Definition of a Business Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform

In addition, the Group has early applied the Amendment to IFRS 16 Covid-19-Related Rent Concession.

The Amendments to References to the Conceptual Framework in IFRSs and the amendments to IFRSs in the current year has had no material impact on the Group's financial performance and positions for the current and prior years and/or on the disclosures set out in these consolidated financial statements.

For the year ended 31 December 2020

2. APPLICATION OF AMENDMENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRSs") (Continued)

New and amendments to IFRSs in issued but not yet effective

The Group has not early applied the following new and amendments to IFRSs that have been issued but are not yet effective:

IFRS 17	Insurance Contracts and the related Amendments1
Amendments to IFRS 3	Reference to the Conceptual Framework2
Amendments to IFRS 9, IAS 39, IFRS 7,	Interest Rate Benchmark Reform – Phase 24
IFRS 4 and IFRS 16
Amendments to IFRS 10 and IAS 28	Sale or Contribution of Assets between an Investor and
	its Associate or Joint Venture3
Amendments to IAS 1	Classification of Liabilities as Current or Non-current1
Amendments to IAS 16	Property, Plant and Equipment: Proceeds before Intended Use2
Amendments to IAS 37	Onerous Contracts – Cost of Fulfilling a Contract2
Amendment to IFRS Standards	Annual Improvements to IFRS Standards 2018-20202

Effective for annual periods beginning on or after 1 January 2023.

Effective for annual periods beginning on or after 1 January 2022.

3 Effective for annual periods beginning on or after a date to be determined.

4 Effective for annual periods beginning on or after 1 January 2021.

The directors anticipate that the application of new and amendments to IFRSs will have no material impact on the Group's financial performance and financial position in the foreseeable future.

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES

3.1 Basis of preparation of consolidated financial statements

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") issued by the International Accounting Standards Board (the "IASB"). For the purpose of preparation of the consolidated financial statements, information is considered material if such information is reasonably expected to influence decisions made by primary users. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange (the "Listing Rules") and by the Hong Kong Companies Ordinance (the "CO").

Going concern basis

The Group incurred a net loss of approximately RMB29,403,000 (2019: approximately RMB170,110,000) for the year ended 31 December 2020. As at 31 December 2020, the Group's current liabilities exceeded its current assets by approximately RMB40,155,000 (2019: approximately RMB274,026,000).

The directors of the Company have reviewed the Group's cash flow projections prepared by the management. The cash flow projections cover a period of twelve months from 31 December 2020. They are of the opinion that, taking into account the plans and measures as stated below, the Group will have sufficient working capital to finance its operations and to meet its financial obligations as and when they fall due within twelve months from 31 December 2020. Accordingly, the directors are satisfied that it is appropriate to prepare the consolidated financial statements on a going concern basis.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.1 Basis of preparation of consolidated financial statements (Continued)

Going concern basis (Continued)

Notwithstanding the above results, the consolidated financial statements have been prepared on a going concern basis, the validity of which is dependent upon the success of the Group's future operations, its ability to generate adequate cash flows in order to meet its obligations as and when fall due and its ability to refinance or restructure its borrowings such that the Group can meet its future working capital and financing requirements. Also, the directors of the Company are of the opinion that the Group will be able to finance its future financing requirements and working capital based on the following considerations:

(1) Financial support from substantial shareholder

Mr. Zheng Yu Long, the substantial shareholder of the Company who have already provided the aggregate amount of approximately RMB48,298,000 loan from a loan facility of RMB60,000,000 to the Group, have agreed to continuously provide financial support for the continuing operations of the Company so as to enable it to meet its liabilities when they fall due and carry on its business without a significant curtailment of operations in the twelve months from 31 December 2020.

(2) Disposal of the land

The Group is in the process of completion of the disposal of the land located at Jinjian Food Industrial Park (晉江市食品產業園)with a total site area of approximately 126,981 square meters together with the buildings thereon with an aggregate site area of approximately 148,271 square meters. For further details, please refer to Note 24(a).

(3) Completion of the disposal of the properties

The Group entered into the provisional agreement to dispose the properties located at Hong Kong at a consideration of HK\$23,000,000 (equivalent to approximately RMB20,000,000). For further details, please refer to Note 24(b).

(4) Alternative sources of external funding

The Group will take steps to obtain external funding in order to improve the working capital and liquidity and cash flow position of the Group.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.1 Basis of preparation of consolidated financial statements (Continued)

The consolidated financial statements have been prepared on the historical cost basis except for asset classified as held for sale that are measured at the lower of their previous carrying amount and fair value less costs to sell at the end of each reporting period, as explained in the accounting policies set out below.

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2 Share-based Payment, leasing transactions that are accounted for in accordance with IFRS 16, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 Inventories or value in use in IAS 36 Impairment of Assets.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
• Level 3 inputs are unobservable inputs for the asset or liability.

The preparation of the consolidated financial statements in conformity with IFRSs 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 5.

3.2 Significant accounting policies

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company:

• has power over the investee;
• is exposed, or has rights, to variable returns from its involvement with the investee; and
• has the ability to use its power to affect its returns.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies (Continued)

Basis of consolidation (Continued)

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Group gains control until the date when the Group ceases to control the subsidiary.

Profit or loss and each item of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group's accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

3.3 Changes in the Group's interests in existing subsidiaries

Changes in the Group's interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's relevant components of equity and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries, including reattribution of relevant reserves between the Group and the non-controlling interests according to the Group's and the non-controlling interests' proportionate interests.

Any difference between the amount by which the non-controlling interests are adjusted, and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.

When the Group loses control of a subsidiary, the assets and liabilities of that subsidiary are derecognised. A gain or loss is recognised in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the carrying amount of the assets, and liabilities of the subsidiary attributable to the owners of the Company. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IFRS 9 Financial Instruments ("IFRS 9") or, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.4 Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:

• deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;
• liabilities or equity instruments related to share-based payment arrangements of the acquiree or sharebased payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment at the acquisition date (see the accounting policy below);
• assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that standard; and
• lease liabilities are recognised and measured at the present value of the remaining lease payments (as defined in IFRS 16) as if the acquired leases were new leases at the acquisition date, except for leases for which (a) the lease term ends within 12 months of the acquisition date; or (b) the underlying asset is of low value. Rightof-use assets are recognised and measured at the same amount as the relevant lease liabilities, adjusted to reflect favourable or unfavourable terms of the lease when compared with market terms.

3.5 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 makes strategic decisions.

3.6 Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recognised at the rates of exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Nonmonetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange difference arising on the settlement of monetary items arising on the settlement of monetary items, and on the retranslation of monetary items receivable from or payable to a foreign operation for which they arise.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.6 Foreign currencies (Continued)

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group's operations are translated into the presentation currency of the Group (i.e. Renminbi) using exchange rates prevailing at the end of each reporting period. Income and expenses items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under the heading of currency translation reserve.

3.7 Borrowing costs

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.

Any specific borrowing that remain outstanding after the related asset is ready for its intended use or sale is included in the general borrowing pool for calculation of capitalisation rate on general borrowings. 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.

3.8 Property, plant and equipment

Property, plant and equipment is stated at historical cost less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

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. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the consolidated statement of profit or loss and other comprehensive income during the financial period in which they are incurred.

Depreciation on property, plant and equipment is calculated using the straight-line method to allocate their costs to their residual values over their estimated useful lives, as follows:

Useful lives

Buildings	20 years
Plant and equipment	5 – 10 years
Motor vehicles	5 years
Leasehold improvements	5 years

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.8 Property, plant and equipment (Continued)

Construction in progress represents costs incurred in the construction of property, plant and equipment and other tangible assets. Costs comprise direct and indirect costs of construction, including borrowing costs incurred during the period of construction.

Construction in progress is transferred to property, plant and equipment when it is ready for its intended use. No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and are ready for its intended use. When the assets concerned are brought to use, the costs are transferred to property, plant and equipment and depreciated in accordance with the policy as stated above.

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 3.11).

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within "other (losses)/gain, net" in the consolidated statement of profit or loss and other comprehensive income.

3.9 Leases

Definition of a lease

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

For contracts entered into or modified or arising from business combinations on or after the date of initial application, the Group assesses whether a contract is or contains a lease based on the definition under IFRS 16 at inception, modification date or acquisition date, as appropriate. Such contract will not be reassessed unless the terms and conditions of the contract are subsequently changed.

The Group as a lessee

Allocation of consideration to components of a contract

For a contract that contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components, including contract for acquisition of ownership interests of a property which includes both leasehold land and non-lease building components, unless such allocation cannot be made reliably.

The Group also applies practical expedient not to separate non-lease components from lease component, and instead account for the lease component and any associated non-lease components as a single lease component.

Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to leases of office premises that have a lease term of 12 months or less from the commencement date and do not contain a purchase option. It also applies the recognition exemption for lease of low-value assets. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis or another systematic basis over the lease term.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.9 Leases (Continued)

The Group as a lessee (Continued) Right-of-use assets The cost of right-of-use assets includes:

• the amount of the initial measurement of the lease liability;
• any lease payments made at or before the commencement date, less any lease incentives received;
• any initial direct costs incurred by the Group; and
• an estimate of costs to be incurred by the Group in dismantling and removing the underlying assets, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.

Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities other than adjustments to lease liabilities resulting from COVID-19 related rent concessions in which the Group applied the practical expedient.

Right-of-use assets in which the Group is reasonably certain to obtain ownership of the underlying leased assets at the end of the lease term are depreciated from commencement date to the end of the useful life. Otherwise, right-ofuse assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term.

The Group presents right-of-use assets as a separate line item on the consolidated statement of financial position.

Lease modifications

The Group accounts for a lease modification as a separate lease if:

• the modification increases the scope of the lease by adding the right to use one or more underlying assets; and
• the consideration for the leases increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.

For a lease modification that is not accounted for as a separate lease, the Group remeasures the lease liability based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.

The Group accounts for the remeasurement of lease liabilities by making corresponding adjustments to the relevant right-of-use assets. When the modified contract contains a lease component and one or more additional lease or nonlease components, the Group allocates the consideration in the modified contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.10 Non-current assets held for sale

Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such asset and its sale is highly probable. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Non-current assets classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell, which continue to be measured in accordance with the accounting policies as set out in respective sections.

3.11 Impairment of property, plant and equipment and right-of-use assets

At the end of the reporting period, the Group reviews the carrying amounts of its property, plant and equipment and right-of-use assets to determine whether there is any indication that these assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the relevant asset is estimated in order to determine the extent of the impairment loss (if any).

The recoverable amount of property, plant and equipment and right-of-use assets are estimated individually. When it is not possible to estimate the recoverable amount individually, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.11 Impairment of property, plant and equipment and right-of-use assets (Continued)

In testing a cash-generating unit for impairment, corporate assets are allocated to the relevant cash-generating unit when a reasonable and consistent basis of allocation can be established, or otherwise they are allocated to the smallest group of cash generating units for which a reasonable and consistent allocation basis can be established. The recoverable amount is determined for the cash-generating unit or group of cash-generating units to which the corporate asset belongs, and is compared with the carrying amount of the relevant cash-generating unit or group of cash-generating units.

Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (or a cash-generating unit) for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable amount. For corporate assets or portion of corporate assets which cannot be allocated on a reasonable and consistent basis to a cash-generating unit, the Group compares the carrying amount of a group of cash-generating units, including the carrying amounts of the corporate assets or portion of corporate assets allocated to that group of cash-generating units, with the recoverable amount of the group of cash-generating units. In allocating the impairment loss, the impairment loss is allocated first to reduce the carrying amount of any goodwill (if applicable) and then to the other assets on a prorata basis based on the carrying amount of each asset in the unit or the group of cash-generating units. The carrying amount of an asset is not reduced below the highest of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero. The amount of the impairment loss that would otherwise have been allocated to the asset is allocated pro rata to the other assets of the unit or the group of cash-generating units. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit or a group of cash-generating units) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or a cash-generating unit or a group of cash-generating units) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

3.12 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost of inventories are determined on a weighted average cost basis. 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 represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.13 Financial instruments

Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the market place.

Financial assets and financial liabilities are initially measured at fair value except for trade receivables arising from contracts with customers which are initially measured in accordance with IFRS 15. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss ("FVTPL")) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognised immediately in profit or loss.

The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating interest income and interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts and payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset or financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

3.13.1 Financial assets

• (i) Classification and subsequent measurement of financial assets Financial assets that meet the following conditions are subsequently measured at amortised cost:
• the financial asset is held within a business model whose objective is to collect contractual cash flows; and
• the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets that meet the following conditions are subsequently measured at fair value through other comprehensive income ("FVTOCI"):

• the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling; and
• the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.13 Financial instruments (Continued)

3.13.1 Financial assets (Continued)

(i) Classification and subsequent measurement of financial assets (Continued) All other financial assets are subsequently measured at FVTPL, except that at initial recognition of a financial asset the Group may irrevocably elect to present subsequent changes in fair value of an equity investment in other comprehensive income if that equity investment is neither held for trading nor contingent consideration recognised by an acquirer in a business combination to which IFRS 3 Business Combinations applies.

A financial asset is classified as held for trading if:

• it has been acquired principally for the purpose of selling in the near term; or
• on initial recognition it is a part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or
• it is a derivative that is not designated and effective as a hedging instrument.

In addition, the Group may irrevocably designate a financial asset that are required to be measured at the amortised cost or FVTOCI as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch.

Amortised cost and interest income

Interest income is recognised using the effective interest method for financial assets measured subsequently at amortised cost and debt instruments/receivables subsequently measured at FVTOCI. For financial instruments, other than purchased or originated credit-impaired financial assets, interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently become credit-impaired (see below). For financial assets that have subsequently become credit-impaired, interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset from the next reporting period. If the credit risk on the credit-impaired financial instrument improves so that the financial asset is no longer credit-impaired, interest income is recognised by applying the effective interest rate to the gross carrying amount of the financial asset from the beginning of the reporting period following the determination that the asset is no longer credit-impaired.

(ii) Impairment of financial assets

The Group performs impairment assessment under expected credit loss ("ECL") model on financial assets (including trade receivables, deposits, other receivables, pledged bank deposits and cash and bank balances) which are subject to impairment assessment under IFRS 9. The amount of ECL is updated at each reporting date to reflect changes in credit risk since initial recognition.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.13 Financial instruments (Continued)

3.13.1 Financial assets (Continued)

(ii) Impairment of financial assets (Continued)

Lifetime ECL represents the ECL that will result from all possible default events over the expected life of the relevant instrument. In contrast, 12-month ECL ("12m ECL") represents the portion of lifetime ECL that is expected to result from default events that are possible within 12 months after the reporting date. Assessment are done based on the Group's historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current conditions at the reporting date as well as the forecast of future conditions.

The Group always recognises lifetime ECL for trade receivables.

For all other instruments, the Group measures the loss allowance equal to 12m ECL, unless there has been a significant increase in credit risk since initial recognition, in which case the Group recognises lifetime ECL. The assessment of whether lifetime ECL should be recognised is based on significant increases in the likelihood or risk of a default occurring since initial recognition.

(a) Significant increase in credit risk

In assessing whether the credit risk has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition. In making this assessment, the Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forwardlooking information that is available without undue cost or effort.

In particular, the following information is taken into account when assessing whether credit risk has increased significantly:

• an actual or expected significant deterioration in the financial instrument's external (if available) or internal credit rating;
• significant deterioration in external market indicators of credit risk, e.g. a significant increase in the credit spread, the credit default swap prices for the debtor;
• existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor's ability to meet its debt obligations;
• an actual or expected significant deterioration in the operating results of the debtor;
• an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that results in a significant decrease in the debtor's ability to meet its debt obligations.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.13 Financial instruments (Continued)

3.13.1 Financial assets (Continued)

(ii) Impairment of financial assets (Continued)

(a) Significant increase in credit risk (Continued)

Irrespective of the outcome of the above assessment, the Group presumes that the credit risk has increased significantly since initial recognition when contractual payments are more than 30 days past due, unless the Group has reasonable and supportable information that demonstrates otherwise.

The Group regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revises them as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk before the amount becomes past due.

(b) Definition of default

The Group considers the following as constituting an event of default for internal credit risk management purposes as historical experience indicates that receivables that meet either of the following criteria are generally not recoverable:

• when there is a breach of financial covenants by the counterparty; or
• information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Group, in full (without taking into account any collateral held by the Group).

Irrespective of the above, the Group considers that default has occurred when a financial asset is more than 180 days past due unless the Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.

(c) Credit-impaired financial assets

A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit–impaired includes observable data about the following events:

• significant financial difficulty of the issuer or the borrower;
• a breach of contract, such as a default or past due event;
• the lender(s) of the borrower, for economic or contractual reasons relating to the borrower's financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider;
• it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or
• the disappearance of an active market for that financial asset because of financial difficulties.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.13 Financial instruments (Continued)

3.13.1 Financial assets (Continued)

(ii) Impairment of financial assets (Continued)

(d) Write-off policy

The Group writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, for example, when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings, or in the case of trade receivables, when the amounts are over two years past due, whichever occurs sooner. Financial assets written off may still be subject to enforcement activities under the Group's recovery procedures, taking into account legal advice where appropriate. A write-off constitutes a derecognition event. Any subsequent recoveries are recognised in profit or loss.

(e) Measurement and recognition of ECL

The measurement of ECL is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forwardlooking information. Estimation of ECL reflects an unbiased and probability-weighted amount that is determined with the respective risks of default occurring as the weights.

The Group uses a practical expedient in estimating ECL on trade receivables using a provision matrix taking into consideration historical credit loss experience, adjusted for forward looking information that is available without undue cost or effort.

Generally, the ECL is the difference between all contractual cash flows that are due to the Group in accordance with the contract and the cash flows that the Group expects to receive, discounted at the effective interest rate determined at initial recognition.

Lifetime ECL for certain trade receivables are considered on a collective basis taking into consideration past due information and relevant credit information such as forward looking macroeconomic information.

For collective assessment, the Group takes into consideration the following characteristics when formulating the grouping:

• Past-due status;
• Nature, size and industry of debtors; and
• External credit ratings where available.

The grouping is regularly reviewed by management to ensure the constituents of each group continue to share similar credit risk characteristics.

Interest income is calculated based on the gross carrying amount of the financial asset unless the financial asset is credit impaired, in which case interest income is calculated based on amortised cost of the financial asset.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.13 Financial instruments (Continued)

3.13.1 Financial assets (Continued)

(ii) Impairment of financial assets (Continued)

(e) Measurement and recognition of ECL (Continued)

The Group recognises an impairment gain or loss in profit or loss for all financial instruments by adjusting their carrying amount, with the exception of trade receivables where the corresponding adjustment is recognised through a loss allowance account.

(iii) Derecognition of financial assets

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

On derecognition of a financial asset measured at amortised cost, the difference between the asset's carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

3.13.2 Financial liabilities

(i) Financial liabilities at amortised cost

Financial liabilities including borrowings and trade and other payables are subsequently measured at amortised cost, using the effective interest method.

(ii) Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

3.14 Cash and cash equivalents

In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less, less bank overdrafts and pledged deposits. In the consolidated statement of financial position, bank overdrafts are shown within borrowings in current liabilities.

3.15 Share capital

Ordinary shares are classified as equity. Incremental costs, net of tax, directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.16 Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit/(loss) before tax because of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

For the purpose of measuring deferred tax for leasing transactions in which the Group recognises the right-of-use assets and the related lease liabilities, the Group first determines whether the tax deductions are attributable to the right-of-uses assets or the lease liabilities.

For leasing transactions in which the tax deductions are attributable to the lease liabilities, the Group applies IAS 12 Income Taxes requirements to the leasing transaction as a whole. Temporary differences relating to right-of-use assets and lease liabilities are assessed on a net basis. Excess of depreciation on right-of-use assets over the lease payments for the principal portion of lease liabilities resulting in net deductible temporary differences. Temporary differences arising from subsequent revision to the carrying amounts of right-of-use assets and lease liabilities, resulting from remeasurement of lease liabilities and lease modifications, that are not subject to initial recognition exemption are recognised on the date of remeasurement or modification.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.16 Taxation (Continued)

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied to the same taxable entity by the same taxation authority.

Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

3.17 Employee benefits

Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into separate entities such as social security plans in the PRC, and the Group has no legal or constructive obligation to pay further contributions if any of the funds do not hold sufficient assets to pay all employee benefits relating to employee services in the current and prior periods. The Group's contributions to defined contribution plans are recognised in the financial year to which they relate.

3.18 Share-based payments

Equity-settled share-based payments transactions

Share options granted to employees

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date.

The fair value of the equity-settled share-based payments determined at the grant date without taking into consideration all non-market vesting conditions is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest, with a corresponding increase in equity (sharebased payments reserve). At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest based on assessment of all relevant non-market vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the share-based payments reserve.

When share options are exercised, the amount previously recognised in share-based payments reserve will be transferred to share capital (nominal value) and share premium. When the share options are forfeited after the vesting date or are still not exercised at the expiry date, the amount previously recognised in share-based payments reserve will be transferred to accumulated losses.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.19 Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of past events, it is probable that the Group will be required to settle that obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material).

3.20 Revenue from contracts with customers

The Group recognises revenue when (or as) a performance obligation is satisfied, i.e. when "control" of the goods or services underlying the particular performance obligation is transferred to the customer.

A performance obligation represents a good or service (or a bundle of goods or services) that is distinct or a series of distinct goods or services that are substantially the same.

Control is transferred over time and revenue is recognised over time by reference to the progress towards complete satisfaction of the relevant performance obligation if one of the following criteria is met:

• the customer simultaneously receives and consumes the benefits provided by the Group's performance as the Group performs;
• the Group's performance creates and enhances an asset that the customer controls as the Group performs; or
• the Group's performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date.

Otherwise, revenue is recognised at a point in time when the customer obtains control of the distinct good or service.

A contract asset represents the Group's right to consideration in exchange for goods or services that the Group has transferred to a customer that is not yet unconditional. It is assessed for impairment in accordance with IFRS 9. In contrast, a receivable represents the Group's unconditional right to consideration, i.e. only the passage of time is required before payment of that consideration is due.

