ADAMA Ltd. Annual Report 2018
ADAMA LTD.ANNUAL REPORT 2018
ADAMA Ltd. is one of the world's leading crop protection companies. We strive to CreateSimplicity in Agriculture - offering farmers effective products and services that simplify their livesand help them grow. With one of the most comprehensive and diversified portfolios of differentiated,quality products, our 6,600 strong team reaches farmers in over 100 countries, providing them withsolutions to control weeds, insects and disease, and improve their yields.Please see important additional information and further details included in the Annex.
March 2019
ADAMA Ltd. Annual Report 2018
Section I Important Notice, Table of Contents and Definitions
? The Company’s Board of Directors, Board of Supervisors, directors, supervisors and senior
managers confirm that the content of the Report is true, accurate and complete and containsno false statement, misleading presentation or material omissions, and assume joint andseveral legal liability arising therefrom.
? Chen Lichtenstein, the person leading the Company as well as its legal representative, and
Aviram Lahav, the person leading the accounting function (Chief Financial Officer), herebyassert and confirm the truthfulness, accuracy and completeness of the Financial Report.
? All of the Company’s directors attended the board meeting for the review of this Report.
? The forward looking information described in the Report, such as future plans, development
strategy etc., does not constitute, in any manner whatsoever, a substantial commitment of theCompany to investors. Investors and other relevant people are cautioned to be sufficientlymindful of investment risks as well as the difference between plans, forecasts andcommitments.
? The Company has described its future development strategies, work plan for 2019 and
possible risks in “IX. Outlook of future development of the Company” in Section IV.
? The pre-plan of the dividend distribution approved by the meeting of the Board of Directors
on March 19, 2019 refers to the total outstanding 2,446,553,582 shares of the Company asof February 28, 2019 as the basis for the distribution of RMB 0.97 (including tax) as cashdividend per 10 shares, to all the shareholders of the Company. No shares will be distributedas share dividend, as well as no reserve will be transferred to equity capital.
? This Report and its abstract have been prepared in both Chinese and English. Should there
be any discrepancies between the two versions, the Chinese version shall prevail.
ADAMA Ltd. Annual Report 2018
Table of Contents
Section I Important Notice, Table of Contents and Definitions ...... 2
Section II Corporate Profile and Financial Results ...... 5
Section III Business Profile ...... 9
Section IV Performance Discussion and Analysis ...... 13
Section V Significant Events ...... 44
Section VI Change in Shares & Shareholders ...... 64
Section VII Preferred Stock ...... 73Section VIII Directors, Members of the Supervisory Board, Senior management Staff &Emloyees ...... 74
Section IX Corporate Governance ...... 83
Section X Corporate Bonds ...... 89
Section XI Financial Report ...... 90
Section XII Documents Available for Reference ...... 220
ADAMA Ltd. Annual Report 2018
Definitions
Unless otherwise specified, the following terms in the Report shall have the meaning shown below:
General Terms DefinitionCompany, the Company
ADAMA Ltd.Solutions
Adama Agricultural Solutions Ltd., a wholly-
owned subsidiary of the
Company, incorporated in Israel according to its lawsBoard of Directors/Board The Board of Directors of the CompanyBoard of Supervisors The Board of Supervisors of the CompanyArticles of Association / AOA The Articles of Association of the CompanyGroup, the Group The Company and its subsidiariesChemChina China National Chemical Co., Ltd.CNAC
China National Agrochemical Co., Ltd., the controlling shareholder of the
Company, a wholly-owned subsidiary of ChemChinaCSRC China Securities Regulatory CommissionGTJA Guotai Junan Securities Co., Ltd.SZSE Shenzhen Stock ExchangeSASAC State Assets Supervision and Administration Commission of ChinaReport This 2018 Annual ReportFinancial Report The Financial Reports for the year 2018, as contained in this ReportReporting period, this period, current year Year 2018The Combination Transaction, the Major A
owned subsidiary of thessets
Restructuring
In July 2017, the
ssetsCompany acquired 100% of the shares of Solutions from
CNAC in exchange for the issuance and allotment of 1,810,883,039
Company acquired 100% of the shares of Solutions fromnew
A-shares of the Company to CNAC. In addition
new, the Company issued
104,697,982 new A-shares to selected investors in an A-
, the Company issuedShare Private
Placement conducted as Supporting Finance for the transaction.Company Law Company Law of the People’s Republic of ChinaSecurities Law Securities Law of the People’s Republic of ChinaListing Rules Listing Rules of the SZSE
ADAMA Ltd. Annual Report 2018
Section II Corporate Profile and Financial Results
I. Corporate information
Stock name ADAMA A, ADAMA B Stock code 000553, 200553Stock exchange Shenzhen Stock ExchangeCompany name in Chinese 安道麦股份有限公司Abbr. 安道麦Company name in English (if any)
ADAMA Ltd.Abbr. (if any) ADAMALegal representative Chen LichtensteinRegistered address No. 93, East Beijing Road, Jingzhou, HubeiZip code 434001Office address No. 93, East Beijing Road, Jingzhou, HubeiZip code 434001Company website www.adama.comEmail irchina@adama.com
II. Contact information
Board Secretary Securities Affairs RepresentativeName Li Zhongxi Liang JiqinAddress No. 93, East Beijing Road, Jingzhou, Hubei No. 93, East Beijing Road, Jingzhou, HubeiTel. 0716-8208632 0716-8208232Fax 0716-8321099 0716-8321099E-mail lizhongxi@agr.chemchina.com liangjiqin@agr.chemchina.comInvestors can also contact Wang Zhujun, the Company’s investor relations manager, on telephone number 010-56718110.
III. Information disclosure and place where this Report is kept
Newspapers designated by the Company for information disclosure
China Securities Journal, Securities Times and Ta Kung
PaoWebsite designated by the CSRC for the publication of this Report http://www.cninfo.com.cnPlace where this Report is kept Securities office of the Company
ADAMA Ltd. Annual Report 2018
IV. Company registration and alteration
Credibility code 91420000706962287QChanges in main business activities of the Company after going public (if any) No changeChanges of controlling shareholder (if any) No change
V. Other information
Accounting Firmhired by theCompany
Name
Deloitte Touche Tohmatsu Certified Public AccountantsLLPOffice address 30/F, Bund Center, 222 Yan An Road East, Shanghai PRCSigning Certified Public Accountant
Xu Yusun, Ma, RenjieSponsor engaged by the Company to continuously perform its supervisory function during this Reporting Period□ Applicable √ Not applicableFinancial advisor engaged by the Company to continuously perform its supervisory function during this Reporting Period√ Applicable □ Not applicable
Name ofFinancial Advisor
Address Names of the Sponsors Period for the Continuous
SupervisionGTJA No. 618 of Shangcheng Road,
Free Trade Area, Shanghai, China
Zhu Wenchuan, Tang Weijie From Aug 2, 2017 to Dec 31, 2019
VI. Main Accounting and financial results
Whether the Company performed any retroactive adjustments to or restatement of its accounting data□ Yes √ No
2018 2017 +/- (%) 2016Operating revenue (RMB’000) 25,615,119
23,819,568 7.54% 22,070,405Net profit attributable to shareholders of the Company (RMB’000)
2,402,462 1,545,879 55.41% 369,076Net profit attributable to shareholders of the Company excludingextraordinary profit and loss (RMB’000)
859,448 382,275 124.82%
-92,340Net cash flows from operating activities (RMB’000) 2,002,139 3,958,389 -49.42% 4,237,145Basic EPS (RMB/share) 0.9820 0.6601 48.77% 0.2200Diluted EPS (RMB/share) N/A N/A N/A N/AWeighted average return on equity 11.68% 9.05% 2.63% 2.97%31.12.2018
31.12.2017 +/- (%) 31.12.2016Total assets (RMB’000) 42,812,505
39,613,922 8.07% 36,492,512Net assets attributable to shareholders of the Company (RMB’000)
22,280,126
18,778,013 18.65% 16,917,794
ADAMA Ltd. Annual Report 2018
Are there any corporate bonds?□ Yes √ No
VII. Differences in accounting data under domestic and foreign accounting standards
1. Differences in the net profit and the net assets disclosed in the financial reports prepared under Chineseand international accounting standards□ Applicable √ Not applicableNo such differences for this Reporting Period.2. Differences in the net profit and the net assets disclosed in the financial reports prepared under Chineseand foreign accounting standards□ Applicable √ Not applicableNo such differences for this Reporting Period.3. Explanation on the differences in accounting data□ Applicable √ Not applicable
VIII. Main Financial results by quarter
Unit: RMB’000Q1 2018 Q2 2018 Q3 2018 Q4 2018Operating revenue 6,499,510 6,526,748 5,928,627 6,660,234Net profit attributable toshareholders of the Company
2,032,027 330,754 179,661 -139,980Net profit attributable toshareholders of the Company afterdeduction of nonrecurringprofits and losses
466,066 324,230 175,718 -106,566Net cash flows from operatingactivities
-215,819 995,337 675,039 547,582
Whether there are any material differences between the financial indicators above or their summations and thosewhich have been disclosed in quarterly or semi-annual reports□ Yes √ No
ADAMA Ltd. Annual Report 2018
IX. Non-Recurring profit/loss
√ Applicable □ Not applicable
Unit: RMB’000Item 2018 2017 2016 NoteGains/losses on the disposal of non-
the offset part of asset impairment provisions)
1,959,005 -3,000 17,682
2018 amount ismainly fromdivestment inEurope, related
current assets (including
to the SyngentaTransaction.Government grants
charged to the profit/loss for this
charged to the profit/loss for thisReporting Period (except for the government grants closely
Reporting Period (except for the government grants closelyrelated to the business of the Company and given at a fixed
quota or amount in accordance with the State’
related to the business of the Company and given at a fixeds uniform
standards)
21,089 14,628 5,418
s uniformProfit or loss of subsidiaries generated before combination
Profit or loss of subsidiaries generated before combinationdate of a business combination involving enterprises under
common control
- 1,147,797 829,068Profit or loss arising from contingencies other than thoserelated to normal operating business
- -15,671 -Recovery or reversal of provision for bad debts which isassessed individually during the years
17,303 22,204 -Profit or loss on changes in the fair value of held-for-tradingfinancial assets and held-for-trading financial liabilities andinvestment income on disposal of held-for-trading financialassets, held-for-trading financial liabilities andavailable-for-
date of a business combination involving enterprises undersale financial assets, other than those used in the
effective hedging activities relating to normal operatingbusiness
N/A - 19
Other non-operating income and expenses other than theabove
-11,719 4,036 348Less: Income tax effects 442,664 6,390 5,616NCI (after tax) - - 385,503Total 1,543,014 1,163,604 461,416
Explanation of why the Company classified an item as exceptional profit/loss according to the definition in theExplanatory Announcement No. 1 on Information Disclosure for Companies Offering Their Securities to thePublic-Non-Recurring Profit and Loss, and reclassified any non-recurring profit/loss item given as an example inthe said explanatory announcement to recurrent profit/loss□ Applicable √ Not applicableNo such cases in the Reporting Period.
ADAMA Ltd. Annual Report 2018
Section III Business Profile
I. Main business of the Company during Reporting Period
Does the Company need to abide by the disclosure requirement in special industry?No
The Company is a corporation incorporated in the People's Republic of China.The Group engages in the development, manufacturing and commercialization of crop protection products, that are largely off-patent,and is one of the leading companies in the world in this field. The Group provides solutions to farmers in approximately 100countries, through approximately 60 subsidiary companies throughout the world.In 2018, the Group was the world’s leading company in off-patent crop protection solutions (by sales), and is ranked sixth in theworld among companies engaged in the field of crop protection. The Group's business model integrates end-customer access,regulatory expertise, global R&D and production capabilities, thereby providing the Group a significant competitive edge andallowing it to launch new and differentiated products that address farmers’ needs in key markets.In December 2018, the final milestone in the Combination Transaction was achieved with the name of the Company being changed toADAMA Ltd. demonstrating their coming together under ADAMA as a single global brand, reflecting the Group's farmer-centricfocus and its commitment to advancing agriculture in markets around the world.The Company continues to advance collaboration opportunities with other ChemChina group entities, as well as other entities inChina, to make the most of its positioning.ADAMA has been working together with Syngenta and other key agriculture-related businesses in China, to identify opportunities forcloser collaboration. In this context, the companies are exploring various initiatives, including the potential provision of reciprocalaccess to certain products in specific territories, as well as exploiting opportunities aimed at optimizing the utilization of thecompanies’ operational facilities.The Group's primary operations are focused on Europe, North America, Latin America, Asia-Pacific and India, the Middle-East andAfrica, and in total, the Group sells its products in approximately 100 countries across the globe.The Group is focused on the development, manufacturing and commercialization of largely off-patent crop protection products, whichare generally herbicides, insecticides and fungicides, which protect agricultural and other crops against weeds, insects and disease,respectively. The Group also utilizes its expertise to adapt such products also for the development, manufacturing andcommercialization of similar products for non-agricultural purposes (Consumer and Professional Solutions).In addition, the Group leverages its core capabilities in the agricultural and chemical fields and operates in several othernon-agricultural areas, none of which, individually, is material for the Group. These activities include primarily, (a) the manufacturingand marketing of dietary supplements, food colors, texture and flavor enhancers, and food fortification ingredients; (b) fragranceproducts for the perfume, cosmetics, body care and detergents industries; (c) the manufacturing of industrial products and (d) othernon-material activities.Trends, events and key developments in the Group's macro-economic environment may have a material impact on its business resultsand development. The effects of these factors may differ depending on the geographic region and the different products of the Group.Since the Group maintains a broad product portfolio and since it is active in many geographic regions, the aggregate effect of thesefactors in any given year, and the course thereof, is not uniform and may sometimes be mitigated by counterbalancing influences. Theactivities and results of the Group are further subject to, and affected by, certain global, localized and other factors, such as:
demographic changes; economic growth and rising standards of living; agricultural commodity prices; significant fluctuations in raw
ADAMA Ltd. Annual Report 2018
material costs and global energy prices; development of new crop protection technologies; patent expiry and growth in volumes ofoff-patent products; the agricultural market and volatile weather conditions; regulatory changes; government policies; world ports andmonetary policy and the financial market.Please see important additional information and further details included in the Annex.
II. Significant changes to main assets
1. Significant changes to main assets
Main assets Significant changeStock rights/Equity assets No Significant changeFixed assets No Significant changeIntangible assets
Mainly purchase of intangible assets from Syngenta AG, within the context of the
Divestments relating to ChemChina’s acquisition of Syngenta (as further described below).Construction in progress CIP transferred to fixed assets
2. Main overseas assets
√ Applicable □ Not applicable
Specificcontents ofthe assets
Reason
Scale(Amount)
Transfers andof
the assets
of
(RMB’000)
Location
Operation
/Management
mode
Controlmeasures to
guaranteesafety of the
assets
Net Profit of
the assets(RMB’000)
Proportion of
overseas
Proportion ofassets out of
total
assets out ofnet
assets (%)
Significantimpairment
risk?Equity
netinvestment in
Solutions
Acquiredthrough Major
AssetsRestructuring
investment in
18,792,113
Israel andglobally
CorporateGovernance
CorporateGovernance
2,121,352
84% NoOtherexplanations
III. Core competitiveness analysis
Does the Company need to abide by the disclosure requirement in special industry?NoAs the leading off-patent crop protection provider in the $64 billion global crop protection market, the Group believes that thefollowing strengths provide it with sustainable competitive advantages and the foundation to capitalize on favorable underlyingagriculture and crop protection industry trends:
? Off-patent Industry Leader. The Group’s success as a leading off-patent company has given it a deep understanding of
the industry and enabled it to build one of the world’s most extensive off-patent product offerings and registrationcapabilities, giving it the ability to provide efficient, value-added solutions to farmers of every major crop around the world.Moreover, the breadth of the Group’s product portfolio, with no single active ingredient constituting more than 5% of its
ADAMA Ltd. Annual Report 2018
sales in 2018, combined with its extensive geographic reach, provide effective diversification and enhanced stability. TheGroup strives to continue to gain market share, building on its leading role in the market, farmer-centric focus and broadproduct portfolio. Furthermore, the Group’s addressable market continues to expand as the crop protection market globallycontinues to shift towards off-patent products, the segment of the market in which it focuses. This shift is the result ofsignificant increases in the costs and risks of discovering and developing novel and effective Active Ingredients (AIs),which has led to significantly fewer introductions of new molecules each year by the Company’s Research-BasedCompany (RBC) competitors. The Group’s strength in the off-patent market provides a competitive advantage relative toRBCs, as it is able to access off-patent crop protection products developed by all of the various major RBCs with itsresearch, technology and know-how. This allows the Group to enhance existing crop protection products and introduceunique mixtures, formulations and applications. In parallel, the Group’s global scale, registration expertise andmanufacturing footprint are competitive advantages in comparison to its off-patent peers.? Global Reach and Strength in Emerging Markets. The Group has an industry leading global footprint with extensive
market presence. According to Phillips McDougall (AgriService, 2017 Industry Overview), in 2017, the Group held the #1rank in global sales among off-patent crop protection providers. The Group enjoys broad geographic diversification byselling in over 100 countries with a balanced regional split, as evidenced by its 2018 revenue breakdown of approximately27% in Europe, 24% in Latin America, 19% in North America, 16% in Asia Pacific, and 14% in India, the Middle East andAfrica. This balance enhances the Group’s growth profile and provides diversification across different countries, climates,crops and planting seasons. The Group has a particularly strong presence in emerging markets, where growth is expected tooutpace developed markets, and from which it derived approximately half of its 2018 sales. Over the past two decades, theGroup has made strategic investments in establishing substantial sales and marketing organizations in key emergingmarkets including Brazil (1998), Central and Eastern Europe (beginning in 2004) and India (2009).? Unique Positioning and Access to China. The Group believes that the foundation provided by the integration of Solutions
with the operational and commercial infrastructure of the Company in China, together with its unique relationship with itscontrolling shareholder, ChemChina, provides it with a clear advantage in penetrating the Chinese market, one of thelargest and fastest growing agricultural markets in the world. Following the consummation of the Combination Transaction,the Group is one of the only global crop protection providers with a significant integrated commercial and operationalinfrastructure within China. The Group intends to leverage this infrastructure and relationship to pursue a leading positionin the Chinese crop protection market and capitalize on the growing importance of high-quality global brands in China. Aspart of the ChemChina group, the Group believes it is uniquely positioned to capitalize on the trend toward consolidationwithin the high-growth, highly fragmented Chinese crop protection market. In addition to helping it become a leader in theChinese crop protection market, the integration of the Company’s China-based manufacturing facilities into the Group’sglobal manufacturing operations provides it with the ability to more effectively develop and commercialize advanced,differentiated products, as well as benefit from improved cost positions in key molecules, enhance the optimization of itsglobal supply chain over time, driving greater efficiency throughout the organization, and secure both revenue growth aswell as increased profitability.? Vertically Integrated Business with Global Scale. The Group is one of the few off-patent crop protection providers that is
active across virtually the entire value chain, from worldwide marketing, sales and distribution, to registration, productionand R&D, which has been further enhanced by the Combination Transaction. As a result, the Group is able to efficientlymanage its product portfolio and operations in response to the dynamic needs of farmers, changing weather conditions,government policies and regulations, and capture value at each point in the value chain. Approximately 80% of the Group’sproducts are produced, formulated or both in its world-class, well-invested facilities across the globe. Having deepknowledge, expertise and experience in all aspects of the development process, integrated chemical synthesis andformulation production and control over the entire supply chain, provides the Group with cost advantages and the agility toaddress market challenges and capture value. Further, its global registration network, providing local registration
ADAMA Ltd. Annual Report 2018
capabilities in over 100 countries, enables the Group to efficiently introduce new products in all major markets and providefarmers with a comprehensive portfolio of crop protection solutions. In the last five years, the Group’s registration networkof highly-skilled professionals has obtained approximately 1,150 new product registrations. These capabilities areincreasingly important as regulatory requirements continue to increase globally. The Group’s sales and marketinginfrastructure is enhanced by its local sales forces in each of its strategic markets, who build strong relationships with localdistributors and with the end users, the farmers, to better understand their needs. This drives demand at the wholesale, retailand farmer level and provides the Group with valuable market insight and understanding.? Extensive, Differentiated Offering. The Group offers farmers a hybrid portfolio of increasingly differentiated products
and solutions that are tailored to the specific needs of each geographic region and each type of crop. The Group utilizes anintegrated, solutions-based approach to its entire offering in order to meet the unique demands of its global customer base.The Group strives to “Create Simplicity in Agriculture” by offering farmers a branded portfolio that is comprised of bothhigh-value differentiated products as well as high-volume off-patent products, alongside an increasing number of uniquemixtures and formulations and novel, innovative products and services, aimed to provide solutions to farmers in nearlyevery region, and increase yield of all major crops. The Group’s extensive portfolio is composed of over 120 centrallymanaged AIs and over 1,000 mixtures and formulations.? Experienced and Empowered Management Team. With a deep understanding of the crop protection industry and firm
focus on sustaining the Group’s leadership and financial strength, its management team is a cohesive and integrated teamthat has the knowledge, skills and experience required to guide the Group on its path to achieving its ambition of globalleadership. The Group believes in empowering its teams and creating leaders from its strongest performers, with the resultthat its management team is composed of the people who have successfully managed its business, and developed andexecuted its strategy over the last few years, continuing its track record of consistent, profitable growth.
ADAMA Ltd. Annual Report 2018
Section IV Performance Discussion and Analysis
I. Overview
Please see important additional information and further details included in the Annex.
Revenues. Revenues grew robustly in the year, with strong business growth driven by the Company’s increasingly differentiatedproduct portfolio. In China, the Company continues to prioritize the sale of branded, formulated products through its domesticcommercial networks as well as their export and distribution through the Company’s global commercial network, and is shiftingaway from selling unformulated, technical product to other intermediaries. In addition to the strong business growth, improveddemand conditions facilitated a stronger pricing environment, compensating for the softer currencies and allowing the passing on ofsome of the impact of the constrained supply and higher procurement costs.Gross profit. The higher gross profit in the year was achieved due to the strong growth of an improved product mix as well as higherpricing, which more than offset the impact of higher procurement costs of raw materials and intermediates, supply shortages and thesofter currencies, most notably the Brazilian Real and the Indian Rupee, as well as the impact of missed high-margin sales in Europein the third quarter as a result of the extreme drought in the region.Earnings before Interest and Tax. Operating income increased significantly in the year, benefiting from the one-time capital gainfrom the sale of EU and US registrations, related to the Syngenta Transaction. In addition, operating income benefited fromcontinued strong operating cost discipline while accommodating significantly higher sales.Financial expenses and investment income (including gains and losses from changes in fair value). The moderate increase in thetotal net financial expenses and investment income over the year reflects the adoption of a new accounting standard which classifiesinterest income on sales as revenue. Adjusting for the impact of the change in accounting standard, financial expenses decreased overthe year, reflecting reduced interest costs due to lower debt levels, as well as foreign exchange income related to balance sheetpositions, somewhat offset by an increase in costs of the CPI-linked bonds as a result of an increase in the Israeli CPI over the period.Income before Tax. Pre-tax income over the full year was significantly above last year, reflecting the abovementioned one-timecapital gain from sale of EU and US registrations.Net income. Net income over the year was significantly higher than last year, reflecting the abovementioned one-time capital gainfrom sale of EU and US registrations. Adjusting for this one-time gain, net income was lower than the record high achieved last year,reflecting the unusually low tax expenses in 2017, which benefited from creation of deferred tax assets in respect of losses carriedforward in Q4 2017 due to anticipation of their expected utilization in subsequent periods.Working capital. Working capital was higher compared to the corresponding point last year, supporting the significant momentumgenerating the increase in sales over the period. Strong supply chain discipline, allowed maintaining best-ever inventory days for thistime of year, while building a higher inventory level in preparation for the upcoming season, as well as absorbing the higherprocurement costs. The significant increase in sales over the year saw trade receivables higher in comparison to the same point lastyear, despite ongoing tight control of credit ensuring receivable days remain close to their record best levels for this time of year. Thehigher receivables were partially offset by increased trade payables.Cash Flow. Despite the strong sales growth and associated need for higher working capital, the Company generated robust operatingcash flow over the year, albeit somewhat lower compared to last year during which the Company grew at a somewhat more moderaterate. The Company generated continued free cash flow in the year, despite the Company’s strong growth and higher procurement costenvironment.
ADAMA Ltd. Annual Report 2018
Leverage. Balance sheet net debt at the end of the year was only slightly higher compared to the net debt as of December 31, 2017keeping the Company’s net debt/EBITDA ratio contained at 0.7x, in line with that of a year ago.
II. Main business analysis
1. Overview
See details on the relevant contents of “I. Overview” of “Management Performance Discussion and Analysis”.
2. Revenues and costs
(1) Operating revenues form
Unit: RMB’000
2018 2017
YoY +/-%Amount
Ratio of theoperating revenue
Amount
Ratio of theoperating revenue
Total of the operating revenue
25,615,119 100% 23,819,568 100% 7.54%Classified by industriesIndustry of manufacturingchemical raw materials andchemical products
25,615,119 100% 23,819,568 100% 7.54%Classified by productsAgro 23,874,564 93.2% 22,033,564 92.5% 8.36%Non-Agro 1,740,555 6.8% 1,786,004 7.5% -2.54%Classified by regionsEurope 6,983,002 27.26% 7,107,131 29.84% -1.75%North America 4,849,616 18.93% 4,363,301 18.32% 11.15%Latin America 6,172,800 24.10% 5,050,377 21.20% 22.22%Asia-Pacific 4,028,688 15.73% 4,428,364 18.59% -9.03%India, Middle East and Africa
3,581,013 13.98% 2,870,395 12.05% 24.76%
(2) List of the industries, products or regions exceed 10% of the operating revenues or operating profits ofthe Company
√ Applicable □ Not applicable
Unit: RMB’000
Operatingrevenues
Operating
cost
Grossmargin
of the operating
revenues
YoY increase/decreaseYoY increase/decrease
of the operating cost
YoY increase/decrease
YoYincrease/decrease of
the gross margin
Classified by industriesIndustry of manufacturingchemical raw materialsand chemical products
25,615,119
17,084,943
33.30%
7.54% 10.91% -6.09%Classified by productsAgro 23,874,564
15,900,035
33.40%
8.36% 11.34% -7.84%Classified by regions
-- -- -- -- -- -- --
ADAMA Ltd. Annual Report 2018
Under the circumstances that the statistical standards for the Company’s main business data adjusted in the Reporting Period, theCompany's main business data in the recent year is calculated based on adjusted statistical standards at the end of the ReportingPeriod□ Applicable √ Not applicable
(3) Whether the Company’s goods selling revenue higher than the service revenue
√ Yes □ No
Industries Items Units 2018 2017 YoY +/-%Agro
Sales volume Ton 629,310 523,672 20.2%
Production Ton 495,680 479,319 3.4%Inventory Ton 216,895 194,987 11.2%Reasons for any over -30% YoY movement of the data above:
□ Applicable √ Not applicable
(4) Execution of the significant sales contracts signed by the Company up to the reporting period
□ Applicable √ Not applicable
(5) Operating cost form
Category of the industries
Unit: RMB’000Industries Items
2018 2017
YoY +/-%Amount
Ratio of theoperating costs
Amount
Ratio of theoperating costs
Industry ofmanufacturing
and chemical products
chemical raw materials
Cost ofmaterials(procurementcosts)
13,337,242
78% 11,280,306 73% 18%Industry ofmanufacturing
chemical raw materials
and chemical products
chemical raw materials
Labor cost 995,743 5.8% 968,455 6% 2.8%Industry ofmanufacturing
chemical raw materials
and chemical products
chemical raw materials
Depreciation
expense
656,364 3.8% 607,161 4% 8.1%
(6) Whether the consolidated scope changed during the reporting period
□ Yes √ No
ADAMA Ltd. Annual Report 2018
(7) List of the significant changes or adjustment of the industries, products or services of the Companyduring the reporting period
□ Applicable √ Not applicable
(8) List of the major trade debtors and major suppliers
List of the major trade debtors of the CompanyTotal sales to the top 5 customers (mil RMB) 1,598Ratio of the total sales to the top 5 customers to the annual total sales 6.2%Ratio of the total sales to related parties (within the top 5 customers) to the annual total sales 1.5%Notes of other situation of the major customers□ Applicable √ Not applicableList of the major suppliers of the CompanyTotal purchase to the top 5 suppliers (mil RMB) 3,114Ratio of the total purchase to the top 5 suppliers to the annual total purchase 23.3%Ratio of the total purchase from related parties (within the top 5 suppliers) to the annual total purchase
9.5%Notes of the other situation of the major suppliers□ Applicable √ Not applicable
3. Expenses
Unit: RMB’0002018 2017 YoY +/-% Notes of the significant changes
Selling and Distribution expenses 4,630,117 4,280,335 8.17%General and Administrative expenses 893,107 1,041,294 -14.23%Financial (income) / expenses 552,707 1,205,286 -54.14%
Mainly foreign currency effecton financial assets and liabilities.
R&D expenses 441,897 360,478 22.59%
4. R&D investment√ Applicable □ Not applicable
The Group’s innovation, development, research and registration division (IDR) manages and coordinates the research, developmentand regulatory activities regarding the Group’s products.In general, the Group, as an off-patent product manufacturer, develops production processes and registration data for moleculespresent in the original product. Development and registration of off-patent products offer a significant saving of time and costscompared to development costs of the original products of originator companies, in a manner which enables the Group to develop abroad and diverse portfolio of largely off-patent products at more reasonable developments costs; Nonetheless, to introduce a newproduct to the market still requires considerable investment in development and registration, particularly in view of the increasing
ADAMA Ltd. Annual Report 2018
regulatory requirements globally, and the development of, and increasing competition in, the off-patent crop protection market.The Group's primary development and registration activities focus on the development of chemical production processes for activeingredients and new off-patent products, biological and agronomical tests designed to meet regulatory requirements, development ofregistration dossiers for the active ingredients and formulations that make up its registration portfolio in the various regions,development of innovative mixtures and of differentiated formulations of existing products, as well as streamlining of productionprocesses. The Group has also developed several innovative substances, based on molecules acquired from external sources afterhaving proven their effectiveness. The Group develops the products’ biological uses and registers them in the target countries, as wellas engages in chemical development of the production process.In order to capitalize on future opportunities in the agrochemical market, the Group has intensified its efforts to develop a leadingpipeline of crop protection products aimed at providing value-added solutions to farmers around the world, based on AIs that areexpected to come off-patent in the coming years. These newly off-patent AIs will be developed into new mixtures and formulations,in combination with new formulation and delivery technologies that provide more efficient ways to deliver the products into theplants, thereby creating truly unique and differentiated, value-added solutions to farmers. In this way, the Group strives to achieve adouble competitive advantage – to be the first to market launching new products after the expiry of the patent on the AI, and tocapitalize on cost leadership through increased backward integration through the Group’s global operations capabilities.Currently, the Group operates chemical research and development centers in Israel, India, Brazil and China. In addition to chemicaldevelopment, the Group conducts development activities for registration purposes through external contractors in several countries,including China. Such development efforts may on occasion integrate knowledge exclusively owned by the Group, knowledge jointlydeveloped with the subcontractor, or sometimes knowledge exclusively owned by the subcontractor.Currently, the Group operates several analytical labs in Israel, China, India, U.S.A. and Brazil, which inter alia conduct QualityAssurance (QA) tests for its various products, and some of which also conduct tests for registration purposes.The materials and products marketed by the Group require, at various stages of their production and marketing, registration in everycountry where the Group intends to market them. The Group has development and registration centers, located in Europe, Israel,Latin America, Brazil, North America, India and Asia. The Group has gained registration expertise in over 100 countries.
List of the R&D investment of the Company
2018 2017 Change (%)R&D headcount personnel (person) 254 241 5.39%% of R&D headcount over total headcount 3.84% 3.63% 0.21%Investment amount of the R&D (RMB’000) 441,897 360,478 22.59%Ratio of the R&D investment to the operatingincome
1.73% 1.51% 0.22%Amount of the capitalized R&D investment(RMB’000)
- -- --Ratio of the capitalized R&D investment to theR&D investment
- -- --Reason of notable changes over the last year in the ratio of total R&D investment amount to operating income□Applicable√ Not applicableReason of notable change in the ratio of R&D investment capitalization and its reasonable explanation□Applicable √ Not applicable
ADAMA Ltd. Annual Report 2018
5. Cash flow
Unit: RMB’000Item 2018 2017 YoY +/-%Subtotal of cash inflows fromoperating activities
24,593,756 24,072,684 2.16%Subtotal of cash outflows fromoperating activities
22,591,617 20,114,295 12.32%Net cash flows from operatingactivities
2,002,139 3,958,389 -49.42%Subtotal of cash inflows frominvesting activities
2,441,670 265,113 820.99%Subtotal of cash outflows frominvesting activities
3,395,794 1,552,852 118.68%Net cash flows from investingactivities
-954,124 -1,287,739 -25.91%Subtotal of cash inflows fromfinancing activities
196,246 3,752,157 -94.77%Subtotal of cash outflows fromfinancing activities
3,087,776 2,116,038 45.92%Net cash flows from financingactivities
-2,891,530 1,636,119 -276.73%Net increase in cash and cashequivalents
-1,684,110 4,030,511 -141.78%Notes of the major effects on the YoY significant changes occurred of the data above√ Applicable □ Not applicableCash flow from Operations: Despite the strong sales growth and associated need for higher working capital, the Companygenerated robust, operating cash flow over the year, albeit lower compared to last year.Cash flow from Investing Activities: Net cash used in investing activities reflects primarily investments in product registrations andother intangible and fixed assets, net of one time proceeds from the divestment of certain products in Europe and including thetransfer of products in Europe from Syngenta.Cash flow from Financing Activities: Net cash flow from financing activities in 2018 reflects the reduction of leverage achievedthrough the strong cash flow allowing for the repayment of bank loans.
Notes to the reason of the significant differences between the net cash flow from the operating activities and the net profits of 2018 ofthe Company during the reporting period√ Applicable □ Not applicablePlease refer to the notes provided above under this item.
ADAMA Ltd. Annual Report 2018
III. Analysis of the non-core business
√ Applicable □ Not applicable
Unit: RMB’000Amount Proportion in total profit
Reason explanation Existence of sustainability
Investment income 628,257 19.42% NoGain/loss from changeof FV
-979,334 -30.27%
Mainly foreign currencyeffect on financial assets
and liabilities.
NoImpairment of asset 230,999 7.14% NoGain from disposal ofassets
1,966,616 60.78%
Gain from disposal of
intangible assets
NoNon-operating income
15,653 0.48% NoNon-operating loss 35,966 1.11% No
IV. List of the assets and liabilities
1. List of the significant changes of the assets form
Unit: RMB’000Item
As at 31 Dec. 2018 As at 1 Jan. 2018
Proportion
change
Explain any
major change
Amount
Proportion in
total assets
Amount
total assets
| Proportion in |
Cash at bank and on hand
6,233,089 14.56% 7,868,858 19.82% -5.26%Accounts receivable 6,516,912 15.22% 5,109,981 12.87% 2.35%Inventories 9,247,343 21.60% 7,488,238 18.86% 2.74%Investment property 4,094 0.01% 4,408 0.01% 0.00%Long term equityinvestments
108,350 0.25% 102,383 0.26% -0.01%Fixed assets 6,629,621 15.49% 6,141,490 15.47% 0.02%Construction in progress 433,784 1.01% 803,421 2.02% -1.01%Short-term loans 572,774 1.34% 2,280,912 5.74% -4.40%Long-term loans 235,819 0.55% 514,320 1.3% -0.75%Intangible assets 5,677,388 13.26% 4,036,588 10.17% 3.09%
ADAMA Ltd. Annual Report 2018
2. Assets and liabilities measured at fair value
√ Applicable □ Not applicable
Unit: RMB’000Item
Openingbalance
Variable profit
and loss
Variable profitof fair
value in this
period
of fairAccumulative fair
value changerecognized in
equity
Summing and
drawingimpairment in
this period
Purchaseamount inthis period
Accumulative fair
Saleamount inthis period
Amount atthe end ofthe period
Financial asset1. Financial assetsmeasured at FVTPL(excludingderivative financialassets)
23,000 - - 23,095 46,0952. Derivativefinancial assets
455,153
-682,388 401,867 - 471,597 -128,503
517,7263. Other equityinvestments
91,090 - 469 - - - 91,559Total financialassets
569,243
-682,388 402,336 - 494,692 -128,503
655,380Others 207,442
-24,437 - - - -130,200
52,805Total of above 776,685
-706,825 402,336 - 494,692 -258,703
708,185Financial liability 789,050
662,620 - - 1,451,670
Significant changes in the measurement attributes of the main assets in this Reporting Period□ Applicable √ Not applicable
3. As at the end of the reporting period, the asset rights were limited
At the end of this Reporting Period, restricted assets including: monetary bank balances of capital RMB’000 52,940 of the Companywas limited. Most of the monetary capital was banks bill cash deposit for bills receivable, fixed assets of RMB’000 6,143 asmortgage for loans, and other non-current assets of RMB’000 131,039 as deposit for asset securitization and legal suits.
V. List of the investment
1. Overall condition
√ Applicable □ Not applicable
Investment during the Reporting
Period (RMB'000)
Investment during the Same Period
Last Year (RMB'000)
+/-% YoY36,640,029 31,757,508 15.37%
2. List of the significant equity investment acquired from the reporting period□Applicable √ Not applicable
ADAMA Ltd. Annual Report 2018
3. List of the significant non-equity investment has been executing during the reporting period
□ Applicable √ Not applicable
4. Investment on the financial assets(1) List of the securities investment
□ Applicable √ Not applicableThe Company was not involved with such situation during the reporting period.
ADAMA Ltd. Annual Report 2018
(2) Investment in derivative financial instruments
√Applicable □Not applicable
Unit: RMB’000
operates theinvestment
The party that
Relationwith theCompany
Related
party
or not?
transaction
Type
Initialinvestment
amount
Starting
date
Expiring
date
Investmentamount atbeginning of
the period
Amountpurchasedduring thereporting
period
Amountsold during
the
reporting
period
Impairmentaccrued (if
any)
Investment
amount at end
of the period
amount at end
Percentage of
investmentamount dividedby net asset atend of the period
Gain/lossduring thereporting
periodBanks No No Option
52,274 18.6.2018
5.5.2019
52,274 7,575,830
-4,265,136
No 3,362,968
15.06% -189,404
Banks No No Forward
15,911,923
27.7.2018
19.3.2019
15,911,923
29,064,199
-33,341,886
No 11,634,236
52.10% -441,943
Total 15,964,197
-- -- 15,964,197
36,640,029
-37,607,022
-- 14,997,204
67.16% -631,347
Source of fund for the investment Internal.Litigation-related situations (if applicable) N/ADate of disclosure of Board approval (if any) December 30, 2017Date of disclosure of Shareholders’ approval (ifany)
N/A
Risk and control analysis for the reporting
liquidity risk, credit risk, operational risk, legalrisk, etc.)
The aforesaid refers to short term hedging currency transactions made with banks.The Group’s transactions are not traded in the market. The Transactions are between the applicable company in the Group and the applicablebank until the expiration date of the transaction, therefore no market risk is involved.Regarding credit and liquidity risk, the Group is working with large and substantial banks only and with some of them the Group has ISDAagreements.As to operational risk, the Group is working with relevant software, which is its back office for all transactions.No legal risk is involved.The actions taken in order to further reduce risks are:
? The relevant subsidiaries have specific guidelines, under the Group’s policy, which were approved by the subsidiaries' financial
ADAMA Ltd. Annual Report 2018
statements committee of the board, which specifies, inter alia, the hedging policy, the persons that have the authorization to deal withhedging, the tools, ranges etc. The only subsidiary that has hedging positions in the Group in the period was Solutions and itssubsidiaries.? The relevant subsidiaries apply management designed procedures and controls, which among other things, monitor the working
process and the controls of the hedging transactions and are quarterly reviewed and annually audited.? The controllers of the relevant subsidiaries are involved in the process and are monitoring the hedging accounting treatment.? Every 2-3 years the internal audit of the relevant subsidiaries’ department is auditing the entire procedure.Market price or fair value change ofinvestments during the reporting period.Specific methodology and assumptions shouldbe disclosed in the analysis of fair value of theinvestments
The aforesaid refers to short time hedging currency transactions made by the relevant subsidiary with banks.Segregation of duties as follows:
For the fair value evaluation, the relevant subsidiary is usually using external experts. The relevant subsidiary hedges currencies only; therelevant transactions are simple (Options and forwards) for short terms. For fair value methodology see section XI of this report, note IX. FairValue. The exchange rates are provided by the accounting department of the relevant subsidiary and all other parameters are provided by theexperts.Explanation for any significant changes inaccounting policies and principles, comparedwith last reporting period
N/AIndependent Directors’ opinion on theinvestment in derivative financial instrumentsand related risk controls
The derivative investments carried by the Company are for hedging and narrowing down
respond to the Company’s routine business demands and are in accordance with the relevant laws and regulations. Additional
the risk of market fluctuations. The investmentsly, the Company
has adopted Currency Risk Hedging Policy to strengthen the risk management and control which benefit the Company’
ly, the Companys ability to protect
against market risk. The derivative investments do not harm the interests of the Company and its shareholders.
ADAMA Ltd. Annual Report 2018
5. Use of raised funds
√ Applicable □ Not applicable
(1) Overall Situation of Use of the Funds Raised
√ Applicable □ Not applicable
RMB’0000
Year ofRaising
Type ofRaising
TotalAmountRaised
TotalAmount
Used
during theReporting
Period
Reporting
Accumulated
Amount
Used
TotalAmountof Fund
withPurpose
BeingChanged
Accumulatedduring the
during theReporting
Period
Reporting
Accumulated
Amount ofFund with
Purpose
BeingChanged
Proportion
of
AccumulatedAccumulated
Amount ofFund with
Purpose
BeingChangedagainst Total
Amount
Raised
TotalAmountNot Used
Yet
Usage and
AccumulatedDestination
of FundsNot Used
Yet
Amount ofFunds BeingIdle for over
Two Years
Destination
2017
Non-
public
offering ofshares
155,999.99
public
28,921
31,729 0 0 0% 124,271
Notapplicable
Total -- 155,999.99
28,921
31,729
0%
124,271
-- 0
General Summary of Use of Raised FundsThe Company received the raised funds on Dec 27, 2017. More details of the usage of the raised funds can be founded in Special R
on the Deposit and Actual Usage of the Raised Funds in 2017 disclosed on 29 March 2018, “Special Report on the Deposit and
eportActual
Usage of the Raised Funds in the First-Half Year of 2018” disclosed on 28 August 2018, and “Special Report on the Deposi
Actualt and Actual
Usage of the Raised Funds in 2018” disclosed on 21 March 2019.
(2) The Status of Designated Projects of Raised Funds
√ Applicable □ Not applicable
RMB’0000DesignatedProjects andInvestment ofExtra Funds
Raised
AnyProjectChange(Including
t and Actual
PartialChange)
Total
Investment
Committed
Investment
TotalInvestment
after
| Adjustment | |
(1)
AmountInvested
during theReporting
Period
Reporting
Accumulated
InvestedAmount bythe End ofthe R
eporting
Period (2)
eporting
Investment
Progressby the End
of the
Reporting
Period
Investment
(3)＝(2)/(1)
Date bywhich
theProjectCan bePut intoUse asPlanned
BenefitsRealized
during the
Reporting
Period
during the
ExpectedBenefitsReached
or Not
AnyMaterialChange to
Project
Feasibility
Designated Projects
FeasibilityThe project of
Huai’anPesticideFormulationCenter
The project of
No 24,980 24,980 0 0 0.00% 2019
Notapplicable
Notapplicable
Notapplicable
ADAMA Ltd. Annual Report 2018
DesignatedProjects andInvestment ofExtra Funds
Raised
AnyProjectChange(Including
PartialChange)
Total
Investment
Committed
Investment
TotalInvestment
after
| Adjustment | |
(1)
AmountInvested
during theReporting
Period
Reporting
Accumulated
InvestedAmount bythe End ofthe R
eporting
Period (2)
eporting
Investment
Progressby the End
of the
Reporting
Period
Investment
(3)＝(2)/(1)
Date bywhich
theProjectCan bePut intoUse asPlanned
BenefitsRealized
during the
Reporting
Period
during the
ExpectedBenefitsReached
or Not
AnyMaterialChange to
Project
| Feasibility |
Designated ProjectsThe projectsof projectdevelopmentandregistration
No 93,507 93,507 13,103
13,103 14% 2019
Notapplicable
Notapplicable
Notapplicable
Fixed-assetInvestment ofADAMA
No 66,204 66,204 5,913 5,913 9% 2019
Notapplicable
Notapplicable
Notapplicable
intermediaryagencies and
Fees for the
transactiontaxes
No 13,600 13,600 9,905 12,713 93%
Notapplicable
Notapplicable
Notapplicable
Sub-total ofDesignatedProjects
-- 198,291
198,291
28,921
31,729
-- -- -- --Investment of Extra Funds RaisedNotApplicable
How and whythe plannedprogress orexpectedincome is notmet (perproject)
Not applicable
Explanation
material
onchange to
change toproject
projectfeasibility
Not applicable
Amount,
feasibilitypurpose of use
purpose of useand progress
and progressof extra funds
raised
Not applicable
ADAMA Ltd. Annual Report 2018
DesignatedProjects andInvestment ofExtra Funds
Raised
AnyProjectChange(Including
PartialChange)
Total
Investment
Committed
Investment
TotalInvestment
after
| Adjustment | |
(1)
AmountInvested
during theReporting
Period
Reporting
Accumulated
InvestedAmount bythe End ofthe R
eporting
Period (2)
eporting
Investment
Progressby the End
of the
Reporting
Period
Investment
(3)＝(2)/(1)
Date bywhich
theProjectCan bePut intoUse asPlanned
BenefitsRealized
during the
Reporting
Period
during the
ExpectedBenefitsReached
or Not
AnyMaterialChange to
Project
| Feasibility |
Designated ProjectsChange oflocation ofdesignatedprojects
Not applicableAdjustment toway ofexecution ofdesignatedprojects
Not applicable
Advanceinvestment indesignatedprojects andreplacementof funds
Applicable.
Raised Funds for replacing capital previously inves
The fifth meeting of the 8th session of the Board of Directors approved the utilization of RMB 276,530,000 of theted in the Designated Projects on June 25, 2018. The Company
completed the replacement in 2018. Please refer to the “
ted in the Designated Projects on June 25, 2018. The CompanyAnnouncement on Utilization of Part of the Raised Funds for
Replacing Capital Previously Invested in the Designated Projects” published on
Announcement on Utilization of Part of the Raised Funds forJune 26, 2018 (announcement
number 2018-32).Temporarysupplement toworkingcapital withidle raisedfunds
Not applicable
Amount ofsurplus fundsout of projectsand causes
Not applicableUsage anddestination offunds thathave not beenused
The unused funds have been kept in the special deposit account for further investment of the designated projects.Problems orother issues inthe use raisedfunds anddisclosure
Not applicable
ADAMA Ltd. Annual Report 2018
(3) Change to the Designated Projects of Raised Funds
□Applicable √Not applicableNo change of the designated projects of raised funds in the reporting period.Note: The Board of Directors of the Company approved a proposal on the change of the designated projects on March 19, 2019.Subject to the approval of the shareholders meeting, the Company intends to replace the projects of Huai’an pesticideformulation center and fixed-assets investment of ADAMA as detailed in the Supporting Finance documents with theacquisition of the 100% Equity Interests in Jiangsu Anpon Electrochemical Co., Ltd. The aggregated amount of the funds raisedfor the projects to be replaced is RMB 400.08 million which accounts for 20.18% of the total planned raised amount. Forfurther details, please refer to the Announcement on the Change of the Designated Projects and to the Announcement relatingto the acquisition published by the Company on March 21, 2019 on the website www.cninfo.com.cn.
VI. Selling of significant assets and equities
1. List of selling of significant assets
□ Applicable √ Not applicableNo selling of significant assets during the reporting period.Transfers and Divestments relating to ChemChina’s acquisition of Syngenta –In May 2017 ChemChina completed the acquisition of Syngenta AG ("Syngenta" and the "Syngenta Transaction"). In the contextof developing its business and to facilitate the obtaining by ChemChina of the regulatory approvals for the acquisition of Syngenta,Solutions agreed with ChemChina and Syngenta to affect the divestment of a number of its products (the “Divested Products”),while receiving products of similar nature and economic value from Syngenta (the “Transferred Products”). The receipt of theTransferred Products from Syngenta and concurrent divestment of the Divested Products in the US were concluded in 2017, whereasthe receipt and divestment of the relevant products in Europe were concluded in the first quarter of 2018.
2. List of selling of significant equities
□ Applicable √ Not applicable
VII. Analysis of major controlling and stock-participating companies
√ Applicable □ Not applicableList of stock-participating companies responsible for over 10% of the net profits of the Company
Unit: RMB’000Name Type
Main services
capital
| Registered | |
Net assets
| Total assets |
Operatingrevenues
Operating
profit
Net profit
Solutions
Subsidiary
Development,manufacturing and
marketing of
agrochemicals,
intermediatematerials for other
industries, foodadditives and synthetic
aromatic products,mainly for export
720,085
35,203,576
15,526,029
23,386,214
3,224,288
2,372,249
ADAMA Ltd. Annual Report 2018
Subsidiaries acquired or disposed during the reporting period□ Applicable √ Not applicable
VIII. List of the structured main bodies controlled by the Company
□ Applicable √ Not applicable
IX. Outlook of the Company’s future development
(I) Industry structure and trends1. The competitive structure of crop protection industry(1) The competitive structure of the global crop protection industryThe global crop protection market is dominated by five multinational companies, four which have annual revenues exceeding USDfour billion in the crop protection segment (excluding seeds activities). In the last three years, a number of mergers and acquisitionswere completed among the largest players in the crop protection industry – the merger between Dow and DuPont to create Corteva,the acquisition of Monsanto by Bayer, and the acquisition of a large part of DuPont’s crop protection portfolio, including productsunder development and R&D infrastructure, by FMC. An additional acquisition in the crop protection industry that has been alreadycompleted is the Syngenta Transaction. In addition, during 2018, UPL announced about the purchase of Arysta, a transaction whichwas completed on January 2019. Nonetheless, the crop protection industry as a whole is relatively decentralized, with a number oflocal manufacturers competing in each country against the global multinational companies. The Group believes that entry barriers forthe crop protection market are relatively high, although they vary from region to region.In 2018, the Group was, to the best of its knowledge, the world’s largest company (in sales terms) among the crop-protectioncompanies that focused on off-patent crop protection solutions. The Group was ranked sixth in the global crop protection industry in2018, which includes both RBCs and off-patent crop protection companies, with a global crop protection market share ofapproximately 6% in 2018, based on AgBio Investor’s preliminary estimation of the global crop protection market size in 2018.The Group's competitors are multinational Originator Companies that continue producing and marketing their original products aftertheir patent expiry (“Originator Companies”), as well as other crop protection companies. In the Group's experience, in most casesthe Originator Company’s market share in a particular product falls to approximately 60% - 70% within a number of years followingthe expiry of the relevant patent, leaving the remaining market share open to competition among off-patent crop protectioncompanies, in addition to their competition with the Originator Company (which continues manufacturing the product and even leadsits market prices and sales terms).The Group competes with Originator Companies and other international off-patent crop protection companies in all the markets inwhich it operates, as these companies generally also have global marketing and distribution networks. In addition, there are severalsmaller Originator Companies that also compete with the Group. As a rule, other off-patent crop protection companies that do nothave international marketing and distribution networks compete with the Group locally in those geographical markets in which theyoperate.
(2) The competitive structure of the crop-protection industry in ChinaSince 2000, a chemicals industry has developed in China that the Group believes to be the largest in the world. Within this industry,an agrochemicals industry has also developed, including thousands of companies who have invested in manufacturing infrastructure,of which most of their production capacity is currently aimed at exports, intended for sale through small and large companies acrossthe world, including the Group and its competitors. The growth in production capacity, on one hand, and the price levels andcompetitiveness of the products produced in China on the other, affect the structure of competition in the entire industry. However,price levels of the products manufactured in China have started to rise, in light of the trend of rising manufacturing costs in China.
ADAMA Ltd. Annual Report 2018
This trend mainly stems from the increase in costs relating to environmental protection, as well as from increased regulatory activityin China, including by way of limited granting of production permits, shutting down of plants, fines, etc. Due to the shutting down ofsome of the plants and the suspension of production in others, in 2018 shortages of agrochemicals products, including those of theGroup’s products were created. The higher procurement cost levels and the decrease in availability of products is expected tocontinue to 2019.
2. The development trends of the crop-protection industryIn the last few years, some new emerging trends that may affect the nature of competition in this sector can be identified: (1) Themarket share of products whose patents have expired continues to rise relative to that of patented original products, primarily due tothe fact that the rate of patent expiry exceeds that of new patent registration; (2) A trend of some off-patent companies expanding andbecoming stronger (inter alia, as a result of corporate mergers and acquisitions as well as product acquisitions), which may lead tothem competing with the Group in geographic markets in which they have not operated up to now; (3) Smaller companies havebegun operating, in limited scale, in certain markets with relatively low entry barriers; (4) Development of the agrochemicalsindustry in China; (5) Price competition in certain markets by multinational Originator Companies and/or increasing the credit daysto its customers; and (6) Mergers and Acquisitions among leading companies in the sector.The Group believes that in view of the industry's development trends, the following are critical success factors: (i) reputation,branding, expertise and accumulated knowledge in the sector in the various countries and among customers and suppliers; (ii)financial strength and resilience combined with consistent growth, allowing the Group to realize a corporate development strategyincluding the potential for mergers and acquisitions with other companies in the sphere, and being able to respond efficiently toattractive business opportunities in order to expand its product portfolio and the scale of its operations; and (iii) access to fundingsources and reasonable funding terms allowing the Group to make investments that earn a positive return.
(II) Development strategy of the CompanyThe Group strives to be a global leader in the Crop Protection industry, and intends to achieve this aim by execution of the followingstrategies:
? Utilize the Group’s Differentiated Offering to Strengthen and Grow its Market Position. The Group intends to continue to
drive the growth of its business through effective commercialization of differentiated, high quality products that meet farmers’needs efficiently. To that end, the Group will leverage its extensive R&D and registration capabilities to continue to provide uniqueyet simple solutions to farmers. In addition, the Group adds value by enhancing the functionality and efficacy of the industry’smost successful and commercially proven molecules, by developing new and unique mixtures and advanced formulations. Theseinnovative products are designed to provide farmers with better solutions to the challenges they face, including weeds, insects anddisease, increasing resistance and insufficient pest control related to the use of genetically modified seeds.Aiming to provide distinct benefit to farmers and enhance the sustainability of the business, in addition to the ongoing efforts toexpand existing product registrations to additional crops and regions, a key portion of the Group’s strategy involves the deliberateshift of its product offering towards more innovative and value-added solutions. Such solutions include higher-margin,higher-value complex off-patent products, unique mixtures and formulations as well as innovative, novel products that areprotected by patents and other intellectual property rights. As evidence of this effort, the Group has significantly increased theproportion of unique mixtures and formulations in its R&D pipeline over the last several years. Over the coming years, as this shiftin the pipeline towards more differentiated and innovative solutions starts to be reflected in the Group’s commercial offering, it isexpected to be a significant driver of growth, both in revenues and in profitability. In this respect, and in order to capitalize onfuture opportunities in the agrochemical market, the Group has intensified its efforts to develop a leading pipeline of cropprotection products aimed at providing value-added solutions to farmers around the world, based on AIs that are expected to comeoff-patent in the coming years. These newly off-patent AIs will be developed into new mixtures and formulations, in combinationwith new formulation and delivery technologies that provide more efficient ways to deliver the products into the plants, therebycreating truly unique and differentiated, value-added solutions to farmers. In this way, the Group strives to achieve a doublecompetitive advantage – to be the first to market launching new products after the expiry of the patent on the AI, and to capitalize
ADAMA Ltd. Annual Report 2018
on cost leadership through increased backward integration through the Group’s global operations capabilities.? Bridge China and the World. The Group is striving to become a leading global crop protection company in China, both
commercially and operationally, and in so doing, to drive its global growth in the future.
China is currently the third largest, and one of the fastest growing, agricultural markets in the world. Furthermore, the Group
believes that, over the long term, China has the potential to grow into the world’s largest crop protection market. Also, as the
Chinese domestic market is highly fragmented, with limited penetration by the global agrochemical companies, the Group believes
that there is a unique opportunity for it to capitalize on the significant untapped potential of the Chinese market and to gain market
share. Moreover, in recent decades, China has become the leading manufacturing center for the global crop protection industry –
from the sourcing of raw materials and chemical intermediates to the synthesizing of active ingredients and the formulation of
finished products.
The Group intends to capitalize on its status in China and its relationship with ChemChina, as well as the combination with
Solutions, to increase its presence in the country, where it is already building additional infrastructure. The Group has already
commenced commercial collaborations between the Company and Solutions as well as other CNAC-controlled companies in the
crop-protection and related fields in China. Through the Combination Transaction and the completion of the aforementioned
commercial collaborations, the Group has an operational infrastructure and commercial foundation upon which a leading Chinese
domestic distribution network has been built, and which the Group believes will make it one of the only global crop protection
providers with significant integrated commercial and operational infrastructures both within and outside of China.
Through the establishment of a significant operational presence in China and the Combination Transaction, the Group intends to
achieve cost savings and improved margins and efficiencies through vertical integration of manufacturing and formulation together
with the Group’s global supply chain and logistics capabilities. In particular, the Group’s global R&D efforts is being
complemented by a new R&D center in Nanjing to service the Group’s expanded product development needs and enable the
introduction of advanced technologies into China and globally. The Group expects to drive significant demand for its products by
launching new and advanced active ingredients and intermediates with higher R&D content. In addition, the advanced formulation
center in Jiangsu Province will serve as a platform to introduce cost-advantaged crop protection solutions into China and globally.
The Group expects that its unique positioning and profile in China, including the relationship with ChemChina, should establish it
as a partner of choice for companies outside China seeking to access its domestic market, as well as for Chinese companies looking
to expand their global footprint. In addition to the Combination Transaction and the commercial collaboration, the Group is
assessing strategic joint ventures and selected acquisitions to further bolster its commercial and operational platform in China.? Continue to Strengthen Position in Emerging Markets. In addition to developing its China platform, the Group enjoys strong
and leading positions in key emerging agricultural markets such as Latin America, India, Asia and Eastern Europe, with around
half of its global sales achieved in these emerging markets. Over the last several years, in order to establish direct market access
and distribution capabilities in these markets, the Group has successfully integrated acquisitions in Mexico, Colombia, Chile,
Poland, Serbia, the Czech Republic, Slovakia, and South Korea. Similarly, the Group has implemented a direct go-to-market
strategy in many high-growth markets including India, Indonesia, Vietnam and South Africa, leveraging a direct sales force and
driving demand at the retail and farmer level. The Group intends to continue to invest in its growth in the key emerging markets
with high growth potential. The Group’s strong global platform and leading commercial infrastructure in such markets will allow it
to capitalize on worldwide growth opportunities, and continue to drive its profitable growth.? Grow Revenues and Increase Profitability. The Group believes that it has the capacity and operational leverage to increase
profitability through focused execution of its strategy within the framework of prudent working capital management. The Group
expects to grow revenues and margins over time as it shifts to a more differentiated, higher-margin product portfolio and continues
to strengthen its product pipeline with significant number of higher-value products, unique mixtures and formulations, as well as
innovative and, in some cases, patent-protected products. Similarly, the Group intends to drive revenue growth through increased
penetration of high-growth markets including China, Brazil and other key markets in Latin America, India, Russia, Ukraine and
other key markets in eastern Europe. The Group believes that its investment in developing an operational footprint in China will
ADAMA Ltd. Annual Report 2018
lower costs, improve manufacturing efficiency and distribution logistics and reduce inventory requirements in many marketsworldwide.In recent years, the Group has focused on growing and improving its business, infrastructure and brand. Other than investments inthe further development of its China operations, the Group believes that its existing global infrastructure is largely of sufficientscale to support higher revenues, allowing it to enjoy economies of scale and continually improve profitability over time.? Continue to Capitalize on the Global Portfolio Integration and Rebranding Initiative. As part of the Group’s efforts to
“Create Simplicity in Agriculture”, considerable investments have been made to integrate the business across the globe,streamlining sales and distribution efforts under the “ADAMA” brand. In connection with this global brand, a unified brandarchitecture has been implemented simplifying hundreds of local brands and product names by migrating to two distinct productumbrellas, “Advanced” and “Essentials”, which are further characterized and differentiated through innovative and uniquepackaging, enhancing the recognition of the “ADAMA” brand. Through these initiatives, the Group is simplifying its productportfolio for farmers and improving its market positioning.Over the longer term, the Group aims to increasingly offer digital solutions that will enhance direct communication and interactionwith distributors and farmers globally. The Group believes that the farmer-centric approach, while building on a modern, globalbrand and utilizing cutting-edge technology, will provide a strong foundation for its continued profitable growth.? Strategically Pursue Acquisitions to Enhance Market Access and Strengthen the Product Portfolio. Throughout its history,
the Group has successfully completed and integrated several add-on acquisitions across the globe. The Group intends to continue topursue acquisitions, in-licensing agreements and joint ventures that offer attractive opportunities to enhance its market access andposition, as well as strengthen and further differentiate its product portfolio. The Group plans to focus these efforts largely inhigh-growth geographies, particularly in emerging markets where it aims to gain market share, as well as access to selected sourcesof innovation. The Group continues with its track record of making and integrating selective.
(III) 2019 Business planIn 2019, the Company is expecting moderate growth, despite continued subdued crop commodity prices which continue tochallenge farmer profitability levels. Overall, the Group is expecting to see revenue growth emanating from both volume growthand generally stronger pricing, driven by an improved product offering mix and continued launch of new products. The overallstrengthening of pricing is expected to be only moderate, since the Company is expecting continued pressure on selling prices inBrazil and other markets of Latin America, where major players attempt to defend their positions.The generally stronger price environment is expected to compensate somewhat for the continued high Active Ingredient (AI)procurement costs resulting from continued tight supply conditions that have driven increased in the costs of raw materials and AIs.The Group will continue to exercise discipline in management of its operating expenses, while focusing on continued improvementin working capital efficiency and quality of business.In 2019, the Group will continue to pursue its comprehensive portfolio development strategy, driven by further momentum andinvestment in Innovation, Research and Development, and focusing on all aspects of development of its portfolio – productdevelopment, obtaining of registrations, development of advanced formulations and innovative delivery technologies, as well asdifferentiated mixtures, alongside further investments in chemical R&D.During 2019, the Group will remain focused on the ongoing optimization and implementation of its global AI synthesis layouttransformation, a long-term initiative that seeks to align the Group’s AI synthesis layout with the Group’s identified pipelineopportunities.Furthermore, in the coming year the Group will continue to focus on the continued build-up of its commercial and operationalpresence in China, including the full integration between the commercial and operational activities of the Company and Solutionsas well as those of the potential acquisitions it intends to make in the near future.The Group is continuing to invest in the upgrading and expansion of its IT capabilities, including the implementation of its ERPproject in the production facilities in Israel and China.
ADAMA Ltd. Annual Report 2018
Note: The business plan described above does not constitute a commitment to investors on the Company's performance,and the Company suggests that investors should maintain adequate risk awareness therefor, and understand the differencebetween the Company’s business plan and a performance commitment.(IV) The Company’s plan of fund demandThe Group finances its business activities by means of its equity as well as credit from external sources. The primary externalfinancing is by means of long term bonds issued by Solutions.The Group has additional sources of external funding from: (1) long-term bank credit; (2) short-term bank credit; and (3) suppliercredit. In addition, the Group has significant cash balances as well as unused set bank credit lines.(V) The risks faced by the Company and countermeasuresThe Group is exposed to several major risk factors, resulting from its economic environment, the industry and the Group's uniquecharacteristics, as follows (the order below does not indicate priority):
Exchange rate fluctuationsAlthough the Company reports its consolidated financial statements in RMB, the Company’s material subsidiary Solutions reports itsconsolidated financial statements in US dollars, which is its functional currency, while its operations, sales and purchases of rawmaterials are carried out in various currencies. Therefore, fluctuations in the exchange rate of the selling currency against thepurchasing currency impact the Company’s results. The Group's most significant exposures are to the Euro, the Israeli Shekel and theBrazilian Real. The Group has lesser exposures to other currencies. The strengthening of the US dollar against other currencies inwhich the Company operates reduces the dollar value of such sales and vice versa.On an annual perspective, approximately 27% of the Group’s sales are to the European market and therefore the impact of long-termtrends on the Euro may affect the Company's results and profitability.Concentration of currency exposure from foreign currency exchange rate fluctuations against assets, including inventory of finishedproducts in countries of sale, liabilities and cash flow denominated in foreign currencies are done constantly. High volatility of theexchange rates of these currencies could increase the costs of transactions to hedge against currency exposure, thereby increasing theCompany's financing costs.The Group uses commonly accepted financial instruments to hedge most of its substantial net balance sheet exposure to anyparticular currency. Nonetheless, since as part of these operations the Group hedges against most of its balance sheet exposure andonly against part of its economic exposure, exchange rate volatility might impact the Group’s results and profitability. As of the dateof approval of the financial statements, the Group has hedged most of its balance sheet exposure for 2018 as it is on the date ofpublication of this report.In addition, as the Company’s product sales depend directly on the cyclical nature of the agricultural seasons, therefore theCompany’s income and its exposure to the various currencies is not evenly distributed over the year. Countries in the northernhemisphere have similar agricultural seasons and therefore, in these countries, the highest sales are usually during the first half of thecalendar year. During this period, the Company is most exposed to the Euro and the Polish Zloty. In the southern hemisphere, theseasons are opposite and most of the local sales are carried out during the second half of the year. During these months, most of theCompany's exposure pertains to the Brazilian Real. The Company has more sales in markets in the northern hemisphere and therefore,the Company's sales volume during the first half of the year is higher than the sales volume during the second half of the year.Exposure to Interest rate, Israel CPI and NIS exchange rate fluctuationsThe debentures issued by Solutions, the material subsidiary of the Company, are Israeli Shekel based and linked to the IsraelConsumer Price Index (CPI) and therefore an increase in the CPI and an appreciation of the shekel rate against the dollar might leadto a significant increase in its financing expenses. As of the date of approval of the financial statements, Solutions hedged most of itsexposure to these risks on an ongoing basis, through CPI hedging and USD-ILS exchange rate hedging transactions.The Group is exposed to changes in the US dollar LIBOR interest rate as the Group has dollar denominated liabilities, which bearvariable LIBOR interest. The Group prepares a quarterly summary of its exposure to changes in the LIBOR interest rate and
ADAMA Ltd. Annual Report 2018
periodically examines hedging the variable interest rate by converting it to a fixed rate. As of the date of approval of the financialstatements, the Group has not carried out hedging for such exposure, since US dollar interest rates have been relatively stable.Business operations in emerging marketsThe Group conducts business – mainly product sales and raw material procurement – inter alia, in emerging markets such as LatinAmerica (particularly in Brazil, the largest market, country wise, in which the Group operates), Eastern Europe, South East Asia andAfrica. The Group's activity in emerging markets is exposed to risks typical of those markets, including: political and regulatoryinstability; volatile exchange rates; economic and fiscal instability and frequent revisions of economic legislation; relatively highinflation and interest rates; terrorism or war; restrictions on import and trade; differing business cultures; uncertainty as to the abilityto enforce contractual and intellectual property rights; foreign currency controls; governmental price controls; restrictions on thewithdrawal of money from the country; barter deals and potential entry of international competitors and accelerated consolidations bylarge-scale competitors in these markets. Developments in these regions may have a significant effect on the Group's operations.Distress to the economies of these markets could impair the ability of the Group's customers to purchase its products or the ability tomarket them at international market prices, as well as harm the Group's ability to collect customer debts, in a way that could have asignificant adverse effect on the Group's operating results.The Group’s operations in multiple regions allows for the diversification of such risks and for the reduction of its dependency onparticular economies. In addition, changes in registration requirements or customers' preferences in developed western countries,which may limit the use of raw materials purchased from emerging economies, may require redeployment of the Group'sprocurement organization, which might negatively affect its profitability for a certain period.Operating in a competitive marketThe crop protection products industry is highly competitive. Currently, approximately 60% of the industry's global market is sharedby five leading Originator Companies, which are based in Europe or North America, these being Corteva, Bayer, BASF Syngentaand FMC, which develop, manufacture and market both patent-protected as well as off-patent products. The Group competes withthe original products with the aim of maintaining and increasing its market share.The Originator Companies possess resources enabling them to compete aggressively, in the short-to-medium term, on price andprofit margins, so as to protect their market share. Loss of market share or inability to acquire additional market share from theOriginator Companies can affect the Group's position in the market and adversely affect its financial results. For details regarding theGroup’s competitive advantages see section III - subsection III. Core competitiveness analysis above.Similarly, the Group also competes in the more decentralized off-patent market, with other off-patent companies and smaller-scaleOriginator Companies, which have significantly grown in number in recent years and are materially changing the face of the cropprotection products industry, the majority of whom have not yet deployed global distribution networks, and are only active locally.These companies price their products aggressively and at times have lower profit margins than the Group, which may harm thevolume of the Group's sales and product prices. The Group's ability to maintain its revenues and profitability from a specific productin the long term is affected by the number of companies producing and selling comparable off-patent products and the time of theirentrance to the relevant market.Any delay in developing or obtaining registrations for products and/or delayed penetration into markets and/or growth of competitorsthat focus on off-patent active ingredients (whether by the expansion of their product portfolio, granting registrations to othermanufacturers (including manufacturers in China and India) to operate in additional markets, transforming their distribution networkto a global scale or increasing the competition for distribution access), and/or difficulty in purchasing low cost raw materials, mayharm the Group’s sales volumes in this sector, affect its global position and lead to price erosion.Decline in scope of agricultural activities; exceptional changes in weather conditionsThe scope of agricultural activities may be negatively affected by many exogenous factors, such as extreme weather conditions,natural disasters, a significant decrease in agricultural commodity prices, government policies and the economic condition of farmers.A decline in the scope of agricultural activities necessarily would cause a decline in the demand for the Group’s products, erosion of
ADAMA Ltd. Annual Report 2018
its prices and collection difficulties, which may have a significant adverse effect on the Group's results. Extreme weather conditionsas well as damages caused by nature have an impact on the demand for the Group's products. The Group believes that, should anumber of such bad seasons occur in succession, without favorable seasons in the interim, its results may sustain significant harm.Environmental, health and safety legislation, standards, regulation and exposureMany aspects of the Group's operations are strictly regulated, including in relation to production and trading, and particularly inrelation to the storage, treatment, manufacturing, transport, usage and disposal of its products, their ingredients and byproducts, someof which are considered hazardous. The Group's activities involve hazardous materials. Defective storage or handling of hazardousmaterials may cause harm to human life or to the environment in which the Group operates. The regulatory requirements regardingthe environment, health and safety could, inter alia, include soil and groundwater clean-up requirements; as well as restrictions on thevolume and type of emissions the Group is permitted to release into the air, water and soil.The regulatory requirements applicable to the Group vary from product to product and from market to market, and tend to becomestricter with time. In recent years, both government authorities and environmental protection organizations have been applyinggrowing pressure, including through investigations and indictments as well as increasingly stricter legislative proposals and classaction suits related to companies and products that may potentially pollute the environment. Compliance with the foregoinglegislative and regulatory requirements and protection against such legal actions requires the Group to spend considerable financialresources (both in terms of substantial ongoing costs and in terms of material one-time investments) as well as human resources inorder to meet mandatory environmental standards. In some instances, this may result in delaying the introduction of products intonew markets or in adverse effects on the Group’s profitability. In addition, the toughening, material alteration or revocation ofenvironmental licenses or permits, or their stipulations, or the inability to obtain such licenses and permits, may significantly affectthe Group's ability to operate its production facilities, which in turn may have a material adverse effect on the financial and businessresults of the Group. The Group may be required to bear significant civil liability (including due to class actions) or criminal liability(including high penalties and/or high compensation payments and/or costs of environmental monitoring and rehabilitation), resultingfrom violation of environmental, health and safety regulations, while some of the existing legislation may impose obligations on theGroup for strict liability, regardless of proof of negligence or malice.While the Group invests material sums in adapting its facilities and in constructing special facilities in accordance withenvironmental requirements, it is currently unable to assess with any certainty whether these investments (current and future) andtheir outcomes may satisfy or meet future requirements, should these be significantly increased or adjusted. In addition, the Group isunable to predict with any certainty the extent of future costs and investments it may incur so as to meet the requirements of theenvironmental authorities in the relevant countries in which it operates since, inter alia, the Group is unable to estimate the extent ofpotential pollutions, their length, the extent of the measures required to be taken by the Group in handling them, the division ofresponsibility among other parties and the amounts recoverable from third parties.Furthermore, the Group may be the target of bodily injury claims and property damage claims caused by exposure to hazardousmaterials, which are predominantly covered under the Group’s insurance policies.Legislative, standard and regulatory changes in product registrationThe majority of the substances and products marketed by the Group require registration at various stages of their development,production, import, utilization and marketing, and are also subject to strict regulatory supervision by the regulatory authorities ineach country. Compliance with the registration requirements that vary from country to country and which are becoming morestringent with time, involves significant time and costs, and rigorous compliance with individual registration requirements for eachproduct. Noncompliance with these regulatory requirements might materially adversely affect the scope of the Group’s expenses,cost structure and profit margins, as well as penetration of its products in the relevant market, and may even lead to suspension ofsales of the relevant product, and recall of those products already sold, or to legal action. Moreover, to the extent new regulatoryrequirements are imposed on existing registered products (requiring additional investment or leading to the existing registration'srevocation) and/or the Group is required to compensate another company for its use of the latter's product registration data, thesemight amount to significant sums, considerably increasing the Group's costs and adversely affecting its results and reputation.
ADAMA Ltd. Annual Report 2018
Additionally, the Group believes that, in countries where the Group maintains a competitive edge, any toughening of registrationrequirements may actually increase this edge, since this will make it difficult for its competitors to penetrate the same market,whereas in countries in which the Group possesses a small market share, if any, such toughening may make further penetration of theGroup's products into that market more difficult.Product liabilityProduct and producer liability present a risk factor to the Group. Regardless of their prospects or actual results, product liabilitylawsuits might involve considerable costs as well as tarnish the Group's reputation, thus impacting its profits. The Group has athird-party and defective product liability insurance cover. However, there is no certainty that the scope of insurance cover issufficient. Any future product liability lawsuit or series of lawsuits could materially affect the Group’s operations and results, shouldthe Group lose the lawsuit or should its insurance cover not suffice or apply in a particular instance. In addition, while currently theGroup has not encountered any difficulty renewing such insurance policy, it is possible that it will encounter future difficulties inrenewing an insurance policy for third party liability and defective products on terms acceptable to the Group.Successful market penetration and product diversificationThe Group’s growth and profit margins are affected, inter alia, by the extent of its success in developing differentiated products andobtaining registrations for them, so as to enable it to gain market share at the expense of its competitors. Usually, being the first tolaunch a certain off-patent product affords the Group continuing advantage, even after other competitors penetrate the same market.Thus, the Group's revenues and profit margins from a certain product could be materially affected by its ability to launch suchproduct ahead of the launch of a comparable product by its competitors.Should new products fail to meet registration requirements in the different countries or should it take a long period of time to obtainsuch registrations, the Group's ability to successfully introduce a new product to the market in question in the future would beaffected, since entry into the market prior to other competitors is important for successful market penetration. Furthermore,successful market penetration involves, inter alia, product diversification in order to suit each market's changing needs. Therefore, ifthe Group fails to adapt its product mix by developing new products and obtaining the required regulatory approvals, its future abilityto penetrate that market and to maintain its existing market share could be affected. Failure to introduce new products to givenmarkets and meet Group objectives (given the considerable time and resources invested in their development and registration) mightaffect the sales of the product in question in the relevant market, the Group’s results and margins.Intellectual property rights of the Group and of third partiesThe Group's ability to develop off-patent products is dependent, inter alia, on its ability to oppose patents of an Originator Companyor other third parties, or to develop products that do not otherwise infringe intellectual property rights in a manner that may involvesignificant legal and other costs. Originator Companies tend to vigorously defend their products and may attempt to delay the launchof competing off-patent products by registering patents on slightly different versions of products for which the original patentprotection is about to expire or has expired, with the aim of competing against the off-patent versions of the original product. TheOriginator Companies may also change the branding and marketing method of their products. Such actions may increase the Group'scosts and the risk it entails, and harm or even prevent its ability to launch new products.The Group is also exposed to legal claims that its products or production processes infringe on third-party intellectual property rights.Such claims may involve time, costs, substantial damages and management resources, impair the value of the Group's brands and itssales and adversely affect its results. To the best of the Group’s current knowledge, such lawsuits that were concluded involvednon-material amounts.Furthermore, the Group protects its brands and trade secrets with patents, trademarks and other methods of intellectual propertyprotection, however these protective means may not be sufficient for safeguarding its intellectual property. Any unlawful or otherunauthorized use of the Group's intellectual property rights could adversely affect the value of its intellectual property and goodwill.In addition, the Group may be required to take legal action involving financial costs and resources to safeguard its intellectualproperty rights.
ADAMA Ltd. Annual Report 2018
Fluctuations in raw material inputs and prices, and in sales costsSignificant percentage of the cost of the Groups’ sales derives from raw material costs. Hence, significant increases or decreases inraw material cost affect the cost of goods sold, which is generally expressed a number of months following such cost fluctuation.Most of the Group's raw materials are distant derivatives of oil prices and therefore, extreme increase or decrease in oil prices mayaffect the costs of raw materials, yet only partially.To reduce exposure to fluctuations in the prices of raw materials, the Group customarily engages in long-term purchase contracts forkey raw materials, wherever possible. Similarly, the Group acts to adjust its sales prices, if possible, to reflect the changes in the costsof raw materials.As of the date of approval of the financial statements, the Group has not engaged in any hedging transactions against increases in oiland other raw material costs.Exposure due to recent developments in the genetically modified seeds marketAny further significant development in the market of genetically modified seeds for agricultural crops, including as a result ofregulatory changes in certain countries currently prohibiting the use of genetically modified seeds, and/or any significant increase inthe sales of genetically modified seeds or Glyphosate and/or to the extent new crop protection products are developed for furthercrops that would be widely used (substituting traditional products), will affect demand for crop protection products, requiring theGroup to respond by adapting its product portfolio to the new demand structure. Consequently, to the extent that the Group fails toadapt its product mix accordingly, this may reduce demand for its products, erode their sales price and necessarily affect the Group’sresults and market share.Nevertheless, the fact that the Group itself markets Glyphosate acts to mitigate this exposure (albeit only in terms of marketingmargins).Operational risksThe Group’s operations, including its manufacturing activities, rely, inter alia, on state-of-the-art computer systems. The Groupcontinually invests in upgrading and protecting these systems. Any unexpected failure of these systems, as well as the integration ofnew systems, could involve substantial costs and adversely affect the Group's operations until completion of the repair or integration.The potential occurrence of a substantial failure that cannot be repaired within a reasonable time frame may also affect the Group'soperations and its results. Currently, the Group has a property and loss-of-profit insurance policy.Data protection and cyberDuring its activity, the Group may be exposed to risks and threats, related to the stability of its information technologies systems,data protection and cyber, which could appear in many different forms (such as service denial, misleading employees, malfunction,encryption or data erasing and other cyber-attacks via E-mail or malicious software). An attack on such computerized systems,mainly network based systems may cause the group material damages and expenses and even partial suspension and disruption oftheir proper functioning. In order to minimize the abovementioned risks, the group invests resources in its technological strength andin proper protection of its systems.Raw material supply and/or shipping and port services disruptionsLack of raw materials or other inputs utilized in the manufacture of Group products may prevent the Group from supplying itsproducts or significantly increase production costs. Moreover, the Group imports raw materials to its production facilities worldwide,from where it exports the products to its subsidiaries around the world for formulation and/or commercialization purposes.Disruptions in the supply of raw materials from regular suppliers may adversely affect operations until an alternative supplier isengaged. If any of the Group's suppliers are unable to supply raw materials for a prolonged period, including due to ongoingdisruptions and/or prolonged strikes and/or infrastructure defects in the operating of a relevant port, and the Group is unable toengage with an alternative supplier at similar terms and in accordance with product registration requirements, this may adverselyaffect the Group's results, significantly affect its ability to obtain raw materials in general, or obtain them at reasonable prices, as wellas limit its ability to supply products and/or meet customer supply deadlines. These might negatively affect the Group, its finances
ADAMA Ltd. Annual Report 2018
and operating results. In order to reduce this risk, it is the Group's practice to occasionally adjust the volume of its productinventories and at times utilize air freight.Failed mergers and acquisitions; difficulties in integrating acquired operationsThe Group's strategy includes growth through mergers, acquisitions, investments and collaborations designed, in a calculated manner,to expand its product portfolio and deepen its presence in certain geographical markets.Growth through mergers and acquisitions requires assimilation of acquired operations and their effective integration in the Group,including realization of certain forecasts, profitability, market conditions and competition.Failure to successfully implement the above and/or non-realization of the said forecasts may result in not achieving the additionalvalue forecasted, losing customers, exposure to unexpected liabilities, reduced value of the intangible assets included in the merger oracquisition as well as the loss of professional and skilled human resources.Production concentration in limited plantsA large portion of the Group’s production operations is concentrated in a small number of locations. Natural disasters, hostilities,labor disputes, substantial operational malfunction or any other material damage might significantly affect Group operations, as aresult of the difficulty, the time and investment required for relocating the production operation or any other activity.International taxationMost of the Group’s sales are global, through its consolidated subsidiaries worldwide. These individual companies are assessed inaccordance with the tax laws effective in each respective location. The Group’s effective tax rate could be significantly affected bydifferent classification or attribution of the profits arise from the share of value earned of the companies in the Group in the variouscountries, as shall be recognized in each tax jurisdiction; changes in the characteristics (including regarding the location of controland management) of these companies; changes in the breakdown of the Group's profits into regions where differing tax rates apply;changes in statutory tax rates and other legislative changes; changes in assessment of the Group's deferred tax assets or deferred taxliabilities; changes in determining the areas in which the Group is taxed; and potential changes in the Group's organizationalstructure.Changes in tax regulations and the manner of their implementation, including with regard to the implementation of BEPS, may leadto a substantial increase in the Group's applicable tax rates and have a material adverse effect on its financial state, results and cashflows.The Group’s Financial Statements do not include a material provision for exposure for international taxation, as stated above.Risks arising from the Group’s debtThe Group finances its business operations by means of its own equity and loans from external sources (primarily debentures issuedby Solutions and bank credit). The Group's main source for servicing the debt and its operating expenses is by means of the profitsfrom the Group companies’ operations. Restrictions applying to the Group companies regarding distribution of dividends to theGroup, or the tax rate applicable on these dividends, may affect the Group's ability to finance its operations and service its debt.In addition, the Group's Finance Documents require it to meet certain Financial Covenants. Failure to meet these covenants due to anexogenous event or non-materialization of Group forecasts, and insofar as the financing parties refuse to extend or update theseFinancial Covenants as per the Group’s capabilities, may lead the financing parties to demand the immediate payment of theseliabilities (or part thereof).Exposure to customer credit risksThe Group’s sales to customers usually involve customer credit as is customary in each market. A portion of these credit lines areinsured, while the remainder are exposed to risk, particularly during economic slowdowns in the relevant markets. The Group’saggregate credit, however, is diversified among many customers in multiple countries, mitigating this risk. In addition, in certainregions, particularly in South America, credit days are particularly long (compared to those extended to customers in regions such asEurope), and on occasion, inter alia, owing to agricultural seasons or economic downturns in those countries, the Group may
ADAMA Ltd. Annual Report 2018
encounter difficulty in collection of customer debts, with the collection period being extended over several years.Generally, such issues arise more often in developing countries where the Group is less familiar with its customers, the collateralsmight be in double until actual repayment and the insurance cover of these customers is likely to be limited. Credit default by any ofthe customers may negatively impact the Group's cash flow and financial results.The Group’s working capital and cash flow needsSimilar to other companies operating in the crop protection industry, the Group has substantial cash flow and working capitalrequirements in the ordinary course of operations. In view of the Group's growth and considering its primary growth regions, theGroup’s broad product portfolio and the Group’s investments in manufacturing infrastructures, the Group has significant financingand investment needs. The Group acts continually to improve the state and management of its working capital. While currently theGroup is in compliance with all its financial covenants, significant deterioration of its operating results may in the future lead theGroup to fail to comply with its financial covenants and fail to meet its financial needs. As a result, the Group 's ability to meet itsgoals and growth plans, and its ability to meet its financial obligations, may be harmed.
X. List of the received researches, visits and interviews
1. Particulars about researches, visits and interviews received in this reporting period
√ Applicable □ Not applicable
Reception time
Reception mode Type of reception object
Index of investigation informationJanuary 4, 2018 Company Visit（One to Many）
Institutional Introduction of the combined company and
its business development after the mergerbetween ADAMA and SanondaJanuary 22, 2018 Roadshow（One on One） Institutional Introduction of the combined company and
its business development after the mergerbetween ADAMA and SanondaJanuary 31, 2018 Call Conference（One to Many）
Institutional & Retail Explanation Session of 2017 Full-Year
Pre-announcementFebruary 8-9, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company and
its business development after the merger
between ADAMA and SanondaMarch 28, 2018 Company Visit（One to Many）
Institutional Investor Communication of 2017 full year
resultMarch 29-30, 2018 Roadshow（One on One） Institutional Investor Communication of 2017 full year
resultApril 26, 2018 Call Conference（One to Many）
Institutional Investor Communication of 2018Q1 resultMay 2, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q1 resultMay 3, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q1 resultMay 4, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q1 resultMay 7, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q1 resultMay 9, 2018 Investment Strategy Meeting of Institutional Introduction of the combined company and
ADAMA Ltd. Annual Report 2018
Reception time
Reception mode Type of reception object
Index of investigation informationSecurity Companies its business development after the merger
between ADAMA and SanondaMay 11, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q1 resultMay 16, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company and
its business developmentMay 31, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company and
its business developmentJune 5, 2018 Open Day of Hubei Listed
Companies(Online)
Retail Introduction of the combined company and
its business developmentJune 12, 2018 Roadshow（One on One） Institutional Introduction of the combined company and
its business developmentJune 13, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company and
its business developmentJune 14, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company and
its business developmentJune 21, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company and
its business developmentJuly 10, 2018 Call Conference（One on One）
Institutional Introduction of the combined company and
its business developmentJuly 11, 2018 Company Visit Institutional Introduction of the combined company and
its business developmentJuly 17, 2018 Open Day of Capital Market Institutional Introduction of the global agrochemical
industry and the business units of the
companyJuly 19, 2018 Open Day of Capital Market Institutional Introduction of the global agrochemical
industry and the business units of the
companyAugust 27, 2018 Call Conference（One to Many）
Institutional Investor Communication of 2018Q2 resultAugust 28, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q2 resultAugust 29, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q2 and
semi-annual resultAugust 30, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q2 and
semi-annual resultSeptember 4, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company and
its business development, as well as Investor
Communication of 2018Q2 and semi-annual
resultSeptember 6, 2018 Investment Strategy Meeting of Institutional Investor Communication of 2018Q2 result
ADAMA Ltd. Annual Report 2018
Reception time
Reception mode Type of reception object
Index of investigation informationSecurity CompaniesOctober 30, 2018 Call Conference（One to Many）
Institutional Investor Communication of 2018Q3 resultOctober 31, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q3 resultNovember 1, 2018 Company Visit(Group
Presentation of Company’sperformance)
Institutional Investor Communication of 2018Q3 resultNovember 2, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q3 resultNovember 5, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q3 resultNovember 6, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company and
its business development, as well as InvestorCommunication of 2018Q3 resultNovember 7, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q3 resultNovember 8, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q3 resultNovember 14, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company and
its business development, as well as theglobal agrochemical industryNovember 15, 2018 Investment Strategy Meeting of
Security Companies
Institutional Investor Communication of 2018Q3 result
and outlook of the global agrochemicalindustryNovember 16, 2018 Investment Strategy Meeting of
Security Companies
Institutional Investor Communication of 2018Q3 resultNovember 28, 2108 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company, its
business development and the business unitsof the company, as well as the globalagrochemical industryDecember 3, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company, its
business development and the business unitsof the company, as well as the globalagrochemical industryDecember 12, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company, its
business development and the business unitsof the company, as well as the globalagrochemical industry；InvestorCommunication of 2018Q3 resultDecember 13, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company, its
business development and the business unitsof the company, as well as the globalagrochemical industry
ADAMA Ltd. Annual Report 2018
Reception time
Reception mode Type of reception object
Index of investigation informationDate Activity Visitor Type Main Topics and Provided MaterialsJanuary 4, 2018 Company Visit（One to Many）
Institutional Introduction of the combined company and
its business development after the mergerbetween ADAMA and SanondaJanuary 22, 2018 Roadshow（One on One） Institutional Introduction of the combined company and
its business development after the mergerbetween ADAMA and SanondaJanuary 31, 2018 Call Conference（One to Many）
Institutional & Retail Explanation Session of 2017 Full-Year
Pre-announcementFebruary 8-9, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company and
its business development after the merger
between ADAMA and SanondaMarch 28, 2018 Company Visit（One to Many）
Institutional Investor Communication of 2017 full year
resultMarch 29-30, 2018 Roadshow（One on One） Institutional Investor Communication of 2017 full year
resultApril 26, 2018 Call Conference（One to Many）
Institutional Investor Communication of 2018Q1 resultMay 2, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q1 resultMay 3, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q1 resultMay 4, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q1 resultMay 7, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q1 resultMay 9, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company and
its business development after the mergerbetween ADAMA and SanondaMay 11, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q1 resultMay 16, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company and
its business developmentMay 31, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company and
its business developmentJune 5, 2018 Open Day of Hubei Listed
Companies(Online)
Retail Introduction of the combined company and
its business developmentJune 12, 2018 Roadshow（One on One） Institutional Introduction of the combined company and
its business developmentJune 13, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company and
its business developmentJune 14, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company and
its business development
ADAMA Ltd. Annual Report 2018
Reception time
Reception mode Type of reception object
Index of investigation informationJune 21, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company and
its business developmentJuly 10, 2018 Call Conference（One on One）
Institutional Introduction of the combined company and
its business developmentJuly 11, 2018 Company Visit Institutional Introduction of the combined company and
its business developmentJuly 17, 2018 Open Day of Capital Market Institutional Introduction of the global agrochemical
industry and the business units of the
companyJuly 19, 2018 Open Day of Capital Market Institutional Introduction of the global agrochemical
industry and the business units of the
companyAugust 27, 2018 Call Conference（One to Many）
Institutional Investor Communication of 2018Q2 resultAugust 28, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q2 resultAugust 29, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q2 and
semi-annual resultAugust 30, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q2 and
semi-annual resultSeptember 4, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company and
its business development, as well as Investor
Communication of 2018Q2 and semi-annual
resultSeptember 6, 2018 Investment Strategy Meeting of
Security Companies
Institutional Investor Communication of 2018Q2 resultOctober 30, 2018 Call Conference（One to Many）
Institutional Investor Communication of 2018Q3 resultOctober 31, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q3 resultNovember 1, 2018 Company Visit(Group
Presentation of Company’sperformance)
Institutional Investor Communication of 2018Q3 resultNovember 2, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q3 resultNovember 5, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q3 resultNovember 6, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company and
its business development, as well as InvestorCommunication of 2018Q3 resultNovember 7, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q3 resultNovember 8, 2018 Roadshow（One on One） Institutional Investor Communication of 2018Q3 resultNovember 14, 2018 Investment Strategy Meeting of Institutional Introduction of the combined company and
ADAMA Ltd. Annual Report 2018
Reception time
Reception mode Type of reception object
Index of investigation informationSecurity Companies its business development, as well as the
global agrochemical industryNovember 15, 2018 Investment Strategy Meeting of
Security Companies
Institutional Investor Communication of 2018Q3 result
and outlook of the global agrochemical
industryNovember 16, 2018 Investment Strategy Meeting of
Security Companies
Institutional Investor Communication of 2018Q3 resultNovember 28, 2108 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company, its
business development and the business unitsof the company, as well as the globalagrochemical industryDecember 3, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company, its
business development and the business unitsof the company, as well as the globalagrochemical industryDecember 12, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company, its
business development and the business unitsof the company, as well as the globalagrochemical industry；InvestorCommunication of 2018Q3 resultDecember 13, 2018 Investment Strategy Meeting of
Security Companies
Institutional Introduction of the combined company, its
business development and the business unitsof the company, as well as the globalagrochemical industryTimes of reception 45The number of agencies in reception 44The number of individuals in reception 2The number of other objects in reception 0Whether undisclosed significant information isdisclosed, revealed or divulged?