A contract liability represents the Group's obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer.

A contract asset and a contract liability relating to a contract are accounted for and presented on a net basis.

Revenue from the processing and sales of jelly products, confectionary products, beverages products and other snacks products is recognised when control of the products has transferred, being at the point the products are delivered to the customer and the customer has accepted the products, and there is no unfulfilled obligation that could affect the customer's acceptance of the products. Delivery occurs when the products have been shipped to the specified location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the Group has objective evidence that all criteria for acceptance have been satisfied.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.21 Dividend distribution

Dividend distribution to the Company's shareholders is recognised as a liability in the Group's and the Company's financial statements in the period in which the dividends are approved by the Company's shareholders.

3.22 Government grants

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.

Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group should purchases, construct or otherwise acquire non-current assets are recognised as deferred income in the consolidated statement of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.

Government grants related to income that are receivable as compensation for expenses of losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable. Such grants are presented under "other income".

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.23 Related parties

• (a) A person or entity that is preparing the consolidated financial statements of the Group.
• (b) A person, or a close member of that person's family, is related to the Group if that person:
• (i) has control or joint control over the Group;
• (ii) has significant influence over the Group; or
• (iii) is a member of the key management personnel of the Group or the Group parent.
• (c) An entity is related to the group if any of the following conditions applies:
• (i) The entity and the group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
• (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
• (iii) Both entities are joint ventures of the same third party.
• (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
• (v) The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group.
• (vi) The entity is controlled or jointly controlled by a person identified in (a).
• (vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).
• (viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the group or to the group's parent.

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity and include:

• (a) that person's children and spouse or domestic partner;
• (b) children of that person's spouse or domestic partner; and
• (c) dependants of the person or that person's spouse or domestic partner.

For the year ended 31 December 2020

4. FINANCIAL RISK MANAGEMENT

4.1 Financial risk factors

The Group's activities expose it to market risks (including currency risk and interest rate risk), credit risk and liquidity risk. The Group's overall risk management strategy seeks to minimise adverse effects from the unpredictability of financial markets on the Group's financial performance. The directors of the Company are responsible for setting the objectives and underlying principles of financial risk management for the Group.

(a) Market risk

(i) Currency risk

The Group's dominant operations are in the PRC and most of the transactions are denominated in RMB. Entities in the Group sometimes transact in currencies other than RMB. The Group is exposed to currency risk arising from various currency exposures, primarily with respect to the Hong Kong Dollar ("HKD") and the United States Dollar ("USD").

The Group's businesses are principally conducted in RMB and most of the Group's monetary assets and liabilities are denominated in RMB. Accordingly, the management considers the Group's exposure to currency risk is insignificant.

(ii) Cash flow and fair value interest rate risks

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the fair value of a financial instrument will fluctuate due to changes in market interest rates.

The Group's exposure to interest rate risk arises mainly from its borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk, while borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group has not used any interest rate swaps to hedge its exposure to interest rate risk.

As at 31 December 2020, if the interest rate on all borrowings had been 100 basis points higher/lower with all other variables held constant, pre-tax profit for the year ended 31 December 2020 would have been approximately RMB2,062,000 lower/higher (2019 pre-tax loss: RMB3,520,000 higher/lower), mainly as a result of higher/lower interest expense on borrowings with floating interest rates. The Group regularly monitors its interest rate risk to ensure there are no undue exposures to significant interest rate movements.

For the year ended 31 December 2020

4. FINANCIAL RISK MANAGEMENT (Continued)

4.1 Financial risk factors (Continued)

(b) Credit risk

The credit risk of the Group mainly arises from bank balances, deposits, trade receivables, pledged bank deposits and other receivables. The carrying amounts of these balances represent the Group's maximum exposure to credit risk in relation to financial assets.

In respect of cash deposited at banks, the credit risk is considered to be low as the counterparties are reputable banks. The existing counterparties do not have defaults in the past. Therefore, expected credit loss rate of cash at bank is assessed to be close to zero and no provision was made as of 31 December 2020 and 2019.

In respect of the deposits, the credit quality has been assessed with reference to historical information about the counterparties default rate and financial position of the counterparties. The Group recognised the allowance for expected credit losses by assessing the credit risk characteristics of other receivables, discount rate and the likelihood of recovery and considering the prevailing economic conditions. The Directors consider that the credit risk of the deposits are low and no provision of was made as of 31 December 2020 and 2019.

For the other receivables, the management makes periodic individual assessment on the recoverability of other receivables based on historical settlement records, past experience, and also quantitative and qualitative information that is reasonable and supportive forward-looking information. The management believes that there are no significant increase in credit risk of these amounts since initial recognition and the Group provided impairment based on 12m ECL.

The Group applies the simplified approach to provide for expected credit losses prescribed by IFRS 9, which permits the use of the lifetime ECLs provision for all trade receivables. To measure the ECLs, trade receivables have been grouped based on shared credit risk characteristics. The Group has performed historical analysis and identified the key economic variables impacting credit risk and ECL. It considers available reasonable and supportive forwarding-looking information.

As at 31 December 2020 and 2019, trade receivables that are individually significant have been separately assessed for impairment. The Group makes periodic assessment on the recoverability of the trade receivables by using a provision matrix to measure ECL. The provision rates are based on days past due for groupings of various customer segments with similar financial strength and any disputes with the debtors. The calculation reflects the probability of default, loss given default rate, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions.

Majority of the Group's revenue is received from individual customers in relation to sales of jelly products, confectionery products and beverages products. The Group's trade receivables arise mainly from sales of jelly products, confectionery products and beverages product. As at the end of the year, the top five debtors and the largest debtor accounted for approximately 9.77% and 3.66% (2019: 12.34% and 3.00%), of the Group's trade receivables balance. In view of the history of business dealings with the debtors and the sound collection history of the receivables due from them, management believes that there is no material credit risk inherent in the Group's outstanding receivable balance due from these debtors saved for the debtor related to the impaired trade receivables disclosed in the below. Management makes periodic assessment on the recoverability of the trade and other receivables based on historical payment records, the length of overdue period, the financial strength of the debtors and whether there are any disputes with the debtors.

For the year ended 31 December 2020

4. FINANCIAL RISK MANAGEMENT (Continued)

4.1 Financial risk factors (Continued)

(b) Credit risk (Continued)

Individual credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customer's past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. Trade receivables are due within 180 days (2019: 180 days) from the date of billing. Normally, the Group does not obtain collateral from customers.

The Group measures loss allowances for trade receivables at an amount equal to lifetime ECLs, which is calculated using a provision matrix. As the Group's historical credit loss experience does not indicate significantly different loss patterns for different customer segments, the loss allowance based on past due status is not further distinguished between the Group's different customer bases.

The following table provides information about the Group's exposure to credit risk and ECLs for trade receivables as at 31 December 2020 and 2019:

		Gross
At 31 December 2020	Expected loss rate	carrying amount	Loss allowance
	%	RMB'000	RMB'000
Less than 30 days	0.69	83,052	577
31 to 90 days	2.69	32,846	882
91 to 180 days	4.52	50,765	2,294
Over 180 days	11.76	152,672	17,949
		319,335	21,702

		Gross
At 31 December 2019	Expected loss rate	carrying amount	Loss allowance
	%	RMB'000	RMB'000
Less than 30 days	0.14	52,340	75
31 to 90 days	0.92	56,403	519
91 to 180 days	1.82	57,543	1,049
Over 180 days	2.42	81,886	1,980
		248,172	3,623

For the year ended 31 December 2020

4. FINANCIAL RISK MANAGEMENT (Continued)

4.1 Financial risk factors (Continued)

(b) Credit risk (Continued)

The following table shows the movement in lifetime ECL that has been recognized for trade receivables under the simplified approach:

	Lifetime ECL (not credit impaired) RMB'000
As at 1 January 2019	3,998
Reversal of expected credit losses recognised	(375)
As at 31 December 2019 and 1 January 2020	3,623
Allowance for expected credit losses recognised	18,079
As at 31 December 2020	21,702

The following table shows the movement in 12m-ECL that has been recognised for other receivable:

	12m-ECL RMB'000
As 1 January 2019, 31 December 2019 and 1 January 2020 Allowance for expected credit loss recognised	– 155
As at 31 December 2020	155

Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group, and a failure to make contractual payments for a period greater than 180 days past due.

Impairment losses on trade receivables are presented as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item.

For the year ended 31 December 2020

4. FINANCIAL RISK MANAGEMENT (Continued)

4.1 Financial risk factors (Continued)

(c) Liquidity risk

The Group's financial liabilities are all due within the next 12 to 36 months from the end of reporting period. The Group manage the liquidity risk by maintaining sufficient cash and banking facilities to enable them to meet their normal operating and capital commitments.

Based on the Group's history of its ability to obtain external financing and the continuing financial support by the substantial shareholders of the Company, its anticipated cash inflows from operations in the coming year and its expected future working capital requirements, the directors are of the opinion that there are sufficient financial resources available to the Group at least in the coming 12 months to meet its liabilities as and when they fall due.

The following table details the remaining contractual maturities at the end of the reporting period of the Group's non-derivative financial liabilities and derivative financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period) and the earliest date of the Group can be required to pay:

	Weighted		More than
	average	Within	1 year but	Total	Total
	effective	1 year or	less than	undiscounted	carrying
	interest rate	on demand	5 years	cash flows	amount
	%	RMB'000	RMB'000	RMB'000	RMB'000
As at 31 December 2020
Trade payables	–	35,387	–	35,387	35,387
Accruals and other payables	–	298,910	–	298,910	298,910
Loan from a director	2.00	49,264	–	49,264	48,298
Bank borrowings	5.17	653,877	–	653,877	642,443
		1,037,438	–	1,037,438	1,025,038
As at 31 December 2019
Trade payables	–	19,593	–	19,593	19,593
Accruals and other payables	–	247,589	–	247,589	247,589
Loan from a director	2.00	39,689	–	39,689	38,911
Loan from an independent
third party	12.00	45,103	–	45,103	41,762
Bank borrowings	7.14	639,535	–	639,535	624,890
		991,509	–	991,509	972,745

For the year ended 31 December 2020

4. FINANCIAL RISK MANAGEMENT (Continued)

4.2 Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern and to maintain an optimal capital structure so as to maximise shareholders' value. In order to maintain or achieve an optimal capital structure, the Group may adjust the amount of dividend payment, return capital to shareholders, issue new shares or obtain new borrowings.

The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as total borrowings divided by total equity as shown in the consolidated statement of financial position.

The gearing ratios at 31 December 2020 and 2019 were as follows:

	2020	2019
	RMB'000	RMB'000
Total borrowings	690,741	705,563
Total equity	467,844	497,247
Gearing ratio	147.6%	141.9%

4.3 Fair value estimation

The carrying amounts of the Group's financial assets, including cash and cash equivalents, pledged bank deposits, trade and other receivables and the Group's financial liabilities, including trade and other payables and bank borrowings, approximate their fair values due to their short maturities. The nominal values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate 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 and the Company for similar financial instruments.