No
ADAMA Ltd. Annual Report 2018
Section V Significant Events
I. List of the profits distribution of the common shares and turning capital reserve into sharecapital of the Company
Common profits distribution policies especially the formulation, execution or the adjustment of the cash dividend policies during thereporting period√ Applicable □ Not applicableAccording to the requirements of Circular on Further Settling the Issues Concerning the Payment of Cash Dividends by ListedCompanies (issued by CSRC on May 4, 2012), the 2
nd
interim Shareholders Meeting in 2012 of the Company approved theproposal on the revisions of the Articles of Association. Accordingly, the Articles of Association, as revised, set the dividendspolicy, the conditions and ratio for the cash dividends, the approval procedures for the profit distribution plan, and explicitrequirements on the procedures for the adjustment of the profit distribution policy. Therefore, the Company has set up thedecision-making procedures on the profit distribution, and improved the supervisory mechanism on the profit distribution.Consequently, the legitimate interests of the shareholders, especially the medium and minor shareholders are well protected.
Special explanation of the cash dividend policyWhether conformed with the regulations of the Articles ofassociation or the requirements of the resolutions of theshareholders’ meeting:
YesWhether the dividend standard and the proportion were definiteand clear:
YesWhether the relevant decision-making process and the systemwere complete:
YesWhether the independent director acted dutifully and exerted theproper function:
YesWhether the medium and small shareholders had the chances tofully express their suggestions and appeals, of which their legalinterest had gained fully protection:
YesWhether the conditions and the process met the regulations andwas transparent of the adjustment or altered of the cash dividendpolicy:
Not ApplicableList of the dividend distribution proposal (preplan) of the common shares and the proposal (preplan) of turning capital reserve intoshare capital of the Company of the recent 3 years:
2016 profits distribution proposal: not allocated, not transferred.2017 profits distribution proposal: based on the total share capital on February 28, 2018, after obtaining the approval of Board ofDirectors, the Company declared a cash dividend of RMB 0.63 (including tax) for every 10 shares to the all shareholders. No sharewill be distributed as share dividend, as well as no reserve will be transferred to equity capital.2018 profit distribution proposal: based on the total share capital on February 28, 2019, after obtaining the approval of Board of
ADAMA Ltd. Annual Report 2018
Directors, the Company declared a cash dividend of RMB 0.97 (including tax) for every 10 shares to the all shareholders. No sharewill be distributed as share dividend, as well as no reserve will be transferred to equity capital.Cash dividend distribution of the common shares of the Company in the last 3 years (including the reporting period)
Unit: RMB
Dividend
year
Amount of cash
dividend(including tax)
Net profitbelonging toshareholders of
the listed company
in consolidated
statement ofdividend year
The ratio of thecash dividendsaccounting innet profit which
belongs toshareholders of
the listed
company inconsolidated
statement
the listed companyAmount of the
cash dividend
by othermethods
Amount of the(such
as share
buyback)
Ratio of thecash dividend
by othermethods
accounting in
net profit
(suchwhich belongs
to
shareholders
of the listed
company in
consolidated
statement
Total amount of
cash dividend(including other
ways)
The ratio of totalamount of cashdividend (including
other ways)accounting in netprofit which belongsto shareholders of the
listed company inconsolidated statement
which belongs
2018 237,315,697.45
2,402,462,000 9.88% 0.00 0.00% 237,315,697.45
9.88%2017 154,132,875.67
1,545,879,000 9.97% 0.00 0.00% 154,132,875.67
9.97%2016 - -74,489,986.54
0.00% 0.00 0.00% - 0.00%The Company (including its subsidiaries) made profit in the reporting period and the profits distribution of the common shares heldby the shareholders of the Company (without subsidiaries) was positive, but it did not put forward a preplan for cash dividenddistribution of the common shares:
□ Applicable √ Not applicable
II. Situations for profit allocation and turning capital reserve into share capital for thereporting period
√ Applicable □ Not applicableThe Company plans to distribute cash dividends for the year 2018, and does not intend to issue bonus shares or transfer capitalreserve to share capital.
Bonus shares for every 10-share (Share)
Not Applicable.Dividends for every 10-share (RMB) (Tax included)
0.97Every 10-share increased the shares’ number
Equity base of distribution plan (Share)
2,446,553,582Cash dividend (RMB) (Tax included)
237,315,697.45Amount of the cash dividend by other methods (e.g. share buyback)
Total cash dividend (RMB) (Tax included)
237,315,697.45
ADAMA Ltd. Annual Report 2018
Distributable profits (RMB)
2,370,123,000Ratio of the Cash dividend (including the amount to be distributed in otherways) accounting in the total amount of the distributed dividend
100%Cash dividends of This TimeIf the development phase of the Company was the mature period with significant funds expenditures arrangement, the proportionof the cash dividend should at least reach 40% of the total profit distribution.
Detailed Description on the Pre-Plan for Profit Allocation or Turning Capital Reserve into Share CapitalAs audited by Deloitte Touche Tohmatsu Certified Public Accountants LLP, the net profit attributable to stakeholders of theCompany is RMB 2,402,462,000. After deduction of the transfer to statutory surplus reserve of 10% of the net profit on astandalone basis of the reporting period which is RMB 32,339,000, profit available for distribution for the year 2018 is RMB2,370,123,000.The proposal for profit distribution and transfer of reserves into equity capital for the year 2018 is a distribution of y 10% of thetotal profit available for distribution, calculated as follows:
Taking the total outstanding 2,446,553,582 shares of the Company dated February 28, 2019 as the basis, to distribute RMB 0.97(including tax) per 10 shares as cash dividend to all shareholders, resulting in a total cash dividend of RMB237,315,697.45(including tax), and zero shares as share dividend, as well as no reserve transferred to equity capital.
III. Performance of commitments
1. Commitments completed by the Company, the shareholders, the actual controllers, the purchasers, theDirectors, the Supervisors and the Senior Executives or the other related parties during the reportingperiod and those hadn’t been completed execution up to the period-end
√ Applicable □ Not applicable
Commitment
Commitment
maker
Commitment
type
Contents
Time ofmakingcommitment
Period ofcommitment
Fulfillment
Commitment on
share reform
ADAMA Ltd. Annual Report 2018
Commitment
Commitment
maker
Commitment
type
Contents
Time ofmakingcommitment
Period ofcommitment
Fulfillment
Commitment inthe acquisitionreport or thereport on equitychanges
ChemChina
Commitmentson thehorizontalcompetition
Commitments on avoiding horizontalcompetition: 1. The business of theChemChina’s subsidiaries - Jiangsu
Anpon Electrochemical Co., Ltd., Anhui
Petroleum Chemical Group Co., Ltd.,
Anpon Electrochemical Co., Ltd., AnhuiShangdong Dacheng Agrochemical Co.,
Ltd. and Jiamusi HeilongAgrochemicals Co., Ltd., and HunanHaohua Chemical Co., Ltd. and itssubsidiary had the same or similarsituations with the main business ofADAMA, and aimed at the domestichorizontal competition, the Companycommitted to gradually eliminate suchkind of horizontal competition in thefuture and to fight for the internal assetsreconstruction, to adjust the industrial
Shangdong Dacheng Agrochemical Co.,plan and business structure, to transform
technology and to upgrade products, todivide the market so as to make each
plan and business structure, to transformcorporation differ in the products and its
ultimate users according to thesecurities laws and regulations andindustry policy within 7 years, thus toeliminate the current domestichorizontal competition between theCompany’s controlling subsidiaries andADAMA. 2. Excepting the competitionsituation disclosed in the offeracquisition report, the Company takeeffective measures to avoid theCompany and its controllingsubsidiaries (excepting Commitmentsrespectively made in acquisition reportby Celsius Property B.V. and MAI)’new increased business engaged in thesame or similar business with ADAMA,Ltd. within the territory in future. 3. Ifthe Company or its controllingsubsidiaries (excepting Commitmentsrespectively made in acquisition reportby Celsius Property B.V. and MAI)domestically conduct related businesswhich form horizontal competition withADAMA, Ltd. in future, the Companywill actively take steps, graduallyeliminate the competition, the concretemeasures including but not limited tofight for internal assets reconstruction,(including putting the business intoADAMA, Ltd. or operated throughADAMA, Ltd.) to adjust the industrial
September7, 2013
September 6,2020
On-
corporation differ in the products and itsgoing. The
committed
going. Theparties comply
with thecommitments.
parties comply
ADAMA Ltd. Annual Report 2018
Commitment
Commitment
maker
Commitment
type
Contents
Time ofmakingcommitment
Period ofcommitment
Fulfillment
ChemChina
Commitmentson theindependenceof theCompany andthe related-partytransaction
The company will comply with laws,regulations and other regulatorydocuments to avoid and reducerelated-party transactions withADAMA. However, for related-partytransactions that are inevitable or basedon reasonable grounds, the company
will follow the market principles of just,
fairness and openness, enter intoagreement(s) legally and go throughlawful procedures. The company willhonor its disclosure obligations andapply for relevant approvals accordingto the AOA of ADAMA
will follow the market principles of just,, rules regarding
related-party transactions and relevantregulations, not damaging the lawfulrights and interest of ADAMA and itsshareholders by related-partytransactions.After completion of this transaction,ADAMA will continue to keepcomplete procurement, production andsales systems and to possessindependent intellectual properties. Thecompany and its affiliated parties willbe completely independent fromADAMA in terms of staff, assets,finance, business and organization.ADAMA will have full capacity ofoperation in Chinese agriculturalchemical market.
September7, 2013
Long termeffective
On-
| , rules regarding | going. The |
committed
with thecommitments.
parties comply
Commitmentsmade at thetime of assetsreorganization
ChemChina
Commitmentson thehorizontalcompetition
The subsidiaries controlled byChemChina, namely Anpon, HH,Maidao, Anhui Petrochemical andHeilong as well as their subsidiaries arein similar or the same business asADAMA. For the horizontalcompetition in China, ChemChinacommits itself to take appropriateactions to solve the horizontal
competition between its subsidiaries and
ADAMA step-by-step in an appropriateway within 4 years after completion ofthe reorganization, in accordance withsecurities laws, regulations andsector/industrial policies.
October 12,2016
Long termeffective
On-
competition between its subsidiaries andgoing. The
committed
going. Theparties comply
with thecommitments.
parties comply
ADAMA Ltd. Annual Report 2018
Commitment
Commitment
maker
Commitment
type
Contents
Time ofmakingcommitment
Period ofcommitment
Fulfillment
The means by which ChemChinaaddresses the horizontal competitioninclude but are not limited to thefollowing,ADAMA acquires cropprotection-related assets underChemChina. ADAMA holds or controlsother crop protection-related assets ofChemChina in line with national lawsand by reasonable commercial means
such as entrusted operation. ChemChina
divests other crop protection-relatedassets or transfers the control power ofsuch subsidiaries to external parties.ChemChina reorganizes internal assets,adjusts sector planning and businessstructure, upgrades technologies andproducts and makes marketsegmentation so that each company willdifferentiate its products and end usersto eliminate horizontal competitionbetween the subsidiaries controlled byChemChina and ADAMA.
ChemChina
Commitmentson PotentialHorizontalCompetition
such as entrusted operation. ChemChinaChemChina will take effective actions
ChemChina will take effective actionsto avoid adding new business in China
same or similar to ADAMA
to avoid adding new business in Chinaby itself
and its controlled subsidiaries.If ChemChina or its controlledsubsidiaries are in the future engaged inthe business in China that constitutehorizontal competition againstADAMA, ChemChina will take activeactions, including but not limited toreorganizing internal assets, adjustingsector planning and business structure,upgrading technologies and productsand making market segmentation so tha
by itselft
each company will differentiate itsproducts and end users to avoid andeliminate horizontal competitionbetween the subsidiaries controlled byChemChina and ADAMA.
October 12,2016
Long termeffective
On-
tgoing. The
committed
going. Theparties comply
with thecommitments.
parties comply
ChemChina
Commitmentto reduce andstandardizerelated-party
The Company will, as required by law,regulation and other specifications,
avoid and reduce connected transactions
with ADAMA; however, for the
August 4,2016
Long termeffective
On-
avoid and reduce connected transactionsgoing. The
committed
going. Theparties comply
with the
ADAMA Ltd. Annual Report 2018
Commitment
Commitment
maker
Commitment
type
Contents
Time ofmakingcommitment
Period ofcommitment
Fulfillment
transactions connected transactions that are
inevitable or based on reasonablegrounds, the Company will follow thejust, fairness and open principles inmarket, legally enter into agreement(s)by law, go through lawful procedures,and perform its disclosure obligationsand approving procedures as requiredby related systems and regulations. TheCompany warrants that no connectedtransaction will be done to impairlawful rights and interest of ADAMAand its shareholders.
commitments.
ChemChina
Commitmentto maintainindependenceof the listedcompany
After completion of this acquisitiontransaction, ADAMA will continue tokeep complete procurement, productionand sales systems and to possessindependent intellectual properties, and
the Company and its affiliated party will
be completely independent fromADAMA in terms of staff, assets,finance, business and organization, andADAMA will have full capacity ofoperation in Chinese agriculturalchemical market. The Company willfollow related regulations in CompanyLaw and Securities Law, and avoidengagement in any action that impairsthe operating independence ofADAMA.
August 4,2016
Long termeffective
On-going.Thecommitted
the Company and its affiliated party willparties comply
with thecommitments.
parties comply
CNAC
Commitmenton sharelock-up
All new shares purchased and held byshare issuance for assets purchase shallbe prohibited from transfer in whateverforms within 36 months after date oflisting, including but not limited topublic transfer via securities market ortransfer by agreements and will nothave such shares of the listed companymanaged by any other person entrusted,except such transfer is required andmade between ChemChina and itssubsidiaries as a result of state-ownedassets reorganization, consolidation orfree transfer of stock equity, in whichcase the transferee must keep suchshares obtained locked up until the
October 12,2016
August 2,2020
On-going.Thecommitted
party complies
with thecommitments.
party complies
ADAMA Ltd. Annual Report 2018
Commitment
Commitment
maker
Commitment
type
Contents
Time ofmakingcommitment
Period ofcommitment
Fulfillment
lock-up period expires. According toregulations in Article 48 of theAdministrative Measures for theMaterial Asset Reorganizations ofListed Companies, if within a period of6 months after completion of thistransaction, the closing price of thelisted company is lower than theoffering price in any continuous 20trading days, or if within a period of 6months after completion of thistransaction, the closing price at the endof such 6-month period is lower thanthe offering price, then the lock-upperiod of shares held will be extendedautomatically by at least 6 months.Upon expiry of the lock-up period, suchshares shall be subject to applicablelaws, regulations and CSRC and SZSErules.
CNAC
Commitmentsonperformancecompensation
CNAC shall fulfill the performancecompensation obligations in thetransaction in accordance withPerformance Compensation Agreementsigned with the listed company andrelevant laws and regulations. In theevent that a performance compensationobligation takes place, CNAC shall firstfulfill the obligation of compensationwith the shares of ADAMA and thedeficient portion (if any) shall be madeup in cash. CNAC commits that the netprofits of ADAMA attributable to theparent company after deductingnon-recurring gains and losses shall notbe less than USD 147,675,000, USD173,321,900 and USD 222,416,800respectively in 2017, 2018, 2019.
September13, 2016
December 31,2019
On-going.Thecommitted
party complies
with thecommitments.
party complies
SanondaHolding
Commitmenton sharelock-up
All shares of the listed company held by
Sanonda Holding before this transactionshall be prohibited from transfer within12 months after date of listing of thenew shares issued under thistransaction, including but not limited topublic transfer via securities market ortransfer by agreements and Sanonda
October 12,2016
August 2,2018
SanondaHoldingcompleted itscommitmentin thereportingperiod.
ADAMA Ltd. Annual Report 2018
Commitment
Commitment
maker
Commitment
type
Contents
Time ofmakingcommitment
Period ofcommitment
Fulfillment
Holding will not have such shares of the
listed company managed by any otherperson entrusted, except such transfer isrequired and made between ChemChinaand its subsidiaries as a result ofstate-owned assets reorganization,consolidation or free transfer of stockequity, in which case the transfereemust keep such shares obtained lockedup within the lock-up period of theremaining sharesChina CindaAssetManagementCo., Ltd.,CCB PrincipleAssetManagementCo.,Ltd.,Aegon-industrial Fund Co.,Ltd., PenghuaFundManagementCo., Ltd.,ChinaStructuralReform FundCo. ,Ltd.,Caitong FundManagementCo., Ltd.
Commitmenton sharelock-up
The new shares issued in the non-
Holding will not have such shares of thepublic
publicoffering to raise supporting fund shall
offering to raise supporting fund shallnot be transferred in any manner within
12 months after the initial tradi
not be transferred in any manner withinng day of
the new issued shares.
December25, 2017
January 18,2019
Thecommittedpartiescomplied withthecommitmentsduring thereportingperiod. Theshares havebeen unlockedon January 21,2019.
Commitmentsmade in theinitial publicoffering orrefinancing
-- -- -- -- -- --
ng day ofCommitment on
equity incentive
Commitment on
-- -- -- -- -- --Othercommitmentsmade tominorityshareholders
-- -- -- -- -- --
Executed timely
or not?
Yes
ADAMA Ltd. Annual Report 2018
2. Assets or projects with profit forecast, which were still in the profit forecast period
√ Applicable □ Not applicable
Assets or
project
withprofitforecasted
Starting
time
Terminal
time
Current forecastperformance (in USD’0000)
Currentactuallyperformance
(inUSD’0000)
Reasons of
fails toachieve the
forecastnumber (ifapplicable)
Disclosure
date forformerprediction
Index
Solutions Jan 1,
2017
Dec 31,2019
32,099.6936,911.13
Notapplicable
July 5,2017
www.cninfo.com.cn
Report of ADAMA,Ltd. on ShareIssuance for AssetsPurchase andSupporting FundsRaise & RelatedParty TransactionsNote: The estimation period of the above profit forecast is three consecutive years (2017 to 2019). The current forecast performanceand the current actually performance refer to the aggregated amounts of 2017 and 2018.Commitment made by shareholders of the Company and counterparty in annual operation performance√ Applicable □ Not applicableOver the process of the Major Assets Restructuring, the Company signed the Performance Compensation Agreement and theSupplementary Agreement with the counter party CNAC. CNAC made a commitment regarding Solutions’ net profit attributable tothe Company after deduction of non-recurring gains and losses in 2017, 2018 and 2019. In case of failure to meet the commitment,CNAC will compensate the Company in the way of shares or cash according to the following formula: Total aggregate compensationamount to be compensated at the end of the then current period= (Aggregate committed net profit by the end of the then currentperiod - Aggregate actual net profit by the end of the then current period) ÷ total aggregated net profit in the compensation period ×consideration of the Major Assets Restructuring transaction.Solutions’ aggregated net profit attributable to the Company after deduction of non-recurring gains and losses for 2017 and 2018 ascommitted by CNAC amounted to US$321 million. The actual net profit attributable to the Company after deduction ofnon-recurring gains and losses for 2017 and 2018 amounted to US$369 million .The completion rate is 115%. For details, pleaserefer to the Explanation of the Difference between Actual Net Profit and Committed Net Profit of Solutions announced by theCompany on March 21, 2019 on the website www.cninfo.com.cn.Fulfillment of performance commitment and its impact on the goodwill impairment test: To the date of the report, CNAC fulfilled itsperformance commitment. No impact on the goodwill impairment test.
IV. Occupation of the Company’s capital by the controlling shareholder or its related partiesfor non-operating purposes
□ Applicable √ Not applicableThe Company was not involved with such situation during the reporting period.
ADAMA Ltd. Annual Report 2018
V. Explanation by the Board of Directors and the Supervisory Committee about the“non-standard audit report” issued by the CPAs firm for the reporting period
□ Applicable √ Not applicable
VI. Explanation of the changes of the accounting policy, the accounting estimates and theaccounting methods compared to the last financial report
√ Applicable □ Not applicableThe changes of the accounting policies of the Group are as follows:
The Group began to apply the followings revised Accounting Standard for Business Enterprise (“ASBE”) promulgated by theMinistry of Finance, as of January 1, 2018:
“Revised ASBE22 - Financial Instruments Recognition and Measurement”; “Revised ASBE 23 - Transfer of Financial Assets”;“Revised ASBE24 - Hedging”; “Revised ASBE37 - Presentation and Disclosure of Financial Instrument”; and “Revised ASBE14 -Revenue”.These financial statements were prepared under the requirements of the newly issued "the Notice of the Revised Format of 2018Financial Statements for General Business Enterprise" ("Notice No. 2018-15") by MOF on June 15, 2018.
VII. Explain retrospective restatement due to correction of significant accounting errors inthe reporting period
□ Applicable √ Not applicableNo such cases in the reporting period.
VIII. Explain change of the consolidation scope as compared with the financial reporting oflast year
□Applicable √ Not applicable
IX. Particulars about engagement and disengagement of CPAs firm
CPAs firm engaged at presentName of domestic CPAs firm Deloitte Touche Tohmatsu Certified Public Accountants LLPRemuneration for domestic CPAs firm for thereporting period (RMB Ten Thousand Yuan)
Consecutive years of the audit services provided bydomestic CPAs firm
Name of domestic accountants Xu Yusun, Ma RenjieConsecutive years of the audit services provided bythe domestic accountants
Name of overseas CPAs firm Not applicable
ADAMA Ltd. Annual Report 2018
Remuneration for overseas CPAs firm for thereporting period (RMB Ten Thousand Yuan)
--Consecutive years of the audit services provided byoverseas CPAs firm
--Name of overseas accountants --Consecutive years of the audit services provided bythe overseas accountants
--
Change of the CPAs firm at current period or not?□ Yes √ NoParticulars on engaging the audit firm for the internal control, financial adviser or sponsor√ Applicable □ Not applicableIn the reporting period, the Company continued to engage Deloitte Touche Tohmatsu Certified Public Accountants LLP as the auditorof the Company for 2018 annual financial reports and 2018 annual internal control of the Company. The total remuneration is RMB3,400,000.
X. Particulars about trading suspension and termination faced after the disclosure of annualreport
□ Applicable √ Not applicable
XI. Bankruptcy and reorganization
□ Applicable √ Not applicableNo such cases in the reporting period.
XII. Significant lawsuit or arbitration
□ Applicable √ Not applicableNo such cases in the reporting period.
XIII. Punishment and rectification
□ Applicable √ Not applicableNo such cases in the reporting period.
XIV. Credibility of the Company, its controlling shareholders and actual controller
□ Applicable √ Not applicableDuring reporting period, there was no effective judgment of a court and large amount of debt maturity that the Company, itscontrolling shareholders and actual controller failed to perform or pay off.
ADAMA Ltd. Annual Report 2018
XV. The actual implementation of the stock incentive plan, ESOP, or other Staff incentives
□ Applicable √ Not applicableTo the date of the report, the Company does not have stock incentive plans, ESOP or other staff incentives. It shall be noted, that theCompany’s subsidiary approved in December 2017 and in February 2019 long-term incentive plans and granted long-term cashrewards to executive officers and employees, which are based on the performance of the Company's shares (phantom cashincentives).
XVI. Significant related-party transactions
1. Related-party transactions relevant to routine operation
□ Applicable √ Not applicable(1) Please see item 5 below for the information on the related party transactions made in 2018 in the ordinary business course of
business.(2) Item XII of Section XI “Financial Statements” has set out the related parties and the related-party transactions of the Company.
2. Related-party transactions arising from asset acquisition or sale
□ Applicable √ Not applicableThe Company was not involved in any significant related-party transactions arising from asset acquisition or sale during the reportingperiod. It shall be noted that in March 2019, the Company entered into an agreement signed with CNAC and CNAC InternationalCompany Limited for the acquisition of Jiangsu Anpon Electrochemical Co., Ltd. (Anpon), a backward-integrated manufacturer ofkey active ingredients used in crop protection markets worldwide, most notably Ethephon, Pymetrozine and Buprofezin, as well asintermediates such as chlor-alkali, with advanced membrane production technology. For further details, please refer to theAnnouncement published by the Company with respect to the acquisition on March 21, 2019 on the website www.cninfo.com.cn.
3. Related-party transitions with joint investments
□ Applicable √ Not applicableThe Company was not involved in any significant related-party transaction with joint investments during the reporting period.
4. Credits and liabilities with related parties
√ Applicable □ Not applicableWhether there was non-operating credit and liability with related parties□ Yes √ NoThe Company was not involved in any non-operating credit and liability with related parties.
5. Other significant related-party transactions
√ Applicable □ Not applicableThe 4
th
meeting of the 8
th
session of the Board of Directors and the 2017 Annual Shareholders Meeting approved the proposal on theExpected Related Party Transactions in the Ordinary Course of Business in 2018. The 11
th
meeting of the 8
th
session of the Board of
ADAMA Ltd. Annual Report 2018
Directors and the 1
st
Interim Shareholders Meeting in 2019 approved the proposal on the Expected Related Party Transactions in theOrdinary Course of Business in 2019. Please refer to the following announcements for the details and performances of the relatedparty transactions in the ordinary course of business in 2018.The website to disclose the interim announcements on significant related-party transactions
XVII. Particulars about significant contracts and their fulfillment
1. Particulars about trusteeship, contract and lease
(1) Trusteeship
□ Applicable √ Not applicableThere was no trusteeship of the Company in the reporting period.
(2) Contract Operation
□ Applicable √ Not applicableThere was no contract operation of the Company in the reporting period.
(3) Lease
√ Applicable □ Not applicableExplanation on the leaseThe 7
th
floor of the Company’s office building had rented to Jingzhou Sanonda Holdings Co., Ltd. for business operation in thereporting period with the annual rent of RMB 19,048.The lease whose profits reaching more than 10% of the total profits of the Company in the reporting period□ Applicable √ Not applicableThere was no any lease whose profits reaching more than 10% of the total profits of the Company in the reporting period.
2. Significant guarantees
□ Applicable √ Not applicableNo significant guarantee in the reporting period.
Name of the interim announcement
Disclosure date of the interim
announcement
Website to disclose the interim
announcementAnnouncement on Expected Related-
the Ordinary Course of Business in 2018.
June 8, 2018 www.cninfo.com.cnAnnouncement on Expected Related-
Party Transactions inParty Transactions in
the Ordinary Course of Business in 2019.
| Party Transactions in | ||
February 22, 2019 www.cninfo.com.cn
ADAMA Ltd. Annual Report 2018
3. Cash assets management entrustment(1) Wealth management entrustment
□ Applicable √ Not applicableNo such cases in the reporting period.
(2) Entrustment loans
□ Applicable √ Not applicableNo such cases in the reporting period.
4. Other significant contracts
□ Applicable √ Not applicableNo such cases in the reporting period.
XVIII. Social responsibilities
1. Perform social responsibilities
The values of corporate social responsibility are woven throughout the Company’s culture. The Company holds itself to a highstandard of integrity, fairness, reliability and responsibility, and believes that this is essential for the Company’s long term success.The Company has made a strong commitment, to education, safety, and protection of the environment, and the development of itsemployees.The Company insists on the policy “safety, quality, environmental protection, efficiency”, carries out production and operation instrict accordance with OHSAS18001 occupational health and safety management system, ISO14001 environment managementsystem, ISO9001 quality management system and national cleaning production standards, carries forward the construction of SHEsystem, technically reforms production devices, technologies and tail gas treatment, enhances the safety of production devices,carries forward lean production, reduces the consumption of energy and materials and carries forward energy conservation andemission reduction. For output value per ten thousand yuan, the overall energy consumption and water consumption decrease year byyear. The Company will invest more in environmental protection, carry forward comprehensive treatment on environment andpersistently improve the performance of environmental protection.The Company relates high promotion of education in agriculture, chemistry, sustainability and other related areas as integral part ofits mission. The Company is dedicated to the nurturing of the next generation of scientist and to strengthen and invest in thecommunities in which it operates.During 2018, the Group published a Corporate Social Responsibility report, with respect to the years 2016-2017.
2. Perform the social responsibility of targeted poverty alleviation
(1) Targeted Poverty Alleviation PlanningThe Company actively implements targeted poverty alleviation according to relevant instructions from Jingzhou Leading Group onPoverty Alleviation.
(2) Annual Overview
The Company’s one-on-one poverty alleviation subject is Sanzhou Village of Guanyindang Township. The Company attached greatimportance and designates the general office to be in charge of daily poverty alleviation. The Company visited 20 households below
ADAMA Ltd. Annual Report 2018
the poverty line in Sanzhou village and gave 300 RMB to each family in February 2018, and transferred 3,100 RMB to the specialaccount for poverty alleviation of a village of Cenhe Township on December 2018.(3) Results of Targeted Poverty Alleviation
Indicator Unit Quantity/ ProgressI. Overview —— ——Of which, 1. funds 10,000RMB 0.91II. Input Breakdown —— ——1. Sector development —— ——Of which, 1.1 Sector of Project ——
1.2 Number of Project Project1.3 Inputs 10,000RMB1.4 No. of people out of poverty Person2. Employment transfer —— ——3. Movement and relocation —— ——4. Education —— ——5. Health —— ——6. Ecological conservation —— ——7. Subsistence support —— ——8. Social activities —— ——9. Others —— ——III. Awards —— ——
(4) Follow-up Plan
The Company will continue to steadily promote poverty alleviation with one-on-one subject following instructions of Jingzhoudisciplinary Committee and Leading Group on Poverty Alleviation.
3. Environmental Protection
Is the Company listed as key polluting entities by environmental protection agencies?Yes
name
Mainpollutantsandspecialpollutants
Company
Way ofemission
Numberof
emission
points
Layout ofemissionpoints
Concentration
emission
Pollution standardsapplied
Total amountemitted/discharged
Totalamountapproved
Exceeding
limitADAMA
Exceeding
COD Continuous
discharge
Within limit
Centralized
ComprehensiveStandard on
294.3 391.3 No
ADAMA Ltd. Annual Report 2018
name
Mainpollutantsandspecialpollutants
Company
Way ofemission
Numberof
emission
points
Layout ofemissionpoints
Concentration
emission
Pollution standardsapplied
Total amountemitted/discharged
Totalamountapproved
Exceeding
limitpoint Discharge of Waste
Water(GB8978-1996) ，COD<100mg/L
ADAMA
Exceeding
A
mmonia
nitrogen
mmonia
Continuous
Centralized
dischargepoint
Within limit
Centralized
ComprehensiveStandard onDischarge of WasteWater(GB8978-1996),Ammonianitrogen<15mg/L
29.7 50 No
ADAMA
NOx Continuous
Powerplant
Within limit
Standard on AirPollution of PowerPlant（GB13223-2011）NOx <200mg/m3
523.4 564.7 No
ADAMA
SO2 Continuous
Powerplant
Within limit
Standard on AirPollution of PowerPlant（GB13223-2011）SO2<200mg/m3
302.6 380 No
ADAMA
Fume anddust
Continuous
Powerplant
Within limit
Standard on AirPollution of PowerPlant（GB13223-2011）Fume anddust<30mg/m3
44.5 80 No
(1) Development and Operation of Environmental Facilities1. Development and Operation of Waste Water FacilitiesThe Company has a waste water treatment facility.2. Development and Operation of Waste Gas FacilitiesThe treatment facility for the Company’s coal-based power plant is running well.3. The Company discloses production and pollution information according the Interim Measures on Environmental InformationDisclosure and transfers information of main waste water and air pollutants to the provincial information platform on a daily basis.Please also see below under “Environment self-monitoring plan”.
ADAMA Ltd. Annual Report 2018
(2) EIA of construction projects and other environmental administrative permitsNo.(3) Contingency plan of environmental accidentsThe contingency plan is development with a purpose of implementing precautionary approach for environmental safety, ensuringquick response to potential environmental emergencies and carrying out rescue in a well-organized way according to pre-maderescue plan.1. Composition of the command team2. Emergency response(1) Alarm and Telecommunication
(2) Field Rescue
(3) The Company is insured against sudden, unexpected events of environmental pollution worldwide.3. Relief and Rescue of Environmental Pollution Accidents（1）Pollutants and Main Sources（2）Cause Analysis of Environmental Pollution（3）Relief and Rescue Measures（4）Handling and Precautionary Measures of Environmental Pollution Accidents4. Supporting Measures
（1）Supply support
（2）System support
5. Training and Exercises(4) Environment self-monitoring planThe Company attributes great importance to protecting the environment, out of a sense of responsibility to society and theenvironment and strives to meet the relevant regulatory requirements and to even go beyond mere compliance, engaging in constantdialogue with stakeholders, including the authorities and the community.The Company developed Annual Environment Self-Monitoring Plan according to relevant requirements to enhance environmentmanagement, understand emission and discharge of pollutants of the Company, evaluating its impact on surrounding environment,enhancing management of pollutant discharge and emission in the process of production, be subject to supervision of environmentalagencies and provide basis to pollution prevention and control.1. Monitored Indicators
Waste water (Jingzhou Site): COD, NH
-N, PH, SS, BOD, Petroleum, TP, Volatile Phenol.Air Pollutant (Jingzhou Site): SO
, NOX, Dust.Noise (Jingzhou Site): Noise by site border2. Frequency
Boiler emission and waste water discharged from the centralized point (Jingzhou Site): continuous auto monitoringManual sampling (Jingzhou Site): SS, BOD, Petroleum, TP, Volatile Phenol, once a month.Noise (Jingzhou Site): once a quarter.The Company holds various permits and licenses, such as business licenses, toxic permits, air emission permits and permits todischarge into the sea. To the best of the Company's knowledge, the Company’s environmental permits and licenses are currentlyvalid and in force. The Company continually examines the implications of the environmental laws, taking actions to prevent ormitigate the environmental risks and to reduce the environmental effects that may result from its activities, and investing extensiveresources to fulfill those legal provisions that are, and are anticipated to, affect it. The Company’s plants are subject to atmosphericemissions regulations, whether by virtue of the stipulations provided in the business licenses or under the applicable law. Hazardousmaterials are stored and utilized in the Company's plants, together with infrastructures and facilities containing fuels and hazardous
ADAMA Ltd. Annual Report 2018
materials. The Company takes actions to prevent soil and water pollution by these materials and treats them, if revealed. TheCompany’s plants conduct various soil surveys, risk surveys and tests with regard to treatment of the soil or ground water at theplants.The Company intends to continue investing in environmental protection, to the extent required and beyond this, whether on its ownvolition or in compliance with contractual commitments, regulatory or legal standards relating to environmental protection, so as torealize its best available policy and comply with any legal requirements.The Group’s subsidiary in Brazil, invests in safety and ecological facilities in its two plants, further conducting independentenvironmental tests for the ensuring of its compliance with its licenses, tests of the surrounding underground water sources andmonitoring atmospheric emissions by means of advanced technologies. Periodic testing of the atmospheric emissions and watersources are performed to prove that the requirements set forth by the state Ministry of Environment in Brazil are met. As part of itspolicy of ecological process improvement, the Company also invests in remediation, changes in production processes, establishmentof sewage facilities, as well as in byproduct storage and recycling.(5) Other environmental information that should be disclosedNo.(6) Other environmental informationAt the end of January 2019, preceding the Spring Festival, the Company voluntarily suspended operations at Sanonda’s old site inJingzhou, which is in the process of being relocated to a nearby advanced site, due to recording of higher than permitted levels ofwastewater compounds. The Company was subsequently instructed by the local government not to resume operations beforerectification. The Company is working to rectify the discharge levels and resume operations at the old site as soon as possible. Fordetails, please see the announcement published on www.cninfo.com.cn on February 13, 2019.In recent years, the Company hasalready invested $125 million in the relocation of the Jingzhou old site, and has installed advanced production and environmentalfacilities at a new and already operational site, including an investment of $16 million in a new, state-of-the-art wastewater facility,which is ready to commence operation.According to the rectification plan underway, the Company began commissioning of the new wastewater treatment facility at the newsite, which will also serve the old site, and expects to commence gradual resumption of operations at the old site around the end ofMarch.Notwithstanding that the old site only produces a small number of products for the group, and the fact that ADAMA has significantproduction and procurement capabilities elsewhere in China and worldwide ,the suspension is expected to have a negative impact onthe Company’s performance, mostly in the first and second quarters of 2019.
XIX. Other significant events
□ Applicable √ Not applicable
XX. Significant events of subsidiaries
□ Applicable √ Not applicablePlease refer to the Syngenta Transaction, mentioned in Section IV. – VI 1. above.It shall be further noted that in January 2019, Solutions acquired Bonide Products Inc., a US provider of pest-control solutions for theconsumer Home & Garden use, allowing Solutions to bring its advanced technologies and differentiated portfolio of pest-controldirectly to the consumers.
ADAMA Ltd. Annual Report 2018
Section VI. Change in Shares & Shareholders
I. Changes in shares
Unit: share
Before the change Increase/decrease (+/-) After the changeAmount Proportion
Newly issue
share
| Newly issue | Bonus |
shares
Capitalization
of publicreserves
Other Subtotal
Capitalization
Amount Proportion
I. Restricted
shares
1,930,596,116
82.44%
104,697,982
-119,708,577
-15,010,595
1,915,585,521
78.30%
2.State-ownedlegal person’s
shares
1,930,570,241
82.44%
67,114,092
-119,687,202
-52,573,110
1,877,997,131
76.76%
3. Shares held
by domestic
investors
25,875 0.00%
37,583,890
-21,375 37,562,515
37,588,390
1.54%
Shares held by
domestic
Shares held bylegal
person
37,583,890
| legal |
37,583,890
37,583,890
1.54%
Shares held by
domesticnatural person
Shares held by
25,875 0.00%
-21,375 -21,375 4,500 0.00%
II. Shares not
subject to
tradingmoratorium
411,259,484
17.56%
119,708,577
119,708,577
530,968,061
21.70%
1. RMB
ordinary
shares
244,210,143
10.43%
119,708,577
119,708,577
363,918,720
14.87%
2.Domesticallylisted foreign
shares
167,049,341
7.13%
167,049,341
6.83%
III. Total
shares
2,341,855,600
100.00%
104,697,982
104,697,982
2,446,553,582
100.00%
Reason for the change in shares√ Applicable □ Not applicableThe listing date of the newly-issued 104,697,982 shares in the non-public offering was January 17, 2018. The total amount of theshares of the Company listed was 2,446,553,582.Approval of the change in shares√ Applicable □ Not applicable
ADAMA Ltd. Annual Report 2018
On July 3, 2017, the Company received the Approval on Issuing Shares by ADAMA Ltd. to China National AgrochemicalCorporation for Acquiring Assets and Raising Supporting Funds (CSRC license No. [2017]1096). CSRC approved the issuance of theabove new shares.The registered status for the change in shares√ Applicable □ Not applicableShenzhen Branch of China Securities Depository and Clearing Corporation Limited accepted the registration application of thenon-public issuance of shares on January 4, 2018, and issued an Acceptance Confirmation Letter on Share Registration Application.The Company has completed the registration of the additional 104,697,982 shares.
Status of share buyback□Applicable √Not applicable
Status of share buyback in the way of centralized bidding□Applicable √Not applicable
Effects of the change in shares on the basic EPS, diluted EPS, net assets per share attributable to common shareholders of theCompany and other financial indexes over the last year and last period.□ Applicable √ Not applicable
Other contents that the Company considered necessary or were required by the securities regulatory authorities to disclose□ Applicable √ Not applicable
2. Changes in restricted shares
√ Applicable □ Not applicable
Shareholders Restricted
shares at theopening of thereportingperiod
Sharesreleased inthe reportingperiod
Restrictedsharesincreased inthe reportingperiod
Ending sharesrestricted
Restricted reasons Date for
released
China StructuralReform Fund Co.,Ltd.
0 0 33,557,046 33,557,046
Committed not totrade
Jan 21, 2019Industrial Bank Co.,Ltd, MixedSecuritiesInvestment Fund,Xingquan NewVision Investment
0 0 4,026,800 4,026,800
Committed not totrade
Jan 21, 2019
Industrial Bank Co.,Ltd, MixedSecuritiesInvestment Fund,
0 0 8,053,736 8,053,736
Committed not totrade
Jan 21, 2019
ADAMA Ltd. Annual Report 2018
Shareholders Restricted
shares at theopening of thereportingperiod
Sharesreleased inthe reportingperiod
Restrictedsharesincreased inthe reportingperiod
Ending sharesrestricted
Restricted reasons Date for
released
Aegon-IndustrialTrend Investment(LOF)CCBPrincipal-ICBC-AvicTrust, Trust Plan ofPooled Funds ofCCB PrincipalPrivate PlacementInvestment, Tianqi
(2016) No. 293 of
Avic Trust
0 0 12,885,906 12,885,906
Committed not totrade
Jan 21, 2019
Caitong FundXiangyun No.2Asset ManagementPlan
0 0 536,912 536,912
Committed not totrade
Jan 21, 2019
Caitong FundFuchun ChuangyiPrivate PlacementNo.3 AssetManagement Plan
0 4,697,986 4,697,986
Committed not totrade
Jan 21, 2019
PenghuaFund-CCB-ChinaLife Insurance,Private PlacementPortfolio of PenghuaFund ManagementCo., Ltd Entrustedby China LifeInsurance (Group)Company
0 0 4,697,990 4,697,990
Committed not totrade
Jan 21, 2019
PenghuaFund-PinganBank—HuarunShenguotouTrust-Huren SingleTrust
0 0 2,684,560 2,684,560
Committed not totrade
Jan 21, 2019
China Cinda AssetManagement Co.,Ltd.
0 0 33,557,046 33,557,046
Committed not totrade
Jan 21, 2019China NationalAgrochemical Co.,Ltd.
1,810,883,039
0 0 1,810,883,039
Committed not totrade
August 2,
2020Jiang Chenggang
4,500 0 0 4,500
Shares held by asupervisor should be
six months
after the
ADAMA Ltd. Annual Report 2018
Shareholders Restricted
shares at theopening of thereportingperiod
Sharesreleased inthe reportingperiod
Restrictedsharesincreased inthe reportingperiod
Ending sharesrestricted
Restricted reasons Date for
released
locked up. expiration of
the termJingzhou SanondaHolding Co., Ltd.