No analysis is disclosed since the Group has no financial instruments that are measured subsequent to initial recognition at fair value at the end of the reporting period.

For the year ended 31 December 2020

5. 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.

(a) Estimated 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 competition within the industry. Management will increase the depreciation where useful lives are less than previously estimated lives, or it will write-off or write-down technically obsolete or assets that have been abandoned.

(b) Provision of allowance for credit losses for trade receivables

The Group uses provision matrix to calculate ECL for the trade receivables. The provision rates are based on internal credit ratings as groupings of various debtors that have similar loss patterns. The provision matrix is based on the Group's historical default rates taking into consideration forward-looking information that is reasonable and supportable available without undue costs or effort. At every reporting date, the historical observed default rates are reassessed and changes in the forward-looking information are considered. In addition, trade receivables with significant balances and credit impaired are assessed for ECL individually.

The provision of ECL is sensitive to changes in estimates. The information about the ECL and the Group's trade receivables are disclosed in Note 19.

(c) Current and deferred income taxes

The Group is subject to income taxes in the PRC. There are certain transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Deferred income tax assets relating to certain temporary differences are recognised when management considers it is probable that future taxable profits will be available against which the temporary differences can be utilised. When the expectation is different from the original estimate, such differences will impact the recognition of deferred income tax assets and taxation charges in the period in which such estimate is changed.

For the year ended 31 December 2020

5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued)

(d) Impairment losses for property, plant and equipment and right-of-use assets

Property, plant and equipment and right-of-use assets are stated at costs less accumulated and impairment, if any. In determining whether an asset is impaired, the Group has to exercise judgement and make estimation, particularly in assessing: (1) whether an event has occurred or any indicators that may affect the asset value; (2) whether the carrying value of an asset can be supported by the recoverable amount, in the case of value in use, the net present value of future cash flows which are estimated based upon the continued use of the asset; and (3) the appropriate key assumptions to be applied in estimating the recoverable amounts including cash flow projections and an appropriate discount rate. When it is not possible to estimate the recoverable amount of an individual asset including right-ofuse assets, the Group estimates the recoverable amount of the cash generating unit to which the assets belongs, including allocation of corporate assets when a reasonable and consistent basis of allocation can be established, otherwise recoverable amount is determined at the smallest group of cash generating units, for which the relevant corporate assets have been allocated. Changing the assumptions and estimates, including the discount rates or the growth rate in the cash flow projections, could materially affect the recoverable amounts. Furthermore, the cash flows projections, growth rate and discount rate are subject to greater uncertainties in the current year due to uncertainty on how the Covid-19 pandemic may progress and evolve and volatility in financial markets, including potential disruptions in the Group's manufacturing and sales of jelly, confectionary, beverage and other snacks product operation.

As at 31 December 2020, the carrying amounts of property, plant and equipment and right-of-use assets subject to impairment assessment were RMB298,762,000 and RMB94,238,000 in Note 15 and 14 respectively.

(e) Valuation of inventories

Inventories are stated at the lower of cost and net realisable value at the end of the reporting period. Net realizable value is determined on the basis of the estimated selling price less the estimated costs necessary to make the sale. The directors estimate the net realisable value for finished goods and raw material based primarily on the latest invoice prices and current market conditions.

In addition, the directors perform an inventory review on a product-by-product basis at the end of each reporting period and assess the need for write-off of inventories.

6. SEGMENT INFORMATION

The Group is principally engaged in the manufacturing and sale of jelly products, confectionary products, beverages products and other snacks products.

The chief operating decision-maker (the "CODM") has been identified as the executive directors of the Company. The CODM reviews the Group's internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.

The CODM considers the business by products and assesses the performance of the following operating segments:

• i. Jelly products
• ii. Confectionary products
• iii. Beverages products
• iv. Other snacks products

The CODM assesses the performance of the operating segments based on measure of segment results without allocation of corporate income and corporate expenses including directors' emoluments, headquarters staff costs and finance costs. Other information provided to the CODM is measured in a manner consistent with that in the consolidated financial statements. The Company's executive directors make decisions based on the operating results of each segment and review reports on the aging analysis of trade receivables and expected usage of inventories of the Group as a whole. No information of segment assets and liabilities is reviewed by the Company's executive directors for the assessment of performance of operating segments. Therefore, only the segment revenue and segment results are presented.

The revenue from external parties reported to the CODM is measured in a manner consistent with that in the consolidated statement of profit or loss and other comprehensive income.

For the year ended 31 December 2020

6. SEGMENT INFORMATION (Continued)

During the years ended 31 December 2020 and 2019, none of the individual customer accounted for 10% or more of the Group's external revenue. As at 31 December 2020 and 2019, majority of the Group's assets, liabilities and capital expenditure were located or utilised in the PRC.

Segment revenue and results

			Year ended 31 December 2020
	Jelly products RMB'000	Confectionary products RMB'000	Beverages products RMB'000	Other snacks products RMB'000	Reportable segments total RMB'000
Revenue
Sales to external customers	384,184	104,100	5,206	15,348	508,838
Cost of sales	(255,982)	(72,052)	(4,622)	(9,638)	(342,294)
Gross profit	128,202	32,048	584	5,710	166,544
Results of reportable segments	3,629	16,524	43	3,166	23,362

Note: For sales to external customer, the revenue is recognised at a point in time. All revenue contracts are for period of one year or less. As permitted by practical expedient under IFRS 15, the transaction price allocated to these unsatisfied contracts is not disclosed.

A reconciliation of results of reportable segments to loss for the year is as follows:

	2020
	RMB'000
Results of reportable segments	23,362
Corporate income	16,124
Gain on disposal of a subsidiary	141,659
Corporate expenses	(125,691)
Operating profit	55,454
Finance income	1,031
Finance costs	(40,509)
Profit before taxation	15,976
Taxation	(45,379)
Loss for the year	(29,403)

For the year ended 31 December 2020

6. SEGMENT INFORMATION (Continued)

Segment revenue and results (Continued)

Amounts included in the measure of segment profit or loss:

Year ended 31 December 2020
Jelly products RMB'000	Confectionary products RMB'000	Beverages products RMB'000	Other snacks products RMB'000	Reportable segments total RMB'000
6,542	–	2,566	–	9,108
2,381	–	935	–	3,316
43,091	–	5,318	522	48,931
1,370	–	–	–	1,370
65,980	–	–	–	65,980
11,650	5,699	124	606	18,079

Revenue Sales to external customers	349,241	105,669	7,798	3,862	466,570
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
	Jelly products	Confectionary products	Beverages products	snacks products	segments total
				Other	Reportable

Note: For sales to external customer, the revenue is recognised at a point in time. All revenue contracts are for period of one year or less. As permitted by practical expedient under IFRS 15, the transaction price allocated to these unsatisfied contracts is not disclosed.

For the year ended 31 December 2020

6. SEGMENT INFORMATION (Continued)

Segment revenue and results (Continued)

A reconciliation of results of reportable segments to loss for the year is as follows:

	2019
	RMB'000
Results of reportable segments	(2,884)
Corporate income	17,263
Reversal of impairment loss on loan receivable	28,528
Loss on the remeasurement of asset classified as held for sale	(46,690)
Corporate expenses	(106,383)
Operating loss	(110,166)
Finance income	676
Finance costs	(43,774)
Loss before taxation	(153,264)
Taxation	(16,846)
Loss for the year	(170,110)

Amounts included in the measure of segment profit or loss:

			Year ended 31 December 2019
	Jelly products RMB'000	Confectionary products RMB'000	Beverages products RMB'000	Other snacks products RMB'000	Reportable segments total RMB'000
Capital expenditure	7,933	–	3,111	–	11,044
Depreciation of right-of-use assets	2,381	–	935	–	3,316
Depreciation of property, plant and equipment	69,145	–	5,116	87	74,348
Gain on disposal of property, plant and equipment	(403)	–	–	–	(403)
Written-off of property, plant and equipment	67,252	–	–	–	67,252
Reversal of expected credit losses on trade receivables, net	(368)	–	(7)	–	(375)

For the year ended 31 December 2020

6. SEGMENT INFORMATION (Continued)

Geographic information

No geographic information has been presented as all of the Group's operating activities are carried out in PRC.

7. OTHER INCOME

	2020	2019
	RMB'000	RMB'000
Rental income	3,245	8,465
Sundry income	2,225	2,653
Gain on sales of raw materials and scrap materials	646	5,701
Government grants (Note)	4,120	–
Recovery of loan receivable previously written-off	5,888	–
	16,124	16,819

Note: During the current year, the Group recognised government grants which comprise COVID-19 related subsides of approximately RMB3,879,000 provided by the Jinjiang City Public Employment and Talent Services Center and Employment Support Scheme of approximately RMB241,000 provided by the Hong Kong Government.

8. OTHER (LOSS)/GAIN, NET

	2020 RMB'000	2019 RMB'000
(Loss)/gain on disposal of property, plant and equipment Net exchange (loss)/gain	(1,370) (420)	403 41
	(1,790)	444

9. FINANCE COSTS, NET

	2020	2019
	RMB'000	RMB'000
Finance costs:
Interest expenses on bank borrowings	(36,973)	(40,006)
Interest expenses on loan from a director	(872)	(692)
Interest expenses on loan from an independent third party	(2,664)	(3,076)
Total finance cost	(40,509)	(43,774)
Finance income:
Interest income on bank deposits	1,031	676
Total finance income	1,031	676
Finance costs, net	(39,478)	(43,098)

For the year ended 31 December 2020

2020 2019 RMB'000 RMB'000 The Group's profit/(loss) before taxation is arrived at after charging/(crediting): Auditors' remuneration – Audit service 1,566 2,081 – Non-audit service – 357 Staff costs (including directors' remuneration) – Salaries and bonuses 70,850 71,127 – Employer's contribution to defined contribution plans (Note 31) 1,286 4,635 – Severance payments – 1,078 Advertising and promotion expenses 35,028 34,671 Depreciation of right-of-use assets (Note 14) 3,316 3,316 Depreciation of property, plant and equipment (Note15) 48,931 74,348 Loss/(gain) on disposal of property, plant and equipment 1,370 (403) Reversal of impairment loss on loan receivable (Note 21) – (28,528) Allowance for/(reversal of ) expected credit losses on trade receivables, net (Note 4) 18,079 (375) Allowance for expected credit losses on other receivables (Note 4) 155 – Cost of inventory sold (Note 18) 275,327 196,572 Written-off of property, plant and equipment (Note 15) 65,980 67,252 Loss on the remeasurement of asset classified as held for sale (Note 24) – 46,690 Freight and transportation expenses 4,308 2,367

10. PROFIT/(LOSS) BEFORE TAXATION

11. TAXATION

	2020 RMB'000	2019 RMB'000
Current income tax – PRC Enterprise Income Tax	20,512	–
Deferred income tax, net (Note 17)	24,867	16,846
	45,379	16,846

Hong Kong Profits Tax, Bermuda and BVI Income Tax

On 21 March 2018, the Hong Kong Legislative Council passed The Inland Revenue (Amendment) (No.7) Bill 2017 (the "Bill") which introduces the two-tiered profits tax rate regime. The Bill was signed into law on 28 March 2019 and was gazette on the following day. Under the two-tiered profits tax rates regime, the first HK\$2 million of profits of the qualifying group entity will be taxed at 8.25%, and profits above HK\$2 million will be taxed at 16.5%.