119,687,202 119,687,202 0 0
Committed not totrade
August 2,
2018Liu Zhiming
21,375 21,375 0 0
Expiration of thelocked up sharesheld by a S formersenior management.
October 29,
2018Total 1,930,596,116 119,708,577 104,697,982 1,915,585,521
-- --
II. Issuance and listing of securities
1. Issuance of securities (excluding preferred stock) in reporting period
√ Applicable □ Not applicable
Name of stock and
derivativesecurities
Issue date
Issue price (orinterest rate)
Number of issue
| Name of stock and | ||
Date of listing
Number ofpermitted listed
transactions
Date of termination of
the transactionStockADAMA A January 17, 2018
Date of termination of
RMB 14.9 per
share
104,697,982 January 17, 2018
104,697,982 --Switching Company bonds, the separation transaction of switching company bonds, corporate bondsOther derivative securitiesDescription of the issue of securities in the reporting period (excluding preferred shares)According to the Approval on Issuing Shares by ADAMA Ltd. to China National Agrochemical Corporation for Acquiring Assets andRaising Supporting Funds (CSRC license No. [2017]1096), the Company non-publicly issued 104,697,982 shares to the six investors:
China Cinda Asset Management Co., Ltd., CCB Principal Asset Management Co. Ltd., Aegon-industrial Fund Management Co., Ltd.,Penghua Fund Management Co., Ltd., China Structural Reform Fund Co., Ltd. and Caitong Fund Management Co., Ltd. The listingdate is January 17, 2018 and the locking period of such shares is twelve months as of the listing date.
2. Explanation on changes in share capital & the structure of shareholders, the structure of assets andliabilities
√ Applicable □ Not applicableAs stated above, during the reporting period, the Company issued 104,697,982 restricted shares (such issuance was recorded in the2017 Financial Statements). By the end of the reporting period, the total amount of the shares of the Company is 2,446,553,582.On December 31, 2018, the Company’s asset-liability ratio was 48%, down by 4.6% compared with the asset-liability ratio at the endof 2017 which was 52.6%.
ADAMA Ltd. Annual Report 2018
3. Existent shares held by internal staffs of the Company
□ Applicable √ Not applicable
III. Particulars about the shareholders and actual controller
1. Total number of shareholders and their shareholding
Unit: shareTotal number ofshareholders
the end of thereporting period
as of
52,800 (thenumber ofordinary A
share
shareholders
is 36,612;
| shareholders | |
the numberof B share
is 16,188)
| shareholders | |
Total number ofshareholders on the
30th trading day
date of the annual
report
52,724
before the disclosure
Total number of preferred
stockholder with voteright restored (if any)
Total number ofpreferred stockholder
with vote rightrestored on the 30th
trading day before the
disclosure date of the
annual report
Shareholding of shareholders holding more than 5% sharesName ofshareholder
Nature ofshareholder
trading day before the
Holding
percentage
(%)
Number ofshareholdingat the end ofthe reporting
period
Increase anddecrease ofshares during
reporting
period
Number ofshares heldsubject to
tradingmoratorium
percentage
Number ofshares held
not subject to
tradingmoratorium
not subject to
Pledged or frozen
sharesStatus of
shares
Amount
China NationalAgrochemical Co.,Ltd.
State-ownedlegal person
74.02%
1,810,883,039
-
1,810,883,039
- - -Jingzhou SanondaHolding Co., Ltd.
State-ownedlegal person
4.89% 119,687,202
- - 119,687,202
- -China Cinda AssetManagement Co.,Ltd.
State-ownedlegal person
1.37% 33,557,046
33,557,046
33,557,046
- - -China StructuralReform Fund Co.,Ltd.
State-ownedlegal person
1.37% 33,557,046
33,557,046
33,557,046
- - -CCBPrincipal-ICBC-Av
ic Trust, Trust Plan
of Pooled Funds ofCCB PrincipalPrivate PlacementInvestment, Tianqi
(2016) No. 293 of
Avic Trust
Others 0.53% 12,885,906
ic Trust, Trust Plan
12,885,906
12,885,906
- - -
ADAMA Ltd. Annual Report 2018
Industrial BankCo., Ltd, MixedSecuritiesInvestment Fund,Aegon-IndustrialTrend Investment(LOF)
Others 0.33% 8,053,736 8,053,736 8,053,736 -- -- --
Portfolio No.503of National SocialSecurity Fund
Others 0.25% 6,199,921 6,199,921 -- 6,199,921
-- --Jiang Yun
Domesticindividual
0.24% 5,920,073 5,920,073 -- 5,920,073
-- --GUOTAI JUNANSECURITIES(HONGKONG)LIMITED
Foreigncorporation
0.20% 4,914,144 387,899 - 4,914,144
-- --PenghuaFund-CCB-ChinaLife Insurance,Private PlacementPortfolio ofPenghua FundManagement Co.,Ltd Entrusted byChina LifeInsurance (Group)Company
Others 0.19% 4,697,990 4,697,990 4,697,990 -- -- --
Strategic investors or the generallegal person due to the placementof new shares become the top 10shareholders (if any)
Not applicable
Explanation on associated
relationship or/and persons
Jingzhou Sanonda Holdings Co., Ltd. and CNAC are related parties, and are acting-in-
Explanation on associatedconcert
concertparties as prescribed in the Administrative Methods for Acquisition of Listed Companies.
Sanonda Holding is a wholly-
parties as prescribed in the Administrative Methods for Acquisition of Listed Companies.controlled subsidiary of CNAC. It is unknown whether the other
shareholders are related parties or acting-in-
controlled subsidiary of CNAC. It is unknown whether the otherconcert parties as prescribed in the Administrative
Methods for Acquisition of Listed Companies.Particulars about shares held by top 10 shareholders not subject to trading moratoriumName of shareholder
Number of shares held not subject to trading moratorium at the
end of the period
Type of shareType of share
concert parties as prescribed in the Administrative
Amount
Jingzhou Sanonda Holding Co.,Ltd.
119,687,202
RMB ordinary
share
119,687,202
ADAMA Ltd. Annual Report 2018
National Social Security FundPortfolio 503
6,199,921
RMB ordinary
share
6,199,921
Jiang Yun 5,920,073
RMB ordinary
share
5,920,073
GUOTAI JUNANSECURITIES(HONGKONG)LIMITED
4,914,144
Domesticallylisted foreign
share
4,914,144
Qichun County State-ownedAssets Administration
4,169,266
RMB ordinary
share
4,169,266
Wu Feng 3,412,337
RMB ordinary
share
3,412,337
Industrial and Commercial Bankof China, Southern Big Data 100Index
Securities Investment Fund
2,633,000
RMB ordinary
share
2,633,000
Securities Investment Fund
Agricultural Bank ofChina-BOCOM SchroderAdvanced Manufacturing MixedSecurities Investment Fund
2,505,317
RMB ordinary
share
2,505,317
Xie Qingjun 2,500,000
Domesticallylisted foreign
share
2,500,000
National Social Security FundPortfolio 412
2,119,212
RMB ordinary
share
2,119,212
Explanation on associatedrelationship among the top tenshareholders of tradable share notsubject to trading moratorium, aswell as among the top tenshareholders of tradable share not
subject to trading moratorium and
top ten shareholders, orexplanation on acting-in-concert
subject to trading moratorium and
Qichun County Administration of State-
Owned Assets held shares of the Company on behalf of
Owned Assets held shares of the Company on behalf ofthe government. It is unknown whether the other shareholders are related parties or
acting-in-
the government. It is unknown whether the other shareholders are related parties orconcert parties as prescribed in the Administrative Methods for Acquisition of Listed
Companies.
Particular about shareholderparticipate in the securitieslending and borrowing business( if any)
Shareholder Wu Feng held 1,207,726
concert parties as prescribed in the Administrative Methods for Acquisition of Listedshares of the Company through a credit collateral
securities trading account and held 2,204,611 shares of the Company thr
shares of the Company through a credit collateralough a common
securities account, who thus held 3,412,337shares of the Company in total.Did any top 10 common shareholders or the top 10 common shareholders not subject to trading moratorium of the Company carryout an agreed buy-back in the reporting period?□ Yes √ NoThe top 10 common shareholders or the top 10 common shareholders of the Company did not subject to trading moratorium of theCompany carry out an agreed buy-back in the reporting period
ADAMA Ltd. Annual Report 2018
2. Particulars about the controlling shareholder
Nature of controlling shareholder: The central state-ownedType of controlling shareholder: legal person
Name of controlling
shareholder
Legal representative /
company principal
Date ofestablishment
Organization code Business scope
China NationalAgrochemical Co.,
Ltd.
Chen Hongbo Jan 21, 1992
91110000100011399Y
Agricultural chemicals and chemicalproducts and chemical raw materials(except hazardous chemicals),electromechanical device, electricalequipment, control system,instrumentation, building materials,industrial salt, natural rubber and products,computer hardware and software, officeautomation equipment and textile materialspurchasing and marketing; Chemicalfertilizer sales; Storage of goods; Importand export business; Technical consultationand technical service; Technologydevelopment and technical testing;Production of genetically modified cropseeds (except for the six regions of BeijingCentral City); Sale of crop seeds, grassseeds, edible fungi seeds (the enterpriseindependently selects and operates theproject and carries out business activities;Projects subject to approval in accordancewith the law shall conduct businessactivities in accordance with the approvedcontent after approval by relevantdepartments; It shall not engage in thebusiness activities of the municipalindustrial policy prohibiting or restrictingsuch projects.Shares held by thecontrollingshareholder in otherlisted companies byholding orshareholding duringthe reporting period
By the end of the reporting period, CNAC held indirectly 46.25% equity shares of
Cangzhou Dahua Co.
Ltd. through Cangzhou Dahua Group Co. Ltd.
Cangzhou Dahua Co.According to the announcement of Cangzhou Dahua Co. Ltd.
dated January 23, 2019 (announcement number 2019-1), the State-
According to the announcement of Cangzhou Dahua Co. Ltd.owned Assets Supervision and
owned Assets Supervision andAdministration Commission of the State Council approved the transfer of all share equity of Cangzhou
Dahua Group Co. Ltd. held by CNAC to Nanjing Jinpudongyu Investment Co., Ltd.Change of the controlling shareholder during the reporting period□Applicable √Not applicable
3. Particulars about actual controller and the persons acting in concert
Nature of actual controller: State-owned Assets Supervision and Administration CommissionType of actual controller: Legal person
ADAMA Ltd. Annual Report 2018
Name of the actual controller
Legalrepresentative /
companyprincipal
Date ofestablishment
Organization code Business scopeState-owned Assets Supervision
and Administration Commission
of the State Council
- 16 Mar. 2003 - -Shares held by the actualcontroller in other listedcompanies by holding orshareholding during thereporting period
Not applicableChange of the actual controller during the reporting period□ Applicable √ Not applicableThe actual controller did not change during the reporting period
Block diagram of equity and control relationship between the Company and actual controller:
The actual controller controls the Company via trust or other ways of asset management□ Applicable √ Not applicable
State-owned Assets Supervision and Administration Commission of the State Council
and Administration Commission
China National Agrochemical Co., Ltd.
ADAMA Agriculture Solutions Ltd.
ADAMA Ltd.Jingzhou Sanonda Holdings Co., Ltd.
CNAC International Company Limited
100%China National Chemical Co., Ltd.
100%
100%
100%
100%
74.02%
4.89%
ADAMA Ltd. Annual Report 2018
4. Particulars about other corporate shareholders with shareholding proportion over 10%
□ Applicable √ Not applicable
5. Particulars about restriction of reducing holding-shares of controlling shareholders, actual controller,restructuring parties and other commitment entities
□ Applicable √ Not applicable
ADAMA Ltd. Annual Report 2018
Section VII. Preferred stock
□ Applicable √ Not applicableThere was no preferred stock during reporting period.
ADAMA Ltd. Annual Report 2018
Section VIII. Directors, Members of the Supervisory Board, Senior
Management Staff & Employees
I. Changes in shareholding of directors, supervisors and senior executives
Name Position
OfficeStatus
Gender
Age
date ofoffice term
Beginning
Endingdate ofofficeterm
Sharesheld at theyear-begin
(share)
Amountof sharesincreased
at thereporting
period
(share)
Amount of
sharesdecreased
at thereporting
period
(share)
Otherchangesincrease/de
crease
Sharesheld at the
Amount of
end of the
reporting
period
(share)
YangXingqiang
Chairman of
the BOD
Chairman of
In Office
Male
Sep 29,
2017
0 0 0 0 0ChenLichtenstein
Director,President &
CEO
In Office
Male
Sep 29,
2017
0 0 0 0 0An Liru Director
In Office
Male
Apr 29,
2015
0 0 0 0 0TangYunwei
Independent
Director
In Office
Male
Dec 25,
2017
0 0 0 0 0Xi Zhen
Independent
Director
In Office
Male
Dec 25,
2017
0 0 0 0 0AviramLahav
ChiefFinancial
Officer
In Office
Male
Sep 29,
2017
0 0 0 0 0MichalArlosoroff
General
LegalCounsel
In Office
Female
Sep 29,
2017
0 0 0 0 0JiangChenggang
Chairman of
theSupervisory
Board
In Office
| Chairman of |
Male
Jan 6,2013
6,000 0 0 0 6,000
Li Dejun
Member of
theSupervisory
Board
In Office
Male
March 19,
2018
0 0 0 0 0
Guo Zhi
Member of
theSupervisory
Board
In Office
Male
March 19,
2018
0 0 0 0 0
ADAMA Ltd. Annual Report 2018
Name Position
OfficeStatus
Gender
Age
date ofoffice term
Beginning
Endingdate ofofficeterm
Sharesheld at theyear-begin
(share)
Amountof sharesincreased
at thereporting
period
(share)
Amount of
sharesdecreased
at thereporting
period
(share)
Otherchangesincrease/de
crease
Sharesheld at the
Amount of
end of the
reporting
period
(share)
Li Zhongxi
Secretary of
the BOD
In Office
Male
Feb 9,2000
0 0 0 0 0Ren Jianxin
Director
Demission
Male
Sep 29,
2017
July25,2018
0 0 0 0 0NingGaoning
Director
Demission
Male
Sep 12,
2018
Dec 9,2018
0 0 0 0 0Fu Liping Supervisor
Demission
Male
Jan 6,2013
March
19,2018
0 0 0 0 0DingShaojun
Supervisor
Demission
Male
Jan 24,
2013
March
19,2018
0 0 0 0 0DongChunji
Supervisor
Demission
Male
Apr 29,
2015
March
19,2018
0 0 0 0 0Xu Yan Supervisor
Demission
Female
Apr 29,
2015
March
19,2018
0 0 0 0 0Total -- -- --
-- -- 6,000 0 0 0 6,000
II. Particulars about changes of Directors, Supervisors and Senior Executives
Name Position Type Date ReasonRen Jianxin Director Left the position July 25, 2018 Voluntary demissionNing Gaoning Director Left the position Dec 9, 2018 Voluntary demissionFu Liping Supervisor
Term of office expired March 19, 2018 Term of office expiredDing Shaojun Supervisor
Term of office expired March 19, 2018 Term of office expiredDong Chunji Supervisor
Term of office expired March 19, 2018 Term of office expiredXu Yan Supervisor
Term of office expired March 19, 2018 Term of office expired
ADAMA Ltd. Annual Report 2018
III. Resumes of important personnel
Main working experience of current directors, supervisors and senior management staff
Mr. Yang Xingqiang, serves as the Chairman of the Board of Directors of the Company. He holds a Bachelor Degree, seniorengineer at professor grade. Mr. Yang used to be the General Manager of Blue Star Cleaning Agent Co., Ltd., the General Managerand Party Secretary of China National Blue Star Group, the Deputy General Manager of China National Chemical Co., Ltd., theChairman of the BOD of China National Agrochemical Co., Ltd. Currently, Mr. Yang is also the General Manger and Deputy PartySecretary of China National Chemical Co., Ltd. and the Chairman of the Board of Directors of Solutions.
Mr. Chen Lichtenstein, Israeli, serves as the President & Chief Executive Officer and as a Director of the Company. He holds jointdoctoral degrees from Stanford University's Graduate School of Business and School of Law. He used to be the clerk of Israeli HighCourt, the lawyer of Yigal Arnon & Co. Law Firm, the Executive Director of Investment Banking at Goldman Sachs in New Yorkand London, the Deputy CEO of Solutions, the President and CEO of China National Agrochemical Co., Ltd. Currently, Mr.Lichtensetin is also a Director and the President and Chief Executive Officer of Solutions.
Mr. An Liru, serves as a Director of the Company. He holds a master degree of chemical engineering and MBA, senior engineering,senior economist. He used to be the Assistant of General Manager, Vice General Manager, General Manager, Deputy Party Secretaryof Jiangsu Anpon Electrochemical Co., Ltd., Chairman of Directors, Party Secretary of Jiangsu Huaihe Chemicals Co., Ltd.,Executive Director and CEO of Jiangsu Maidao Agrochemical Co., Ltd., the Chairman of the Board of Directors of the Company,Chairman of Directors and Party Secretary of China National Agrochemical Co., Ltd. Currently, he serves also as a Director and theSenior Vice President of Solutions, Executive Director of Jiangsu Anpon Electrochemical Co., Ltd., Director and General Manager ofAdama (China) Investment Co., Ltd., Chairman of Directors of Adama (Beijing) Agricultural Technology Co., Ltd., Chairman ofDirectors of Adama Agrochemical (Jiangsu) Co., Ltd., Executive Director and General Manager of Jingzhou Hongxiang ChemicalCo., Ltd.
Mr. Tang Yunwei, serves as an independent director of the Company. He holds a professor degree, a doctor of economics degree,and he is an honorary member of Association of Chartered Certified Accountants, and is a Returned Overseas Student withOutstanding Contribution to Socialist Modernization Construction which was awarded by the State Education Commission andMinistry of Personnel. He had successively served as the associate professor and professor of Shanghai University of Finance andEconomics (SUFE), the Executive Vice President of the SUFE, and the President of SUFE. He used to be a member of AuditingStandards Committee of Chinese Institute of Certified Public Accountants, the legal representative of Accounting Society ofShanghai, and the partner of Ernst & Young. Mr. Tang has been a member of Accounting Standard Committee of Ministry of Financeof the PRC since October 1998. Mr. Tang is the independent director of Universal Scientific Industrial (Shanghai) Co., Ltd.
Mr. Xi Zhen, serves as an independent director of the Company. He holds a professor degree and a doctor of Bioorganic Chemistrydegree. Mr. Xi was Assistant Professor in Hubei Medical School which is currently the Wuhan University School of Medicine from1983 to 1985, was Engineer in Beijing Institute of Chemical Reagents from 1988 to 1990, was a Research Associate in Departmentof Biological Chemistry and Molecular Pharmacology of Harvard Medical School from 1997 to 2001. Mr. Xi is currently CheungKong Scholar of Pesticide Science of the Ministry of Education of the PRC, Chairman of Department of Chemical Biology, Professorof Chemistry and Chemical Biology, Fellow of the University Committee of Nankai University in China, and Director of NationalPesticide Engineering Research Center (Tianjin). Mr. Xi is also a Committee Member of Chinese Chemical Society and DeputyDirector of its Division of Chemical Biology, Deputy Director of the Pesticide Science Division of Chinese Chemical Industry andEngineering Society, and a Committee Member of Chinese Society for Crop Protection. In addition, he is a director of Suzhou Ribo
ADAMA Ltd. Annual Report 2018
Life Science Co., Ltd.
Mr. Aviram Lahav, Israeli, serves as the Chief Financial Officer of the Company. Mr. Lahav also serves as Executive Vice Presidentand Chief Financial Officer of Solutions. Mr. Lahav holds a Practical Engineering Degree in Mechanical Engineering from Tel AvivUniversity, Israel. Mr. Lahav has also a BA in Economics and Finance from the Hebrew University in Jerusalem, Israel and graduatedfrom the Advanced Management Program at Harvard Business School. Before joining the Group, Mr. Lahav served as CEO ofSynergy Cables, a publicly traded manufacturing company. He had also served as CFO, COO and eventually CEO of Delta GalilIndustries (Israel). In 2000, he was awarded the title of “Israel’s CFO of the Year”.
Ms. Michal Arlosoroff, Israeli, serves as the Company’s General Legal Counsel. Ms. Arlosoroff also serves as Senior Vice President,General Legal Counsel, Company Secretary and CSR Officer of Solutions. Ms. Arlosoroff holds an LL.B. as well as a B.A. inPolitical Science and Labor Relations (cum laude) from Tel Aviv University, Israel. Ms. Arlosoroff also graduated from the AdvancedManagement Program at Harvard Business School. Prior to joining the Group, Ms. Arlosoroff served for 22 years as full Partner andGeneral Manager of the Tel Aviv branch at E.S. Shimron, I. Molho, Persky & Co., one of the most prominent, respected andestablished law firms in Israel.
Mr. Jiang Chenggang, serves as the Chairman of the Supervisory Board of the Company. He served as a Deputy Director of theOffice and Deputy Secretaries of the Discipline Inspection Commission of the Company from Jun. 2006 to Jun. 2012; acted as theChairman of the Labor Union, Supervisor, Deputy Director of the Office and Deputy Secretaries of the Discipline InspectionCommission of the Company from Jun. 2012 to Dec. 2012; has been acting as the Deputy Party Committee Secretary of JingzhouSanonda Holdings Co., Ltd. and the Chief of the Company’s Party Committee Work Department since January 2017; and he has beenthe Chairman of the Labor Union, Supervisor and Secretaries of the Discipline Inspection Commission of the Company since Jan.2013.
Mr. Li Dejun, serves as a member of the Supervisory Board of the Company. Mr. Li holds a Doctor degree. He successively acted asChief Officer, Deputy Chief, Chief of CCNU and Research Institute of Wuhan Province Commission for Restructuring EconomicSystem and Editor in Chief of Overview of Private Economy, Secretary General of Research Institute of Hubei Province Commissionfor Restructuring Economic System and Hubei Province Culture and Economy Research Society, Chief of Hubei Regional EconomicDevelopment Research Center as well as Independent Director of J.S. Machine, Angel Yeast. From Jul. 2010 to December 2017, hewas an independent director of the Company.
Mr. Guo Zhi, serves as a member of the Supervisory Board Supervisor of the Company. He is the China Legal Counsel of ADAMA(China) Investment Co., Ltd. Mr. Guo got his Master of Laws severally from Peking University and Melbourne University. From2004 to 2017, he practiced law in Commerce & Finance Law Offices (“C&F”) and had been a partner of C&F for eight years. Hispracticing area covers IPO, M&A, and Foreign Investment.
Mr. Li Zhongxi, he has been the Secretary to the Board of Directors since Feb. 2000.
ADAMA Ltd. Annual Report 2018
Positions in shareholder units√ Applicable □ Not applicable
Name of theperson holdingany post in any
shareholder
unit
Name of the shareholder unit
Position in theshareholder unit
Beginning dateof office term
Ending date of
office term
Receives payment
from theshareholder unit?
YangXingqiang
ChemChina
GM,
Deputy Party
Secretary
January 2015
| Deputy Party | ||
YesAn Liru
Jiangsu Anpon Electrochemical Co.,Ltd.
Executive director
April 2015 NoJiangChenggang
Jingzhou Sanonda Holdings Co., Ltd.
Deputy PartySecretary
December 2016
No
Positions in other units√ Applicable □ Not applicable
Name of theperson holdingany post in anyshareholder unit
Name of other unit Position in other unit
Beginning dateof office term
Ending date of
office term
from the other
unit?Yang Xingqiang
Receives payment
SolutionsChairman of the BOD
April 2017
NoYang Xingqiang
Pirelli & C. S.p.A Director November 2015
NoYang Xingqiang
Information Morning Post Legal Representative
February 2005
NoChenLichtenstein
Solutions President & CEO October 2017
YesAn Liru Solutions Director February 2014
YesAn Liru Solutions
Head of ChinaCluster
September 2017
YesAn Liru
Jiangsu Anpon Electrochemical Co.,
Ltd.
Executive Director
April 2015
NoAn Liru
Adama (China) Investment Co., Ltd.
Jiangsu Anpon Electrochemical Co.,
Director and GeneralManager
November 2018
NoAn Liru Adama (Beijing) Agricultural
Technology Co., Ltd.
Chairman ofDirectors
November 2018
NoAn Liru
Adama Agrochemical (Jiangsu) Co.,
Ltd.
Chairman ofDirectors
June 2017
NoAn Liru Jingzhou Hongxiang Chemical Co.,
Ltd.
Executive Directorand General Manager
Adama Agrochemical (Jiangsu) Co.,
December 2017
NoAviram Lahav
Solutions EVP & CFO October 2017
YesMichalArlosoroff
Solutions
SVP, GeneralCounsel, Company
October 2017
Yes
ADAMA Ltd. Annual Report 2018
Name of theperson holdingany post in anyshareholder unit
Name of other unit Position in other unit
Beginning dateof office term
Ending date of
office term
from the other
unit?Secretary & CSROfficerTang Yunwei Universal Scientific Industrial
(Shanghai) Co., Ltd.
Independent Director
Receives payment
April 2017 YesXi Zhen
Nankai University
Professor, Chairmanof Department ofChemical Biology,Fellow of theUniversity Committee
August 2002 YesXi Zhen National Agrochemical Engineering
Research Center (Tianjin)
Director May 2014 NoXi Zhen Division of Chemical Biology of
Chinese Chemical Society
Deputy Director January 2015 NoXi Zhen Agrochemical Science Division of
Chinese Chemical Industry andEngineering Society
Deputy Director November 2014
NoXi Zhen Suzhou Ribo Life Science Co., Ltd.
Director January 2007 YesLi Dejun The Economic System Reform
Institute of Hubei Province
Secretary General December 2009
NoLi Dejun Angel Yeast Co., Ltd. Independent Director
April 2013 YesLi Dejun J.S. Machine Independent Director
October 2016
Yes
Particulars about the Company's current directors, supervisors and senior punishments from Securities Regulatory Institution ofrecent three years in reporting period□ Applicable √ Not applicable
IV. Remuneration for directors, supervisors and senior management
Decision-making procedures, basis for determination and actual payment of the remuneration to directors, supervisors and seniorexecutivesRemunerations are decided by the authorized organs of the Company according to the Remuneration Policy. In addition, globalprofessional benchmarks, implementations of performance at the Company level, and the actual performance of the respective personare also taken into account in the resolutions regarding remunerations.Independent directors are entitled to receive annual allowance and would not receive salary by the Company.Internal supervisors, who are full-time employees of the Company (or any of its subsidiaries), will be entitled to receive aremuneration set for their posts and will not be entitled to any additional remuneration for serving as supervisors.External supervisors, who are not employees of the Company (or any of its subsidiaries), will be entitled to receive annual allowanceand would not receive salary by the Company.
ADAMA Ltd. Annual Report 2018
Remuneration of the directors, supervisors and senior management of the Company during the reporting period is as follow:
Unit RMB’0000Name Position Gender Age Current/Former
Total before-taxremunerationgained from theCompany
Whether gainedremuneration fromthe related partiesof the CompanyYangXingqiang
Chairman of the BOD
Male
Current YesChenLichtenstein
Director, President & CEO
Male
Current
NoAn Liru Director Male 49 Current NoTang Yunwei Independent Director Male 74 Current NoXi Zhen Independent Director Male 55 Current NoAviram Lahav Chief Financial Officer Male 59 Current NoMichalArlosoroff
General Legal Counsel
Female
Current
NoJiangChenggang
Chairman of theSupervisory Board
Male
Current
NoLi Dejun
Member of the SupervisoryBoard
Male
Current
NoGuo Zhi
Member of the SupervisoryBoard
Male
Current
NoLi Zhongxi Secretary of the BOD Male 48 Current NoRen Jianxin Director Male 60 Former YesNing Gaoning Director Male 60 Former YesFu Liping Supervisor Male 53 Former NoDing Shaojun
Supervisor Male 56 Former NoDong Chunji Supervisor Male 50 Former NoXu Yan Supervisor Female
46 Former NoTotal -- -- -- -- 5,044 --
Situations of equity incentives awarded to the directors, supervisors and senior management of the Company during the reportingperiod□ Applicable √ Not applicable
ADAMA Ltd. Annual Report 2018
V. About employees
1. The number of employees and their specialty structure and educational background
The number of on-duty employees in parent company (person) 1,444
The number of on-
duty employees in main subsidiary companies (person)
| duty employees in main subsidiary companies (person) | |
The total number of on-duty employees (person) 1,470
The total number of employees who get salary in the period (person) 1,470
The number of retired employees who need to pay expense in parentcompany and main subsidiary companies (person)
1,787
Specialty classificationSpecialty category NumberProduction personnel 1,189
Sales personnel 9
Technicians 72
Financial personnel 24
Administrative personnel 176
Total 1,470
Education classificationEducation category NumberDoctor 0
Master 13
Bachelor 238
College 380
Others 839
total 1,470
Note: The above table includes information as to the Company only (without Solutions, which as of December 31, 2018 employson-duty 5,214 employees).
2. Employee’s remuneration policy
In 2018, the Company optimized the salary structure of employees. Without increasing labor costs, the Company formed a salarystructure that integrates post salary, quarterly performance bonus and annual performance bonus.At the same time, the Company strengthened the construction of employee performance appraisal system, and established an onlineand offline assessment model. Online assessment is carried out by SF system. Individual goals are set at the beginning of the year. Atthe end of the year, a total of 96 middle and senior managers and backbones enter SF system for online assessment in 2018.Employees who do not participate in online assessment will conduct offline performance assessment. In the future, the Company willgradually achieve full coverage of online assessment.
ADAMA Ltd. Annual Report 2018
3. Employee’s training plan
The Group usually conducts seminars, trainings, exercises and refresh of procedures (including with respect to increasing safetyawareness) to its various employees in its various entities, as needed and/or required under its applicable procedures.
4. Labor outsourcing
√ Applicable □ Not applicableTotal number of hours of service outsourcing (hours) 776,736
Total remuneration paid for service outsourcing (RMB) 23,117,009.63
ADAMA Ltd. Annual Report 2018
Section IX. Corporate Governance
I. Basic details of corporate governance
During the reporting period, the Company continuously improved the awareness of corporate governance and corporate governance structureand perfected the corporate system as well as standardized the operation of the Company, promoted internal control activities, and constantlyimprove the Company's management levels stringently according to requirements of relevant laws and regulations like the Company Law,Securities Law, and Corporate Governance Principle of Listed Company, as well as Rules for Listing Shares in Shenzhen Stock Exchange.During the reporting period, for promoting the corporate governance level, the Company amended the rights of Shareholders, BOD,Chairman of the BOD and President & CEO, and amended the number of supervisors, the Rules of Procedure for Shareholders Meeting, theRules of Procedure for BOD meeting and BOS meeting, the Raised Funds Management Policy. The BOD of the Company also approved theCode of Conduct to serve as a guide to the ethical standards that are expected of all group employees will follow in their daily work.1. About Shareholders and the Shareholders’ meetingDuring the reporting period, the Company has ensured that all shareholders, especially small and medium shareholders, are treated equal andable to fully exercise their rights. It held one annual general meeting of shareholders and three interim shareholders' meetings, during which21 proposals in total were reviewed and approved. Lawyers were invited to attend all the meetings mentioned above for testimony andissuing legal opinions. Online voting has been applied during all above-mentioned meetings to ensure that all shareholders, especially smalland medium shareholders, enjoy equal status and fully exercise their rights. Notices of shareholders' meeting, meeting proposals, discussionprocedures, voting on proposals and information disclosure all meet the requirements. Every major decision of the Company has beendecided by the shareholders' meeting according to laws and regulations with lawyers as the witness to ensure that the right to know, toparticipate and vote on major issues of all shareholders, especially the small and medium shareholders are properly protected.2. About Directors and the Board of DirectorsDuring the reporting period, according to the Articles of Association and the Rules of Procedure of the Board of Directors, the number of theCompany's board members is six, including two independent directors. The number, composition and qualifications of the board of directorsare in compliance with laws and regulations as well as the Articles of Association. All board members are diligent and responsible forattending the board and shareholders’ meetings in accordance with the relevant provisions of the Company Law and the Articles ofAssociation. During the reporting period, the Company held 11 board meetings during which 42 proposals were reviewed. The organizing,convening and formation of resolutions were carried out in accordance with relevant provisions of the Articles of Association and the Rulesof Procedure for the Board of Directors. The Company has established an independent director system in accordance with relevantregulations. Each of the independent directors have expressed independent opinions on important business of the Company during thereporting period. The Company's board of directors consists of one strategy committee, one nomination committee, one audit committee andone remuneration and assessment committee, all of which are functioning with respective implementation rules to ensure the scientific andcompliant decision-making by the board of directors.3. About Supervisors and the Board of SupervisorsAccording to the Articles of Association and the Rules of Procedure of the Board of Supervisors during the reporting period, the board ofsupervisors of the Company consists of three supervisors, including an external one. The number, composition and qualifications are incompliance with laws and regulations as well as the Articles of Association. During the reporting period, eight meetings were held and 22proposals were reviewed. All meetings were organized and convened in accordance with the procedures of the Articles of Association andthe Rules of Procedure for the Board of Supervisors. All supervisors have earnestly performed their duties by reviewing the company'speriodic reports and other matters and issuing verification opinions with a strong sense of responsibilities to the shareholders. All of themhave effectively fulfilled their duties and safeguarded the legitimate rights and interests of the Company and its shareholders4. About Investors’ RelationsThe Company communicates with investors through public announcements, consultations by telephone, interactive platforms, e-mails andother multiple media to enhance opinion exchange. It has been making various efforts on deepening the understanding of investors about theCompany's operation and development outlook and also maintaining good relations with them. Meanwhile, it has been serious to receiveinvestors' opinions and suggestions and encouraged the interaction between investors and itself. During the reporting period, the Companyhas been patient to respond investors by answering calls and questions through all interactive platforms, which has guaranteed a sound andfair access for investors to obtain information.Whether there is any difference between the actual corporate governance situation of the Company and the provisions of the relevant rules ofCSRC or not?□ Yes √ NoThere is no difference between the actual corporate governance situation of the Company and the provisions of the relevant rules of CSRC.
II. Particulars about the Company’s separation from the controlling shareholder in respect ofbusiness, personnel, assets, organization and financial affairs
1. In respect of business: the Company had a complete business system and independent operation. There was no competition between thecontrolling shareholders.2. In the aspect of personnel: The Company and controlling shareholder are mutually independent in the labor, personnel and salarymanagement, the Company CEO and other senior management personnel get the salary in the Company, and not perform administrativework in the controlling shareholder unit.3. In respect of assets: The assets relationship between the Company and the controlling shareholder is clear. The company has complete
ADAMA Ltd. Annual Report 2018
control over all its assets. There is no such thing as a free possession or usage by the controlling shareholder.4. In respect of financing, the Company owned independent financial department, established independent accounting system and financialmanagement system, opened independent bank account, paid tax in line with laws.5. In respect of organization, the Company has set up the organization that was independent from the controlling shareholder completely, theBoard of Directors, the Supervisory Committee and internal organization could operate independently.
III. Horizontal competition
√Applicable □ Not applicableType Name of
ControllingShareholder
Nature ofControllingShareholder
Cause of theproblem
Solutions Work-schedule
and follow-upplanHorizontalcompetition
ChemChina
State-ownedenterprise
The subsidiariescontrolled byChemChina are insimilar or thesame business asthe Company.
ChemChina commits itself to take appropriateactions to solve the horizontal competitionbetween its subsidiaries and the Companystep-by-step in an appropriate way within 4years after completion of the assetsrestructuring, in accordance with securitieslaws, regulations and sector/industrial policies.
Inprocess/performance.
For details, please see III Performance of commitments of Section V of the Annual Report.
IV. Particulars about the annual shareholders’ general meeting and special shareholders’ generalmeetings held during the reporting period
1. Particulars about the shareholders’ general meeting in reporting period
Session Type
Proportion of
investors'participation
Convening date
Disclosure date Index to the disclosed
st
InterimShareholdersMeeting in 2018
Interim ShareholdersMeeting
74.06% March 19, 2018
March 20, 2018
Announcement of the 1
st
Interim Shareholders
Meeting in 2018(AnnouncementNumber:2018-11).Disclosed at the website
CNINFO
www.cninfo.com.cn
2017 AnnualShareholdersMeeting
Annual
Shareholders
Meeting
82.09% June 28, 2018 June 29, 2018
Announcement of the
Annual ShareholdersMeeting (Announcement
Number:2018-35).Disclosed at the website
CNINFO
www.cninfo.com.cn
2nd InterimShareholdersMeeting in 2018
Interim ShareholdersMeeting
74.08%
September 12,
2018
September 13, 2018
Shareholders
Announcement of the 2
nd
Interim Shareholders
Meeting in 2018(Announcement
Number:2018-44).Disclosed at the website
CNINFO
www.cninfo.com.cn
ADAMA Ltd. Annual Report 2018
3rd InterimShareholdersMeeting in 2018
Interim ShareholdersMeeting
74.11%
December 26,
2018
December 27, 2018
Announcement of the 3
rd
Interim Shareholders
Meeting in 2018(AnnouncementNumber:2018-56).Disclosed at the website
CNINFO
www.cninfo.com.cn
2. Special Shareholders’ General Meeting applied by the preferred stockholder with restitution of voting right
□ Applicable √ Not applicable
V. Performance of the Independent Directors
1. Particulars about the independent directors attending the board sessions and the shareholders’ generalmeetings
1. Particulars about the independent directors attending the board sessions and the shareholders’ meetingsIndependent director
Sessions required
to attend during
the reporting
period
On-SiteAttendanc
Sessions requirede
Attendance by
way ofcommunication
e
Entrustedpresence(times)
Absence
rate
Non-
Absenceattendance in
person for twoconsecutive times
attendance in
Attendance to
shareholder
meetingsTang Yunwei 11 11 No 4Xi Zhen 11 11 No 4
2. Particulars about independent directors proposing objection on relevant events
Whether independent directors propose objection on relevant events or not?□ Yes √ NoDuring the reporting period, no independent directors proposed any objection on relevant events of the Company.
3. Other explanations about the duty performance of independent directors
Whether advices to the Company from independent directors were adopted or not√ Yes □ NoExplanation on the advices of independent directors for the Company being adopted or not adoptedDuring the reporting period, the Company independent director according to the Company Law, the Listed Corporate Governance Standards,"Articles of Association" and "Company of the Independent Director System” focused on the Company operation actively, independentlyperform their duties, rendered professional suggestions to the Company's information disclosure and daily management decision-making, etc.issue the independent and impartial advice to the name change of the Company, related transactions, engaging annual auditors, guarantymatters, dividend distribution, accounting policy change, assets write-off, using of the raised funds, remunerations of the senior management,nominations of directors and other events need advice of the independent director, play a proper role in improving the supervision ofcompany safeguard the legitimate rights and interests of the Company and all shareholders. The independent directors especially paidattention to the Company’s operation state, dynamic state of the industry, public opinion and dynamic state report about the Company. Theyactively and effectively performed the duties of independent directors and well maintained overall benefits of the Company and the legalinterests of all shareholders, especially the middle and small shareholders. This played positive functions for normalized, stable and healthydevelopment of the Company.
VI. Performance of the Special Committees under the Board during the reporting period
(I) Performance of the Audit Committee of the Board: According to regulations of CSRC and Shenzhen Stock Exchange, The Annual WorkSystem of Independent Director and Detailed Rules for the Implementation of the Audit Committee of the Board of the Company, and basedon the principle of compliance, the Company enables full and free authorization of the supervisory function during the reporting period. TheAudit Committee carefully reviewed the periodical reports, considered the engaging of the auditors, write-off assets, change of accountingpolicy, guarantee, related party transaction, using of the raised funds, and other relevant events. Through communicating with the auditors,making annual audit plan and participating in and supervising the whole process, smooth annual audit work was guaranteed. The audit
ADAMA Ltd. Annual Report 2018
summary report of audit institution and the suggestions on employing auditors were submitted to board of directors. This fully satisfied thefunction of examination and supervision.(II) Duty performance of the Remuneration & Appraisal Committee under the Board: During the reporting period, the Remuneration &Appraisal Committee of the Company reviewed the remunerations of the senior executives and the remunerations of the independentdirectors. .(III) Duty performance of the Nomination Committee under the Board: During the Reporting Period, the Nomination Committee discussedthe candidates of directors to compose the 8
th
session of the BOD and carefully reviewed the profiles.
VII. Performance of the Supervisory Committee
During the reporting period, the Supervisory Committee found whether there was risk in the Company in the supervisory activity□ Yes √ NoThe Supervisory Committee has no objection on the supervised events during the reporting period.
VIII. Performance Evaluation and Incentive Mechanism for Senior Management Staff
The performance evaluation and incentives of the senior executives of the Company are based on the Remuneration Policy for SeniorExecutives of the Company. The remuneration of senior executives are composed of three parts: (i) base salary; (ii) variable components -medium and short-term incentives which shall include Annual bonuses based on results and contingent upon targets; (iii) long termincentives - Share-based cash reward and/or other long-term incentive in the form of cash. The Remuneration Policy establishes a fair andreasonable performance evaluation and incentives system. It helps to give full play to the talents of the senior executives and promote thelong-term and healthy development of the Company.
IX. Internal Control
1. Particulars about material deficiencies found in the internal control during reporting period
□ Yes √ No
2. Self-assessment report on internal control
Date of disclosure of self-assessmentreport on internal control
March 21, 2019Reference website of self-assessmentreport on internal control
www.cninfo.com.cnTotal Assets of Units within theAssessment Scope Compared to TotalAssets in the Consolidated Statements ofthe Company
70.33%Total Operating Income of Units within theAssessment Scope Compared to TotalOperating Income in the ConsolidatedStatements of the Company
75.34%
Criteria of DeficiencyCategories Internal control over financial reporting Internal control not related to financial reporting
Qualitative criteria
Material Deficiency: Resulting in an adverse opinionor disclaimer of opinion, by a CPA, on theCompany’s financial statements; or resulting in amaterial correction of the Company’s publiclyannounced financial statements.Significant Deficiency: Resulting in a qualifiedopinion, by a CPA, on the Company’s financialstatements; or resulting in an adverse opinion ordisclaimer of opinion, by a CPA, on the Company’s
Material Deficiency:
1) Fraud committed in the Company by any of itsdirectors, supervisors and senior managementpersonnel;2) The Company materially violates material lawsand regulations, resulting in a material effect onthe Company's business;3) Material design deficiencies in the Company'srelevant management system;
ADAMA Ltd. Annual Report 2018
material subsidiaries’ (i.e. Solutions) financialstatements; or resulting in a significant correction ofthe Company’s material subsidiaries’ (i.e. Solutions)publicly announced financial statements.General Deficiency: Resulting in an unqualifiedopinion, with an explanatory paragraph, by a CPA, onthe Company’s financial statements; or resulting in aqualified opinion, or unqualified opinion with anexplanatory paragraph, by a CPA, on the Company’ssubsidiaries’ financial statements.
4) The Company materially violates thedecision-making process thereby causing amaterial negative impact on the Company'sbusiness (generally related to matters that need tobe approved by the shareholders meeting or theboard of directors).5) Material impact to the Company’s reputation.Significant Deficiency:
1) Significant fraud committed by any departmenthead of the Company;2) Significant fraud committed by a head of any ofthe Company’s material subsidiaries;3) The Company violates significant laws andregulations, resulting in significant fines as well asa significant effect on the Company's business;4) Significant design deficiencies found in theCompany's relevant management system; Materialdesign deficiencies are found in the relevantmanagement systems of subsidiaries;5) The Company violates materialdecision-making procedures, resulting in asignificant effect on the Company's business(generally referred to matters subject to seniormanagement's decision);6) Material Subsidiaries violate decision-makingprocess, thereby causing a material negativeimpact on the Company's business (generallyreferred to matters that need to be decided by theshareholders’ meeting or the board of directors).7) Significant impact to the Company’s reputation.
General Deficiency:
1) Fraud committed by any other personnel in theCompany;2) Fraud committed by any other personnel inmaterial subsidiaries;3) The Company materially violates materialinternal regulations or non-materially violatesmaterial laws and regulations, resulting in negativefeedback from regulatory authorities;4) There are other violations of laws andregulations or internal regulations found inmaterial subsidiaries.5) There are general design deficiencies in therelevant management system of the Company;other design deficiencies exist in the relevantmanagement system of the material subsidiaries;6) The Company violates the decision-makingprocess, resulting in a negative impact on theCompany's business;7) Material Subsidiaries violate decision-makingprocess, resulting in a negative impact on the
ADAMA Ltd. Annual Report 2018
Company's business.
Quantitative criteria
Material Deficiency: Misstatement in FinancialReport relates to an amount that is greater than orequal to RMB 100 million.Significant Deficiency: Misstatement in FinancialReport relates to an amount that is greater than orequal to RMB 50 million, but less than RMB 100million.General Deficiency: Resulting in other misstatementrelated amounts.