The Group considered the amount involved upon implementation of the two-tiered profits tax rates regime as insignificant to the consolidated financial statements. Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for both years.

No provision of Hong Kong Profits Tax, Bermuda and BVI Income Tax has been made, as the Group did not generate any assessable profits in these jurisdictions during the year ended 31 December 2019.

For the year ended 31 December 2020

11. TAXATION (Continued)

PRC Enterprise Income Tax

PRC Enterprise Income Tax has been provided at the rate of 25% (2019: 25%) on taxable profits of the Group's PRC subsidiaries during the year.

No provision of PRC Enterprise Income Tax has been made as the Group's PRC subsidiaries did not generated any assessable profit during the year ended 31 December 2020 (2019: Nil).

Reconciliation between loss before taxation and tax charge is as follows:

	2020	2019
	RMB'000	RMB'000
Profit/(loss) before taxation	15,976	(153,264)
Tax calculated at PRC applicable income tax rate of 25% (2019: 25%)	3,994	(38,316)
Effect of different tax rates of group companies operating
in other jurisdictions	946	1,081
Tax effect of expenses and losses not deductible for tax purpose	21,378	2,272
Tax effect of tax losses not recognised	20,551	64,853
Tax effect of withholding tax on the distributable profits of
the Group's PRC subsidiaries	(18)	(3,369)
Tax effect of temporary difference not recognised	(1,472)	(9,675)
Tax charge for the year	45,379	16,846

12. LOSS PER SHARE

(a) Basic loss per share

Basic loss per share is calculated by dividing the net loss attributable to the Company's equity holders by the weighted average number of ordinary shares in issue during the year.

	2020	2019
Net loss attributable to the equity holders of the
Company (RMB'000)	(29,403)	(170,110)
Weighted average number of ordinary shares in issue
for basic loss per share ('000)	1,328,977	1,328,977
Basic loss per share (RMB per share)	(0.02)	(0.13)

(b) Diluted loss per share

The computation of diluted loss per share does not include the Company's outstanding share options and the outstanding warrants because the effect were anti-dilutive. Therefore, the diluted loss per share of the Company is the same as the basic loss per share.

For the year ended 31 December 2020

13. DIVIDENDS

The directors of the Company do not recommend the payment of a final dividend for the year ended 31 December 2020 (2019: Nil).

14. RIGHT-OF-USE ASSETS

	RMB'000
Cost:
As at 1 January 2019, 31 December 2019 and 1 January 2020	165,820
Disposal of a subsidiary (Note 27)	(41,882)
As at 31 December 2020	123,938
Accumulated depreciation:
As at 1 January 2019	34,794
Charge for the year	3,316
As at 31 December 2019 and 1 January 2020	38,110
Charge for the year	3,316
Disposal of a subsidiary (Note 27)	(11,726)
As at 31 December 2020	29,700
Net Book Value:
As at 31 December 2020	94,238
As at 31 December 2019	127,710

The right-of-use assets of the Group are located in the PRC which the leasehold periods were 50 years.

For the year ended 31 December 2020

15. PROPERTY, PLANT AND EQUIPMENT

	Land and Buildings	Plant and equipment	Motor vehicles	Leasehold improvements	Construction in-progress	Total
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
Cost:
As at 1 January 2019	1,209,100	881,631	15,635	820	28,728	2,135,914
Additions	1,404	6,873	797	–	899	9,973
Transfer	–	29,375	–	–	(29,375)	–
Reclassified as held for sale	(226,690)	–	–	–	–	(226,690)
Written-off	–	(145,355)	(382)	–	–	(145,737)
Disposals	–	(5,330)	(1,961)	–	–	(7,291)
As at 31 December 2019 and
1 January 2020	983,814	767,194	14,089	820	252	1,766,169
Additions	1,108	4,361	–	–	1,692	7,161
Disposal of a subsidiary (Note 27)	(86,654)	–	–	–	–	(86,654)
Reclassified as held for sale	(10,240)	–	–	–	–	(10,240)
Written-off	(69,365)	–	–	–	–	(69,365)
Disposals	–	(44,160)	(285)	–	–	(44,445)
As at 31 December 2020	818,663	727,395	13,804	820	1,944	1,562,626
Accumulated depreciation and impairment:
As at 1 January 2019	639,195	616,132	13,773	820	–	1,269,920
Depreciation charge	34,666	39,522	160	–	–	74,348
Written-off	–	(78,207)	(278)	–	–	(78,485)
Disposals	–	(3,493)	(1,765)	–	–	(5,258)
As at 31 December 2019 and
1 January 2020	673,861	573,954	11,890	820	–	1,260,525
Depreciation charge	19,974	28,773	184	–	–	48,931
Disposal of a subsidiary (Note 27)	(2,551)	–	–	–	–	(2,551)
Reclassified as held for sale	(4,238)	–	–	–	–	(4,238)
Written-off	(3,385)	–	–	–	–	(3,385)
Disposals	–	(35,162)	(256)	–	–	(35,418)
As at 31 December 2020	683,661	567,565	11,818	820	–	1,263,864
Net book value: As at 31 December 2020	135,002	159,830	1,986	–	1,944	298,762
As at 31 December 2019	309,953	193,240	2,199	–	252	505,644

(i) The land and buildings with carrying values of approximately RMB102,953,000 (2019: RMB105,234,000) were pledged to banks as securities for banking facilities granted to the Group as at 31 December 2020.

(ii) During the year ended 31 December 2019, the Group moved the production facilities in its Tianjin plant to its Fujian and Anhui plants. The surplus machineries were disposed or written-off and a loss on written-off of property, plant and equipment of RMB67,252,000 was recorded for the year ended 31 December 2019.

(iii) During the year ended 31 December 2020, the Group commenced the demolishment of factory premises for redevelopment of its factory premises to cater for production and supply chain base for "New Retail" distribution channels. As a result of the demolishment, the net book value of approximately RMB65,980,000 has been written-off.

For the year ended 31 December 2020

16. DEPOSITS FOR PROPERTY, PLANT AND EQUIPMENT

The balance represents deposits paid for acquisition of machineries and equipment for manufacturing, and construction of production facilities and right-of-use assets.

17. 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 relate to the same fiscal authority.

The following are the major deferred tax assets/liabilities recognised and movement thereon during the current and prior reporting years:

	Accrued
Deferred income tax assets	expenses	Tax losses	Total
	RMB'000	RMB'000	RMB'000
As 1 January 2019	11,655	118,835	130,490
Debited to the consolidated statement of
profit or loss and other comprehensive
income (Note 11)	(1,469)	(18,746)	(20,215)
As 31 December 2019 and 1 January 2020	10,186	100,089	110,275
Debited to the consolidated statement of
profit or loss and other comprehensive
income (Note 11)	(131)	(24,754)	(24,885)
As at 31 December 2020	10,055	75,335	85,390

At the end of the reporting period, the Group has unused tax losses of RMB804,215,000 (2019: RMB827,446,000) available for offset against future profits that will fully expire in 2025. A deferred tax asset has been recognised in respect of RMB301,340,000 (2019: RMB400,356,000) of such losses. No deferred tax asset has been recognised in respect of the remaining RMB502,875,000 (2019: RMB427,090,000) due to the unpredictability of future profit streams.

For the year ended 31 December 2020

17. DEFERRED INCOME TAX (Continued)

The following are the major deferred tax assets/liabilities recognised and movement thereon during the current and prior reporting years: (continued)

	Withholding
Deferred income tax liabilities	income tax	Total
	RMB'000	RMB'000
As at 1 January 2019	(19,233)	(19,233)
Charged to the consolidated statement of profit or loss and
other comprehensive income (Note 11)	3,369	3,369
As at 31 December 2019 and 1 January 2020	(15,864)	(15,864)
Charged to the consolidated statement of profit or loss and
other comprehensive income (Note 11)	18	18
As at 31 December 2020	(15,846)	(15,846)

As at 31 December 2020, deferred income tax assets are recognised for accrued expenses and tax losses, to the extent that realisation of the related tax benefits through future taxable profits is probable which are calculated in full on temporary differences under the liability method using principal tax rates of 25% (2019: 25%).

Deferred income tax liabilities represented deferred tax effect on the withholding tax payable on the undistributed profits of certain PRC subsidiaries.

According to the relevant PRC tax rules and regulations, dividend distribution out of profit earned by foreign-invested enterprises in the PRC after 1 January 2008 is subject to PRC corporate withholding income tax. During the year, withholding income tax was provided for the dividend distributed and the portion of the retained profits which will be distributed in the foreseeable future for the Group's PRC subsidiaries at a tax rate of 5% to 10%.

As at 31 December 2020, there are temporary differences relating to the retained earnings of the Group's PRC subsidiaries amounted to approximately RMB573,908,000 (2019: RMB583,573,000). Deferred income tax liabilities of approximately RMB36,973,000 (2019: RMB37,015,000), have not been recognised in respect of the tax that would be payable on the distribution of these retained profits, as the Company controls the dividend policy of these PRC subsidiaries and the directors have determined that these profits are not likely to be distributed in the foreseeable future.

For the year ended 31 December 2020

18. INVENTORIES

	2020	2019
	RMB'000	RMB'000
Raw materials	40,004	26,049
Finished goods	23,577	17,097
	63,581	43,146

The cost of inventories recognised as expense and included in cost of sales amounted to approximately RMB275,327,000 (2019: RMB196,572,000).

19. TRADE RECEIVABLES

	2020	2019
	RMB'000	RMB'000
Trade receivables	319,335	248,172
Less: Allowance for credit losses (Note 4)	(21,702)	(3,623)
	297,633	244,549

For the year ended 31 December 2020, the Group's revenue are generally on credit term of 180 days (2019: 180 days). As at 31 December 2020, the ageing analysis of trade receivables, based on invoice date, and net of allowance for credit losses, is as follows:

	2020	2019
	RMB'000	RMB'000
Less than 30 days	82,475	52,265
31 days – 90 days	31,964	55,884
91 days to 180 days	48,471	56,494
Over 180 days	134,723	79,906
	297,633	244,549

Details of allowance for expected credit losses on trade receivables for the years ended 31 December 2020 and 2019 are set out in Note 4.

Included in the above allowance for credit losses on trade receivables is RMB21,702,000 (2019: RMB3,623,000). The individually impaired trade receivable relate to consumers that were in default or delinquency in payments and only a portion of the receivables is expected to be recovered. The carrying amounts of trade receivables approximate their fair values.

For the year ended 31 December 2020

20. PREPAYMENTS AND OTHER RECEIVABLES

	2020	2019
	RMB'000	RMB'000
Prepayments	95,009	76,498
Other receivables	63,570	59,423
	158,579	135,921
Less: Allowance for expected credit losses	(155)	–
	158,424	135,921

As at 31 December 2020, prepayments mainly comprise of deposit paid for purchase of raw material of approximately RMB94,864,000 (2019: RMB76,498,000).