Material Deficiency: Asset Loss ≥ RMB 150millionSignificant Deficiency: RMB 80 million ≤ AssetLoss < 150 million RMBGeneral Deficiency: Asset Loss < 80 millionRMB
Number of materialdeficiencies in internalcontrol over financialreporting
Number of materialdeficiencies in internalcontrol not related tofinancial reporting
Number of significantdeficiencies in internalcontrol over financialreporting
Number of significantdeficiencies in internalcontrol not related tofinancial reporting
X. Audit report on internal control
√ Applicable □ Not applicable
| A | udit opinion paragraph in the internal control audit report |
Disclosure of internal control audit
| report |
DiscloseDate of disclosure of internal
| control audit report |
March 21, 2019Reference website of internal
| control audit report |
www.cninfo.com.cnT
| ype of audit opinion in the internal | |||
| control audit report | |||
Unqualified opinion.If there is any material deficienciesin internal control not related to
| financial reporting |
No.Does the accounting firm issue non-standard audit opinion on internal control?□ Yes √ NoIs the opinion issued by accounting firm consistent with the opinion in the self-assessment report by the Board?√ Yes □ No
ADAMA Ltd. Annual Report 2018
Section X Corporate Bonds
Are there any corporate bonds publicly offered and listed on the stock exchange, which were undue before the approvaldate of this Report or were due but could not be redeemed in full?
□ Applicable √ Not applicable
ADAMA Ltd. Annual Report 2018
Section XI Financial Report
Auditor’s report
| Type of | auditor | ’ | s opinion | Standard | U | nqualified | O | pinion | |||||||||||||||||||||||||
| A | udit | opinion signoff date | M | arch 19, 2019 | |||||||||||||||||||||||||||||
| Name of the auditor | Deloitte Touche Tohmatsu CPA LLP | ||||||||||||||||||||||||||||||||
| Reference number of the audit report | De Shi Bao (Shen) Zi (19) No P01527 | ||||||||||||||||||||||||||||||||
| Name of CPA | X | u | Y | usun | , | M | a | Renjie | |||||||||||||||||||||||||
ADAMA Ltd. Annual Report 2018
AUDITOR'S REPORT
De Shi Bao (Shen) Zi (19) No P01527
Page 1 of 6To the shareholders of ADAMA Ltd.：
I. Opinion
We have audited the financial statements of ADAMA Ltd. (Former name: Hubei Sanonda Co., Ltd, hereinafter referred to as the"Company), which comprise the consolidated and the Company's balance sheets as at 31 December 2018, and the consolidated and theCompany's income statements, the consolidated and the Company's statements of changes in equity and the consolidated and theCompany's statements of cash flows for the year then ended, and notes to the financial statements.
In our opinion, the accompanying financial statements of the Group present fairly, in all material respects, the consolidated and theCompany's financial position as of 31 December 2018, and the consolidated and the Company's results of operations and cash flows forthe year then ended in accordance with Accounting Standards for Business Enterprises.
II. Basis for Opinion
We conducted our audit in accordance with China Standards on Auditing. Our responsibilities under those standards are furtherdescribed in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of theCompany in accordance with the Code of Ethics for Chinese Certified Public Accountants (the "Code"), and we have fulfilled our otherethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our opinion.
III. Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statementsfor the current year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming ouropinion thereon, and we do not provide a separate opinion on these matters. The followings are key audit matters that we havedetermined to communicate in the auditor's report.
ADAMA Ltd. Annual Report 2018
AUDITOR'S REPORT - continued
De Shi Bao (Shen) Zi (19) No P01527
Page 2 of 6
III. Key Audit Matters - continued
1. Revenue recognition
Description
As stated in Note V, 38 of ADAMA Financial Statements, the revenue of 2018 was RMB25,615,119thousand, which was significant for the consolidated financial statements. ADAMA’s sales revenuemainly contributed by sales of products in about 100 countries all over the world. As stated in Note III,25, the company recognises the revenue when the customer obtains control of the relevantcommodities, and the company has a risk of overstating the revenue by late cutoffs. Therefore, weassessed the appropriateness of cutoffs for revenue recognition and the correctness of accountingperiods for revenue recognition as a key audit matter.
Audit response
Our procedures in relation to revenue recognition mainly included:
1、Evaluating and assessing the design, implementation and operating effectiveness of internal
controls relating to the cut-off of revenue recognition;2、Reviewing the contracts with key clients for the terms and conditions relating to the transfer
of controls of goods and services, and assessing whether the accounting treatments are proper
under timeliness requirements of accounting standards;3、Performing substantive analytic procedures and comparing whether there is abnormal
fluctuation in the sales of the major sales regions in the current period and the previous
period, and analysing whether there is any abnormality in the sales return of the products.4、Performing cut-off test by extracting the sales income ledger, checking the supporting
documents such as sales invoices and inventory transfer documents, and checking whether
the income is recorded in the correct accounting period.
ADAMA Ltd. Annual Report 2018
AUDITOR'S REPORT - continued
De Shi Bao (Shen) Zi (19) No P01527
Page 3 of 6
III. Key Audit Matters - continued
2. Provision for impairment of inventories
Description
As stated in Note V, 7, the carrying amount of inventories net of provisions for impairment of theADAMA Group was RMB9,247,343 thousand as of 31 December 2018, which was significant for theconsolidated financial statements. As disclosed in Note III, 12.3 and 31.2, ADAMA measuresinventories at the lower of cost and net realisable value. Provisions for impairment of inventories aremade when the net realisable values are lower than the carrying amounts. The determination of thenet realisable value of inventories requires management to estimate the expected selling prices of theinventories, the costs to be incurred when they are completed, the sales expenses, and the relatedtaxes and fees, which involved management estimates and judgements.
Audit response
Our procedures in relation to provision for impairment of inventories mainly included:
1、Evaluating and assessing the design, implementation and operating effectiveness of internal
controls relating to the provision for impairment of inventories;2、Evaluating the appropriateness and consistency of the methodology of the impairment test；3、Evaluating the inventory age and turnover conditions, and checking the management's
identification of the damaged and slow moving inventories with the inventory monitoring
procedures；4、Corroborating the key assumptions involved in management's determination of the net
realisable value of inventories, including：
? Testing the actual sales prices of the relevant inventories subsequent to end of the
reporting period on a sample basis;? For work in progress, according to their work progress and the actual costs of the
relevant finished goods, assessing the costs to be incurred, on a sample basis;? Assessing the reasonableness of the estimated sales expenses and the related taxes
and fees on a sample basis based on the historical data of the Group.5、Testing the accuracy of the calculation in provisions for impairment of inventories.
ADAMA Ltd. Annual Report 2018
AUDITOR'S REPORT - continued
De Shi Bao (Shen) Zi (19) No P01527
Page 4 of 6
IV. Other Information
Management of the Company is responsible for the other information. The other information comprises the information included in the2018 annual report, but does not include the financial statements and our auditor's report thereon.
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusionthereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, considerwhether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit orotherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information; we are required toreport that fact. We have nothing to report in this regard.
V. Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management of the Company is responsible for the preparation of the financial statements that give a true and fair view in accordancewith Accounting Standard for Business Enterprises, and for such internal control as management determine is necessary to enable thepreparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concern,disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management eitherintends to liquidate the Company or to ceases operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company's financial reporting process.
VI. Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level ofassurance, but is not a guarantee that an audit conducted in accordance with China Standards on Auditing will always detect a materialmisstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
ADAMA Ltd. Annual Report 2018
AUDITOR'S REPORT - continued
De Shi Bao (Shen) Zi (19) No P01527
Page 5 of 6
VI. Auditor's Responsibilities for the Audit of the Financial Statements - continued
As part of an audit in accordance with China Standards on Auditing, we exercise professional judgment and maintain professionalskepticism throughout the audit. We also:
(1) Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design andperform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for ouropinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud mayinvolve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
(2) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in thecircumstances.
(3) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosuresmade by the management.
(4) Conclude on the appropriateness of the management' use of the going concern basis of accounting and, based on the audit evidenceobtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's abilityto continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's reportto the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions arebased on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause theCompany to cease to continue as a going concern.
(5) Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether thefinancial statements represent the underlying transactions and events in a manner that achieves fair presentation.
(6) Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within theCompany to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of thegroup audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit andsignificant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regardingindependence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on ourindependence, and where applicable, related safeguards.
ADAMA Ltd. Annual Report 2018
AUDITOR'S REPORT - continued
De Shi Bao (Shen) Zi (19) No P01527
Page 6 of 6
VI. Auditor's Responsibilities for the Audit of the Financial Statements - continued
From the matters communicated with those charged with governance, we determine those matters that were of most significance in theaudit of the financial statements of the current year and are therefore the key audit matters. We describe these matters in our auditor'sreport unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine thata matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected tooutweigh the public interest benefits of such communication.
Deloitte Touche Tohmatsu CPA LLP Chinese Certified Public Accountant
Shanghai China Xu Yusun(Engagement Partner)
Chinese Certified Public AccountantMa Renjie
19 March 2019
This independent auditor's report of the financial statements and the accompanying financial statements are Englishtranslations of the independent auditor's report and the financial statements prepared under accounting principles andpractices generally accepted in the People's Republic of China. These financial statements are not intended to present thebalance sheet and results of operations and cash flows in accordance with accounting principles and practices generallyaccepted in other countries and jurisdictions. In case the English version does not conform to the Chinese version, theChinese version prevails
ADAMA Ltd. Annual Report 2018
ADAMA Ltd.(Expressed in RMB '000)Consolidated Balance Sheet
December 31 December 31Notes 2018 2017Current assets
| Cash at bank and on hand | V | .1 | 6,233,089 | 7,868,858 | |||||||||||
| Financial assets held for trading | V | .2 | 46,095 | N/A | |||||||||||
Financial assets at fair value
| through profit or loss |
N/A
23,000
| Derivative financial assets | V | .3 | 517,726 | 455,153 | ||||||||||||||||||
| Bills and accounts receivable | V | .4 | 6, | 577,398 | 5,236,880 | |||||||||||||||||
| Including: Bills receivable | 60,486 | 180,030 | ||||||||||||||||||||
| Accounts receivable | ||||||||||||||||||||||
| 6,516,912 | 5,056,850 | |||||||||||||||||||||||||||||
| Prepayments | V | 5 | 355,288 | 202,111 | ||||||||||||||||||||||||||
| Other receivables | V | 6 | 1,051,726 | 1,037,836 | ||||||||||||||||||||||||||
| Including: Dividends receivable | 5,240 | |||||||||||||||||||||||||||||
| Inventories | V | .7 | 9,247,343 | 7,488,238 | ||||||||||||||||||||||||||
| Assets held for sale | V | 8 | 403,297 | |||||||||||||||||||||||||||
| Non | - | current assets due within one year | V | .1 | 48 | 46 | ||||||||||||||||||||||||
| Other current assets | V | 9 | ||||||||||||||||||||||||||||
| 660,775 | 614,925 | |||||||
Total current assets
24,689,488
23,330,344
| Non | current assets | |||||||||||||||||||
| Available | for | - | sale financial assets | N/A | 19,544 | |||||||||||||||
| Long | - | term accounts receivable | V.10 | |||||||||||||||||
| 157,600 | 192,968 | ||||||||||||||||||||||||||||
| Long | - | term equity investments | V.11 | 108,350 | 102,383 | ||||||||||||||||||||||||
| Other equity investments | V.12 | 91,559 | N/A | ||||||||||||||||||||||||||
| Investment properties | 4,094 | 4,408 | |||||||||||||||||||||||||||
| Fixed assets | V.1 | 3 | 6,629,621 | 6,141,490 | |||||||||||||||||||||||||
| Construction in progress | V.1 | 4 | 433,784 | 803,421 | |||||||||||||||||||||||||
| Intangible assets | V.1 | 5 | 5,677,388 | 4,036,588 | |||||||||||||||||||||||||
| Goodwill | V.1 | 6 | 4,085,945 | 3,890,097 | |||||||||||||||||||||||||
| Deferred tax assets | V.1 | 7 | |||||||||||||||||||||||||||
| 732,613 | 891,012 | ||||||||||||
| Other non | current assets | V.1 | 8 | 202,063 | 201,667 | ||||||||
| Total non | - | current assets |
18,123,017
16,283,578
Total assets
42,812,505
39,613,922
The notes on pages 107 to 218 form part of these financial statements.
ADAMA Ltd. Annual Report 2018
ADAMA Ltd.(Expressed in RMB '000)Consolidated Balance Sheet (continued)
| December 31 | December 31 |
Notes 2018 2017
| Current liabilities | |||||||||||||||||||||||||||
| Short | term loans | V.19 | 572,774 | 2,280,912 | |||||||||||||||||||||||
| Derivative financial | liabilities | V | .20 | 1,451,670 | 789,050 | ||||||||||||||||||||||
| Bills and accounts payable | V | .21 | 5,019,316 | 4,218,038 | |||||||||||||||||||||||
| Advances from customers | - | 226,711 | |||||||||||||||||||||||||
| Contract liabilit | ies | V | .22 | 821,673 | N/A | ||||||||||||||||||||||
| Employee benefits payable | V | .23 | 925,346 | 995,637 | |||||||||||||||||||||||
| Taxes payable | V | .24 | |||||||||||||||||||||||||
| 602,630 | 431,275 | ||||||||||||||||||||||||||||||||
| Other | payables | V | .25 | 1,065,760 | 1,422,734 | ||||||||||||||||||||||||||||
| Including: Interest payable | V | .25 | (1) | 46,258 | 46,491 | ||||||||||||||||||||||||||||
| Dividends payable | 250 | 250 | |||||||||||||||||||||||||||||||
| Non | - | current liabilities due within one year | V | .26 | 301,814 | 448,504 | |||||||||||||||||||||||||||
| Other current liabilities | V | .27 | |||||||||||||||||||||||||||||||
578,184
482,583
| Total current liabilities |
11,339,167
11,295,444
| Non | current liabilities | |||||||||||||||||
| Long | - | term loans | V. | 28 | 235,819 | 514,320 | ||||||||||||
| Debentures payable | V.29 | |||||||||||||||||
| 7,649,098 | 7,777,410 | |||||||||||||||||||||
| Long | - | term payables | 25,106 | 24,203 | ||||||||||||||||||
| Long | - | term employee benefits payable | V | .30 | 580,362 | 610,714 | ||||||||||||||||
| Provisions | V | .31 | 110,493 | 163,913 | ||||||||||||||||||
| Deferred tax liabilities | V | .17 | ||||||||||||||||||||
| 392,404 | 224,613 | ||||||||||||
| Other non | current liabilities | V | .3 | 2 |
199,930
225,292
| Total non | - | current liabilities |
9,193,212
9,540,465
| Total liabilities | ||||||||
20,532,379
20,835,909
Shareholders' equity
| Share capital | V.3 | 3 | 2,446,554 | 2,446,554 | ||||||||||||||||||||
| Capital reserve | V | .3 | 4 | 12,975,456 | 12,982,277 | |||||||||||||||||||
| Other comprehensive income | V | .3 | 5 | 1,090,952 | (154,701) | |||||||||||||||||||
| Special reserves | 13,536 | 9,349 | ||||||||||||||||||||||
| Surplus reserve | V | .3 | 6 | 240,162 | 207,823 | |||||||||||||||||||
| Retained earnings | V | .3 | 7 | |||||||||||||||||||||
5,513,466
3,286,711
| Total shareholders | ’ | equity |
22,280,126
18,778,013
Total liabilities and shareholders’ equity
42,812,505
39,613,922
Chen Lichtenstein
| Legal representative |
Aviram Lahav
| Chief of accounting work & Chief of accounting | organ |
These financial statements were approved by the Board of Directors of the Company on March 19, 2019.
The notes on pages 107 to 218 form part of these financial statements.
ADAMA Ltd. Annual Report 2018
ADAMA Ltd.(Expressed in RMB '000)Balance Sheet
December 31 December 31
Notes2018 2017
| Current assets | |||||||||||||||||||||||||||||||||||||
| Cash at bank and on hand | XV | .1 | 2,058,253 | 1,868,603 | |||||||||||||||||||||||||||||||||
| Bills and accounts receivable | XV | .2 | 712,116 | 1,001,641 | |||||||||||||||||||||||||||||||||
| Including: Bills receivable | 19,917 | 146,525 | |||||||||||||||||||||||||||||||||||
| Accounts receivable | 692,199 | 855,116 | |||||||||||||||||||||||||||||||||||
| Prepayments | 10,500 | 24,019 | |||||||||||||||||||||||||||||||||||
| Other receivables | XV | .3 | 31,748 | 1,140 | |||||||||||||||||||||||||||||||||
| Including: Dividends receivable | 1,808 | ||||||||||||||||||||||||||||||||||||
| Inventories | 147,975 | 177,402 | |||||||||||||||||||||||||||||||||||
Other current assets1,343
1,406
| Total current assets |
2,961,935
3,074,211
Non-current assets
| Available | for | - | sale financial assets | N/A | 8,573 | ||||||||||||||||||||||||||||||||
| Long | - | term equity investments | XV | .4 | 15,939,826 | 15,939,826 | |||||||||||||||||||||||||||||||
| Other equity investments | 80,119 | N/A | |||||||||||||||||||||||||||||||||||
| Investment properties | 4,094 | 4,408 | |||||||||||||||||||||||||||||||||||
| Fixed assets | 1,012,674 | 1,262,330 | |||||||||||||||||||||||||||||||||||
| Construction in progress | 188,020 | 81,993 | |||||||||||||||||||||||||||||||||||
| Intangible assets | 174,997 | 183,920 | |||||||||||||||||||||||||||||||||||
| Deferred tax assets | 48,103 | 35,064 | |||||||||||||||||||||||||||||||||||
Other non-current assets54,060
11,000
| Total non | - | current assets |
17,501,893
17,527,114
| Total assets |
20,463,828
20,601,325
| Current liabilities | ||||||||||||||||
| Short | term loans | 20,000 | 70,000 | |||||||||||||
| Bills and accounts payable | 391,810 | 257,615 | ||||||||||||||
| Advances from customers | ||||||||||||||||
| - | 63,904 | ||||||||||||||||
| Contract liabilities | 9,983 | N/A | |||||||||||||||
| Employee benefits payable | 25,758 | 30,491 | |||||||||||||||
| Taxes payable | 55,198 | 19,301 | |||||||||||||||
| Other payables | |||||||||||||||||
| 187,762 | 482,858 | |||||||||||||||
| Including: Interest payable | - | 105 | ||||||||||||||
| Dividends payable | 250 | 250 | ||||||||||||||
Non-current liabilities due within one year72,000
126,590
Total current liabilities
762,511
1,050,759
| Non | current liabilities | |||||||||||||||||||||
| Long | - | term loans | - | 72,000 | ||||||||||||||||||
| Long | - | term employee benefits payable | 100,144 | 93,025 | ||||||||||||||||||
| Provisions | 16,454 | 15,671 | ||||||||||||||||||||
| Other non | - | current liabilities |
171,770
171,770
| Total non | - | current liabilities |
288,368
352,466
| Total liabilities |
1,050,879
1,403,225
| Shareholders | ’ | equity | ||||||||||||||||||||||||||||||||
| Share capital | V.33 | 2,446,554 | 2,446,554 | |||||||||||||||||||||||||||||||
| Capital reserve | 15,414,429 | 15,423,034 | ||||||||||||||||||||||||||||||||
| Other comprehensive income | 43,167 | - | ||||||||||||||||||||||||||||||||
| Special reserves | 11,564 | 10,040 | ||||||||||||||||||||||||||||||||
| Surplus reserve | V | .3 | 6 | 240,16 | 2 | 207,823 | ||||||||||||||||||||||||||||
| Retained earnings | ||||||||||||||||||||||||||||||||||
1,257,073
1,110,649
| Total | shareholders | ’ | equity | |||||||||
19,412,949
19,198,100
| Total liabilities and shareholders | ’ | equity |
20,463,828
20,601,325
The notes on pages 107 to 218 form part of these financial statements.
- 100 -
ADAMA Ltd.(Expressed in RMB '000)Consolidated Income Statement
Year ended December 31Notes 2018 2017
I. Operating income
| 25,615,119 | 23,819,568 | ||||||||||||||||||||||||||||||||||||||
| Less | : | Cost of sales | V. | 3 | 8 | 17,084,943 | 15,403,887 | ||||||||||||||||||||||||||||||||
| Taxes and surcharges | V. | 39 | 90,494 | 74,759 | |||||||||||||||||||||||||||||||||||
| Selling and Distribution | expenses | V.4 | 0 | 4,630,117 | 4,280,335 | ||||||||||||||||||||||||||||||||||
| General and administrative expenses | V.4 | 1 | 893,107 | 1,041,294 | |||||||||||||||||||||||||||||||||||
| Research and Development expenses | V.4 | 2 | 441,897 | 360,478 | |||||||||||||||||||||||||||||||||||
| Financial expenses | V.4 | 3 | 552, | 707 | 1,205,286 | ||||||||||||||||||||||||||||||||||
| Including: Interest expense | 536,971 | 637,696 | |||||||||||||||||||||||||||||||||||||
Interest
| income | 81,886 | 222,601 | |||||||||||||||||||||||
| Asset impairment loss | V.4 | 4 | 230,999 | 173,325 | |||||||||||||||||||||
| Credit impairment loss | V.4 | 5 | 50,373 | N/A | |||||||||||||||||||||
Add:
| Investment income, net | V.4 | 6 | 628,257 | 73,858 |
Including: Income from investment
| in associates and | |||||||||||||||||||
| joint ventures | 7,001 | 22,239 | |||||||||||||||||
| Gain (loss) from changes in fair value | V.4 | 7 | (979,334) | 269,351 | |||||||||||||||
| Gain from disposal of assets | V. | 48 |
1,966,616
55,160
II. Operating profit
| 3,256,021 | 1,678,573 | ||||||||||||||||||||||||
| Add: | Non | - | operating income | 15,653 | 34,103 | ||||||||||||||||||||
| Less: | Non | - | operating expenses | V. | 49 | ||||||||||||||||||||
35,966
44,674
| III. Total profit | 3,235,708 | 1,668,002 | ||||||||
| Less: | Income tax expense | V.5 | 0 |
833,246
122,123
| IV. Net profit |
2,402,462
1,545,879
| (1). | Classified by nature of operations |
(1.1). Continuing operations
| 2,402,462 | 1,545,879 | ||||||||||
| (2). | Classified by ownership |
(2.1). Shareholders of the Company
| 2,402,462 | 1,545,879 | |||||||||
V. Other comprehensive income, net of tax
| V. 3 | 5 | 1,195,032 | (1,181,808) |
Other comprehensive income (net of tax)
| attributable to shareholders of the Company |
| 1,195,032 | (1,181,808) | ||||||||||||||
| (1) | Items that will not be | reclassified to profit or loss: |
| (1.1) | R | e | - | measurement of defined benefit plan | liability | 26,757 | (17,178) |
(2) Items that were or will be reclassified to profit or
| loss |
(2.1) Effective portion of gains or loss of cash flow
| hedge |
| 354,335 | (413,515) |
(2.2) Translation differences of foreign financial
| statements |
813,940
(751,115)
3,597,494
364,071
VI. Total comprehensive income for the year attributable to
| Shareholders of the Company |
3,597,494
364,071
VII. Earnings per share
| XIV.2 | |||||||||||||||
| (1) Basic earnings per share (Yuan/share) | 0.98 | 0.66 | |||||||||||||
| (2) Diluted earnings per share (Yuan/share) | N/A | N/A | |||||||||||||
The notes on pages 107 to 218 form part of these financial statements.
- 101 -
ADAMA Ltd.(Expressed in RMB '000)Income Statement
Year ended December 31
Notes 2018 2017
I. Operating income
| XV | .5 | 3,112,153 | 2,898,396 | ||||||||||||||||||||||||||||||||||||||||||||
| Less: | Operating costs | XV | .5 | 2,048,073 | 2,159,982 | ||||||||||||||||||||||||||||||||||||||||||
| Taxes and surcharges | 29,965 | 20,620 | |||||||||||||||||||||||||||||||||||||||||||||
| Selling and | Distribution expenses | 179,097 | 97,443 | ||||||||||||||||||||||||||||||||||||||||||||
| General | and | administrative expenses | 205,669 | 228,524 | |||||||||||||||||||||||||||||||||||||||||||
| Research and Development expenses | 121,307 | 88,877 | |||||||||||||||||||||||||||||||||||||||||||||
| Financial expenses | (income) | (46,324) | 24,808 | ||||||||||||||||||||||||||||||||||||||||||||
| Including: Interest expense | 8,375 | 16,154 | |||||||||||||||||||||||||||||||||||||||||||||
| Interest income | 25,827 | 1,040 | |||||||||||||||||||||||||||||||||||||||||||||
| Asset Impairment loss | 75,080 | 47,818 | |||||||||||||||||||||||||||||||||||||||||||||
| Credit impairment loss | 116,171 | N/A | |||||||||||||||||||||||||||||||||||||||||||||
| Add: | Investment income (loss), net | 1,808 | (1,650) | ||||||||||||||||||||||||||||||||||||||||||||
| Gain (loss) from changes in fair value | |||||||||||||||||||||||||||||||||||||||||||||||
-
(130)
| II. | Operating Profit | 384,923 | 228,544 | ||||||||||||||||
| Add: | Non | - | operating income | 1,872 | 2,051 | ||||||||||||||
Less:
| Non | - | operating expenses |
1,847
19,071
| III. Total profit | 384,948 | 211,524 | |||||||||||||
| Less: | Income | tax expense | |||||||||||||
61,552
40,280
IV. Net profit
323,396
171,244
| Continuing operations |
323,396
171,244
| V. | Other comprehensive income, net of tax |
(7,454)
-
| (1) | Items that will not be reclassified to profit or loss | (7,454) | - | ||||||||||
(1.1) Re-measurement of defined benefit plan liability (7,454)
(2) Items that may be reclassified to profit or loss -
-
| VI. | Total comprehensive income for the year |
315,942
171,244
The notes on pages 107 to 218 form part of these financial statements.
- 102 -
ADAMA Ltd.(Expressed in RMB '000)Consolidated Cash Flow Statement
Year ended December 31
Notes 2018 2017I. Cash flows from operating activities:
| Cash received from sale of goods and rendering of services | 23,817,219 | 23,226,321 |
| Refund of taxes and surcharges | 38,967 | 44,773 |
| Cash received relating to other | operating activities | V | .5 | 2 | (1) |
737,570
801,590
| Sub | - | total of cash inflows from operating activities |
24,593,756
24,072,684
| Cash paid | for goods and services | 16,027,734 | 13,552,204 |
| Cash paid | to and on behalf of employees | 3,149,823 | 2,972,392 |
| Payments of taxes and surcharges | 616,439 | 417,818 |
| Cash paid relating to other operating activities | V | .5 | 2 | (2) |
2,797,621
3,171,881
| Sub | - | total of cash outflows from operating activities |
22,591,617
20,114,295
Net cash flows from operating activities
| V | .5 | 3 | (1)(a) |
2,002,139
3,958,389
II. Cash flows from investing activities:
| Cash received from disposal of investments | 11,500 | 37,798 |
| Cash | received from returns of investments | 8,354 | - |
Net cash received from disposal of fixed assets, intangible
| assets and | other long | - | term assets | 2,421,406 | 97,376 |
Net cash received from disposal of subsidiaries or other
| business units | - | 100,138 |
| Cash received relating to other investing activities | V | .5 | 2 | (3) |
29,801
| Sub | - | total of cash inflows from | investing activities |
2,441,670
265,113
Cash paid to acquire fixed assets, intangible assets and
| other long | - | term assets | 3,375,884 | 1,503,343 | |||||||||||||
| Cash paid for acquisition of investments | 6,566 | - | |||||||||||||||
| Net cash paid | to acquire subsidiaries or other business units | V. | 5 | 3 | ( | 2 | ) | 13,344 | - | ||||||||||
| Cash paid relating to other investment activities | V | .5 | 2 | (4) | |||||||||||||||
-
49,509
| Sub | - | total of cash outflows from investing activities |
3,395,794
1,552,852
Net cash flows used in investing activities
(954,124)
(1,287,739)
III. Cash flows from financing activities:
| Cash received from capital contributions | - | 1,531,920 |
| Cash received | from borrowings | 19 | 6 | ,246 | 2,212,437 |
| Cash received from other financing activities | V | .5 | 2 | (5) |
-
7,800
| Sub | - | total of cash inflows from financing activities |
196,246
3,752,157
| Cash | r | epayments of borrowings | 2,314,499 | 1,247,395 |
| Cash | payment | for dividends, profit distributions and interest | 716,327 | 764,043 |
| Including: Dividends paid to | non | controlling | interest | 28,7 | 16 | 32,509 |
| Cash | paid relating to other financing activities | V | .5 | 2 | (6) |
56,950
104,600
| Sub | - | total of cash outflows from financing activities |
3,087,776
2,116,038
Net cash from (used in) financing activities
(2,891,530)
1,636,119
IV. Effects of foreign exchange rate changes on cash and cash
equivalents
| 159,40 | 5 | (276,258) | |||||||||
V. Net increase (decrease) in cash and cash equivalents
| V. | 5 | 3 | (1)(c) | (1,684,1 | 10 | ) | 4,030,511 |
Add:
| Cash and cash equivalents at the beginning | of the year |
7,864,258
3,833,747
VI. Cash and cash equivalents at the end of the year
| V. | 5 | 3 | ( | 3 | ) |
6,180,148
7,864,258
The notes on pages 107 to 218 form part of these financial statements.
- 103 -
ADAMA Ltd.(Expressed in RMB '000)Cash Flow Statement
Year ended December 31
Notes 2018 2017I. Cash flows from operating activities:
| Cash received from sale of goods and rendering of services | 2,625,527 | 1,729,363 | |||||||||||||
| Refund of taxes and surcharges | 12,981 | 2,884 | |||||||||||||
| Cash received relating to other | operating activities |
XV.6(1)
31,675
8,410
Sub
| Sub | - | total of cash inflows from operating activities |
2,670,183
1,740,657
| Cash paid for goods and services | 1, | 145,495 | 844,830 |
| Cash paid | to and on behalf of employees | 184,110 | 181,657 |
| Payments of | taxes and surcharges | 94,110 | 107,719 |
| Cash paid relating to other operating activities |
XV.6(2)
172,885
210,703
Sub
| Sub | - | total of cash outflows | from operating activities |
1,596,600
1,344,909
Net cash flows from operating activitiesXV.7 1,073,583
395,748
| II. | Cash flows from investing activities | : |
| Net cash received from disposal of fixed assets, intangible assets and | ||||
| other long | - | term assets | ||
| - | 701 | ||||||||||
| Cash | received relating to | other | investing activities |
-
| Sub | - | total of cash inflows | from investing activities |
-
1,249
Cash paid to acquire fixed assets, intangible assets and
| other long | - | term assets |
133,531
123,995
| Sub | - | total of cash outflows from investing activities |
133,531
123,995
Net cash flows from investing activities
(133,531)
(122,746)
| III. | Cash flows from financing activities | : |
| Cash received from | capital contributions |
| - | 1,531,920 |
| Cash received from borrowings | 20,000 | 75,000 | ||||||||||||
| Cash received | relating to | other financing activities | ||||||||||||
XV.6.(3)
-
7,800
Sub
| Sub | - | total of cash inflows | from financing activities |
20,000
1,614,720
| Cash | r | epayments of | borrowings | 196,590 | 150,000 | ||||||||
| Cash | payment | for dividends, profit distributions or interest | 162,613 | 16,252 |
| Cash paid relating to other financing | activities |
XV.6.(4)
449,975
104,600
Sub
| Sub | - | total of cash outflows from financing activities |
809,178
270,852
Net cash used in financing activities
(789,178)
1,343,868
IV. Effects of foreign exchange rate changes on cash and cash
equivalents
| (9,564) | (2,608) | |||||||||
V. Net increase in cash and cash equivalents
| 141,310 | 1,614,262 |
Add:
| Cash and cash equivalents at the beginning of the year |
XV.1 1,864,003
249,741
VI. Cash and cash equivalents at the end of the year
XV.1 2,005,313
1,864,003
The notes on pages 107 to 218 form part of these financial statements.
- 104 -
ADAMA Ltd.(Expressed in RMB '000)Consolidated Statement of Changes in Shareholders’ Equity
For the year ended December 31, 2018
Attributable to shareholders of the Company
Share capital
Capital reserve
Othercomprehensive
income
Specialreserves
Surplus reserve
Retained earnings
Total
I. Balance at December 31, 2017
| 2,446,554 | 12,982,277 | (154,701) | 9,349 | 207,823 | 3,286,711 | 18,778,013 |
Add: Changes in accounting policies
-
| * | ||
-
50,621
-
-
39,481
90,102
| II. | Balance at January 1, 2018 | 2,446,554 | 12,982,277 | (104,080) | 9,349 | 207,823 | 3,326,192 | 18,868,115 | |||||||||||||||||||||||||||||||||||||||||
| III. Changes in equity for the year | - | (6,821) | 1,195,032 | 4,187 | 32,3 | 39 | 2,187,274 | 3,412,011 | |||||||||||||||||||||||||||||||||||||||||
| 1. | Total comprehensive income | - | 1,195,032 | - | - | 2,402,462 | 3,597,494 | ||||||||||||||||||||||||||||||||||||||||||
| 2. | Owner | ’ | s contributions and reduction | - | (6,821) | - | - | - | (6,821) | ||||||||||||||||||||||||||||||||||||||||
| 2. | 1 | Others | - | (6,821) | - | - | - | (6,821) | |||||||||||||||||||||||||||||||||||||||||
| 3. | |||||||||||||||||||||||||||||||||||||||||||||||||
| Appropriation of profits | - | - | - | - | 32,3 | 39 | ( | 215,188 | ) | ( | 182,849 | ) | ||||||||||||||||
3.1
| Transfer to surplus reserve | - | - | - | - | 32,3 | 39 | ( | 32,339 | ) | - | |||||||||||||||||
3.2
| Distribution to owners | - | - | - | - | - | (154,133) | (154,133) |
3.3 Distribution to non-controlling
| interest | - | - | - | - | - | (28,716) | (28,716) | |||||||||||||||||
| 4. | ||||||||||||||||||||||||
| Special reserve | - | - | - | 4,187 | - | - | 4,187 |
4.1
| Transfer to special reserve | - | - | - | 13,2 | 87 | - | - | 13,2 | 87 |
4.2 Amount utilized -
-
-
(9,100)
-
-
(9,100)
IV. Balance at December 31, 20182,446,554
12,975,456
1,090,952
13,536
240,162
5,513,466
22,280,126
*See Note Ⅲ30(1).
The notes on pages 107 to 218 form part of these financial statements.
- 105 -
ADAMA Ltd.(Expressed in RMB '000)Consolidated Statement of Changes in Shareholders’ Equity (continued)
For the year ended December 31, 2017
Attributable to shareholders of the Company
Share capital
Capitalreserve
Treasury
shares
Othercomprehensive
income
Specialreserves
Surplusreserve
Retainedearnings Total
I. Balance at January 1, 2017
| 593,923 | 13,660,829 | (359,431) | 1,027,107 | 19,862 | 190,699 | 1,784,805 | 16,917,794 |
II. Changes in equity for the year
| 1,852,631 | (678,552) | 359,431 | (1,181,808) | (10,513) | 17,124 | 1,501,906 | 1,860,219 | |||||||||||||||||
| 1. |
| Total comprehensive income | - | - | - | (1,181,808) | - | - | 1,545,879 | 364,071 | |||||||||||||||||||
| 2. |
| Owner | ’ | s contributions and reduction | 1,852,631 | (678,552) | 359,431 | - | - | - | - | 1,533,510 |
2.1
| Issuance of shares | 1,915,581 | 18,088,936 | - | - | - | - | - | 20,004,517 |
2.2 Repurchase and cancellation
| of treasury shares | (62,950) | (296,481) | 359,431 | - | - | - | - | - |
2.3 Consideration
combination under common
paid for businesscontrol
| control | - | (18,471,007) | - | - | - | - | - | (18,471,007) | ||||||||||||||||||
| 3. | ||||||||||||||||||||||||||
| Appropriation of profits | - | - | - | - | - | 17,124 | (49,633) | (32,509) | ||||||||||||||||||
3.1
| Transfer to surplus reserve | - | - | - | - | - | 17,124 | (17,124) | - |
3.2 Distribution to non-controlling
| interest | - | - | - | - | - | - | (32,509) | (32,509) | |||||||||||||||||||
| 4. | |||||||||||||||||||||||||||
| Special reserve | - | - | - | - | (10,513) | - | 5,660 | (4,853) |
4.1
| Transfer to special reserve | - | - | - | - | 8,360 | - | - | 8,360 |
4.2
| Amount utilized | - | - | - | - | (13,213) | - | - | (13,213) |
4.3 Amount reversed due to disposal
| of a | subsidiary |
-
-
-
-
(5,660)
-
5,660
-
III. Balance at December 31, 20172,446,554
12,982,277
-
(154,701)
9,349
207,823
3,286,711
18,778,013
The notes on pages 107 to 218 form part of these financial statements.
- 106 -
Statement of Changes in Shareholders’ Equity
For the year ended December 31, 2018
Attributable to shareholders of the Company
Sharecapital
Capitalreserve
Othercomprehensive
income
Specialreserves
Surplusreserve
Retainedearnings
Total
| I. | Balance at December 31, 2017 | 2,446,554 | 15,423,034 | |||||||||||||||||
-
| 10,040 | 207,823 | 1,110,649 | 19,198,100 | |||||||||||||
| Add: | Changes in accounting policies |
*
| - | - | |||||||
50,621
| - | - | 9,500 | |||||||||
60,121
| II. | Balance at January 1, 2018 | 2,446,554 | 15,423,034 |
50,621
| 10,040 | 207,823 | 1,120,149 |
19,258,221
. Changes in equity for the year
| - | ||||
(8,605)
(7,454)
1,524
32,339
136,924
154,728
| 1. | Total comprehensive income | |||||||||||||
| - | - | |||||||||||||
(7,454)
-
-
323,396
315,942
| 2. | Owner | s contributions and reduction | - | ||||||||
(8,605)
-
-
-
-
(8,605)
| 2.1 | Other | ||||||||||
| - | |||||||||||
(8,605)
-
-
-
-
(8,605)
| 3. | Appropriation of profits | ||||||||||||
| - | - | ||||||||||||
-
| - | ||||
32,339
(186,472)
(154,133)
| 3.1 | Transfer to surplus reserve | - | - | |||||||||||
-
| - | ||||
32,339
(32,339)
-
3.2 Transfer to Distribution to
shareholders
| shareholders | - | - | - | - | - | (154,133) | (154,133) | ||||||||||||||||||||||
| 4. | |||||||||||||||||||||||||||||
| Special reserve | - | - | |||||||
-
1,524
-
-
1,524
| 4.1 | Transfer to special reserve | - | - | ||||||||||||
-
10,430
-
-
10,430
| 4.2 | Amount utilized |
-
-
-
(8,906)
-
-
(8,906)
. Balance at December 31, 2018
| . Balance at December 31, 2018 |
2,446,554
15,414,429
43,167
11,564
240,162
1,257,073
19,412,949
For the year ended December 31, 2017
Attributable to shareholders of the Company
Sharecapital
Capitalreserve
Specialreserves
Surplusreserve
Retainedearnings Total
| I. | Balance at January 1, 2017 | 593,923 | 263,800 | 14,893 | 190,699 | 956, | 529 | 2,019, | 844 |
II. Changes in equity for the year
| 1,852, | 631 | 15,159,234 | (4,853) | 17,124 | 154,120 | 17,178, | 256 | ||||||||||||||||||||||||||||||||||
| 1. | Total comprehensive income | - | - | 171,244 | 171,244 | ||||||||||||||||||||||||||||||||||||
| 2. | Owner | s contributions and reduction | 1,852,631 | 15,159,234 | - | 17,011,865 | |||||||||||||||||||||||||||||||||||
| 2. | 1 | Issuance of shares | 1,915,581 | 18,088,936 | 20,004,517 | ||||||||||||||||||||||||||||||||||||
2.2 Premium paid in business
| Combination | under common | control | - | (2,580,794) | - | - | - | (2,580,794) | ||||||||||||||||||
2.3 Repurchase and cancellation
| of treasury shares | (62,950) | (348,908) | - | - | - | (411,858) | |||||||||||||||||||
| 3. | |||||||||||||||||||||||||
| Appropriation of profits | - | - | - | 17,124 | (17,124) | - | ||||||||||||||||||||||||||||||||||||||
| 3. | 1 | Transfer to surplus reserve | 17,124 | (17,124) | ||||||||||||||||||||||||||||||||||||||||
| 4. | Special reserve | (4,853) | - | (4,853) | ||||||||||||||||||||||||||||||||||||||||
| 4.1 | Transfer to special reserve | 8,360 | 8,360 | |||||||||||||||||||||||||||||||||||||||||
4.2
| Amount utilized |
-
-
(13,213)
-
-
(13,213)
| III. Balance at December 31, 2017 |
2,446,554
| 15,423,034 | 10,040 | 207,823 |
1,110,649
| 19,198,100 |
The notes on pages 107 to 218 form part of these financial statements.
Notes to the Financial Statements
- 107 -
I BASIC CORPORATE INFORMATION
ADAMA Ltd (Former name: Hubei Sanonda Co., Ltd., hereinafter the “Company”) is a company limited by shares established inChina with its head office located in Hubei Jingzhou.
During July 2017 a major assets restructuring was successfully completed, with the acquisition of Adama Agricultural SolutionsLtd (hereinafter: "Solutions"), a wholly-owned subsidiary of China National Agrochemical Corporation Limited (hereinafter:
"CNAC").
On July 4, 2017 the entire share capital of Solutions was transferred from CNAC to the Company, in return for the issuance of1,810,883,039 new shares of the Company to CNAC and their registration for trade on the Shenzhen Stock Exchange (which wascompleted on August 2).
Following the completion of the major assets restructuring, Solutions became a wholly owned subsidiary of the Company. Thecombination was considered as a business combination under common control.
The Company's parent company is CNAC, and the ultimate holding company is China National Chemical Corporation (hereinafter- “ChemChina”).
On December 2017, a non-publicly offered of 104,697,982 ordinary shares (A-share) at nominal value of RMB 1 per share to thespecific investors. On December 27
th
, 2017, the Company received proceeds of 1,531,920 thousand RMB, net of the issuing costof 28,080 thousand RMB. The listing date of the newly-issued 104,697,982 shares was January 17, 2018.
The principal activities of the Company and its subsidiaries (together referred to as the “Group”) are engaged in development,manufacturing and marketing of agrochemicals, intermediate materials for other industries, food additives and synthetic aromaticproducts, mainly for export. For information about the subsidiaries of the Company, refer to Note VII.
The Company’s consolidated financial statements had been approved by the Board of Directors of the Company on March 19,2019.
Details of the scope of consolidated financial statements are set out in Note VII "Interest in other entities", whereas the changes ofthe scope of consolidation are set out in Note VI "Changes in consolidation scope".
II BASIS OF PREPARATION
1. Basis of preparation
The Group has adopted the Accounting Standards for Business Enterprises issued by the Ministry of Finance (the "MoF"). Inaddition, the Group has disclosed relevant financial information in these financial statements in accordance with InformationDisclosure and Presentation Rules for Companies Offering Securities to the Public No. 15－General Provisions on FinancialReporting (revised by China Securities Regulatory Commission (hereinafter "CSRC”) in 2014).
Notes to the Financial Statements
- 108 -
II BASIS OF PREPARATION - (cont’d)
2. Accrual basis and measurement principle
The Group has adopted the accrual basis of accounting. Except for certain financial instruments which are measured at fair valueand deferred tax assets and liabilities, assets and liabilities relating to employee benefits, provisions, and investments in associatedcompanies and joint ventures, the Group adopts the historical cost as the principle of measurement in the financial statements.Where assets are impaired, provisions for asset impairment are made in accordance with relevant requirements.
In the historical cost measurement, assets obtained shall be measured at the amount of cash or cash equivalents or fair value of theconsideration paid. Liabilities shall be measured at the actual amount of cash or assets received, or the contractual amount in apresent obligation, or the prospective amount of cash or cash equivalents paid to discharge the liabilities.
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing marketparticipants in an arm’s length transaction at the measurement date. Fair value measured and disclosed in the financial statementsare determined on this basis whether it is observable or estimated by valuation techniques.
The following table provides an analysis, grouped into Levels 1 to 3 based on the degree to which the fair value input is observableand significant to the fair value measurement as a whole:
Level 1 - based on quoted prices (unadjusted) in active markets;
Level 2 - based on valuation techniques for which the lowest level input that is significant to the fair value measurement is
observable (other than quoted prices included within Level 1), either directly or indirectly;
Level 3 - based on valuation techniques for which the lowest level input that is significant to the fair value measurement is
unobservable.
3. Going concern
The financial statements have been prepared on the going concern basis.
The Group has performed an assessment of the going concern for the following 12 months from 31 December 2018 and have notidentified any significant doubtful matter or event on the going concern, as such the financial statement have been prepared on thegoing concern basis.