As at 31 December 2020, other receivables mainly comprise of value-added tax receivables of approximately RMB39,841,000 (2019: RMB52,359,000).

During the year ended 31 December 2020, allowance for expected credit losses of RMB155,000 on other receivables was provided (2019: Nil) as detailed in Note 4.

21. LOAN RECEIVABLE

On 19 June 2015, a wholly-owned subsidiary of the Group ("Lender") entered into an entrusted loan agreement with a PRC bank, as the lending agent (the "Lending Bank"), and an independent PRC third party entity (the "Borrower"), pursuant to which the Lender, agreed to grant the entrusted loan in the principal amount of RMB250 million (the "Entrusted Loan") to the Borrower (the "Entrusted Loan Agreement"). The purpose of granting the Entrusted Loan by the Group was to better utilize the surplus cash of the Group under a short-term arrangement to generate higher interest income.

The Entrusted Loan is secured by (i) a personal guarantee of RMB250 million provided by a controlling shareholder of the Borrower; (ii) a corporate guarantee of RMB228.8 million given by a fellow subsidiary of the Borrower; and (iii) certain land parcels in the PRC valued at RMB30.3 million, as security to the obligations of the Borrower under the Entrusted Loan Agreement. The Entrusted Loan has a term of one year and bearing interest at 0.5% per month.

On 10 March 2017, the Lending Bank initiated a legal proceeding (the "Legal Proceeding") with the Quanzhou Intermediate People's Court in the People's Republic of China ("Quanzhou Court") against the Borrower as well as its fellow subsidiary and its controlling shareholder (i.e. Mr. Hong) (collectively, the "Defendants"). On 29 March 2018, the Quanzhou Court published a judgement to order the Borrower to (a) repay the principal amount of the Entrusted Loan in the amount of RMB220 million; (b) pay the interests (including penalty interests and compound interests) of RMB30.2 million; (c) pay the interests (including penalty interests and compound interests) to be accrued for the period from 14 November 2017 up till the date of actual repayment; and (d) legal fee of RMB500,000.

As the Borrower failed to fulfill the court order stated above, the Lending Bank had forced sales of the assets (i.e. the land situated in Luojiang District, Quanzhou City, Fujian Province) ("Pledged Assets") charged by the Borrower to the Lending Bank pursuant to the Entrusted Loan Agreement. During the year ended 31 December 2019, a reversal of impairment of loan receivable of RMB28,528,000 was recognised due to those Pledged Assets were sold and the loan receivable was recovered of approximately RMB49,928,000. During the year ended 31 December 2020, a further recovery of loan receivable of approximately RMB5,888,000 was recognised as other income.

For further details, please refer to the announcements of the Company dated 9 August 2016, 18 August 2016 and 10 March 2017.

For the year ended 31 December 2020

22. PLEDGED BANK DEPOSITS

As at 31 December 2020, pledged bank deposits of the Group of approximately RMB40,916,000 (2019: RMB70,270,000) were with initial terms of over three months and pledged to banks as security for bills payable (Note 25).

The weighted average effective interest rate of these bank deposits as at 31 December 2020 was 0.74% per annum (2019: 0.77% per annum). The carrying amounts of pledged bank deposits approximate their fair values.

23. CASH AND CASH EQUIVALENTS

	2020	2019
	RMB'000	RMB'000
Cash and bank balances	258,839	24,833

(a) The Group's cash and cash equivalents as at 31 December 2020 and 2019 are denominated in the following currencies:

	2020 2019
	RMB'000	RMB'000
RMB	257,125	23,511
HKD	1,714	1,319
USD	–	3
	258,839	24,833

Cash and cash equivalents of the Group of approximately RMB257,125,000 (2019: RMB23,511,000) are denominated in RMB. RMB is not a freely convertible currency and the remittance of funds out of the PRC is subject to the exchange restriction imposed by the PRC government.

For the year ended 31 December 2020

23. CASH AND CASH EQUIVALENTS (Continued)

(b) Reconciliation of liabilities arising from financing activities

The table below details changes in the Group's liabilities from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are liabilities for which cash flow were, or future cash flows will be, classified in the Group's consolidated cash flow statement as cash flows from financing activities.

For the year ended 31 December 2020

			Loan from an	Accrued
	Bank	Loan from	independent	interest
	Borrowings	a director	third party	payable	Total
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
	(Note 26)	(Note 38(b))		(Note 25)
As at 1 January 2020	624,890	38,911	41,762	4,768	710,331
Changes from financing activities:
Proceeds from bank borrowings	612,910	–	–	–	612,910
Repayment of bank borrowings	(595,357)	–	–	–	(595,357)
Proceeds from loan from a director	–	9,387	–	–	9,387
Repayment of loan from an independent
third party	–	–	(41,762)	–	(41,762)
Interest paid	(36,973)	–	(2,664)	–	(39,637)
Total changes from financing cash flows	(19,420)	9,387	(44,426)	–	(54,459)
Other changes:
Interest expenses	36,973	–	2,664	872	40,509
As at 31 December 2020	642,443	48,298	–	5,640	696,381

For the year ended 31 December 2020

23. CASH AND CASH EQUIVALENTS (Continued)

(b) Reconciliation of liabilities arising from financing activities (Continued)

For the year ended 31 December 2019

			Loan from an	Accrued
	Bank	Loan from	independent	interest
	Borrowings	a director	third party	payable	Total
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
	(Note 26)	(Note 38(b))		(Note 25)
As at 1 January 2019	708,389	29,498	–	1,000	738,887
Changes from financing activities:
Proceeds from bank borrowings	629,900	–	–	–	629,900
Repayment of bank borrowings	(713,399)	–	–	–	(713,399)
Proceeds from loan from a director	–	9,413	–	–	9,413
Proceeds from loan from an independent
third party	–	–	41,762	–	41,762
Interest paid	(40,006)	–	–	–	(40,006)
Total changes from financing cash flows	(123,505)	9,413	41,762	–	(72,330)
Other changes:
Interest expenses	40,006	–	–	3,768	43,774
As at 31 December 2019	624,890	38,911	41,762	4,768	710,331

For the year ended 31 December 2020

24. ASSET CLASSIFIED AS HELD FOR SALE

(a) On 15 May 2019, an indirect wholly-owned subsidiary of the Company (the "Vendor") and an independent third party (the "Purchaser") entered into the transfer agreement (the "Transfer Agreement"), pursuant to which the Vendor has conditionally agreed to sell, and the Purchaser has conditionally agreed to purchase, the right-of-use asset located in Jinjiang Food Industrial Park in Jinjiang City, Fujian Province, the PRC (the "FJ Land Right") for a consideration of RMB180,000,000. Pursuant to the Transfer Agreement, both the Vendor and the Purchaser will liaise with Fujian Jinjiang Industrial Park Construction and Development Company Limited (the "Jinjiang Construction"), a company controlled by Jinjiang City People's Government, regarding the transfer of the FJ Land Right. The Vendor will arrange for the termination of the FJ Land Right with Jinjiang Construction and the Purchaser will enter into an agreement with Jinjiang Construction regarding the new pre-registration contractual right to acquire the FJ Land Right. For more details, please refer to the announcement dated 15 May 2019. The loss on the remeasurement of asset classified as held for sale of RMB46,690,000 has been recognised during the year ended 31 December 2019.

Pursuant to the Extension Announcement dated on 31 December 2020, as additional time is required by the Purchaser and Vendor for the fulfilment of the conditions precedent to the Transfer Agreement, the Long Stop Date shall be further extended to 30 June 2021.

(b) On 10 November 2020, an indirect wholly-owned subsidiary of the Company (the "Vendor"), entered into the First Provisional Agreement (the "First Provisional Agreement") with First Purchaser (the "First Purchaser"), pursuant to which the Vendor has agreed to sell, and the First Purchaser has agreed to purchase, the First Property (the "First Property") at a consideration of HK\$11,500,000 (equivalent to approximately RMB10,000,000); and

The Vendor entered into the Second Provisional Agreement (the "Second Provisional Agreement") with the Second Purchaser (the "Second Purchaser"), pursuant to which the Vendor has agreed to sell, and the Second Purchaser has agreed to purchase, the Second Property (the "Second Property") at a consideration of HK\$11,500,000 (equivalent to approximately RMB10,000,000).

The disposal transaction have been completed on 29 January 2021. For more details, please refer to the announcement of the Company dated 10 November 2020.

For the year ended 31 December 2020

25. TRADE AND OTHER PAYABLES

	2020	2019
	RMB'000	RMB'000
Trade payables	35,387	19,593
Bills payable (Note (i))	81,300	132,460
Accrued sales rebates	9,694	10,219
Other accrued expenses	28,606	6,188
Directors' fees and emoluments payable	15,731	13,680
Loan from a director (Note (iii))	48,298	38,911
Loan from an independent third party (Note (iv))	–	41,762
Other payables and sundry creditors (Note (ii) & (v))	163,579	85,042
	382,595	347,855

Note:

(i) Bills payable amounting to approximately RMB81,300,000 (2019: RMB84,460,000) were secured by pledged bank deposits of approximately RMB40,916,000 (2019: RMB70,270,000).

The bills payable were with maturity period within 1 year.

• (ii) As at 31 December 2020, other payables included interest payable of approximately RMB2,564,000 (2019: RMB1,692,000) and RMB3,076,000 (2019: RMB3,076,000) due to a director and an independent third party respectively.
• (iii) As at 31 December 2020, the Company has drawn down an aggregate amount of approximately RMB48,298,000 (2019: RMB38,911,000) from a loan facility of RMB60,000,000 (2019: RMB50,000,000) entered with Mr. Zheng Yu Long, an executive director of the Company. The amount is unsecured, repayable within 12 months and bears fixed interest at 2% per annum.
• (iv) On 21 May 2019, the Company entered into a loan agreement with an independent third party, the loan of approximately RMB41,762,000 was secured by the equity of a PRC subsidiary. The loan was repayable within 8 months and charged at fixed interest rate of 12.00%.
• (v) As at 31 December 2020, the Company received RMB70,000,000 (2019: RMB10,000,000) deposit of the assets classified as held for sale from the Purchaser in accordance with the terms of the Transfer Agreement.

The credit periods granted by suppliers generally range from 30 to 60 days. The ageing analysis of trade payables based on invoice date is as follows:

	2020 RMB'000	2019 RMB'000
Less than 30 days	25,031	15,023
31 days – 90 days	6,996	2,637
Over 90 days	3,360	1,933
	35,387	19,593

The carrying amounts of trade and other payables approximate their fair values.

For the year ended 31 December 2020

26. BANK BORROWINGS

	2020	2019
	RMB'000	RMB'000
Secured bank borrowings	460,943	443,390
Unsecured bank borrowings	181,500	181,500
Total bank borrowings	642,443	624,890
Carrying amount of bank borrowings wholly repayable:
On demand or within 1 year	642,443	624,890
	642,443	624,890

The carrying amounts of the bank borrowings are denominated in the following currencies:

	2020 RMB'000	2019 RMB'000
RMB	641,190	623,100
HKD	1,253	1,790
	642,443	624,890

As at 31 December 2020, the bank borrowing of HKD1,550,000 (equivalent to approximately RMB1,253,000) (2019: HKD2,150,000 (equivalent to approximately RMB1,790,000)) was secured by the land and buildings of approximately RMB6,002,000 (2019: RMB6,443,000) and charged at a floating interest rate of HIBOR + 2.25% which was repricing every month.