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES
1. Statement of compliance
These financial statements are in compliance with the Accounting Standards for Business Enterprises to truly and completelyreflect consolidated and the Company's financial position as at 31 December 2018 and consolidated and the Company's operatingresults、changes in shareholders' equity and cash flows for the year then ended.
2. Accounting period
The Group has adopted the calendar year as its accounting year, i.e. from 1 January to 31 December.
Notes to the Financial Statements
- 109 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
3. Business cycle
The company takes the period from the acquisition of assets for processing to their realisation in cash or cash equivalents as anormal operating cycle. The operating cycle for the company is 12 months.
4. Reporting currency
The Company and its domestic subsidiaries choose Renminbi (hereinafter "RMB") as their functional currency. Functionalcurrencies of overseas subsidiaries are determined on the basis of the principal economic environment in which the overseassubsidiaries operate. The functional currency of the overseas subsidiaries is mainly the United States Dollar (hereinafter "USD").The presentation currency of these financial statements is Renminbi.
5. Business combinations
5.1 Business combinations involving enterprises under common control
A business combination involving enterprises under common control is a business combination in which all of the combiningenterprises are ultimately controlled by the same party or parties both before and after the combination, and that control is nottransitory. Assets and liabilities obtained shall be measured at their respective carrying amounts as recorded by the combiningentities at the date of the combination. The difference between the carrying amount of the net assets obtained and the carryingamount of the consideration paid for the combination is adjusted to the share premium in capital reserve. If the share premium isnot sufficient to absorb the difference, any excess shall be adjusted against retained earnings. Costs that are directly attributable tothe combination are charged to profit or loss in the period in which they are incurred.
During July 2017 a major assets restructuring was successfully completed, with the acquisition of Solutions, a wholly-ownedsubsidiary of CNAC. On July 4, 2017 the entire share capital of Solutions was transferred from CNAC to the Company, in returnfor the issuance of 1,810,883,039 new shares of the Company to CNAC and their registration for trade on the Shenzhen StockExchange (which was completed on August 2017).
5.2 Business combinations not involving enterprises under common control and goodwill.
A business combination not involving enterprises under common control is a business combination in which all of the combiningenterprises are not ultimately controlled by the same party or parties before and after the combination.
The costs of business combination are the fair value of the assets paid, liabilities incurred or assumed and equity instrumentsissued by the acquirer for the purpose of achieving the control rights over the acquiree.
The intermediary costs such as audit, legal services and assessment consulting costs and other related management costs that aredirectly attributable to the combination by the acquirer are charged to profit or loss in the period in which they are incurred. Directcapital issuance costs incurred in respect of equity instruments or liabilities issued pursuant to the business combination should becharged to the respect equity instruments or liabilities upon initial recognition of the underlying equity instruments or liabilities.
Notes to the Financial Statements
- 110 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
5. Business combinations - (cont’d)
5.2 Business combinations not involving enterprises under common control and goodwill - (cont’d)
The acquiree’s identifiable assets, liabilities and contingent liabilities acquired by the acquirer in a business combination, that meetthe recognition criteria shall be measured at fair value at the acquisition date. Where the cost of combination exceeds the acquirer’sinterest in the fair value of the acquiree’s identifiable net assets, the difference is treated as an asset and recognized as goodwill,which is measured at cost on initial recognition. Where the cost of combination is less than the acquirer’s interest in the fair valueof the acquiree’s identifiable net assets, the remaining difference is recognized immediately in profit or loss for the current year.
The goodwill raised because of the business combination should be separately disclosed in the consolidated financial statementand measured by the initial amount less any accumulative impairment provision.
6. Basis for preparation of consolidated financial statements
The scope of consolidation in consolidated financial statements is determined on the basis of control. Control is achieved when theCompany has power over the investee; is exposed, or has rights, to variable returns from its involvement with the investee; and hasthe ability to use its power to affect its returns.
For a subsidiary disposed of by the Group, the operating results and cash flows before the date of disposal (the date when control islost) are included in consolidated income statement and consolidated statement of cash flows.
For a subsidiary acquired through a business combination not involving enterprises under common control, the operating resultsand cash flows from the acquisition date (the date when control is obtained) are included in consolidated income statement andconsolidated statement of cash flows.
For a subsidiary acquired through a business combination involving enterprises under common control, it will be fullyconsolidated into consolidated financial statements from the date on which the subsidiary was ultimately under common control bythe same party or parties.
The significant accounting policies and accounting years adopted by the subsidiaries are determined based on the uniformaccounting policies and accounting years set out by the Company.
All significant intra-group balances, transactions and unrealized profits are eliminated on consolidation.
The portion of subsidiaries' equity that is not attributable to the Company is treated as non-controlling interests and presented as"non-controlling interests" in the shareholders’ equity in consolidated balance sheet. The portion of net profits or losses ofsubsidiaries for the period attributable to non-controlling interests is presented as "non-controlling interests" in consolidatedincome statement below the "net profit" line item. Total comprehensive income attributable to non-controlling shareholders ispresented separately in the consolidated income statement below the total comprehensive income line item.
Notes to the Financial Statements
- 111 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
6. Basis for preparation of consolidated financial statements - (cont’d)
When the amount of loss for the period attributable to the non-controlling shareholders of a subsidiary exceeds the non-controllingshareholders' portion of the opening balance of owners' equity of the subsidiary, the excess amount is still allocated againstnon-controlling interests.
Acquisition of non-controlling interests or disposal of equity interest in a subsidiary that does not result in the loss of control overthe subsidiary is accounted for as equity transactions. The carrying amounts of the Company's interests and non-controllinginterests are adjusted to reflect the changes in their relative interests in the subsidiary. The difference between the amount by whichthe non-controlling interests are adjusted and the fair value of the consideration paid or received is adjusted to capital reserve underowners' equity. If the capital reserve is not sufficient to absorb the difference, the excess is adjusted against retained earnings.Other comprehensive income attributed to the non-controlling interest is reattributed to the shareholders of the company.
A put option issued by the Group to holders of non-controlling interests that is settled in cash or other financial instrument isrecognized as a liability at the present value of the exercise price. The Group’s share of a subsidiary’s profits includes the share ofthe holders of the non-controlling interests to which the Group issued a put option.
When the Group loses control over a subsidiary due to disposal of certain equity interest or other reasons, any retained interest isre-measured at its fair value at the date when control is lost. The difference between (i) the aggregate of the consideration receivedon disposal and the fair value of any retained interest and (ii) the share of the former subsidiary's net assets cumulatively calculatedfrom the acquisition date according to the original proportion of ownership interest is recognized as investment income in theperiod in which control is lost. Other comprehensive income associated with the disposed subsidiary is reclassified to investmentincome in the period in which control is lost.
7. Classification and accounting methods of joint arrangement
Joint arrangement involves by two or more parties jointly control. Joint control is the contractually agreed sharing of control overan economic activity, and exists only when the strategic financial and operating decisions relating to the activity require theunanimous consent of the parties sharing control (the ventures).
The Group makes the classification of the joint arrangements according to the rights and obligations in the joint arrangements toeither joint operations or joint ventures.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets ofthe joint arrangement. Joint ventures are accounted for using the equity method.
8. Cash and cash equivalents
Cash comprises cash on hand and deposits that can be readily withdrawn on demand. Cash equivalents are the Group's short-term,highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk ofchanges in value.
Notes to the Financial Statements
- 112 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
9. Translation of transactions and financial statements denominated in foreign currencies
9.1 Transactions denominated in foreign currencies
On initial recognition, foreign currency transactions are translated into functional currency using the spot exchange rate prevailingat the date of transaction.
At the balance sheet date, foreign currency monetary items are translated into functional currency using the spot exchange rates atthe balance sheet date. Exchange differences arising from the differences between the spot exchange rates prevailing at the balancesheet date and those on initial recognition or at the previous balance sheet date are recognized in profit or loss for the period,except that (i) exchange differences related to a specific-purpose borrowing denominated in foreign currency that qualify forcapitalization are capitalized as part of the cost of the qualifying asset during the capitalization period. (ii) exchange differencesrelated to hedging instruments for the purpose of hedging against foreign currency risks are accounted for using hedge accounting.
When preparing financial statements involving foreign operations, if there is any foreign currency monetary items which insubstance forms part of the net investment in the foreign operations, exchange differences arising from the changes of foreigncurrency should be recorded as other comprehensive income, and will be reclassified to profit or loss upon disposal of the foreignoperations.
Foreign currency non-monetary items measured at historical cost are translated to the amounts in functional currency at the spotexchange rates on the dates of the transactions and the amounts in functional currency remain unchanged.
9.2 Translation of financial statements denominated in foreign currency
For the purpose of preparing consolidated financial statements, financial statements of a foreign operation are translated from theforeign currency into RMB using the following method: assets and liabilities on the balance sheet are translated at the spotexchange rate prevailing at the balance sheet date; shareholders' equity items except for retained earnings are translated at the spotexchange rates at the dates on which such items arose; all items in the income statement as well as items reflecting the distributionof profits are translated at average rate or at the spot exchange rates on the dates of the transactions; the opening balance ofretained earnings is the translated closing balance of the previous year's retained earnings; the closing balance of retained earningsis calculated and presented on the basis of each translated income statement and profit distribution item. The difference betweenthe translated assets and the aggregate of liabilities and shareholders' equity items is recorded as other comprehensive income.Cash Flows arising from transaction in foreign currency and the cash flows of a foreign subsidiary are translated at the spotexchange rate on the date of the cash flow, the effect of exchange rate changes on the cash and cash equivalents is regarded as areconciling item and present separately in the statement “effect of foreign exchange rate changes on the cash and cashequivalents".
The opening balances and the comparative figures of prior year are presented at the translated amounts in the prior year's financialstatements.
On disposal of the Group's entire equity interest in a foreign operation, or upon a loss of control over a foreign operation due todisposal of certain equity interest in it or other reasons, the Group transfers the accumulated translation differences, which areattributable to the owners' equity of the Company and presented under other comprehensive income to profit or loss in the periodin which the disposal occurs.
Notes to the Financial Statements
- 113 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
9. Translation of transactions and financial statements denominated in foreign currencies - (cont’d)
9.2 Translation of financial statements denominated in foreign currency - (cont’d)
In case of a disposal or other reason that does not result in the Group losing control over a foreign operation, the proportionateshare of accumulated translation differences are re-attributed to non-controlling interests and are not recognized in profit and loss.For partial disposals of equity interest in foreign operations which are associates or joint ventures, the proportionate share of theaccumulated translation differences are reclassified to profit or loss.
10. Financial instruments
The Group recognizes a financial asset or a financial liability when it becomes a party to the contractual provisions of theinstrument. At initial recognition, the Group measures a financial asset or financial liability at its fair value plus or minus, in thecase of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable tothe acquisition or issue of the financial asset or financial liability. At initial recognition, an entity shall measure trade receivables attheir transaction price if the trade receivables do not contain a significant financing component.
10.1 Classification and measurement of financial assets
After initial recognition, an entity shall measure a financial asset at: (a) amortised cost; (b) fair value through other comprehensiveincome (“FVTOCI”); or (c) fair value through profit or loss (“FVTPL”).
10.1.1 Financial assets at amortised cost
A financial asset is measured at amortised cost if both of the following conditions are met:
(a) the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cashflows; and (b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments ofprincipal and interest on the principal amount outstanding.
Such financial assets are subsequently measured at amortised cost, using effective interest method. Gains or losses uponimpairment and derecognition are recognized in profit or loss.
10.1.1.1 Effective interest method and amortised cost
Effective interest method represents the method for calculating the amortized costs and interest income or expense of each periodin accordance with the effective interest rate of financial assets or financial liabilities (inclusive of a set of financial assets orfinancial liabilities). Effective interest rate represents the rate that discounts the future cash flow over the expected subsistingperiod or shorter period, if appropriate, of the financial asset or financial liability to the current carrying value of such financialasset or financial liability.
When calculating the effective interest rate, the Group will consider the anticipated future cash flow (not considering the futurecredit loss) on the basis of all contract clauses of financial assets or financial liabilities, as well as consider all kinds of charges,transaction fees and discount or premium paid forming an integral part of the effective interest rate paid or received between bothparties of financial asset or financial liability contract.
Notes to the Financial Statements
- 114 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
10. Financial instruments - (cont’d)
10.1 Classification and measurement of financial assets - (cont’d)
10.1.2 Financial assets at FVTOCI
A financial asset is measured at fair value through other comprehensive income if both of the following conditions are met: (a) thefinancial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and sellingfinancial assets and (b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solelypayments of principal and interest on the principal amount outstanding.
A gain or loss on a financial asset measured at fair value through other comprehensive income is recognized in othercomprehensive income, except for impairment gains or losses, foreign exchange gains and losses and interest calculated using theeffective interest method, until the financial asset is derecognized or reclassified. When the financial asset is derecognized thecumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss as areclassification adjustment.
10.1.3 Financial assets at FVTPL
Financial assets at FVTPL are either those that are classified as financial assets at FVTPL or designated as financial assets atFVTPL.
A financial asset is measured at FVTPL unless it is measured at amortised cost or at FVTOCI.
The Group may, at initial recognition, irrevocably designate a financial asset as measured at FVTPL if doing so eliminates orsignificantly reduces a measurement or recognition inconsistency (sometimes referred to as an ‘accounting mismatch’) that wouldotherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.
A gain or loss on a financial asset that is measured at FVTPL is recognized in profit or loss unless it is part of a hedgingrelationship. Dividends are recognized in profit or loss.
10.1.4 Designated financial assets at FVTOCI
At initial recognition, the Group makes an irrevocable election to designate to FVTOCI an investment in an equity instrument thatis not held for trading.
When a non-trading equity instrument investment is designated as a financial asset that is measured at fair value through othercomprehensive income, the changes in the fair value of the financial asset are recognised in other comprehensive income. Theaccumulated gains or losses from other comprehensive income are transferred from other comprehensive income and included inretained earnings. During the period in which the Group holds these non-trading investment instruments, the right to receivedividends in the Group has been established, and the economic benefits related to dividends are likely to flow into the Group, andwhen the amount of dividends can be reliably measured, the dividend income is recognized. Enter the current profit and loss.
Notes to the Financial Statements
- 115 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
10. Financial instruments - (cont’d)
10.2 Impairment of financial assets
The Group recognizes a loss allowance for expected credit losses on financial assets that are classified to amortised cost andFVTOCI.
The Group always measures the loss allowance at an amount equal to lifetime expected credit losses for trade receivables.
For financial assets other than trade receivables, the Group measure the loss allowance for that financial instrument at an amountequal to 12-month expected credit losses or lifetime expected credit losses. At each balance sheet date, if the credit risk on thatfinancial instrument has increased significantly since initial recognition, the Group measures the loss allowance for a financialinstrument at an amount equal to the lifetime expected credit losses. The Group recognizes in profit or loss, as an impairment gainor loss, the amount of expected credit losses (or reversal) that is required to adjust the loss allowance to the amount that is requiredto be recognized.
10.2.1 Significant increases in credit risk
At each balance sheet date, the Group assesses whether the credit risk on a financial instrument has increased significantly sinceinitial recognition.
The Group mainly considers the following list of information in assessing changes in credit risk:
(a) significant changes in internal price indicators of credit risk as a result of a change in credit risk since inception.(b) significant changes in external market indicators of credit risk for a particular financial instrument or similar financial
instruments with the same expected life.(c) a significant change in the debtors’ ability to meet its debt obligations.(d) an actual or expected significant change in the operating results of the debtor.(e) significant increases in credit risk on other financial instruments of the same debtor.(f) an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor.(g) significant changes in the value of the collateral supporting the obligation or in the quality of third-party guarantees
or credit enhancements, which are expected to reduce the debtor’s economic
incentive to make scheduled contractual payments or to otherwise have an effect on the probability
of a default occurring.(h) significant changes that are expected to reduce the receivable’s economic incentive to make
scheduled contractual payments.(i) significant changes in the expected performance and behaviour of the debtor.(j) past due information.
The Group assumes that the credit risk on a financial instrument has not increased significantly since initial recognition if thefinancial instrument is determined to have low credit risk at the reporting date.
Notes to the Financial Statements
- 116 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
10. Financial instruments - (cont’d)
10.2 Impairment of financial assets - (cont’d)
10.2.2 Credit-impaired financial asset
A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows ofthat financial asset have occurred. Evidence that a financial asset is credit-impaired include observable data about the followingevents:
(a) significant financial difficulty of the issuer or the receivable;
(b) a breach of contract, such as a default or past due event;(c) the lender(s) of the receivable, for economic or contractual reasons relating to the receivable’s financialdifficulty, having granted to the receivable a concession(s) that the lender(s) would not otherwise consider;(d) it is becoming probable that the receivable will enter bankruptcy or other financial reorganization;
10.2.3 Recognition of expected credit losses
For the purpose of determining significant increases in credit risk and recognizing a loss allowance on a collective basis, financialinstruments are grouped on the basis of shared credit risk. Examples of shared credit risk characteristics may include, but are notlimited to, the:(a) instrument type; (b) credit risk ratings; (c) collateral type; (d) industry; (e) geographical location of the debtor;and (f) the value of collateral relative to the financial asset if it has an impact on the probability of a default occurring.
Expected credit losses of financial instruments are determined as the present value of the difference between: (a) the contractualcash flows that are due to an entity under the contract; and (b) the cash flows that the entity expects to receive.
For a financial asset that is credit-impaired at the reporting date, an entity shall measure the expected credit losses as the differencebetween the asset’s gross carrying amount and the present value of estimated future cash flows discounted at the financial asset’soriginal effective interest rate. Any adjustment is recognized in profit or loss as an impairment gain or loss.
The Group measures expected credit losses of a financial instrument in a way that reflects:
(a) an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes;(b) the time value of money; and(c) reasonable and supportable information that is available without undue cost or effort at the reporting date about past
events, current conditions and forecasts of future economic conditions.
10.2.4 Written-off of financial assets
The Group directly reduces the gross carrying amount of a financial asset when the entity has no reasonable expectations ofrecovering a financial asset in its entirety or a portion thereof. A write-off constitutes a derecognition event.
Notes to the Financial Statements
- 117 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
10. Financial instruments - (cont’d)
10.3 Transfer of financial asset
The Group derecognizes a financial asset if one of the following conditions is satisfied: (i) the contractual rights to the cash flowsfrom the financial asset expire; or (ii) the financial asset has been transferred and substantially all the risks and rewards ofownership of the financial asset is transferred to the transferee; or (iii) although the financial asset has been transferred, the Groupneither transfers nor retains substantially all the risks and rewards of ownership of the financial asset but has not retained control ofthe financial asset.
If the Group neither transfers nor retains substantially all the risks and rewards of ownership of a financial asset, and it retainscontrol of the financial asset, it recognizes the financial asset to the extent of its continuing involvement in the transferred financialasset and recognizes an associated liability. The extent of the Group’s continuing involvement in the transferred asset is the extentto which it is exposed to changes in the value of the transferred asset.
When the company is derecognizing a financial asset in its entirety, except for equity instrument designated to FVTOCI, thedifference between (i) the carrying amount of the financial asset transferred; and (ii) the sum of the consideration received from thetransfer is recognized in profit or loss.
10.4 Classification and measurement of financial liabilities
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of thecontractual arrangements and the definitions of a financial liability and an equity instrument.
All financial liabilities are subsequently measured at FVTPL or other financial liabilities.
Financial liabilities are classified as at FVTPL when the financial liability is (i) held for trading or (ii) it is designated as at FVTPL.The financial liability other than derivative financial liabilities are stated as liabilities held for trading.
Other financial liabilities are subsequently measured at amortized cost by using effective interest method. Gain or loss arising fromderecognition or amortization is recognized in current profit or loss.
Notes to the Financial Statements
- 118 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
10. Financial instruments - (cont’d)
10.5 Derecognition of financial liabilities
Financial liabilities are derecognized in full or in part only when the present obligation is discharged in full or in part. Anagreement entered into force between the Group (debtor) and a creditor to replace the original financial liabilities with newfinancial liabilities with substantially different terms, derecognize the original financial liabilities as well as recognize the newfinancial liabilities. When financial liabilities is derecognized in full or in part, the difference between the carrying amount of thefinancial liabilities derecognized and the consideration paid (including transferred non-cash assets or new financial liability) isrecognized in profit or loss for the current period.
10.6 Derivatives
Derivative financial instruments include forward exchange contracts, currency swaps and foreign exchange options, etc.Derivatives are initially measured at fair value at the date when the derivative contracts are entered into and are subsequentlyre-measured at fair value. The resulting gain or loss is recognized in profit or loss unless the derivative is designated and highlyeffective as a hedging instrument, in which case the timing of the recognition in profit or loss depends on the nature of the hedgerelationship (Note III 29).
10.7 Offsetting financial assets and financial liabilities
Financial assets and financial liabilities shall be presented separately in the balance sheet and shall not be offset, except forcircumstances where the Group has a legal right that is currently enforceable to offset the recognized financial assets and financialliabilities, and intends either to settle on a net basis, or to realize the financial asset and settle the financial liability simultaneously,a financial asset and a financial liability shall be offset and the net amount is presented in the balance sheet.
10.8 Equity instruments
The consideration received from the issuance of equity instruments net of transaction costs is recognized in shareholders’ equity.Consideration and transaction costs paid by the Company for repurchasing self-issued equity instruments are deducted fromshareholders’ equity.
When the Company repurchases its own shares, those shares are treated as treasury shares. All expenditures relating to therepurchase are recorded in the cost of the treasury shares, with the transaction entering into the share capital. Treasury shares areexcluded from profit distributions and are stated as a deduction under shareholders’ equity in the balance sheet.
Notes to the Financial Statements
- 119 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
11. Receivable
Receivables are assessed for impairment on a collective group and/or on an individual basis as follows:
Expected credit losses in respect of a receivable is measured at an amount equal to lifetime expected credit losses. The assessmentis made collectively for account receivables, where receivables share similar credit risk characteristics based on geographicallocation, using the expected credit losses model including inter-alia aging analysis, historical loss experiences adjusted by theobservable factors reflecting current and expected future economic conditions. The ratio of the collective provision fornon-overdue account receivables is between 0%-2%.
When credit risk on a receivable has increased significantly since initial recognition, the group records specific provision orcollective provision, which is determined for groups of similar assets in countries in which there are large number of customerswith immaterial balances.
In assessing whether the credit risk on a receivable has increased significantly since initial recognition, the Group compares therisk of a default occurring on the receivable at the reporting date with the risk of a default occurring on the receivable at the date ofinitial recognition and considers both quantitative and qualitative information that is reasonable and supportable, includingobservable data that comes to the attention of the Group about loss events such as a significant decline in the solvency of anindividual debtor or the portfolio of debtors, and significant changes in the financial condition that have an adverse effect on thedebtor.
12. Inventories
12.1 Categories of inventories and initial measurement
The Group's inventories mainly include raw materials, work in progress, semi-finished goods, finished goods and reusablematerials. Reusable materials include low-value consumables, packaging materials and other materials, which can be usedrepeatedly but do not meet the definition of fixed assets.
Inventories are initially measured at cost. Cost of inventories comprises all costs of purchase, costs of conversion and otherexpenditures incurred in bringing the inventories to their present location and condition including direct labor costs and anappropriate allocation of production overheads.
12.2 Valuation method of inventories upon delivery
The actual cost of inventories upon delivery is calculated using the weighted average method.
12.3 Basis for determining net realizable value of inventories and provision methods for decline in value of inventories
At the balance sheet date, inventories are measured at the lower of cost and net realizable value. If the net realizable value is belowthe cost of inventories, a provision for decline in value of inventories is made. Net realizable value is the estimated selling price inthe ordinary course of business less the estimated costs of completion, the estimated costs necessary to make the sale and relevanttaxes.
After the provision for decline in value of inventories is made, if the circumstances that previously caused inventories to be writtendown below cost no longer exist so that the net realizable value of inventories is higher than their carrying amount, the originalprovision for decline in value is reversed and the reversal is included in profit or loss for the period.
12.4 The perpetual inventory system is maintained for stock system.
Notes to the Financial Statements
- 120 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
13. Assets held for Sale
When the Group realizes the carrying value of a non-current asset or a disposal group through sale instead of continuing operation,such asset is classified as an asset held for sale.
All the following conditions should be met for the non-current asset or disposal group to be classified as held for sale: (1) ready tobe sold in current condition, based on similar transactions or common practices; (2) the sale is more than likely to happen, i.e. theGroup has approved the sale in a resolution and obtained a certain purchase commitment, and the sale will be closed within oneyear.
The Group measures the assets held for sales at the lower of book value, and fair value less the cost of the sale. If the carryingvalue is higher than the fair value less the cost of the sale, the difference is recognized as asset impairment loss. If the fair value ofthe asset held for sale recovered subsequent to the balance sheet date, the recovery is recognized, limited to the original carryingamount of the asset, and relevant asset impairment loss is reversed.
Asset held for sale is not depreciated or amortized.
14. Long-term equity investments
Long-term equity investments include investments in subsidiaries, joint ventures and associates.
Subsidiaries are the companies that are controlled by the Company. Associates are the companies over which the Group hassignificant influence. Joint ventures are joint arrangements over which the Group has joint control along with other investors andhas rights to the net assets of the joint arrangement.
The Company accounts for the investment in subsidiaries at historical cost in the Company's financial statements. Investments inassociates and joint ventures are accounted for under equity method.
14.1 Determination of investment cost
For a long-term equity investment acquired through a business combination involving enterprises under common control, theinvestment cost of the long-term equity investment is the share of the carrying amount of the shareholders' equity of the acquireeattributable to the ultimate controlling party at the date of combination. For a long-term equity investment acquired throughbusiness combination not involving enterprises under common control, the investment cost of the long-term equity investment isthe cost of acquisition. For a business combination not involving enterprises under common control achieved in stages thatinvolves multiple exchange transactions, the initial investment cost is carried at the aggregate of the carrying amount of theacquirer’s previously held equity interest in the acquiree and the new investment cost incurred on the acquisition date.
Regarding the long-term equity investment acquired otherwise than through a business combination, if the long-term equityinvestment is acquired by cash, the historical cost is determined based on the amount of cash paid and payable; if the long-termequity investment is acquired through the issuance of equity instruments, the historical cost is determined based on the fair valueof the equity instruments issued.
Notes to the Financial Statements
- 121 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
14. Long-term equity investments - (cont’d)
14.2 Subsequent measurement and recognition of profit or loss
If the long-term equity investment is accounted for at cost, it should be measured at historical cost less accumulated impairmentlosses. Dividend declared by the investee should be accounted for as investment income.
Under the equity method, where the initial investment cost of a long-term equity investment exceeds the Group’s share of the fairvalue of the investee’s identifiable net assets at the time of acquisition, no adjustment is made to the initial investment cost. Wherethe initial investment cost is less than the Group’s share of the fair value of the investee’s identifiable net assets at the time ofacquisition, the difference is recognized in profit or loss for the period, and the cost of the long-term equity investment is adjustedaccordingly.
Under the equity method, the Group recognizes its share of the net profit or loss and other comprehensive income of the investeefor the period as investment income or loss and other comprehensive income for the period. The Group recognizes its share of theinvestee’s net profit or loss based on the fair value of the investee’s individual separately identifiable assets, etc. at the acquisitiondate after making appropriate adjustments to be confirmed with the Group's accounting policies and accounting period. The Groupdiscontinues recognizing its share of net losses of the investee after the carrying amount of the long-term equity investmenttogether with any long-term interests that in substance form part of its net investment in the investee is reduced to zero. If theGroup has incurred obligations to assume additional losses of the investee, a provision is recognized according to the expectedobligation, and recorded as investment loss for the period.
14.3 Basis for determining control, joint control and significant influence over investee
Control is achieved when the Company has power over the investee; is exposed, or has rights, to variable returns from itsinvolvement with the investee; and has the ability to use its power to affect its returns.
Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financialand operating policy decisions relating to the activity require the unanimous consent of the parties sharing control.
Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control orjoint control over those policies.
When determining whether an investing enterprise is able to exercise control or significant influence over an investee, the effect ofpotential voting rights of the investee (for example, warrants and convertible debts) held by the investing enterprises or otherparties that are currently exercisable or convertible shall be considered.
14.4 Methods of impairment assessment and determining the provision for impairment loss
If the recoverable amounts of the investments to subsidiaries, joint ventures and associates are less than their carrying amounts, animpairment loss should be recognized to reduce the carrying amounts to the recoverable amounts (Note III 21).
14.5 The disposal of long-term equity investment
On disposal of a long term equity investment, the difference between the proceeds actually received and receivable and thecarrying amount is recognized in profit or loss for the period.
Notes to the Financial Statements
- 122 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
15. Investment properties
Investment property refers to real estate held to earn rentals or for capital appreciation, or both, including leased land use rights,land use rights held and provided for transferring after appreciation and leased constructions, etc.
Investment property is initially measured at cost. Subsequent expenditures related to an investment property shall be included incost of investment property only when the economic benefits associated with the asset will likely flow to the Group and its costcan be measured reliably. All other subsequent expenditures on investment property shall be included in profit or loss for thecurrent period when incurred.
The Group adopts cost method for subsequent measurement of investment property, which is depreciated or amortized using thesame policy as that for buildings and land use rights.
When an investment property is sold, transferred, retired or damaged, the amount of proceeds on disposal of the property net of thecarrying amount and related taxes and surcharges is recognized in profit or loss for the current period.
16. Fixed assets
16.1 Recognition criteria for fixed assets
Fixed assets include land owned by the Group and buildings, machinery and equipment, transportation vehicles, office equipmentand others.
Fixed assets are tangible assets that are held for use in the production or supply of goods or for administrative purposes, and haveuseful lives of more than one accounting year. A fixed asset is recognized only when it is probable that economic benefitsassociated with the asset will flow to the Group and the cost of the asset can be reliably measured. Purchased or constructed fixedassets are initially measured at cost when acquired.
Subsequent expenditures incurred for the fixed asset are included in the cost of the fixed asset and if it is probable that economicbenefits associated with the asset will flow to the Group and the subsequent expenditures can be measured reliably. Othersubsequent expenditures are recognized in profit or loss in the period in which they are incurred.
Notes to the Financial Statements
- 123 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
16. Fixed assets - (cont’d)
16.2 Depreciation of each category of fixed assets
Fixed asset is depreciated based on the cost of fixed asset recognized less expected net residual value over its useful life using thestraight-line method since the month subsequent to the one in which it is ready for intended use. Depreciation is calculated basedon the carrying amount of the fixed asset after impairment over the estimated remaining useful life of the asset.
The Group reviews the useful life and estimated net residual value of a fixed asset and the depreciation method applied at leastonce at each financial year-end, and account for any change as a change in an accounting estimate.
The estimated useful life, estimated net residual value and annual depreciation rate of each category of fixed assets are as follows:
Category Depreciation
Useful life
(years)
Residual
value(%)
Annualdepreciation rate
(%)
| Buildings | the straight | - | line method | 15 | - | 50 | 0 | - | 4 | 1.9 | - | 6.7 | ||||||||||||||||||||||
| Machinery and equipment | the straight | - | line method | 3 | 22 | 0 | - | 4 | 4.4 | 33.3 | ||||||||||||||||||||||||
| Office and other equipment | the straight | - | line method | 3 | 17 | 0 | - | 4 | 5.6 | 33.3 | ||||||||||||||||||||||||
| Motor vehicles | the straight | - | line method | 5 | - | 9 | 0 | - | 2 | 10.9 | - | 20.0 | ||||||||||||||||||||||
Land owned by the Group is not depreciated.
16.3 Other explanations
If a fixed asset is upon disposal or no future economic benefits are expected to be generated from its use or disposal, the fixed assetis derecognized. When a fixed asset is sold, transferred, retired or damaged, the amount of any proceeds on disposal of the assetnet of the carrying amount and related taxes is recognized in profit or loss for the period.
The difference between recoverable amounts of the fixed assets under the carrying amount is referred to as impairment loss (NoteIII 21).
17. Construction in progress
Construction in progress is measured at its actual costs. The actual costs include various construction, installation costs, borrowingcosts capitalized and other expenditures incurred until such time as the relevant assets are completed and ready for its intended use.When the asset concerned is ready for its intended use, the cost of the asset is transferred to fixed assets and depreciated startingfrom the following month.
The difference between recoverable amounts of the construction in progress under the carrying amount is referred to as impairmentloss (Note III 21).
Notes to the Financial Statements
- 124 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
18. Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying asset are capitalized whenexpenditures for such asset and borrowing costs are incurred and activities relating to the acquisition, construction or production ofthe asset that are necessary to prepare the asset for its intended use or sale have commenced. Capitalization of borrowing costsceases when the qualifying asset being acquired, constructed or produced becomes ready for its intended use or sale. Borrowingcosts incurred subsequently should be charged to profit or loss. Capitalization of borrowing costs is suspended during periods inwhich the acquisition, construction or production of a qualifying asset is suspended abnormally and when the suspension is for acontinuous period of more than 3 months. Capitalization is suspended until the acquisition, construction or production of the assetis resumed.
Where funds are borrowed under a specific-purpose borrowing, the amount of interest to be capitalized is the actual interestexpenses incurred on that borrowing for the period less any bank interest earned from depositing the borrowed funds before beingused on the asset or any investment income on the temporary investment of those funds.
Where funds are borrowed under general-purpose borrowings, the Group determines the amount of interest to be capitalized onsuch borrowings by applying a capitalization rate to the weighted average of the excess of cumulative expenditures on the assetover the amounts of specific-purpose borrowings. The capitalization rate is the weighted average of the interest rates applicable tothe general-purpose borrowings.
During the capitalization period, exchange differences on foreign currency specific-purpose borrowing are fully capitalizedwhereas exchange differences on foreign currency general-purpose borrowing is charged to profit or loss.
19. Intangible assets
19.1 Valuation methods, service life, impairment test
The Group’s intangible assets include product registration assets, intangible assets upon purchase of products, marketing rights andrights to use trademarks, land use rights and software. Intangible assets are stated at the balance sheet at cost less accumulatedamortization and impairment losses.
When an intangible asset with a finite useful life is available for use, its original cost less any accumulated impairment losses isamortized over its estimated useful life using the straight-line method. An intangible asset with an indefinite useful life is notamortized.
For an intangible asset with a finite useful life, the Group reviews the useful life and amortization method at the end of the year,and makes adjustments when necessary.
The respective amortization periods for such intangible assets are as follows:
| Item | Amortization period | ( | years) | ||||||||||||||||||||||||||
| Land use rights | 49 | - | 50 years | ||||||||||||||||||||||||||
| Product registration | 8 years | ||||||||||||||||||||||||||||
| Intangible assets on purchase of products | Mainly 7 | 11, 20 | |||||||||||||||||||||||||||
| Marketing rights and trademarks | 4 | - | 10 years | ||||||||||||||||||||||||||
| Software | 3 | - | 5 years | ||||||||||||||||||||||||||
The difference between recoverable amounts of the intangible assets under the carrying amount is referred to as impairment loss(see Note III 21).
Notes to the Financial Statements
- 125 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
19. Intangible assets - (cont’d)
19.2 Research and development expenditure
Internal research and development project expenditures were classified into research expenditures and development expendituresdepending on its nature and the greater uncertainty whether the research activities becoming to intangible assets.
Expenditure during the research phase is recognized as an expense in the period in which it is incurred. Expenditure during thedevelopment phase that meets all of the following conditions at the same time is recognized as intangible asset:
- It is technically feasible to complete the intangible asset so that it will be available for use or sale;- The Group has the intention to complete the intangible asset and use or sell it;- The Group can demonstrate the ways in which the intangible asset will generate economic benefits;- The availability of adequate technical, financial and other resources to complete the development and the
ability to use or sell the intangible asset;- The expenditure attributable to the intangible asset during its development phase can be reliably
measured.
Expenditures that do not meet all of the above conditions at the same time are recognized in profit or loss when incurred. If theexpenditures cannot be distinguished between the research phase and development phase, the Group recognizes all of them inprofit or loss for the period. Expenditures that have previously been recognized in the profit or loss would not be recognized as anasset in subsequent years. Those expenditures capitalized during the development stage are recognized as development costsincurred and will be transferred to intangible asset when the underlying project is ready for an intended use.
20. Goodwill
The initial cost of goodwill represents the excess of cost of acquisition over the acquirer’s interest in the fair value of theidentifiable net assets of the acquiree under a business combination not involving enterprises under common control.
Goodwill is not amortized and is stated in the balance sheet at cost less accumulated impairment losses(see Note III 21). On disposal of an asset group
or a set of asset groups, any attributable goodwill is writtenoff and included in the calculation of the profit or loss on disposal.
21. Impairment of long-term assets
The Company assesses at each balance sheet date whether there is any indication that the fixed assets, construction in progress,intangible assets with finite useful lives, investment properties measured at historical cost, investments in subsidiaries, jointventures and associates may be impaired. If there is any indication that such assets may be impaired, recoverable amounts areestimated for such assets. The recoverable amount of an asset is the higher of its fair value less costs to sell and the present value ofthe future cash flow estimated to be derived from the asset. The Group estimates the recoverable amount on an individual basis. Ifit is not possible to estimate the recoverable amount of the individual asset, the Group determines the recoverable amount of theasset group to which the asset belongs. Identification of an asset group is based on whether major cash inflows generated by theasset group are largely independent of the cash inflows from other assets or asset groups.
Notes to the Financial Statements
- 126 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
21. Impairment of long-term assets - (cont’d)
Goodwill arising from a business combination is tested for impairment at least at each year end, irrespective of whether there isany indication that the asset may be impaired. For the purpose of impairment testing, the carrying amount of goodwill acquired ina business combination is allocated from the acquisition date on a reasonable basis to each of the related asset groups; if it isimpossible to allocate to the related asset groups, it is allocated to each of the related set of asset groups. Each of the related assetgroups or set of asset groups is an asset group or set of asset group that is able to benefit from the synergies of the businesscombination and shall not be larger than a reportable segment determined by the Group. If the carrying amount of the asset groupor set of asset groups is higher than its recoverable amount, the amount of the impairment loss first reduced by the carrying amountof the goodwill allocated to the asset group or set of asset groups, and then the carrying amount of other assets (other than thegoodwill) within the asset group or set of asset groups, pro rata based on the carrying amount of each asset.
Once the impairment loss of such assets is recognized, it will not be reversed in any subsequent period.
22. Employee benefits
22.1 Short-term employee benefits
Employee wages or salaries, bonuses, social security contributions, measured on a non-discounted basis, and the expense isrecorded when the related service is provided. A provision for short-term employee benefits in respect of cash bonuses isrecognized in the amount expected to be paid where the Group has a current legal or constructive obligation to pay the said amountfor services provided by the employee in the past and the amount can be estimated reliably.
22.2 Post-employment benefits
Post-employment benefits are classified into defined contribution plans and defined benefit plans.
A defined contribution plan is a post-employment benefit plan under which the Group pays contributions to a separate entity andhas no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans arerecognized as an expense in profit or loss in the periods during which related services are rendered by employees.
Defined benefit plans of the Group are post-employment benefit plans other than defined contribution plans. In accordance withthe projected unit credit method, the Group measures the obligations under defined benefit plans using unbiased and mutuallycompatible actuarial assumptions to estimate related demographic variables and financial variables, and discount obligations underthe defined benefit plans to determine the present value of the defined benefit liability. The discount rate used is the yield on thereporting date on highly-rated corporate debentures denominated in the same currency, that have maturity dates approximating theterms of the Group’s obligation.
The Group attributes benefit obligations under a defined benefit plan to periods of service provided by respective employees.Service cost and interest expense on the defined benefit liability are charged to profit or loss and remeasurements of the definedbenefit liability are recognized in other comprehensive income.
Notes to the Financial Statements
- 127 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
22. Employee benefits - (cont’d)
22.3 Termination benefits
When the Group terminates the employment with employees or provides compensation under an offer to encourage employees toaccept voluntary redundancy, a provision is recognized with a corresponding expense in profit or loss at the earlier of the followingdates:
- When the Group cannot unilaterally withdraw the offer of termination benefits because of an employee termination plan or a
curtailment proposal.- When the Group has a formal detailed restructuring plan involving the payment of termination benefits and has raised a valid
expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main
features to those affected by it.
If the benefits are payable more than 12 months after the end of the reporting period, they are discounted to their present value.The discount rate used is the yield on the reporting date on highly-rated corporate debentures denominated in the same currency,that have maturity dates approximating the terms of the Group’s obligation.
22.4 Other long-term employee benefits
The Group’s net obligation for long-term employee benefits, which are not attributable to post-employment benefit plans, is for theamount of the future benefit to which employees are entitled for services that were provided during the current and prior periods.
The amount of these benefits is discounted to its present value and the fair value of the assets related to these obligations isdeducted therefrom. The discount rate used is the yield on the reporting date on highly-rated corporate debentures denominated inthe same currency, that have maturity dates approximating the terms of the Group’s obligation.
23. Provisions
Provisions are recognized when the Group has a present obligation related to a contingency, it is probable that an outflow ofeconomic benefits will be required to settle the obligation, and the amount of the obligation can be measured reliably.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at thesettlement date, taking into account factors pertaining to a contingency such as the risks, uncertainties and time value of money.Where the effect of the time value of money is material, the amount of the provision is determined by discounting the relatedfuture cash outflows. The increase in the provision due to passage of time is recognized as interest expense.
If all or part of the provision settlements is reimbursed by third parties, when the realization of income is virtually certain, then therelated asset should be recognized. However, the amount of related asset recognized should not be exceeding the respectiveprovision amount.
At the balance sheet date, the amount of provision should be re-assessed to reflect the best estimation then.
Notes to the Financial Statements
- 128 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
24. Share-based payment
Share-based payment refers to the transaction in order to acquire the service offered by the employees or other parties that grantsequity instruments or liabilities on the basis of the equity instruments. Share-based payment classified into equity-settledshare-based payment and cash-settled share-based payment.
24.1 Cash-settled share-based payment
The cash-settled share-based payment should be measured according to the fair value of the liabilities recognized based on theshares or other equity instrument undertaken by the Company. For cash-settled share-based payment made in return for therendering of employee services that cannot be exercised until the services are fully provided during the vesting period or specifiedperformance targets are met, on each balance sheet date within the vesting period, the services acquired in the current period shall,based on the best estimate of the number of exercisable instruments, be recognized in relevant expenses and the correspondingliabilities at the fair value of the liability incurred by the Company.
On each balance sheet date and the settlement date before the settlement of the relevant liabilities, the Company should re-measurethe fair value of the liabilities and the changes should be included in the current period profit and loss.
25. Revenue
Revenue of the Group is mainly from sale of goods.
The Group recognizes revenue when transferring goods to a customer, at the amount of the transaction price. An asset istransferred when the customer obtains control of that asset. Transaction price is the amount of consideration to which an entityexpects to be entitled in exchange for transferring goods to a customer, excluding amounts collected on behalf of third parties.
Significant financing component
For a contract with a significant financing component, the Group recognize revenue at an amount that reflects the price that acustomer would have paid for the goods if the customer had paid cash for those goods when they transfer to the customer. Thedifference between the amount of consideration and the cash selling price of the goods, is amortized in the contract period with theeffective interest rate. The Group does not adjust the amount of consideration for the effects of a significant financing componentif the Group expects, at contract inception, that the period between when the entity transfers a good to a customer and when thecustomer pays for that good will be one year or less.
Sale with a right of return
For sale with a right of return, the Group recognizes revenue at the amount of consideration to which the Group expects to beentitled (ie excluding the products expected to be returned). For any amounts received (or receivable) for which an entity does notexpect to be entitled, the entity shall not recognize revenue when it transfers products to customers but shall recognize thoseamounts received (or receivable) as a refund liability. An asset recognized for the Group’s right to recover products from acustomer on settling a refund liability shall initially be measured by reference to the former carrying amount of the product lessany expected costs to recover those products.
Notes to the Financial Statements
- 129 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
26. Government grants
Government grants are transfer of monetary assets and non-monetary assets from the government to the Group at no consideration,including tax returns, financial subsidies and so on. A government grant is recognized only when the Group can comply with theconditions attached to the grant and the Group will receive the grant.
If a government grant is in the form of a transfer of a monetary asset, it is measured at the amount received or receivable. If agovernment grant is in the form of a non-monetary asset, it is measured at fair value. If the fair value cannot be reliably determined,it is measured at a nominal amount. A government grant measured at a nominal amount is recognized immediately in profit or lossfor the period.
Government grants are either related to assets or income.
(1) The basis of judgment and accounting method of the government grants related to assets
Government grants obtained for acquiring long-term assets are government grants related to assets. A government grant related toan asset is offset with the cost of the relevant asset.
(2) The basis of judgment and accounting method of the government grants related to income
For a government grant related to income, if the grant is a compensation for related expenses or losses to be incurred in subsequentperiods, the grant is recognized as deferred income, and recognized in profit or loss over the periods in which the related costs arerecognized. If the grant is a compensation for related expenses or losses already incurred, the grant is recognized immediately inprofit or loss for the period.
Government grants related to the Group’s normal course of business are offset with related costs and expenses. Government grantsrelated that are irrelevant with the Groups’s normal course of business are included in non-operating gains.
27. Deferred tax assets/deferred tax liabilities
The income tax expenses include current income tax and deferred income tax.
27.1 Current income tax
At the balance sheet date, current income tax liabilities (or assets) for the current and prior periods are measured at the amountexpected to be paid (or recovered) according to the requirements of tax laws.
27.2 Deferred tax assets and deferred tax liabilities
Temporary differences are differences between the carrying amounts of certain assets or liabilities and their tax base.
All taxable temporary differences are recognized as related deferred tax liabilities. Deferred tax assets are recognized to the extentthat it is probable that future taxable profits will be available against which the deductible losses and tax credits can be utilized.
Notes to the Financial Statements
- 130 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
27. Deferred tax assets/deferred tax liabilities - (cont’d)
27.2 Deferred tax assets and deferred tax liabilities - (cont’d)
For deductible losses and tax credits that can be carried forward, deferred tax assets are recognized to the extent that it is probablethat future taxable profits will be available against which the deductible losses and tax credits can be utilized. However, fordeductible temporary differences associated with the initial recognition of goodwill and the initial recognition of an asset orliability arising from a transaction (not a business combination) that affects neither the accounting profit nor taxable profits (ordeductible losses) at the time of transaction, no deferred tax asset or liability is recognized.
At the balance sheet date, deferred tax assets and liabilities are measured at the tax rates, according to tax laws, that are expected toapply in the period in which the asset is realized or the liability is settled.
Deferred tax liabilities are recognized 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 timing of the reversal of the temporary difference andit is probable that the temporary difference will not reverse in the foreseeable future.
The Group may be required to pay additional tax in case of distribution of dividends by the Group companies. This additional taxwas not included in the financial statements, since the policy of the Group is not to distribute in the foreseeable future a dividendwhich creates a significant additional tax liability.
Except for those current income tax and deferred tax charged to comprehensive income or shareholders’ equity in respect oftransactions or events which have been directly recognized in other comprehensive income or shareholders’ equity, and deferredtax recognized on business combinations, all other current income tax and deferred tax items are charged to profit or loss in thecurrent period.
At the balance sheet date, the carrying amount of deferred tax assets is reviewed and reduced if it is no longer probable thatsufficient taxable profits will be available in the future to allow the benefit of deferred tax assets to be utilized. Such reduction isreversed when it becomes probable that sufficient taxable profits will be available.
27.3 Offset of income tax
When the Group has a legal right to settle on a net basis and intends either to settle on a net basis or to realize the assets and settlethe liabilities simultaneously, current tax assets and current tax liabilities are offset and presented on a net basis.
When the Group has a legal right to settle current tax assets and liabilities on a net basis, and deferred tax assets and deferred taxliabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entitieswhich intend either to settle current tax assets and liabilities on a net basis or to realize the assets and liabilities simultaneously, ineach future period in which significant amounts of deferred tax assets or liabilities are expected to be reversed, deferred tax assetsand deferred tax liabilities are offset and presented on a net basis.
Notes to the Financial Statements
- 131 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
28. Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownershipto the lessee. All other leases are classified as operating leases.
28.1 The Group as lessee under operating leases
Operating lease payments are recognized on a straight-line basis over the term of the relevant lease, and are either included in thecost of related asset or charged to profit or loss for the period. Initial direct costs incurred are charged to profit or loss for theperiod.
28.2 The Group as lessor under operating leases
Rental income from operating leases is recognized in profit or loss on a straight-line basis over the term of the relevant lease.Initial direct costs with more than an insignificant amount are capitalized when incurred, and are recognized in profit or loss on thesame basis as rental income over the lease term. Other initial direct costs with an insignificant amount are charged to profit or lossin the period in which they are incurred.
28.3 The Group as lessee under finance leases
At the commencement of the lease term, the Group records the leased asset at an amount equal to the lower of the fair value of theleased asset and the present value of the minimum lease payments at the inception of the lease, and recognizes a long-term payableat an amount equal to the minimum lease payments. The difference between the recorded amounts is deferred. Besides, initialdirect costs that are attributable to the leased item incurred during the process of negotiating and securing the lease agreement arealso added to the amount recognized for the leased asset.
The deferred expenses are recognized as financial expenses in profit or loss using the effective interest method over the lease term.Contingent rents are credited to profit or loss in the period in which they are actually incurred. The net amount of minimum leasepayments less deferred expense is separated into long-term liabilities and the portion of long-term liabilities due within one yearfor presentation.
29. Other significant accounting policies and accounting estimates
29.1 Hedging
The Group uses derivative financial instruments to hedge its risks related to foreign currency and inflation risks and derivativesthat are not used for hedging.
Hedge accountingOn the commencement date of the accounting hedge, the Group formally documents the relationship between the hedginginstrument and hedged item, including the Group’s risk management objectives and strategy in executing the hedge transaction,together with the methods that will be used by the Group to assess the effectiveness of the hedging relationship.
The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedgeis expected to be effective in offsetting the changes in the fair value of cash flows that can be attributed to the hedged risk duringthe period for which the hedge is designated.
Notes to the Financial Statements
- 132 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
29. Other significant accounting policies and accounting estimates - (cont’d)
29.1 Hedging (cont’d)
An effective hedge exists when all of the below conditions are met:
? There is an economic relationship between the hedged item and the hedging instrument;? the effect of credit risk does not dominate the value changes that result from that economic relationship;? the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the
entity actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity ofhedged item.
With respect to a cash-flow hedge, a forecasted transaction that constitutes a hedged item must be highly probable and must giverise to exposure to changes in cash flows that could ultimately affect profit or loss.
Measurement of derivative financial instrumentsDerivative financial instruments are recognized initially at fair value; attributable transaction costs are recognized in profit or lossas incurred.
Cash-flow hedges
Subsequent to the initial recognition, changes in the fair value of derivatives used to hedge cash flows are recognized through othercomprehensive income directly in a hedging reserve, with respect to the part of the hedge that is effective. Regarding the portion ofthe hedge that is not effective, the changes in fair value are recognized in profit and loss. The amount accumulated in the hedgingreserve is reclassified to profit and loss in the period in which the hedged cash flows impact profit or loss and is presented in thesame line item in the statement of income as the hedged item.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, the hedgeaccounting is discontinued. The cumulative gain or loss previously recognized in a hedging reserve through other comprehensiveincome remains in the reserve until the forecasted transaction occurs or is no longer expected to occur. If the forecasted transactionis no longer expected to occur, the cumulative gain or loss in respect of the hedging instrument in the hedging reserve isreclassified to profit or loss.
Economic hedge
Hedge accounting is not applied with respect to derivative instruments used to economically hedge financial assets and liabilitiesdenominated in foreign currency or CPI linked. Changes in the fair value of such derivatives are recognized in profit or loss asfinancing income or expenses.
Derivatives that are not used for hedging
Changes in the fair value of derivatives that are not used for hedging are recognized in profit or loss as financing income orexpenses.
29.2 Securitization of assets
Details of the securitization of asset agreements and accounting policy are set out in Note V.4 Bills Receivable and Accountreceivables
29.3 Segment reporting
Reportable segments are identified based on operating segments which are determined based on the structure of the Group’sinternal organization, management requirements and internal reporting system.
Notes to the Financial Statements
- 133 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
29. Other significant accounting policies and accounting estimates - (cont’d)
29.3 Segment reporting - (cont’d)
Two or more operating segments may be aggregated into a single operating segment if the segments have similar economiccharacteristics and are same or similar in respect of the nature of each product and service, the nature of production processes, thetype or class of customers for the products and services, the methods used to distribute the products or provide the services, and thenature of the regulatory environment.
Inter-segment revenues are measured on the basis of actual transaction price for such transactions for segment reporting. Segmentaccounting policies are consistent with those for the consolidated financial statements.
29.4 Profit distributions to shareholders
Dividends which are approved after the balance sheet date are not recognized as a liability at the balance sheet date but aredisclosed in the notes separately.
30. Changes in significant accounting policies and accounting estimates
30.1 Changes in significant accounting policies
| The contents and reasons for the changes of accounting policies | Process for management approval |
The Group began to adopt the following revised Accounting Standards forBusiness Enterprises (“ASBE”) promulgated by Ministry of Finance fromJanuary 1, 2018:
“Revised ASBE 22 - Financial Instruments Recognition and Measurement”,“Revised ASBE 23 - Transfer of Financial Assets”, “Revised ASBE 24 -Hedging”, “Revised ASBE 37 - Presentation and Disclosures of Financialinstruments” (“new financial instrument standards”), and “Revised ASBE 14 -Revenue” (“new revenue standard”), promulgated on 2017.Financial Instruments
According to new financial instrument standards, financial assets areclassified as one of the following three categories: financial assets measuredat amortized cost, financial assets measured at fair value through othercomprehensive income (FVTOCI), and financial assets measured at fair valuethrough profit and loss (FVTPL), based on the “business model” and“contractual cash flow characteristics”. The categories of loans andreceivables, held-to-maturity investments and available-for-sale financialassets in the old financial instrument standards are cancelled. Equityinvestments are normally classified as financial assets at FVTPL, while it ispermitted to irrevocably designate non-trading equity investments as financialassets at FVTOCI, and cumulative gain or loss previously recognized in othercomprehensive income should not be classified to profit or loss uponderecognition.
Impairment requirements in new financial instrument standards are applied tofinancial assets at amortized cost and FVTOCI, based on the “expected creditloss method”. The new impairment model requires a three-stage model, torecognize 12-month or lifetime expected credit losses, depending on whethercredit risk on a financial instrument has increased significantly since initialrecognition. An entity shall always measure the loss allowance at an amountequal to lifetime expected credit losses for trade receivables that do not
| have a significant financing component. |
The change in the accountingpolicy was approved by the boardof directors meeting in 2018.4.26.
Notes to the Financial Statements
- 134 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
30. Changes in significant accounting policies and accounting estimates - (cont’d)
30.1 Changes in significant accounting policies - (cont’d)
The contents and reasons for the changes of accounting policies Process for management approval
Revenue
New revenue standards introduced the 5-step approach, and provides moreguidance for special transactions and events. Refer to Note III.25 for details ofthe Group’s revenue recognition and measurement.
According to the new standards, opening balances should be adjusted foraccumulated impact, with regards to retained earnings and other relevant
| accounts, with no adjustments for comparative information. |
The change in the accountingpolicy was approved by the boardof directors meeting in 2018.4.26.
In preparation of 2018 annual report, the group began to adopt the Notice onRevising the Format of 2018 Financial Statements for General Enterprisepromulgated by Ministry of Finance on June 15th, 2018 (Caikuai [2018]No.15, hereinafter “Caikuai No.15”). Caikuai No.15 revised the accounts inbalance sheet and income statements, including:
newly added “Notes and Accounts Receivable”, “Notes and AccountsPayable” and “Research and Development Expenses”; revised the disclosureof “Other Receivables”, “Fixed Assets”, “Construction in Progress”, “OtherPayables”, “Long-term Payables” and “General and Administrative Expense”;deleted “Notes receivable”, “Accounts Receivable”, “Dividends Receivable
”,
“Interests Receivable”, “Disposal of Fixed Assets”, “Projects Material”,“Notes Payable”, “Accounts Payable”, “Interest Payable”, “DividendsPayable” and “Special Accounts Payable”. Caikuai No.15 also added thedisclosure of “Including: Interest Expense” and “Interest Income” assub-accounts of “Financial Expense” and adjusted the sequence of someaccounts in Income Statement. The above modifications were retrospectivelyadjusted for comparative numbers.
”,The Change has no significant impact on the Company
| The Change has no significant impact on the Company | ’ | s financial statements. |
The change in the accountingpolicy was approved by the boardof directors meeting in 2019.3.19.
Notes to the Financial Statements
- 135 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
30. Changes in significant accounting policies and accounting estimates - (cont’d)
Note 1: Transfer from loans and receivables to fair value
According to the Standard, the classification of financial assets that constitute debt instruments is generally based on the businessmodel in which a financial asset is managed and its contractual cash flow characteristics.Trade receivables that are included in the securitization transaction for which consideration has not yet been received, are measuredat fair value through profit or loss. As a result of the implementation of the Standard, as at January 1, 2018, the balance of otherreceivables decreased by 8,279 thousand RMB with a corresponding decrease in retained earnings.
Note 2: Transfer from available-for-sale financial assets to other equity investmentsAs at January 1, 2018, available-for-sale financial assets were designated as financial assets at FVTOCI and reclassified to otherequity investments. Such equity investments are not expected to be sold within the foreseeable future.
Since those equity investments are not quoted in an active market, according to old financial instrument standards, the investmentswere measured at cost.
Commencing January 1, 2018, such equity investments are measured at FVTOCI. Impairment loss recognized in prior periods ofRMB 11,991 was reclassified from retained earnings to OCI, the investments were revaluated through OCI in the amount of RMB71,546 and the deferred tax assets decreased by RMB 8,934. The OCI was increased by net amount of RMB 50,621.
Note 3: Expected credit loss
Commencing from January 1, 2018, the Group recognize credit loss impairment in accordance with new financial instrumentstandards.
The Standard includes a new model for the recognition of expected credit loss ('expected credit loss’ model) for financial assets thatare not measured at fair value through profit or loss. As a result of the implementation of the Standard, as of January 1, 2018, theprovision for impairment of trade receivables increased by RMB 18,275, the deferred tax assets increased by RMB 6,475 with acorresponding decrease of RMB 11,800 in retained earnings.
Note 4: Significant financing component in revenue recognition - (cont’d)
In assessing whether a contract contains a significant financing component, the Group examines, among other things, the expectedlength of time between the date on which the Group transfers the goods to the customer and the date on which the customer paysfor the goods less than one year. In cases where the difference is one year or less, the Group applies the practical relief prescribed inthe Standard and does not separate the significant financing component.
As a result of the implementation of the Standard, as of January 1, 2018, the balance of trade receivables increased by RMB 71,406and deferred tax assets decreased by RMB 23,837, with a corresponding increase of RMB 47,569 in retained earnings.
Opening balance adjustment due to adoption of new accounting standards for financial instrument or revenue
Notes to the Financial Statements
- 136 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
30. Changes in significant accounting policies and accounting estimates - (cont’d)30.1 Changes in significant accounting policies - (cont’d)
Consolidated Balance Sheet
Impact fromadoption of newrevenue standards
Impact fromadoption of newfinancial instrument
standards
December 31
2017
January 1
2018
| Current assets | |||||||||||||||||||
| Cash at bank and on hand | 7,868,858 | - | 7,868,858 | ||||||||||||||||
| Financial assets held for trading | N/A | 23,000 | 23,000 | ||||||||||||||||
Financial assets at fair value
| through profit or loss |
23,000
-
(23,000)
N/A
| Derivative financial assets | 455,153 | - | - | 455,153 | ||||||||||||||||||||||||||||||||||||||
| Bills and accounts receivable | 5,236,880 | 71,406 | ( | 18,275 | 5, | 290,011 | ||||||||||||||||||||||||||||||||||||
| Including: Bills receivable | 180,030 | 180,030 | ||||||||||||||||||||||||||||||||||||||||
| Accounts receivable | 5,056,850 | 71,406 | (18,275) | 5,109,981 | ||||||||||||||||||||||||||||||||||||||
| Prepayments | 202,111 | 202,111 | ||||||||||||||||||||||||||||||||||||||||
| Other receivables | 1,037,836 | (8,279) | 1,029,557 | |||||||||||||||||||||||||||||||||||||||
| Inventories | 7,488,238 | 7,488,238 | ||||||||||||||||||||||||||||||||||||||||
| Assets held for sale | 403,297 | 403,297 | ||||||||||||||||||||||||||||||||||||||||
| Non | - | current | assets due within one year | 46 | 46 | |||||||||||||||||||||||||||||||||||||
| Other current assets | ||||||||||||||||||||||||||||||||||||||||||
614,925
-
-
614,925
| Total current assets | ||||||||||
23,330,344
71,406
(26,554)
23,375,196
Non-current assets
| Available | for | - | sale financial assets | 19,544 | (19,544) | N/A | |||||||||||||||||||||||||||||||||||
| Long | - | term accounts | receivable | 192,968 | - | 192,968 | |||||||||||||||||||||||||||||||||||
| Long | - | term equity investments | 102,383 | 102,383 | |||||||||||||||||||||||||||||||||||||
| Other equity investments | N/A | 91,090 | 91,090 | ||||||||||||||||||||||||||||||||||||||
| Investment properties | 4,408 | 4,408 | |||||||||||||||||||||||||||||||||||||||
| Fixed assets | 6,141,490 | 6,141,490 | |||||||||||||||||||||||||||||||||||||||
| Construction in progress | 803,421 | 803,421 | |||||||||||||||||||||||||||||||||||||||
| Intangible assets | 4,036,588 | 4,036,588 | |||||||||||||||||||||||||||||||||||||||
| Goodwill | 3,890,097 | 3,890,097 | |||||||||||||||||||||||||||||||||||||||
| Deferred tax assets | 891,012 | (23,837) | (2,459) | 864,716 | |||||||||||||||||||||||||||||||||||||
| Other non | current assets | ||||||||||||||||||||||||||||||||||||||||
201,667
-
-
201,667
Total non-current assets
16,283,578
(23,837)
69,087
16,328,828
| Total assets |
39,613,922
47,569
42,533
39,704,024
Notes to the Financial Statements
- 137 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
30. Changes in significant accounting policies and accounting estimates - (cont’d)30.1 Changes in significant accounting policies - (cont’d)
Consolidated Balance Sheet - (cont’d)
December 31
2017
Impact from
new revenue
standards
adoption of
Impact fromadoption of new
financialinstrument
standards
January 1
2018
Current liabilities
| Short | term loans | 2,280,912 | - | - | 2,280,912 | |||||||||||||||||||||||||||||||||||||||
| Derivative financial liabilities | 789,050 | 789,050 | ||||||||||||||||||||||||||||||||||||||||||
| Bills and accounts payable | 4,218,038 | 4,218,038 | ||||||||||||||||||||||||||||||||||||||||||
| Advances from customers | 226,711 | (226,711) | - | |||||||||||||||||||||||||||||||||||||||||
| Contract liabilities | N/A | 746,578 | 746 | , | 578 | |||||||||||||||||||||||||||||||||||||||
| Employee benefits | payable | 995,637 | 995,637 | |||||||||||||||||||||||||||||||||||||||||
| Taxes payable | 431,275 | 431,275 | ||||||||||||||||||||||||||||||||||||||||||
| Other payables | 1,422,734 | (503,362) | 919,372 | |||||||||||||||||||||||||||||||||||||||||
| Including: Interest payable | 46,491 | 46,491 | ||||||||||||||||||||||||||||||||||||||||||
| Dividends payable | 250 | 250 | ||||||||||||||||||||||||||||||||||||||||||
| Non | - | current liabilities due within one | year | 448,504 | 448,504 | |||||||||||||||||||||||||||||||||||||||
| Other current liabilities | ||||||||||||||||||||||||||||||||||||||||||||
482,583
-
(16,505)
466,078
| Total current liabilities | ||||||||||
11,295,444
-
-
11,295,444
| Non | - | current liabilities | |||||||||||||||||||||||||||||
| Long | term loans | 514,320 | - | - | 514,320 | ||||||||||||||||||||||||||
| Debentures payable | 7,777,410 | 7,777,410 | |||||||||||||||||||||||||||||
| Long | term payables | 24,203 | 24,203 | ||||||||||||||||||||||||||||
| Long | term employee benefits payable | 610,714 | 610,714 | ||||||||||||||||||||||||||||
| Provisions | 163,913 | 163,913 | |||||||||||||||||||||||||||||
| Deferred tax liabilities | 224,613 | 224,613 | |||||||||||||||||||||||||||||
| Other non | current liabilities | ||||||||||||||||||||||||||||||
225,292
-
-
225,292
| Total non | - | current | liabilities |
9,540,465
-
-
9,540,465
| Total liabilities | ||||||||||
20,835,909
-
-
20,835,909
| Shareholders' equity | ||||||||||||||||||||||||||||
| Share capital | 2,446,554 | - | - | 2,446,554 | ||||||||||||||||||||||||
| Capital reserve | 12,982,277 | 12,982,277 | ||||||||||||||||||||||||||
| Other comprehensive income | (154,701) | 50,621 | (104,080) | |||||||||||||||||||||||||
| Special reserves | 9,349 | 9,349 | ||||||||||||||||||||||||||
| Surplus reserve | 207,823 | 207,823 | ||||||||||||||||||||||||||
| Retained earnings | ||||||||||||||||||||||||||||
3,286,711
47,569
(8,088)
3,326,192
| Total shareholders | ’ | equity | ||||||||||
18,778,013
47,569
42,533
18,868,115
| Total liabilities and shareholders | ’ | equity |
39,613,922
47,569
42,533
39,704,024
Notes to the Financial Statements
- 138 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
30. Changes in significant accounting policies and accounting estimates - (cont’d)30.1 Changes in significant accounting policies - (cont’d)
Balance Sheet
December 31
2017
Impact from
new revenue
standards
adoption of
Impact fromadoption of new
financialinstrument
standards
January 1
2018
| Current assets | ||||||||||||||||||||||||||||||||||||
| Cash at bank and on hand | 1,868,603 | - | - | 1,868,603 | ||||||||||||||||||||||||||||||||
| Bills and | accounts receivable | 1,001,641 | (2,931) | 998,710 | ||||||||||||||||||||||||||||||||
| Including: Bills receivable | 146,525 | 146,525 | ||||||||||||||||||||||||||||||||||
Accounts
| receivable |
855,116
(2,931)
852,185
| Prepayments | 24,019 | - | - | 24,019 | |||||||||||||||||||||
| Other receivables | 1,140 | 1,140 | |||||||||||||||||||||||
| Inventories | 177,402 | 177,402 | |||||||||||||||||||||||
Other current assets1,406
-
-
1,406
Total current assets3,074,211
-
(2,931)
3,071,280
| Non | current assets | |||||||||||||||||||||||||||||||||||||||||
| Available | for | - | sale financial assets | 8,573 | - | (8,573) | N/A | |||||||||||||||||||||||||||||||||||
| Long | - | term equity investments | 15,939,826 | - | 15,939,826 | |||||||||||||||||||||||||||||||||||||
| Other equity investments | N/A | 80,119 | 80,119 | |||||||||||||||||||||||||||||||||||||||
| Investment properties | 4,408 | 4,408 | ||||||||||||||||||||||||||||||||||||||||
| Fixed assets | 1,262,330 | 1,262,330 | ||||||||||||||||||||||||||||||||||||||||
| Construction in progress | 81,993 | 81,993 | ||||||||||||||||||||||||||||||||||||||||
| Intangible assets | 183,920 | 183,920 | ||||||||||||||||||||||||||||||||||||||||
| Deferred tax assets | 35,064 | (8,494) | 26,570 | |||||||||||||||||||||||||||||||||||||||
Other non-current assets11,000
-
-
11,000
Total non-current assets
17,527,114
-
63,052
17,590,166
| Total assets |
20,601,325
-
60,121
20,661,446
Notes to the Financial Statements
- 139 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
30. Changes in significant accounting policies and accounting estimates - (cont’d)30.1 Changes in significant accounting policies - (cont’d)
Balance Sheet - (cont’d)
December 31
2017
Impact fromadoption of new
revenuestandards
Impact fromadoption of new
financialinstrument
standards
January 1
2018
| Current liabilities | ||||||||||||||||||
| Short | term loans | 70,000 | 70,000 | |||||||||||||||
| Bills and accounts payable | 257,615 | 257,615 | ||||||||||||||||
| Advances from customers | ||||||||||||||||||
| 63,904 | - | ( | 63,904 | ) | - | ||||||||||||||||||||
| Contract liabilities | N/A | 63,904 | 63,904 | ||||||||||||||||||||||
| Employee benefits payable | 30,491 | 30,491 | |||||||||||||||||||||||
| Taxes payable | 19,301 | 19,301 | |||||||||||||||||||||||
| Other payables | |||||||||||||||||||||||||
| 482,858 | - | - | 482,858 | ||||||||||||||||||||
| Including: Interest payable | 105 | 105 | |||||||||||||||||||||
| Dividends payable | 250 | 250 | |||||||||||||||||||||
Non-current liabilities due within one year126,590
-
-
126,590
| Total current liabilities | |||||||||||
1,050,759
-
-
1,050,759
| Non | current liabilities | ||||||||||||
| Long | - | term loans | |||||||||||
| 72,000 | - | - | 72,000 | |||||||||||||||||||||
| Long | - | term employee benefits payable | 93,025 | 93,025 | ||||||||||||||||||||
| Provisions | 15,671 | 15,671 | ||||||||||||||||||||||
| Other | non | current liabilities | ||||||||||||||||||||||
171,770
-
-
171,770
Total non-current liabilities
352,466
-
-
352,466
Total liabilities
1,403,225
-
-
1,403,225
| Shareholders | ’ | equity | |||||||||||||||||||||||||||
| Share capital | 2,446,554 | 2,446,554 | |||||||||||||||||||||||||||
| Capital reserve | 15,423,034 | 15,423,034 | |||||||||||||||||||||||||||
| Other comprehensive income | - | 50,621 | 50,621 | ||||||||||||||||||||||||||
| Special reserves | 10,040 | 10,040 | |||||||||||||||||||||||||||
| Surplus reserve | 207,823 | 207,823 | |||||||||||||||||||||||||||
| Retained earnings | |||||||||||||||||||||||||||||
1,110,649
-
9,500
1,120,149
| Total | shareholders | ’ | equity | |||||||||||
19,198,100
-
60,121
19,258,221
Total liabilities and shareholders’ equity
20,601,325
-
60,121
20,661,446
30.2 Changes in significant accounting estimates
There are no significant changes in accounting estimates in the reporting period.
Notes to the Financial Statements
- 140 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
31. Significant accounting estimates and judgments
The preparation of the financial statements requires management to make estimates and assumptions that affect the application ofaccounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from theseestimates. Estimates as well as underlying assumptions and uncertainties involved are reviewed on an ongoing basis. Revisions toaccounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.
Notes V.30, Note VIII and Note XI contain information about the assumptions and their risk factors relating to post-employmentbenefits – defined benefit plans, fair value of financial instruments and share-based payments. Other key sources of estimationuncertainty are as follows:
31.1 Impairment of trade receivables
As described in Note III.11, trade receivables are reviewed at each balance sheet date to determine whether credit risk on areceivable has increased significantly since initial recognition, lifetime expected losses is accrued for impairment provision.Evidence of impairment includes observable data that comes to the attention of the Group about loss events such as a significantdecline in the solvency of an individual debtor or the portfolio of debtors, and significant changes in the financial condition thathave an adverse effect on the debtor. If there is objective evidence of a recovery in the value of receivables which can be relatedobjectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed.
31.2 Provision for impairment of inventories
As described in Note III.12, the net realisable value of inventories is under management’s regular review, and as a result, provisionfor impairment of inventories is recognized for the excess of inventories’ carrying amounts over their net realisable value. Whenmaking estimates of net realisable value, the Group takes into consideration the use of inventories held on hand and otherinformation available to form the underlying assumptions, including the inventories’ market prices and the Group’s historicaloperating costs. The actual selling price, the costs of completion and the costs necessary to make the sale and relevant taxes mayvary based on the changes in market conditions and product saleability, manufacturing technology and the actual use of theinventories, resulting in the changes in provision for impairment of inventories. The net profit or loss may then be affected in theperiod when the impairment of inventories is adjusted.
Notes to the Financial Statements
- 141 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
31. Significant accounting estimates and judgments - (cont’d)
31.3 Impairment of assets other than inventories and financial assets
As described in Note III.21, assets other than inventories and financial assets are reviewed at each balance sheet date to determinewhether the carrying amount exceeds the recoverable amount of the assets. If any such indication exists, an impairment loss isrecognized.
The recoverable amount of an asset (or an asset group) is the greater of its fair value less costs to sell and its present value ofexpected future cash flows. Since a market price of the asset (or the asset group) cannot be obtained reliably, the fair value of theasset cannot be estimated reliably, the recoverable amount is calculated based on the present value of estimated future cash flows.In assessing the present value of estimated future cash flows, significant judgements are exercised over the asset’s production,selling price, related operating expenses and discount rate to calculate the present value. All relevant materials which can beobtained are used for estimation of the recoverable amount, including the estimation of the production, selling price and relatedoperating expenses based on reasonable and supportable assumptions.
31.4 Depreciation and amortisation of assets such as fixed assets and intangible assets
As described in Note III.16 and III.19, assets such as fixed assets and intangible assets are depreciated and amortised over theiruseful lives after taking into account residual value. The estimated useful lives of the assets are regularly reviewed to determine thedepreciation and amortisation costs charged in each reporting period. The useful lives of the assets are determined based onhistorical experience of similar assets and the estimated technical changes. If there have been significant changes in the factors usedto determine the depreciation or amortisation, the rate of depreciation or amortisation is revised prospectively.
31.5 Income taxes and deferred income tax
The Company and Group companies are assessed for income tax purposes in a large number of jurisdictions and, therefore,Company management is required to use considerable judgment in determining the total provision for taxes and attribution ofincome.
When assessing whether there will be sufficient future taxable profits available against which the deductible temporary differencescan be utilised, the Group recognizes deferred tax assets to the extent that it is probable that future taxable profits will be availableagainst which the deductible temporary differences can be utilised, using tax rates that would apply in the period when the assetwould be utilised. In determining the amount of deferred tax assets, the Group makes reasonable judgements and estimates aboutthe timing and amount of taxable profits to be utilised in the following periods, and of the tax rates applicable in the futureaccording to the existing tax policies and other relevant regulations. If the actual timing and amount of future taxable profits or theactual applicable tax rates differ from the estimates made by management, the differences affect the amount of tax expenses.
Notes to the Financial Statements
- 142 -
III SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES - (cont’d)
31. Significant accounting estimates and judgments - (cont’d)
31.6 Contingent liabilities
When assessing the possible outcomes of legal claims filed against the Company and its investee companies, the companypositions are based on the opinions of their legal advisors. These assessments by the legal advisors are based on their professionaljudgment, considering the stage of the proceedings and the legal experience accumulated regarding the various matters. Since theresults of the claims will be determined by the courts, the outcomes could be different from the assessments.
In addition to the said claims, the Group is exposed to unasserted claims, inter alia, where there is doubt as to interpretation of theagreement and/or legal provision and/or the manner of their implementation. This exposure is brought to the Company’s attentionin several ways, among others, by means of contacts made to Company personnel. In assessing the risk deriving from theunasserted claims, the Company relies on internal assessments by the parties dealing with these matters and by management, whoweigh assessment of the prospects of a claim being filed, and the chances of its success, if filed. The assessment is based onexperience gained with respect to the filing of claims and the analysis of the details of each claim. By their nature, in view of thepreliminary stage of the clarification of the legal claim, the actual outcome could be different from the assessment made before theclaim was filed.
31.7 Employee benefits
The Group’s liabilities for long-term post-employment and other benefits are calculated according to the estimated future amountof the benefit to which the employee will be entitled in consideration for his services during the current period and prior periods.The benefit is stated at present value net of the fair value of the plan’s assets, based on actuarial assumptions. Changes in theactuarial assumptions could lead to material changes in the book value of the liabilities and in the operating results.
31.8 Derivative financial instruments
The Group enters into transactions in derivative financial instruments for the purpose of hedging risks related to foreign currencyand inflationary risks. The derivatives are recorded at their fair value. The fair value of derivative financial instruments is basedon quotes from financial institutions. The reasonableness of the quotes is examined by discounting the future cash flows, based onthe terms and length of the period to maturity of each contract, while using market interest rates of a similar instrument as of themeasurement date. Changes in the assumptions and the calculation model could lead to material changes in the fair value of theassets and liabilities and in the results.
Notes to the Financial Statements
- 143 -
IV. Taxation
1. Main types of taxes and corresponding tax rates:
The income tax rate of the Company and its subsidiaries in China is 25% (2017: 25%). The subsidiaries outside of China areassessed based on the tax laws in the country of their residence.
Set forth below are the tax rates outside China relevant to the subsidiaries with significant sales to third party:
| Name of subsidiary | Location |
| 2018 |
| ADAMA agriculture solutions Ltd | . | Israel | 23.0% | ||||||||||||||||
| ADAMA Makhteshim | Israel | 7.5% | |||||||||||||||||
| ADAMA Agan | Israel | 16.0% | |||||||||||||||||
| ADAMA Brasil S/A | |||||||||||||||||||
| Brazil |
| 34.0% |
| ADAMA of North America Inc. | U.S. | 24.7% | |||||||||||||||||||||||||
| ADAMA India Private Ltd | India | 34.6% | |||||||||||||||||||||||||
| ADAMA Deutschland GmbH | Germany | 32.5% | |||||||||||||||||||||||||
| Control Solutions Inc. | U.S. | 24.0% | |||||||||||||||||||||||||
| Adama Australia Pty Ltd | Australia | 30.0% | |||||||||||||||||||||||||
| ADAMA France S.A.S | France | 33.3% | |||||||||||||||||||||||||
| ADAMA Andina B.V. Sucursal Colombia | Colombia | 33.0% | |||||||||||||||||||||||||
| ADAMA Italia S.R.L. | Italy | 27.9% | |||||||||||||||||||||||||
| Alligare Inc. | U.S. | 27.5% | |||||||||||||||||||||||||
The VAT rate of the Group's subsidiaries is in the range between 2.5% to 27%.
On December 22, 2017, the President of the United States signed a tax reform, in which the corporate tax rate will be reduced to21% from 2018. The tax rate related to the U.S. companies presented in the table above includes corporate and federal tax.
Notes to the Financial Statements
- 144 -
IV. Taxation - (cont’d)
1. Main types of taxes and corresponding tax rates - (cont’d)
(1) Benefits from Hi-Tech Certificate
The Company, was jointly approved as new and high-tech enterprise, by the Hubei Provincial Department of Science andTechnology, Department of Finance of Hubei Province, Hubei Provincial Office of the State Administration of Taxation and HubeiLocal Taxation Bureau, and the applicable income tax rate from 2017 to 2019 is 15%.
(2) Benefits under the Law for the Encouragement of Capital Investments
Industrial enterprises of subsidiaries in Israel were granted “Approved Enterprise” or “Beneficiary Enterprise” status under theIsraeli Law for the Encouragement of Capital Investments, 1959. Part of the income deriving from the “Approved Enterprise” or“Beneficiary Enterprise” during the benefit period is subject to tax at the rate of up to 25% (the total benefit period is seven yearsand in certain circumstances up to ten years, but may not exceed 14 years from the date of the Letter of Approval and 12 yearsfrom the date the “Approved Enterprise” commenced operations or not more than 12 years from the election year for a“Beneficiary Enterprise”).
Other industrial enterprises of subsidiaries in Israel are entitled to a tax exemption for periods of between two and six years and atax rate of up to 25% for the remainder of the benefits period. Should a dividend be distributed from the tax-exempt income, thesubsidiaries will be liable for tax on the income from which the dividend was distributed at a rate of 25%.
The aforementioned benefits are conditional upon compliance with certain conditions specified in the Law, related Regulations andthe Letters of Approval, in accordance with which the investments in the Approved Enterprises were made. Failure to meet theseconditions may lead to cancellation of the benefits, in whole or in part, and to repayment of any benefits already received, togetherwith interest. Management believes that the companies are in compliance with these conditions.
(3) Amendment to the Law for the Encouragement of Capital Investments, 1959.
On December 29, 2010 the Israeli parliament approved the Economic Policy Law for 2011-2012, which includes an amendment tothe Law for the Encouragement of Capital Investments – 1959 (hereinafter – “the Amendment”). The Amendment is effective fromJanuary 1, 2011 and its provisions apply to preferred income derived or accrued in 2011 and thereafter by a preferred company, perthe definition of these terms in the Amendment. Companies can choose not to be included in the scope of the amendment to theEncouragement Law and to stay in the scope of the law before its amendment until the end of the benefits period of itsapproved/beneficiary enterprise.As of the date of the report, all subsidiaries in Israel adopted the amendment and the deferred taxes were calculated accordingly.The Amendment provides that only companies in Development Area A will be entitled to the grants track. Further, they will beentitled to receive benefits both under this track and under the tax benefits track at the same time. In addition, the existing taxbenefit tracks were eliminated (the tax exempt track, the “Ireland” track and the “Strategic” track) and two new tax tracks wereintroduced in their place, a preferred enterprise and a special preferred enterprise, which mainly provide a uniform and reduced taxrate for all the company’s income entitled to benefits.
Notes to the Financial Statements
- 145 -
IV. Taxation - (cont’d)
1. Main types of taxes and corresponding tax rates - (cont’d)
(3) Amendment to the Law for the Encouragement of Capital Investments, 1959. - (cont’d)
On August 5, 2013 the Israeli Parliament passed the Law for Changes in National Priorities (Legislative Amendments forAchieving Budget Objectives in the Years 2013 and 2014) – 2013, which cancelled the planned tax reduction so that as from the2014 tax year the tax rate on preferred income will be 9% for Development Area A and 16% for the rest of the country.
On December 22, 2016, the Israeli Parliament passed the Economic Efficiency Law (Legislative Amendments for AchievingBudget Objectives in the years 2017 and 2018) – 2016, by which, inter alia, preferred enterprise in Development Area A, will besubject to tax rate of 7.5% instead of 9% effective from January 1, 2017 and thereafter (the tax rate applicable to preferredenterprises located in other areas remains at 16%)
The amendment further determined that no tax shall apply to dividend distributed out of preferred income to shareholder who isIsrael resident company. On dividend distributed out of preferred income to a single shareholder or a foreign resident subject todouble taxation treaties, tax of 20% shall apply.
(4) Benefits under the Law for the Encouragement of Industry (Taxes), 1969
Under the Israeli Law for the Encouragement of Industry (Taxes) 1969, Solutions is an Industrial Holding Company and some ofthe subsidiaries in Israel are “Industrial Companies”. The main benefit under this law is the filing of consolidated income taxreturns (Solutions files a consolidated income tax return with Adama Makhteshim and Adama Agan) and amortization ofknow-how over 8 years.
Notes to the Financial Statements
- 146 -
V. Notes to the consolidated financial statements
1 Cash at Bank and On Hand
December 31 January 1 2018
2018
& December 31
2017
| Cash on hand | 1,35 | 9 | 2,267 | |||||||||||||
| Deposits in banks | 6,178,790 | 7,861,991 | ||||||||||||||
Other cash and bank 52,940 4,600
6,233,089 7,868,858
Including cash and
| Including cash and | bank placed outside China |
| 3,873,638 |
| 5,580,592 |
As at 31 December 2018, restricted cash and bank balances was 52,940 thousand RMB (as at January 1, 2018- 4,600 thousandRMB) mainly including deposits that guarantee bank acceptance drafts.
2 Financial assets held for trading
December 31 January 1
2018 2018
| Debt instruments | 22,108 | 14,225 | ||||||||||||
| Other | ||||||||||||||
23,987 8,775
46,095 23,000
3 Derivative financial assets
December 31 January 1 2018
2018
& December 31
2017
| Economic | hedge | 389,068 | 449,553 | |||||||||||||
Accounting hedge derivatives 128,658 5,600
517,726 455,153
4 Bills Receivable and Accounts Receivable
December 31 January 1 December 31
2018 2018 2017
| Bills receivable | 60,486 | 180,030 | 180,030 |
Accounts receivable 6,516,912 5,109,981 5,056,850
6,577,398 5,290,011 5,236,880
Notes to the Financial Statements
- 147 -
V. Notes to the consolidated financial statements – (cont'd)
4 Bills Receivable and Accounts Receivable – (cont'd)
(1) Bills receivable
a. By category
December 31 January 1 2018
2018
& December 31
2017
| Post | - | dated checks receivable | 31,935 | 19,969 | |||||||||||||||
| Bank acceptance draft | |||||||||||||||||||
28,551 160,061
60,486 180,030
All bills receivables are due within 1 year.
(2) Bills receivable which had endorsed by the Company
December 31
2018
| Bank acceptance | draft |
211,682
(3) Accounts receivable
a. By category
December 31, 2018
Book value
Provision for bad and doubtful
debts
Amount
Percentage(%)
Amount
Percentage(%)
Carrying
amount
Account receivables assessed
| individually for impairment | 451,837 | 7 | 329,499 | 73 | 122,338 | ||||||||||||
Account receivables assessed
| collectively for impairment | |||
6,487,700
93,126
6,394,574
6,939,537
422,625
6,516,912
January 1, 2018
Book value
Provision for bad and doubtful
debts
Amount
Percentage(%)
Amount
Percentage(%)
Carrying
amount
Account receivables assessed
| individually for impairment | 475,406 | 9 | 319,387 | 67 | 156,019 | ||||||||||||
Account receivables assessed
| collectively for impairment | |||
5,039,281
85,319
4,953,962
5,514,687
404,706
5,109,981
Notes to the Financial Statements
- 148 -
V. Notes to the consolidated financial statements – (cont'd)
4 Bills Receivable and Accounts Receivable – (cont'd)
(3) Accounts receivable – (cont'd)
b. Aging analysis
December 31, 2018
| Within 1 year (inclusive) | 6,580,782 | |||||||
| Over 1 year but within 2 years | 101,000 | |||||||
| Over 2 years but within 3 years | 37,580 | |||||||
| Over 3 years but within 4 years | 85,804 | |||||||
| Over 4 years but within 5 years | 31,271 | |||||||
Over 5 years 103,100
6,939,537
c. Addition, written-back and written-off of provision for bad and doubtful debts during the years
Addition of provision for bad and doubtful debts during the years
Lifetime expected credit loss(credit losses has notoccurred)
Lifetime expected credit loss(credit losses has occurred) Total
| Balance as of January 1, | 2018 | 37,964 | 366,742 | 404,706 | ||||||||||||||||||||||
| Addition during the year, | net | 10,363 | 57,448 | 6 | 7 | 811 | ||||||||||||||||||||
| W | rite back during the year | - | (17,303) | (17,303) | ||||||||||||||||||||||
| Write | - | off during the year | (9,185) | (9,185) | ||||||||||||||||||||||
| Exchange rate effect | ||||||||||||||||||||||||||
2,305
(25,709)
(23,404)
Balance as of December 31
| Balance as of December 31 | , 2018 |
50,632
371,993
422,625
d. Five largest accounts receivable at December 31 2018:
Name Closing balance
Proportion of Accounts
receivable (%) Allowance of doubtful debtsParty 1 128,500
-
Party 2 97,691
-
Party 3 70,252
-
Party 4 63,485
-
Party 556,347
-
Total416,275
-
Notes to the Financial Statements
- 149 -
V. Notes to the consolidated financial statements – (cont'd)
4 Bills Receivable and Accounts Receivable – (cont'd)
(3) Accounts receivable – (cont'd)
e. Derecognition of accounts receivable due to transfer of financial assets
Certain subsidiaries of the group entered into a securitization transaction with Rabobank International forsale of trade receivables (hereinafter – “the Securitization Program” and/or “the Securitization Transaction”).
Pursuant to the Securitization Program, the companies will sell their trade receivables debts, in various different currencies, to aforeign company that was set up for this purpose and that is not owned by the Adama Agricultural Solutions Group (hereinafter –“the Acquiring Company”). Acquisition of the trade receivables by the Acquiring Company is financed by a U.S. company, NieuwAmsterdam Receivables Corporation for the Rabobank International Group.
The trade receivables included as part of the Securitization Transaction are trade receivables that meet the criteria provided in theagreement.
Every year the credit facility is re approved in accordance with the Securitization Program. As at the date of the report, theSecuritization Agreement was approved up to July 16, 2019.
The maximum scope of the securitization is adjusted for the seasonal changes in the scope of the Company’s activities, as follows:
during the months March through June the maximum scope of the securitization is $350 million, during the months July throughSeptember the maximum scope of the securitization is $300 million and during the months October through February themaximum scope of the securitization is $250 million. The proceeds received from those customers whose debts were sold are usedfor acquisition of new trade receivables.
The price at which the trade receivables debts are sold is the amount of the debt sold less a discount calculated based on, amongother things, the expected length of the period between the date of sale of the trade receivable and its anticipated repayment date. Inthe month following acquisition of the debt, the Acquiring Company pays in cash most of the debt while the remainder is recordedas a subordinated note that is paid after collection of the debt sold. If the customer does not pay its debt on the anticipatedrepayment date, the Company bears interest up to the earlier of the date on which the debt is actually repaid or the date on whichthe treatment is transferred to the insurance company (the actual costs are not significant and are not expected to be significant).
Notes to the Financial Statements
- 150 -
V. Notes to the consolidated financial statements - (cont'd)
4 Bills Receivable and Accounts Receivable – (cont'd)
(3) Accounts receivable – (cont'd)
e. Derecognition of accounts receivable due to transfer of financial assets - (cont'd)
The Acquiring Company bears 95% of the credit risk in respect of the customers whose debts were sold and will not have a right ofrecourse to the Company in respect of the amounts paid in cash, except regarding debts with respect to which a commercial disputearises between the companies and their customers, that is, a dispute the source of which is a claim of non-fulfillment of anobligation of the seller in the supply agreement covering the product, such as: a failure to supply the correct product, a defect in theproduct, delinquency in the supply date, and the like.