As at 31 December 2020, the short-term secured bank borrowings of approximately RMB150,000,000 (2019: RMB150,000,000) were secured by corporate guarantee by the Group's PRC subsidiaries. The bank borrowings were repayable within 12 months and charged at floating interest rate of 5.00% (2019: 5.00%) which was repricing every 12 months.

As at 31 December 2020, the short-term secured bank borrowings of approximately RMB98,800,000 (2019: RMB80,000,000) were secured by corporate guarantee by the Group's PRC subsidiaries and personal guarantees of Mr. Zheng Yu Shuang and Mr. Zheng Yu Huan, directors of the Company, and the wife of Mr. Zheng Yu Shuang. The bank borrowings were repayable within 12 months and charged at fixed interest rate range from 5.36% to 5.66% (2019: 5.66%) per annum.

As at 31 December 2020, the short-term unsecured bank borrowings of RMB176,100,000 (2019: RMB181,500,000) were repayable within 12 months and charged at fixed interest rates range from 4.15% to 6.80% (2019: 4.57% to 6.98%) per annum.

As at 31 December 2020, the short-term unsecured bank borrowing of RMB5,400,000 (2019: Nil) were repayable within 12 months and charged at floating interest rate of 5.66% which was repricing every 12 months.

For the year ended 31 December 2020

26. BANK BORROWINGS (Continued)

As at 31 December 2020, the short-term secured bank borrowings of approximately RMB49,590,000 (2019: RMB52,200,000) were secured by corporate guarantee by the Group's PRC subsidiaries and land and buildings in PRC of approximately RMB102,953,000 (2019: RMB109,271,000). The bank borrowings were repayable within 12 months and charged at floating interest rate of 5.66% which was repricing every 3 months.

As at 31 December 2020, the short-term secured bank borrowings of approximately RMB145,000,000 (2019: RMB148,000,000) were secured by corporate guarantee by the Group's PRC subsidiaries and personal guarantees of Mr. Zheng Yu Shuang, Mr. Zheng Yu Long and Mr. Zheng Yu Huan, directors of the Company and the supplier of the Company. The bank borrowings were repayable within 12 months and charged at fixed rates range from 5.00% to 5.22% (2019: 5.44%) which was repricing every 3 months.

As at 31 December 2020, the short-term secured bank borrowing of approximately RMB9,800,000 (2019: RMB11,400,000) were secured by corporate guarantee by the Group's PRC subsidiaries and personal guarantees of Mr. Zheng Yu Shuang and Mr. Zheng Yu Huan, directors of the Company, and the related company. The bank borrowings were repayable within 12 months and charged at fixed interest rates of 6.80% per annum.

As at 31 December 2020, the short-term secured bank borrowings of approximately RMB6,500,000 (2019: Nil) were secured by corporate guarantee by the Group's PRC subsidiaries and personal guarantees of Mr. Zheng Yu Shuang, Mr. Zheng Yu Long and Mr. Zheng Yu Huan, directors of the Company and the customer of the Company. The bank borrowings were repayable within 12 months and charged at fixed rates of 6.80% per annum.

27. DISPOSAL OF A SUBSIDIARY

On 27 July 2020, Labixiaoxin (Tianjin) Co., Ltd, an indirect wholly-owned subsidiary enter into the Equity Transfer Agreement for disposal of entire equity interest in Tianjin Huakunda Supply Chain Management Co., Ltd (the "Huakunda") at cash consideration approximately of RMB288,175,000. The disposal was completed on 30 December 2020. Details of which were set out in the announcements of the Company dated on 27 July 2020 and 30 December 2020.

The net assets of Huakunda at the date of disposal were as follows:

	RMB'000
Consideration	288,175
Analysis of assets and liabilities over which control was lost:
Property, plant and equipment	84,103
Right-of-use assets	30,156
Other receivable Cash and cash equivalent	23 10
Other payable	(1,858)
Net assets disposed of	112,434
Gain on disposal of a subsidiary:
Consideration received and receivable	288,175
Less: Net assets disposed of	(112,434)
Gain on disposal	175,741
Less: Transaction costs arising on disposal	(34,082)
Net gain from disposal	141,659
Net cash inflow arising on disposal: Consideration received	272,007
Less: cash and cash equivalent disposed of	(10)
	271,997

For the year ended 31 December 2020

28. SHARE CAPITAL AND SHARE PREMIUM

Authorised share capital

As at 31 December 2020, the total authorised share capital of the Company was US\$250,000,000 (2019: US\$250,000,000).

Issued share capital

	Number of
	Shares		Amount
				Total share
	Issued share			capital and
	Capital	Share capital	Share premium	share premium
	'000	RMB'000	RMB'000	RMB'000
The Company
As at 1 January 2019, 31 December 2019,

29. DIRECTORS' AND CHIEF EXECUTIVES EMOLUMENTS

The emolument of directors and chief executive for the year ended 31 December 2020, disclosed pursuant to the applicable Listing Rules and Companies Ordinance, is set out below:

1 January 2020 and 31 December 2020 1,328,977 470,030 615,656 1,085,686

					Pension
					Retirement
			Other	Discretionary	scheme Plan
Name of directors	Fee	Salaries	benefits	bonuses	contributions	Total
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
Executive directors
Mr. Zheng Yu Huan	–	800	–	–	16	816
Mr. Zheng Yu Shuang (Note (i))	–	800	–	–	–	800
Mr. Zheng Yu Long	–	800	–	–	16	816
Non-executive directors
Mr. Li Hung Kong	215	–	–	–	–	215
Mr. Ren Yunan
(resigned on 7 August 2020)	65	–	–	–	–	65
Independent
non-executive directors
Mr. Li Zhi Hai
(resigned on 7 August 2020)	65	–	–	–	–	65
Mr. Li Biao
(appointed on 7 August 2020)	43	–	–	–	–	43
Ms. Sun Kam Ching	107	–	–	–	–	107
Mr. Chung Yau Tong	215	–	–	–	–	215
	710	2,400	–	–	32	3,142

For the year ended 31 December 2020

29. DIRECTORS' AND CHIEF EXECUTIVES EMOLUMENTS (Continued)

The emolument of directors and chief executive for the year ended 31 December 2019, disclosed pursuant to the applicable Listing Rules and Companies Ordinance, is set out below:

					Pension
					Retirement
			Other	Discretionary	scheme Plan
Name of directors	Fee	Salaries	benefits	bonuses	contributions	Total
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
Executive directors
Mr. Zheng Yu Huan	–	800	–	–	15	815
Mr. Zheng Yu Shuang (Note (i))	–	800	–	–	–	800
Mr. Zheng Yu Long	–	800	–	–	15	815
Non-executive directors
Mr. Li Hung Kong	200	–	–	–	–	200
Mr. Ren Yunan	200	–	–	–	–	200
Independent
non-executive directors
Mr. Li Zhi Hai	200	–	–	–	–	200
Ms. Sun Kam Ching	200	–	–	–	–	200
Mr. Chung Yau Tong	200	–	–	–	–	200
	1,000	2,400	–	–	30	3,430

Notes:

(i) Mr. Zheng Yu Shuang is the Chief Executive Officer of the Group.

• (ii) On 18 August 2014, the Company entered into subscription agreements with two parties (the "Subscribers"), pursuant to which, the Company agreed to issue in aggregate 110,000,000 unlisted warrants to the Subscribers at an issue price of HK\$0.01 per warrant, totaling HK\$1,100,000 (equivalent to RMB858,000). Each unlisted warrant entitles the holder to subscribe for one share of the Company at the subscription price of HK\$1.93 per share. Mr. Ren Yunan is the beneficial owner of a subscriber who holds 100,000,000 unlisted warrants. All unlisted warrants were lapsed on 31 August 2019. The amount previously recognised in other reserve was reversed during the year ended 31 December 2019.
• (iii) During the years ended 31 December 2020 and 2019, none of the directors and chief executive of the Company waived or agreed to waive any emoluments.
• (iv) During the years ended 31 December 2020 and 2019, no emoluments have been paid to the directors and chief executive of the Company as an inducement to join or upon joining the Group or as compensation for loss of office.

For the year ended 31 December 2020

30. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees of the Group during the year ended 31 December 2020 included 3 (2019: 3) directors, whose emoluments are set out in Note 29. Details of the emoluments payable to the remaining 2 (2019: 2) highest paid employees, who are neither a director nor chief executive of the Company, during the year are as follows:

	2020	2019
	RMB'000	RMB'000
Salaries, share options and bonuses	1,997	1,814
Employer's contribution to defined contribution plans	19	22
	2,016	1,836

The emoluments of the remaining 2 highest paid employees fell within the following bands:

	Number of individuals
	2020	2019
Nil – HK\$1,000,000 (equivalent to Nil – RMB900,000)	1	1
HK\$1,000,001 – HK\$2,000,000 (equivalent to RMB900,001 – RMB1,800,000)	1	1

During the years ended 31 December 2020 and 2019, none of the five highest paid employees waived or agreed to waive any emoluments.

During the years ended 31 December 2020 and 2019, no emoluments have been paid to the five highest paid employees as an inducement to join or upon joining the Group or as compensation for loss of office.

31. EMPLOYEE RETIREMENT BENEFITS

The Group operates a Mandatory Provident Fund Scheme (the "MPF Scheme") under the Hong Kong Mandatory Provident Fund Schemes Ordinance for employees employed under the jurisdiction of the Hong Kong Employment Ordinance. The MPF Scheme is a defined contribution retirement plan administered by an independent trustee. Under the MPF Scheme, the employer and its employees are each required to make contributions to the plan at 5% of the employees' relevant income, subject to a cap of monthly relevant income of HK\$30,000. Contributions to the plan vest immediately.

In addition, the Group's subsidiaries in the PRC participate in a defined contribution retirement scheme organised by the PRC municipal government. These subsidiaries are required to make contributions to the scheme.

Save as disclosed above, the Group has no other obligations to make payments in respect of retirement benefits of the employees during the year.

For the year ended 31 December 2020, the Group's retirement plan contributions amounted to approximately RMB1,286,000 (2019: RMB4,635,000).

For the year ended 31 December 2020

32. SHARE BASED PAYMENTS

The Company had the following outstanding share options granted to certain employees of the Group:

Share options granted on 30 September 2014 ("Share option 1")

On 30 September 2014, 33,000,000 share options were granted to certain employees of the Group with an exercisable period from 1 October 2014 to 30 September 2019 at an exercise price of HK\$1.19 per Share. All of these share options were immediately vested. The estimated fair value of these share options was approximately RMB6,788,000, based on the Black-Scholes valuation model. The variables and assumptions used in computing the fair value of the share options are based on the Company's best estimate. The value of an option varies with different variables of certain subjective assumptions. Any change in variables so adopted may materially affect the estimation of the fair value of an option. The significant inputs into the model are as follows:

Date of grant:	30 September 2014
Exercise price:	HK\$1.19 per Share
Expected life:	2.5 years
Risk-free rate:	1%
Expected volatility:	47%
Expected dividend yield:	2%

Note:

The Share option 1 was expired on 30 September 2019, the share option was not exercised and was lapsed on the same date. The amount previously recognised in share option reserve was reversed during the year ended 31 December 2019.

For the year ended 31 December 2020

32. SHARE BASED PAYMENTS (Continued)

Share options granted on 10 July 2015 ("Share option 2")

On 10 July 2015, 30,000,000 share options were granted to certain employees of the Group with an exercisable period from 13 July 2015 to 12 July 2020 at an exercise price of HK\$0.89 per Share. All of these share options were immediately vested. The estimated fair value of these share options was approximately RMB5,928,000, based on the Black-Scholes valuation model. The variables and assumptions used in computing the fair value of the share options are based on the Company's best estimate. The value of an option varies with different variables of certain subjective assumptions. Any change in variables so adopted may materially affect the estimation of the fair value of an option. The significant inputs into the model are as follows:

Date of grant:	10 July 2015
Exercise price:	HK\$0.89 per Share
Expected life:	2.68 years
Risk-free rate:	0.97%
Expected volatility:	53.18%
Expected dividend yield:	1.55%

Note:

The Share option 2 was expired on 12 July 2020, the share option was not exercised and was lapsed on the same date. The amount previously recognised in share option reserve was reversed during the year ended 31 December 2020.

Share options granted on 14 November 2016 ("Share option 3")

On 14 November 2016, 30,000,000 share options were granted to certain employees of the Group with an exercisable period from 15 November 2016 to 14 November 2021 at an exercise price of HK\$0.47 per Share. All of these share options were immediately vested. The estimated fair value of these share options was approximately RMB5,328,000, based on the Trinomial Option Pricing valuation model. The variables and assumptions used in computing the fair value of the share options are based on the Company's best estimate. The value of an option varies with different variables of certain subjective assumptions. Any change in variables so adopted may materially affect the estimation of the fair value of an option. The significant inputs into the model are as follows:

Date of grant:	14 November 2016
Exercise price:	HK\$0.47 per Share
Expected life:	5 years
Risk-free rate:	1.16%
Expected volatility:	52.46%
Expected dividend yield:	0%

None of the options granted as stated above were granted to a director, chief executive or substantial shareholder of the Company nor an associate (as defined in the Listing Rules) of any of them. Save as disclosed above, no other options have been granted during the year ended 31 December 2020.

For the year ended 31 December 2020

32. SHARE BASED PAYMENTS (Continued)

Movement of the share options during the years ended 31 December 2020 and 2019 are as follows:

			Number of ordinary shares subject to share options granted under the Share Option Scheme			Granted	Exercised	Lapsed
					Exercise price per share	Outstanding as at 1 January	during the year ended 31 December	during the year ended 31 December	during the year ended 31 December	Outstanding as at 31 December
Grantee	Date of grant		Vesting period	Exercisable period	HK\$	2020	2020	2020	2020	2020
Employee	10 July 2015	Share Option 2 Immediately		13 July 2015 to 12 July 2020	0.89	30,000,000	–	–	(30,000,000)	–
Employee	14 November 2016	Share Option 3 Immediately		15 November 2016 to 14 November 2021	0.47	30,000,000	–	–	–	30,000,000
				Total		60,000,000	–	–	(30,000,000)	30,000,000
				Exercisable at the end of the year						30,000,000
				Weighted average exercise price (HK\$)		0.68	N/A	N/A	N/A	0.47
				Number of ordinary shares subject to share options granted under the Share Option Scheme
					Exercise price per	Outstanding as at	Granted during the year ended	Exercised during the year ended	Lapsed during the year ended	Outstanding as at
					share	1 January	31 December	31 December	31 December	31 December

Grantee	Date of grant		Vesting period	Exercisable period	share HK\$	1 January 2019	31 December 2019	31 December 2019	31 December 2019	31 December 2019
Employee	30 September 2014	Share Option 1 Immediately		1 October 2014 to 30	1.19	33,000,000	–	–	(33,000,000)	–
Employee	10 July 2015	Share Option 2 Immediately		September 2019 13 July 2015 to 12 July	0.89	30,000,000	–	–	–	30,000,000
				2020
Employee	14 November 2016	Share Option 3 Immediately		15 November 2016 to 14 November 2021	0.47	30,000,000	–	–	–	30,000,000
				Total		93,000,000	–	–	(33,000,000)	60,000,000
				Exercisable at the end of the year						60,000,000
				Weighted average exercise price (HK\$)		0.86	N/A	N/A	N/A	0.68

The total expense for share options granted to directors and employees are recognised as "administrative expenses" in the consolidated statement of profit or loss and other comprehensive income.

Details of share option scheme are set out at "Share option" under the "Directors' Report".

As the fair value of services received could not be estimated reliability by the Group for the fair value of service received in return for share options granted is measured by reference to the fair value of share options granted.

For the year ended 31 December 2020

33. STATEMENT OF FINANCIAL POSITION OF THE COMPANY

		As at 31 December
	2020	2019
	RMB'000	RMB'000
ASSETS
Non-current assets
Investments in subsidiaries	134,206	134,206
Current assets
Amounts due from subsidiaries	149,678	147,099
Prepayments and other receivables	274	274
	1,264
Cash and cash equivalents		1,255
	151,216	148,628
Total assets	285,422	282,834
EQUITY
Capital and reserves attributable to equity holders of the Company
Share capital	470,030	470,030
Share premium Reserves	615,656 (875,853)	615,656 (867,163)
Total equity	209,833	218,523
LIABILITIES
Current liabilities
Amount due to a subsidiary	5,008	5,008
Other payables	70,581	59,303
	75,589	64,311
Total liabilities	75,589	64,311
Total equity and liabilities	285,422	282,834
Net current assets	75,627	84,317
Total assets less current liabilities	209,833	218,523

The Company's statement of financial position was approved and authorised by the board of directors on 31 March 2021.

Zheng Yu Huan Zheng Yu Shuang Director Director

For the year ended 31 December 2020

34. PARTICULARS OF SUBSIDIARIES

The following is a list of the principal subsidiaries as at 31 December 2020 and 2019:

	Country of business/
Name	incorporation	Principal activities	Equity holding
Directly held
Timeluck International Limited	BVI	Investment holding	100%
La Bi Xiao Xin International Company Limited	BVI	Investment holding	100%
Labixiaoxin Holdings Company Limited	Hong Kong	Investment holding	100%
Labixiaoxin Investments Company Limited	Hong Kong	Investment holding	100%
Indirectly held
Labixiaoxin (Fujian) Food Stuff Industry Co., Ltd.	PRC#	Manufacture and sale of food and beverages products	100%
Labixiaoxin (Sichuan) Co., Ltd.	PRC#	Manufacture and sale of food	100%
		and beverages products
Labixiaoxin (Anhui) Co., Ltd.	PRC#	Manufacture and sale of food and beverages products	100%
Labixiaoxin (Tianjin) Co., Ltd.	PRC#	Manufacture and sale of food and beverages products	100%
Xiamen Labi Electronic Commerce Co., Ltd.	PRC#	Internet sale of food and beverages products	100%
Tianjin Huakunda Supply Chain Management Co., Ltd.	PRC#*	Supply chain management, logistics, property lease and manufacture of food	100%

The companies are established as wholly foreign-owned enterprises in the PRC.

* The company was disposed on 30 December 2020.

For the year ended 31 December 2020

35. RESERVES

(a) Merger reserve

The Group was formed on 28 March 2005 pursuant to a group restructuring exercise. The subsidiaries acquired pursuant to the group restructuring exercise under common control have been consolidated using the poolingof-interest method. Under the pooling-of-interest method, the consolidated financial statements of the Group have been presented as if the Group's structure immediately after the group restructuring exercise has been in existence since the earliest financial year presented and the assets and liabilities are brought into the consolidated financial statements at their carrying amounts. The merger reserve of the Group represents the difference between the nominal amount of share capital issued by the Company and the nominal amount of the share capital of the subsidiaries transferred to the Company pursuant to the group restructuring exercise.

(b) Statutory reserves

In accordance with the PRC Company Law and the PRC subsidiaries' Articles of Association, every year the subsidiaries are required to transfer 0-10% of the profit after taxation determined in accordance with PRC Accounting Standards to the statutory reserves until the balance reaches 50% of the registered capital. Such reserve can be used to reduce any losses incurred or to increase share capital. Except for the reduction of losses incurred, any other usage should not result in this reserve balance falling below 25% of the registered capital.

(c) Share option reserves

The reserve represents the fair value of the actual or estimated number of unexercised share options grants to eligible persons, including any full-time and part-time employee, director, consultant or advisor of the Company and its subsidiaries or any associate of the Company, recognised in accordance with the share option scheme which are set out in the section headed "Share Option Schemes" in Report of the Directors of the annual report.

36. RESERVES OF THE COMPANY

	Other	Share option	Accumulated
	reserve	reserve	losses	Total
	RMB'000	RMB'000	RMB'000	RMB'000
Balance as at 1 January 2019	858	17,914	(576,118)	(557,346)
Loss for the year	–	–	(309,817)	(309,817)
Lapse of share option	–	(6,788)	6,788	–
Lapse of unlisted warrant	(858)	–	858	–
Balance as at 31 December 2019 and
1 January 2020	–	11,126	(878,289)	(867,163)
Loss for the year	–	–	(8,690)	(8,690)
Lapse of share option	–	(5,798)	5,798	–
Balance as at 31 December 2020	–	5,328	(881,181)	(875,853)

For the year ended 31 December 2020

37. COMMITMENTS

Capital commitments

As at 31 December 2020, the Group had the following capital commitments in respect of a right-of-use asset:

	2020	2019
	RMB'000	RMB'000
Authorised but not contracted for a
right-of-use asset	50,000	50,000

38. MATERIAL RELATED PARTY TRANSACTIONS

In addition to the information disclosed elsewhere in the consolidated financial statements, the following transactions took place between the Group and related parties at terms agreed between the parties:

(a) Key management personnel compensation

	2020	2019
	RMB'000
Directors' fee	710	1,000
Salaries and other employee benefits	2,432	2,430
	3,142	3,430

(b) Loan from a director

As at 31 December 2020, the Company has drawn down an aggregate amount of approximately RMB48,298,000 (2019: RMB38,911,000) from a loan facility of RMB60,000,000 (2019: RMB50,000,000) entered with Mr. Zheng Yu Long, an executive director of the Company. The amount is unsecured, repayable within 12 months and bears fixed interest at 2% per annum.

(c) Personal guarantee provided by director

Mr. Zheng Yu Shuang, Mr. Zheng Yu Long and Mr. Zheng Yu Huan, directors of the Company, have provided personal guarantee to bank borrowings of the Group of approximately RMB260,100,000 (2019: RMB239,400,000) (Note 26). The bank borrowings are repayable within one year.

39. EVENTS AFTER THE REPORTING PERIOD

Subsequent to the end of the reporting period, the Group had no significant event occurred.

40. AUTHORISATION FOR ISSUE OF CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements were approved and authorised for issue by the board of directors on 31 March 2021.