The Acquiring Company appointed a policy manager who will manage for it the credit risk involved with the trade receivablessold, including an undertaking with an insurance company.
Pursuant to the Receivables Servicing Agreement, the Group companies handle collection of the trade receivables as part of theSecuritization Transaction for the benefit of the Acquiring Company.
As part of the agreement, the subsidiary committed to comply with certain financial covenants, mainly the ratio of the liabilities toequity and profit ratios. As of December 31, 2018, the subsidiary was in compliance with the financial covenants.
The accounting treatment of sale of the trade receivables included as part of the Securitization Program is:
The Company is not controlling the Acquiring Company, therefore is not consolidated the Acquiring Company in its financialstatements.
The Company continues to recognize the trade receivables included in the Securitization Program based on the extent of itscontinuing involvement therein.
In respect of the part of the trade receivables included in the securitization Program with respect to which cash proceeds were notyet received, however regarding which the Company has transferred the credit risk, a subordinated note is recorded.
The loss from sale of the trade receivables is recorded at the time of sale in the statement of income in the “financing expenses”category.
Notes to the Financial Statements
- 151 -
V. Notes to the consolidated financial statements - (cont'd)
4 Bills Receivable and Accounts Receivable – (cont'd)
(3) Accounts receivable – (cont'd)
e. Derecognition of accounts receivable due to transfer of financial assets - (cont'd)
In the fourth quarter of 2016, a subsidiary in Brazil (hereinafter - “the subsidiary”) entered into a 3 years securitization transactionwith Rabobank Brazil for sale of trade receivables. Under the agreement, the subsidiary will sell its trade receivables to asecuritization structure (hereinafter - “the entity”) that was formed for this purpose where the subsidiary has subordinate rights of5% of the entity's capital.
The maximum securitization scope amounts to BRL 200 million (as of December 31, 2018 - 354 million RMB).
On the date of the sale of the trade receivables, the entity pays the full amount which is the debt amount sold net of discountcalculated, among others, over the expected length of the period between the date of sale of the customer receivable and itsanticipated repayment date.
The entity bears 90% of the credit risk in respect of the customers whose debts were sold such that the entity has the right ofrecourse of 10% of the unpaid amount. The subsidiary should make a pledged deposit equal to the amount the entity’s right ofrecourse.
The subsidiary handles the collection of receivables included in the securitization for the entity.
The subsidiary does not control the entity and therefore the entity is not consolidated in the group's financial statements.
The subsidiary continues to recognize the trade receivables sold to the entity based on the extent of its continuing involvementtherein (10% right of recourse) and also recognizes an associated liability in the same amount.
The loss from the sale of the trade receivables is recorded at the time of sale in the statement of income in the “financing expenses”category.
December 31
January 1
December 31
2018
2018
2017
Accounts
| Accounts | receivables derecognized | 2,541,443 | 2,513,554 | 2,513,554 | |||||||||||||||||||
| Continuing involvement | 129,893 | 227,887 | 227,887 | ||||||||||||||||||||
| Subordinated note in respect of trade receivables | 622,362 | 575,865 | 584,144 | ||||||||||||||||||||
| Liability in respect of trade receivables | 35,572 | 37,957 | 37,957 | ||||||||||||||||||||
Year ended December 31
2018
2017
Loss in respect of sale of trade receivables
| Loss in respect of sale of trade receivables | 79,060 | 47,707 | ||||||
Notes to the Financial Statements
- 152 -
V. Notes to the consolidated financial statements - (cont'd)
5 Prepayments
(1) The aging analysis of prepayments is as follows:
December 31 January 1 2018
2018 & December 31 2017
Amount
Percentage(%)
Amount
Percentage(%)
| Within 1 year (inclusive) | 347,852 | 98 | 193,322 | 96 | |||||||||||||
Over 1 year but within 2 years
| (inclusive) | 3,047 | 1 | 4 | ,404 | 2 | |||||||||||||
| Over 2 years but within 3 years (inclusive) | 1,393 | 3, | 600 | 2 | ||||||||||||||
| Over 3 years | ||||||||||||||||||
2,996
-
355,288
202,111
(2) Total of five largest prepayments by debtor at the end of the year:
6 Other Receivables
(
) Other receivables
December 31
January 1
December 31
2018
2018
2017
| Dividends receivable | 5,240 | - | ||||||||
Others1,046,486
1,029,557
1,037,836
1,051,726
1,029,557
1,037,836
Amount
Percentage of prepayments (%)
| December 31, 2018 |
231,660
65%
Notes to the Financial Statements
- 153 -
V. Notes to the consolidated financial statements - (cont'd)
6 Other Receivables - (cont'd)
(2) Other receivables
a. Other receivables by categories
December 31
January 1
December 31
2018
2018
2017
Trade receivables as part of securitization transactions
| not yet eliminated | 129,893 | 227,887 | 227,887 | |||||||||||||||
| Subordinated note in respect of trade receivables | 622,362 | 575,865 | 584,144 | |||||||||||||||
| Financial institutions | 98,837 | 60,742 | 60,742 | |||||||||||||||
| Other | ||||||||||||||||||
200,638
170,442
170,442
| Sub total | 1,05 | 1 | 73 | 0 | 1,034,936 | 1, | 043,215 | |||||||||||||||||
| Provision for doubtful debts | other receivables | (5,244) | (5,379) | (5,379) | ||||||||||||||||||||
1,046,486
1,029,557
1,037,836
Financial institutions represent deposits made by the company with regard to derivatives transactions.
b. Other receivables by aging
December 31
2018
| Within 1 year (inclusive) | 1,035,430 | |||||||
| Over 1 year but within 2 years | 7,961 | |||||||
| Over 2 years but within 3 years | 2,430 | |||||||
| Over 3 years but within 4 years | 240 | |||||||
| Over 4 years but within 5 years | 432 | |||||||
Over 5 years 5,237
1,051,730
c. Additions, recovery or reversal and written-off of provision for bad and doubtful debts during the period:
Year ended
| December 31, | |||
2018
| Balance as of January 1, | 5,379 | ||||||||||||||
| Addition during the year | 132 | ||||||||||||||
| Written back during the year | (267) | ||||||||||||||
| Write | - | off during the year | |||||||||||||
| Exchange rate effect | |||||||||||||||
-
Balance as of
| Balance as of | December 31 |
5,244
Notes to the Financial Statements
- 154 -
V. Notes to the consolidated financial statements - (cont'd)
6 Other Receivables - (cont'd)
(3) Other receivables - (cont'd)
d. Five largest other receivables at December 31 2018:
Name Closing balance
Proportion of other
receivables (%)
Allowance of doubtful
debtsParty 1 622,362
-
Party 2 98,837
-
Party 3 28,553
-
Party 4 25,579
-
Party 517,117
-
Total792,448
-
7 Inventories
(1) Inventories by category:
December 31, 2018Book value Provision for impairment
Book value
| Raw materials | 3,268,830 | 20,232 | 3,248,598 | |||||||||||||||||
| Work in progress | 567,887 | 1,576 | 566,311 | |||||||||||||||||
| Finished goods | 5,328,982 | 156,645 | 5,172,337 | |||||||||||||||||
| Others | ||||||||||||||||||||
270,611
10,514
260,097
9,436,310
188,967
9,247,343
January 1 2018 & December 31 2017Book value
Provision for impairment
Carrying amount
| Raw materials | 2,272,637 | 11,545 | 2,261,092 | ||||||||||||||||||||
| Work in progress | 522,668 | 417 | 522,251 | ||||||||||||||||||||
| Finished goods | 4,623,078 | 149,252 | 4,473,826 | ||||||||||||||||||||
| Others | |||||||||||||||||||||||
238,355
7,286
231,069
7,656,738
168,500
7,488,238
Notes to the Financial Statements
- 155 -
V. Notes to the consolidated financial statements - (cont'd)
7 Inventories - (cont'd)
(2) Provision for impairment of inventories:
For the year 2018
January 1, 2018
Provision
Reversal or write-off
Other
December 31,
2018
| Raw material | 11,545 | 17,962 | (9,811) | 536 | 20,232 | |||||||||||||||||||||||||
| Work in progress | 417 | 1,906 | (747) | 1,576 | ||||||||||||||||||||||||||
| Finished goods | 149,252 | 85,232 | (86,811) | 8,972 | 156,645 | |||||||||||||||||||||||||
| Others | ||||||||||||||||||||||||||||||
7,286
3,278
(426)
10,514
168,500
108,378
(97,795)
9,884
188,967
8 Assets held for sale
Item
January
1, 2018
Decrease
Currency Translation
adjustment
December
31, 2018
Intangible assets – Registration and Intangible
assets on purchased products
| assets on purchased products | 403,297 | (392,403) | ( | 10,894 | - | ||||||||||||
9 Other Current Assets
December 31
January 1 2018
2018
& December 31
2017
| Deductible VAT | 476,675 | 477,117 | ||||||||||
| Current tax assets | 142,412 | 90,350 | ||||||||||
| Others | ||||||||||||
41,688
47,458
660,775
614,925
Notes to the Financial Statements
- 156 -
V. Notes to the consolidated financial statements - (cont'd)
10 Long-Term Receivables
December 31
January 1 2018
2018
& December 31
2017
| Long term account receivables from sale of goods |
157,600
192,968
11 Long-Term Equity Investments
(1) Long-term equity investments by category:
December 31
January 1 2018
2018
& December 31
2017
| Investments in joint ventures | 68,584 | 64,523 | |||||||||
| Investments in associates | |||||||||||
39,766
37,860
108,350
102,383
(2) Movements of long-term equity investments for the year 2018 are as follows:
* Negev Aroma (Ramat Hovav) Ltd. (hereinafter "Negev Aroma"), a joint venture accounted for using the equity method, waspresented as a liability as at December 31, 2017 due to the group's obligation to support Negev Aroma. During 2018 the groupsettled the aforementioned obligation.
January 1
2018 &December
31 2017
Investment
presentedas liability
as at
January 1,
2018
| January 1, | |
Netbalance
atJanuary
1, 2018
Capitalinvestment
Investment
income
(loss)
Translationdifferences
of foreignoperations
Declareddistribution
of cash
dividend Other
Balance
at theend ofthe year
Joint
| ventures |
| Company A | 54,362 | - | 54,362 | - | 10,612 | 9 | (6,063) | 3,776 | 62,696 | |||||||||||||||||||||||||||||||||||
| Company B | 6,247 | 6,247 | 1,408 | 401 | (3,458) | - | 4,598 | |||||||||||||||||||||||||||||||||||||
| Company D | 3,914 | 3,914 | (325) | (114) | (2,185) | 1,290 | ||||||||||||||||||||||||||||||||||||||
| Company F | * | (7,652) | (7,652) | 612 | ) | 244 | 8,020 | - | ||||||||||||||||||||||||||||||||||||
Company G
-
-
-
4,010
(4,082)
-
-
-
Sub-total 64,523
(7,652)
56,871
4,010
7,001
(11,706)
11,796
68,584
| Associates |
Company E
37,860
-
37,860
-
-
1,906
-
-
39,766
| Sub total Sub |
-total 37,860
-
37,860
-
-
1,906
-
-
39,766
102,383
(7,652)
94,731
4,010
7,001
2,518
(11,706)
11,796
108,350
Notes to the Financial Statements
- 157 -
V. Notes to the consolidated financial statements - (cont'd)
12 Other equity investments
December 31
2018
January 1
2018
Dividend
incomerecognized
Reason to designate as
FVTOCI
| Hubei bank | 79,554 | 79,554 | 1,808 | ||||||||||
Non-core business thatintended to be held in the
foreseeable future
| Targetgene Biotechnologies Ltd | 9,574 | 9,115 | - | |||||||||||||||
| Energin.R Technologies 2009 Ltd. | 1,709 | 1,627 | ||||||||||||||||
| Hubei shendian auto motor co., Ltd | 564 | 564 | ||||||||||||||||
Other 158
-
91,559
91,090
1,808
13 Fixed assets
Land &
Buildings
Machinery &
equipment
Motor vehicles
Office & other
equipment
Total
Cost
| Balance as at January 1, | 2018 | 2,473,955 | 11,126,188 | 100,180 | 293,399 | 13,993,722 | |||||||||||||||||||||||||||
| Purchases | 63,153 | 193,532 | 19,548 | 20,425 | 296,658 | ||||||||||||||||||||||||||||
| Transfer from construction in progress | 220,896 | 577,201 | - | 13,330 | 811,427 | ||||||||||||||||||||||||||||
| Disposals | (3,372) | (30,178) | (26,615) | (16,604) | (76,769) | ||||||||||||||||||||||||||||
| Currency translation | adjustment | ||||||||||||||||||||||||||||||||
65,293
461,648
2,748
10,874
540,563
Balance as at December 31, 2018
| Balance as at December 31, 2018 |
2,819,925
12,328,391
95,861
321,424
15,565,601
| Accumulated depreciation | |||||||||||||||||||||||||||||||||||||
| Balance as at January 1, 2018 | (1,089,200) | (6,290,024) | (53,061) | (220,477) | (7,652,762) | ||||||||||||||||||||||||||||||||
| Charge for the year | ( | 141,720 | (526,714) | (13,833) | (29,833) | (712,100) | |||||||||||||||||||||||||||||||
| Disposals | 3,214 | 23,977 | 20,630 | 15,493 | 63,314 | ||||||||||||||||||||||||||||||||
| Currency translation adjustment | |||||||||||||||||||||||||||||||||||||
(34,698)
(258,415)
(1,176)
(7,880)
(302,169)
Balance as at December 31, 201
| Balance as at December 31, 201 | 8 |
(1,262,404)
(7,051,176)
(47,440)
(242,697)
(8,603,717)
| Provision for impairment | |||||||||||||||||||||||||||||||
| Balance as at January 1, 201 | 8 | (19,151) | (180,077) | - | (242) | (199,470) | |||||||||||||||||||||||||
| Charge for the year | 48,013 | (81,201) | - | (129,214) | |||||||||||||||||||||||||||
| Disposals | 1,120 | 1,120 | |||||||||||||||||||||||||||||
| Currency translation adjustment | |||||||||||||||||||||||||||||||
(933)
(3,761)
-
(5)
(4,699)
| Balance as at December 31, 2018 |
(68,097)
(263,919)
-
(247)
(332,263)
| Carrying amounts | ||||||||||||
| As at December 31, 201 | 8 |
1,489,424
5,013,296
48,421
78,480
6,629,621
As at January 1, 201
| As at January 1, 201 | 8 |
1,365,604
4,656,087
47,119
72,680
6,141,490
The land is located outside of China, owned by some of the group subsidiaries outside of China and reported as fixed assets.
Notes to the Financial Statements
- 158 -
V. Notes to the consolidated financial statements - (cont'd)
14 Construction in Progress
(1) Construction in progress
December 31 January 1 2018
2018 & December 31 2017Book value
Provision forimpairment Carrying amount Book value
Provision forimpairment Carrying amount
433,784
-
433,784
803,421
-
803,421
(2) Details and Movements of major construction projects in progress during the year 2018
Budget
Balance at
January 1,
2018
| January 1, |
Additionsduring the
year
Currencytranslationdifferences
Transfer tofixed assets
Balance at
December 31,
2018
Percentage ofactual cost to
budget (%)
Projectprogress(%)
Source of funds
Project A
1,509,420
50,693
69,719
-
-
120,412
8%
8%
Internal finance
and Bank loan
Project B
373,070
302,821
33,366
(12,154)
(323,793)
87%
87%
Internal finance
Project C
183,666
125,738
20,604
1,503
(147,845)
-
100%
100%
Internal finance
| Project D | 79,613 | 35,402 | 5,098 | 1,976 | - | 42,476 | 53% | 53% | Internal finance | ||||||||||||||||||||||||
| Project | E | 34,316 | 6,684 | 23,447 | 1,227 | 31,358 | 91% | 91% | Internal finance | ||||||||||||||||||||||||
Project F
27,800
6,972
9,621
-
-
16,593
60%
60%
Internal finance
and Bank
| and Bank | loan |
ADAMA LTD.(Expressed in RMB '000)
Notes to the Financial Statements
- 159 -
V. Notes to the consolidated financial statements - (cont'd)
15 Intangible Assets
(1) Intangible Assets
(1) The subsidiaries, wholly-controlled by the Company, signed several agreements with Aventis and Syngenta A.G and Bayer Crop Science A.G in 2001, 2002, 2017 and 2018, for the
acquisition of intellectual property rights, trademarks, brand name, technological know-how, information on customers and suppliers of materials and distribution rights in the field ofagrochemicals. Please also refer to note 15(2).
(2) Part of the land in Israel has not yet been registered in the name of the Group companies at the Land Registry Office, mostly due to registration procedures or technical problems.
Product registration
Intangible assets on
Purchase ofProducts
(1)
Software
Marketing rights and
trademarks Land use rights (2) Others Total
Costs
Balance as at January 1,
| Balance as at January 1, | 2018 | 8, | 892,177 | 2, | 049,687 | 559,576 | 472,190 | 326,521 | 352,126 | 12,652,277 | |||||||||||||||||||||||||||||
| Purchases | 483,559 | 1,9 | 26,327 | 66,956 | 25,148 | 124,844 | 2,626,83 | ||||||||||||||||||||||||||||||||
| Currency translation | adjustment | 450,657 | 248,65 | 8 | 28,027 | 22,232 | 1,958 | 24,370 | 775,90 | ||||||||||||||||||||||||||||||
Disposal (104,938)
(103,113)
(7,009)
(33,782)
(86,672)
(1,471)
(336,985)
Balance as at December 31, 20189,721,455
4,121,559
647,550
460,640
266,955
499,869
15,718,028
Accumulated amortization
| Balance as at January 1, | 2018 | (5,8 | 14 | 686 | (1,5 | 94 | 985 | (365,732) | (400,535) | (61,242) | (227,331) | (8,464,511) | |||||||||||||||||||||||||||||||||||
| Charge for the year | 837,758 | 262,133 | (60,092) | (19,793) | (6,846) | (46,736) | (1,233,358) | ||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment | (31 | 3,898 | (83, | 689 | (18,792) | (19,503) | (564) | (11,612) | (448,058) | ||||||||||||||||||||||||||||||||||||||
Disposal 101,810
77,325
5,680
33,749
26,047
245,371
Balance as at December 31, 2018 (6,864,532)
(1,863,482)
(438,936)
(406,082)
(42,605)
(284,919)
(9,900,556)
| Provision for | impairment | ||||||||||||||||||||||||||||||||
| Balance as at January 1, 201 | 8 | (70,230) | (48,876) | (32,072) | (151,178) | ||||||||||||||||||||||||||||
| Charge for the year | (17,166) | (4,721) | (21,887) | ||||||||||||||||||||||||||||||
| Currency translation adjustment | (3,910) | (2,461) | (6,371) | ||||||||||||||||||||||||||||||
| Disposal | |||||||||||||||||||||||||||||||||
7,280
-
-
-
32,072
-
39,352
Balance as at December 31, 2018 (84,026)
(51,337)
-
-
-
(4,721)
(140,084)
| Carrying amount | ||||||||||||||||
As at December 31, 20182,772,897
2,206,740
208,614
54,558
224,350
210,229
5,677,388
As at January 1, 2018 3,007,261
405,826
193,844
71,655
233,207
124,795
4,036,588
Notes to the Financial Statements
- 160 -
V. Notes to the consolidated financial statements - (cont'd)
15 Intangible Assets - (cont'd)
(2) Additional information
As part of the development of its business and in order to obtain the necessary regulatory approvals to CNAC from the China NationalChemical Corporation group (hereinafter- “CC”) for the acquisition of Syngenta AG ("Syngenta"), the Company agreed with CC andSyngenta to sell several of its products against receiving products with similar characteristics and economic value from Syngenta,including Syngenta's bearing expenses and taxes the Company will be required to pay.Accordingly, during 2017, the Company received certain products and rights from Syngenta in the United States, against the sale of anumber of the Company's products to Amvac Chemical Corporation. The proceeds received for the sold products and the cost of theacquired properties in the US are not material.On March 16, 2018, the transaction for the sale of the Company's registrations assets in certain European countries to Nufarm Limitedwas completed, while the Company retained its right to continue to sell these products in other countries outside and sometimes alsowithin Europe, in addition to signing supply and formulation agreements for a period of two years. The consideration received fromNufarm for the sale of the assets and for the supply and formulation agreements amounted to 2,511 million RMB (including deferredincome of 93 million RMB). The capital gain generated from the sale amounted to 1,972 million RMB. The tax expenses in respect ofthe capital gain amounted to approximately 437 million RMB.Concurrent with the sale of said assets in Europe, the transaction for the acquisition of certain registration and marketing rights inEurope from Syngenta by the Company was completed. The cost of purchased intangible assets amounted to 2,072 million RMB. As aresult of these transactions, the addition to intangible assets amounted to 2,141 million RMB that was recorded under intangible assets.Approximately 2,029 million RMB in respect of acquisition of registration assets and marketing rights are recorded as assets in thepurchase of products and is amortized over the economic life of the assets, ranging from 1 to 14 years (mainly between 7 and 11 years).
An amount of approximately 112 million RMB was recorded as non-competitive and is amortized over the non-competition periodwhich is five years or over the economic life of the related assets if it is less than 5 years.
The valuation model used to allocate the consideration to the acquired assets is Discounted Cash Flow (DCF).
Notes to the Financial Statements
- 161 -
V. Notes to the consolidated financial statements - (cont'd)
16 Goodwill
Changes in goodwill
The Group identified two cash generating units("CGU"), Crop Protection (Agro) and Other (Non Agro) units. Operations are allocatedinto either one of the two cash generating units according to their business.
At the end of the year, or more frequently whether indicators for impairment exists, the Group estimates the recoverable amount ofAgro and Non Agro units, which are the cash generating units of the Group that contain goodwill.
For the purpose of evaluating the groups Goodwill, the Group used a comparable trading multiple analysis in order to benchmark eachof its CGU’s valuation against that of the markets peer companies.
As at the reporting period, there were no indicators for impairment. The fair value of the cash generating units to which the goodwillrelates exceeds its carrying amount.
January 1 2018& December 31
2017
Currency translation
adjustment
Balance atDecember 31,
2018
| Book value | 3,890,097 | 195,848 | 4,085,945 | |||||||||||
| Impairment provision | ||||||||||||||
-
-
-
Carrying amount
| Carrying amount |
3,890,097
195,848
4,085,945
Notes to the Financial Statements
- 162 -
17 Deferred Tax Assets and Deferred Tax Liabilities
(1) Deferred tax assets without taking into consideration of the offsetting of balances within the same tax jurisdiction
December 31 January 1 December 31
2017
20182018
Deductibletemporary
differences
Deferred
tax
assets
Deductibletemporary
differences
Deferred
tax
assets
Deductibletemporary
differences
Deferred
tax
assets
| Deferred tax assets | ||||||||||||||||||||||||||||
Deferred tax assets in respect
| of carry forward losses | 576,498 | 82,516 | 2,363,524 | 462,184 | 2,363,524 | 462,184 |
Deferred tax assets in respect
| of inventories | 1,644,349 | 440,940 | 1,372,337 | 353,544 | 1,372,337 | 353,544 |
Deferred tax assets in respect
| of employee benefits | 660,472 | 101,026 | 863,820 | 114,255 | 863,820 | 114,255 | ||||||||||||||
| Other deferred tax asset | ||||||||||||||||||||
1,213,202
337,443
1,195,676
315,310
1,311,288
341,606
4,094,521
961,925
5,795,357
1,245,293
5,910,969
1,271,589
Deferred tax assets in respect of losses carried forward for tax purposes as of January 1, 2018 are mainly in respect of subsidiariesin Israel. Deferred tax assets were recognized because future taxable income was expected against which the unutilized tax lossescan be utilized, mainly due to the capital gain from the closing of the transaction for selling certain products in Europe during thefirst quarter of 2018, as described in Note V.15(2) Intangible Assets, or up to the balance of deferred tax liability.
(2) Deferred tax liabilities without taking into consideration of the offsetting of balances within the same tax
jurisdiction
December 31 January 1 2018
2018 & December 31 2017
Taxabletemporarydifferences
Deferred tax
liabilities
Taxabletemporarydifferences
Deferred tax
liabilities
| Deferred tax liabilities | ||||||||||
Deferred tax liabilities in respect of fixed
| assets and intangible assets |
3,915,138
621,716
| 3,800,871 | 605,190 |
3,915,138
621,716
| 3,800,871 | 605,190 |
(3) Deferred tax assets and deferred tax liabilities presented on a net basis after offsetting
December 31 January 1 December 31
2017
20182018
The offsetamount of
deferredtax assets
and
liabilities
Deferredtax assetsor liabilities
after offset
The offsetamount ofdeferred tax
assets and
liabilities
Deferredtax assets
orliabilities
afteroffset
The offsetamount of
deferredtax assets
and
liabilities
Deferredtax assetsor liabilities
after offset
Presented as:
| Deferred tax assets |
229,312
732,613
380,577
864,716
380,577
891,012
| Deferred tax liabilities |
229,312
392,404
380,577
224,613
380,577
224,613
Notes to the Financial Statements
- 163 -
V. Notes to the consolidated financial statements - (cont'd)
17 Deferred Tax Assets and Deferred Tax Liabilities - (cont'd)
(4) Details of unrecognized deferred tax assets
December 31
January 1 2018
2018
& December 31
2017
| Deductible temporary differences | 82,886 | 10,018 | |||||||||||||||||
| Deductible losses | carry forward | ||||||||||||||||||
162,186
96,041
245,072
106,059
(5) Expiration of deductible tax losses carry forward for unrecognized deferred tax assets
December 31
January 1 2018
2018
& December 31
2017
| 2019 | - | ||||||||||||
| 2020 | 15,909 | 19,831 | |||||||||||
| 2021 | 13,537 | 35,737 | |||||||||||
| 2022 | 1,380 | 18,008 | |||||||||||
| After 2022 |
131,360
22,465
162,186
96,041
(6) Unrecognized deferred tax liabilities
When calculating the deferred taxes, taxes that would have applied in the event of realizing investments in subsidiaries were nottaken into account since it is the Company’s intention to hold these investments and not realize them.
Notes to the Financial Statements
- 164 -
V. Notes to the consolidated financial statements - (cont'd)
18 Other Non-Current Assets
December 31
January 1 2018
2018
& December 31
2017
| Asset related to securitization deposit | 62,395 | 88,832 | ||||||||||||||||||||||
| Advances in respect of non | - | current assets | 55,282 | 11,196 | ||||||||||||||||||||
| Judicial deposits | 51,906 | 50,150 | ||||||||||||||||||||||
| Call option in respect | of business combination | 11,880 | 13,545 | |||||||||||||||||||||
| Long term loan | 48 | 7,606 | ||||||||||||||||||||||
| Others |
20,600
30,384
| Sub total |
202,111
201,713
| Due within one year | ||||||||
(48)
(46)
202,063
201,667
19 Short-Term Loans
Short-term loans by category:
December 31
January 1 2018
2018
& December 31
2017
| Guaranteed loans | 20,000 | 70,000 | |||||||
| Unsecured loans | |||||||||
552,774
2,210,912
572,774
2,280,912
Details of the guarantees are set out in note X(5) Related parties and related party transactions.
20 Derivative financial liabilities
December 31
January 1 2018
2018
& December 31
2017
| Economic hedge | 1,430,497 | 485,530 |
Accounting hedge derivatives 21,173
303,520
1,451,670
789,050
Notes to the Financial Statements
- 165 -
V. Notes to the consolidated financial statements - (cont'd)
21 Bills Payable and Accounts Payable
December 31
January 1 2018
2018
& December 31
2017
| Bills payable | 445,533 | 311,557 | |||||||
| Accounts payable | |||||||||
4,573,783
3,906,481
5,019,316
4,218,038
(1) Bills Payable by category
December 31
January 1 2018
2018
& December 31
2017
| Post | - | dated checks payables | 235,833 | 288,557 | |||||||
| Note Payables draft | |||||||||||
209,700
23,000
445,533
311,557
All of the above bills payable are due within one year and none are overdue.
(2) Accounts payable by aging
December 31
January 1 2018
2018
& December 31
2017
| Within 1 year | (including 1 year) | 4,558,510 | 3,892,238 | |||||||||||
| 1 | - | 2 years (including 2 years) | 2,349 | 8,190 | ||||||||||
| 2 | - | 3 years (including 3 years) | 6,087 | 1,176 | ||||||||||
Over 3 years 6,837
4,877
4,573,783
3,906,481
There are no significant accounts payables ageing over one year.
22 Contract liabilities
December 31
January 1
2018
2018
| Liabilities for discounts | * | 525,982 | 503,362 |
Advances from costumers* 295,691
243,216
821,673
746,578
*Amounts reclassified as at January 1, 2018 due to implementation of new standard. See Note Ⅲ30(1).
Notes to the Financial Statements
- 166 -
V. Notes to the consolidated financial statements - (cont'd)
23 Employee Benefits Payable
December 31
January 1 2018
2018
& December 31
2017
| Short | - | term employee benefits |
| 598,421 | 572,037 | ||||||||||||
| Post | - | employment benefits | - | defined contribution plans | 18,050 | 20,367 | |||||||
| Other benefits within one year |
271,526
263,362
| 887,997 | 855,766 | |||||||
| Current maturities | ||||||||
37,349
139,871
925,346
995,637
24 Taxes Payable
December 31
January 1 2018
2018
& December 31
2017
| Corporate income tax | 399,308 | 250,046 | |||||||||
| VAT | 181,580 | 153,328 | |||||||||
| Others | |||||||||||
21,742
27,901
602,630
431,275
25 Other Payable
December 31
2018
January 1 2018
& December 31
2017
Interest payable
| 46,258 | 46,491 | 46,491 | |||||||||||
| Dividends payable | 250 | 250 | 250 | ||||||||||
Other payable1,019,252
872,631
1,375,993
1,065,760
919,372
1,422,734
(1) Interest payable
December 31
January 1 2018
2018
& December 31
2017
Accrued interest in respect of debenture
| 33,698 | 33,174 | |||||||||
| Accrued interest in respect of | bank loans | 2,430 | 3,346 | |||||||
Accrued interest in respect of other liabilities10,130
9,971
46,258
46,491
As at 31 December 2018, the Group did not have any overdue interest.
Notes to the Financial Statements
- 167 -
V. Notes to the consolidated financial statements - (cont'd)
25 Other Payable - (cont'd)
(2) Other payable
December 31
January 1
December 31
2018
2018
2017
| Liabilities for discounts | * | - | 503,362 | |||||||||||||||||||||
| Accrued | expenses | 640,507 | 534,437 | 534,437 | ||||||||||||||||||||
| Payables in respect of intangible assets | 131,396 | 176,378 | 176,378 | |||||||||||||||||||||
| Financial institutions | 44,336 | 20,838 | 20,838 | |||||||||||||||||||||
| Liability in respect of securitization transactions | 35,572 | 37,957 | 37,957 | |||||||||||||||||||||
Liability in respect of investment in equity-
| accounted investee | |||
| company |
-
7,652
7,652
Other payables
| Other payables |
167,441
95,369
95,369
1,019,252
872,631
1,375,993
As at 31 December 2018, the Group did not have any significant overdue other payables.
26 Non-Current Liabilities Due Within One Year
Non-current liabilities due within one year by category are as follows:
January 1 2018
December 31
2018
& December 31
2017
| Long | - | term loans due within one year | 301,629 | 447,779 | |||||||
| Long | - | term payables due within one year | |||||||||
301,814
448,504
27 Other Current Liabilities
December 31
January 1
December 31
2018
2018
2017
| Put options to holders of non | - | controlling interests | 404,463 | 285,329 | 285,329 | ||||||||||||||||
| Provision in respect of returns | 149,686 | 161,643 | 161,643 | ||||||||||||||||||
| Provision in respect of claims | 23,644 | 18,714 | 18,714 | ||||||||||||||||||
| Deferred income | * | ||||||||||||||||||||
| - | - | 16,505 | ||||||||||
| Others | ||||||||||||
578,184
466,078
482,583
*Amounts reclassified as at January 1, 2018 due to implementation of new standard. See Note Ⅲ30(1).
Notes to the Financial Statements
- 168 -
V. Notes to the consolidated financial statements - (cont'd)
28 Long-Term Loans
Long-term loans by category
December 31 January 1 & December 31 20172018
Annual range
2018
Annual range
| Long term loans |
Loan secured by tangible assets
| other than monetary assets | 741 | 5.5% | 1,294 | 5.5% | ||||||||||||||
| Guaranteed loans | 72,000 | 4.5% | 198,590 | 4.7% | ||||||||||||||
| Unsecured loans |
464,707
| 5.1% | - | 6.1% |
762,215
| 4.2% | - | 6.1% |
| Total Long term loans | 537,448 | 962,099 | |||||||||||
| Less: Long term loans due within 1 year | |||||||||||||
(301,629)
(447,779)
| Long | term loans, net |
235,819
514,320
For the maturity analysis, see note VIII (c)
The long-term loans were mortgaged by fixed assets with carrying amounts of 6,143 thousand RMB as at December 31, 2018.Details of the guarantees are set out in note X(5) Related parties and related party transactions.
29 Debentures Payable
December 31
January 1 2018
2018
& December 31
2017
| Debentures Series B |
7,649,098
7,777,410
December 31
2018
| First year (current maturities) | - | ||||||||
| Second year | 449,947 | ||||||||
| Third year | 449,947 | ||||||||
| Fourth year | 449,947 | ||||||||
Fifth year and thereafter 6,299,257
7,649,098
Notes to the Financial Statements
- 169 -
V. Notes to the consolidated financial statements - (cont'd)
29 Debentures Payable - (cont'd)
Movements of debentures payable:
For the year ended December 31, 2018
Face
value in
RMB
Facevalue
NIS
Issuance
date
Maturity period
Issuanceamount
Balance atJanuary 1,
2018
Issuanceduring the
period
Amortization of
discounts or
premium
CPI andexchange rate
effect
Repayment
during the
period
Currencytranslationadjustment
Balance atDecember 31,
2018
| Debentures Series B | 2,673,640 | 1,650,000 | 4.12.2006 | November 2020 | - | 2036 |
3,043,742
3,531,088
| - | ||||
)227,506(
| - | ||||||
167,861
3,471,674
| Debentures Series B | 843,846 | 513,527 | 16.1.2012 |
November
| 2020 | - | 2036 |
842,579
1,027,019
| - | ||||||
8,710
)66,557(
| - | ||||||
49,142
1,018,314
| Debentures Series B | 995,516 | 600,000 | 7.1.2013 | November 2020 | - | 2036 |
1,120,339
1,295,327
| - | ||||
3,888
)83,522(
| - | ||||||
61,706
1,277,399
Debentures Series B 832,778
533,330
1.2.2015
November 2020-2036
1,047,439
1,233,624
-
(2,420)
(79,551)
-
58,542
1,210,195
| Debentures Series B | 418,172 | 266,665 | 1 | 6.2015 | November 2020 | - | 2036 |
556,941
690,352
-
(6,891)
(44,497)
-
32,552
671,516
7,777,410
-
3,518
(501,633)
-
369,803
7,649,098
Series B debentures issued by Solutions, one of the Company subsidiaries, in the amount of NIS 3,563.5 million par value, are linked to the Israeli CPI and bear interest at base annual rate of 5.15%. Thedebenture principal is to be repaid in 17 equal payments in the years 2020 through 2036.
Notes to the Financial Statements
- 170 -
V. Notes to the consolidated financial statements - (cont'd)
30 Long-Term Employee Benefits Payable
December 31
January 1 2018
2018
& December
31 2017
| Total present value of obligation | 507,178 | 530,333 | ||||||
Less: fair value of plan's assets (87,492)
(97,614)
| Post | - | employment benefits | - | Net liability arising from | defined benefit plan | 419,686 | 432,719 | |||||||||||
| Termination benefits | 98,193 | 138,948 | ||||||||||||||||
| Share based payment (See note XIII) | 61,961 | 55,260 | ||||||||||||||||
Other long-term employee benefits 37,871
123,658
| Total long | - | term employee benefits, net | 617,711 | 750,585 |
Including: Long-term employee benefits payable due within one year 37,349
139,871
580,362
610,714
(1) Movement in the net liability and assets in respect of defined benefit plans, early retirement and their components
Defined benefit obligation
and early retirement
Fair value of plan's
assets Total2018
2017
2018
2017
2018
2017
| Balance as at January 1, | 669,281 | 620,286 | 97,614 | 131,005 | 571,667 | 489,281 | |||||||||||||||||
| Expense/income recognized | |||||||||||||||||||||||
in profit and loss:
| Current service cost | 28,216 | 31,009 | 46 | 1,196 | 28,170 | 29,813 | |||||||||||||||||||||||||||||||||
| Past service cost | 4,840 | 93,029 | - | - | 4,840 | 93,029 | |||||||||||||||||||||||||||||||||
| Interest costs | 20,770 | 20,557 | 3,286 | 4,026 | 17,484 | 16,531 | |||||||||||||||||||||||||||||||||
| Settlements | - | (49,369) | (39,440) | - | (9,929) | ||||||||||||||||||||||||||||||||||
| Changes in exchange rates | (39,965) | 57,927 | (7,161) | 9,416 | (32,804) | 48,511 | |||||||||||||||||||||||||||||||||
Actuarial gain/losses due to early
| retirement |
| (3,490) |
| - |
| - |
| - |
| (3,490) |
| - | |||||||||||||
Included in other comprehensive
| income: |
Actuarial gain (losses) as a resultof changes in actuarial
| assumptions | (34,820) |
| 13,951 | (4,827) | 507 | (29,993) | 13,444 |
Foreign currency translationdifferences in respect of foreign
| operations | 27,767 | (39,404) | 4,068 | (6,739) | 23,699 | (32,665) | |||||||||||||||||||
| Additional movements: | |||||||||||||||||||||||||
| Benefits paid | (67,228) | (78,705) | (11,307) | (8,990) | (55,921) | (69,715) | |||||||||||||||||||
Contributions paid by the Group -
-
5,773
6,633
(5,773)
(6,633)
Balance as at December 31, 605,371
669,281
87,492
97,614
517,879
571,667
Notes to the Financial Statements
- 171 -
V. Notes to the consolidated financial statements - (cont'd)
30 Long-Term Employee Benefits Payable - (cont'd)
Post-employment benefit plans – defined benefit plan and early retirement
(2) Actuarial assumptions and sensitivity analysis
The principal actuarial assumptions at the reporting date for defined benefit plan
December 31
January 1 2018
2018
& December 31
2017
| Discount rate (%)* |
1.4%-3.5%
1.1%-4.5%
*According to the demographic and the benefit components
The assumptions regarding the future mortality rate are based on published statistical data and acceptable mortality rates.
Possible reasonable changes as of the date of the report in the discount rate, assuming the other assumptions remain unchanged,would have affected the defined benefit obligation as follows:
As of December 31, 2018
Increase of 1%
Decrease of 1%
| Discount rate |
(40,387)
49,418
31 Provisions
December 31
January 1
2018
2018
& December
31 2017
Reasons
| Liabilities in respect of | contingencies | 70,684 | 124,882 |
Obligations of pending litigations, wherean outflow of resources had been reliably
| estimated |
| Other |
39,809
39,031
110,493
163,913
Notes to the Financial Statements
- 172 -
V. Notes to the consolidated financial statements - (cont'd)
32 Other Non-Current Liabilities
December 31
January 1 2018
2018
& December 31
2017
| Put options to holders of non | control | ling interests | - | 53,509 | ||||||||||||||||||
| Long term transactions in derivatives | 14 | 13 | ||||||||||||||||||||
| Deferred income | 28,146 | - | ||||||||||||||||||||
| Long term loans | - | others | ||||||||||||||||||||
171,770
171,770
199,930
225,292
33 Share Capital
Balance at January 1,
2018
Issuance of new
shares
Cancellations of
shares
Balance at December 31,
2018
| Share capital |
2,446,554
-
-
2,446,554
In December 2017, non-publicly offered 104,697,982 ordinary shares (A-share) at nominal value of RMB 1 per share to thespecific investors. The Company received proceeds of 1,531,920 thousand RMB, net of the issuing cost of 28,080 thousand RMBon December 27, 2017. The listing date of the newly-issued 104,697,982 shares was January 17, 2018. The total amount of theshares of the Company is 2,446,553,582.
34 Capital Reserve
Balance at
January 1, 2018
Additions during the
year
Reductions during
the year
Balance at
December 31, 2018
| Share premiums | 12,973,782 | - | ( | 8,605 | 12, | 965,177 | ||||||||||||
| Other capital reserve | ||||||||||||||||||
8,495
1,784
-
10,279
12,982,277
1,784
(8,605)
12,975,456
Notes to the Financial Statements
- 173 -
V. Notes to the consolidated financial statements - (cont'd)
35 Other Comprehensive Income
Attributable to shareholders of the companyBalance at
January 1, 2018
Before tax amount
Less transfer to
profit or loss
Less: Income tax
expenses
Net –of-tax amount
Balance atDecember 31, 2018
Items that will not be reclassified to profit or loss
Re-measurement of changes in liabilities under
| defined benefit plans | (10,862) | 29,993 | - | 3,236 | 26,757 | 15,895 | |||||||||||||||||||||||||||||||
| Changes in fair value of | other equity investment | 50,621 | - | 50,621 | |||||||||||||||||||||||||||||||||
| Items that may be reclassified to profit or loss | |||||||||||||||||||||||||||||||||||||
| Effective portion of gain or loss of cash flow hedge | (260,950) | 125,483 | (276,383) | 47,531 | 354,335 | 93,385 | |||||||||||||||||||||||||||||||
| Translation difference of foreign | financial statements | ||||||||||||||||||||||||||||||||||||
117,111
813,940
-
-
813,940
931,051
(104,080)
969,416
(276,383)
50,767
1,195,032
1,090,952
Notes to the Financial Statements
- 174 -
V. Notes to the consolidated financial statements - (cont'd)
36 Surplus reserve
Balance at
January 1, 2018
Additionsduring the year
Reductionsduring the year
Balance at
December 31, 2018
| Statutory surplus reserve | 204,009 | 32,339 | - | 236,348 |
Discretional surplus reserve 3,814
-
-
3,814
207,823
32,339
-
240,162
37 Retained Earnings
2018
2017
| Retained earnings at December 31 of preceding year | 3,286,711 | 937,510 | ||||||||
| Opening balance adjustment (Note 1) | ||||||||||
39,481
847,295
| Retained earnings as at January 1 | 3,326,192 | 1,784,805 | ||||||||||||||||||||||||
| Net profits for the year attributable to shareholders of the | Company | 2,402,462 | 1,545,879 | |||||||||||||||||||||||
| Appropriation to statutory surplus reserve | ( | 32,339 | (17,124) | |||||||||||||||||||||||
| Dividends to non | - | controlling Interest | (28,716) | (32,509) | ||||||||||||||||||||||
| Dividend to the shareholders of the company (Note 2) | (154,133) | - | ||||||||||||||||||||||||
| Amount reversed due to disposal of a subsidiary | ||||||||||||||||||||||||||
-
5,660
5,513,466
| Retained earnings as at December 31 |
3,286,711
Note 1: The opening balance in current year was adjusted for RMB 39,481 thousands due to adoption of revised CASs for
financial instrument and revenue see Note Ⅲ 30(1). The opening balance in prior period was adjusted for RMB 847,295thousands due to a business combination under common control.
Note 2: On March, 27, 2018, after obtaining the approval of the second meeting of the company's 8th Board of Directors, the
Company declared RMB 0.63 (including tax) per 10 shares as cash dividend to all shareholders, resulting in a total cashdividend of 154,133 thousand RMB (including tax), and zero shares as share dividend, as well as no reserve transferred toequity capital. The proposal was approved by the Company’s shareholders at the 2017 annual general meeting held onJune 28, 2018, and paid during the fourth quarter.
See also note XII(1) Events subsequent to the balance sheet date.
Notes to the Financial Statements
- 175 -
V. Notes to the consolidated financial statements - (cont'd)
38 Operating Income and Cost of Sales
Year ended December 31 Year ended December 31
2018 2017
Income
Cost of sales
Income
Cost of sales
| Principal | activities | 25,545,308 | 17,052,485 | 23,772,151 | 15,363,173 | ||||||||||||||
| Other | businesses | ||||||||||||||||||
69,811
32,458
47,417
40,714
25,615,119
17,084,943
23,819,568
15,403,887
39 Taxes and Surcharges
Years ended December 31
2018
2017
| Tax on turnover | 49,101 | 36,888 |
Others 41,393
37,871
90,494
74,759
40 Selling and Distribution Expenses
Years ended December 31
2018
2017
| Salaries and related expense | 1,476,750 | 1,438,935 | ||||||||||||||||||||||
| Depreciation and amortization | 1,200,375 | 966,119 | ||||||||||||||||||||||
| Transportation | and Commissions | 709,134 | 687,491 | |||||||||||||||||||||
| Advertising and sales promotion | 326,707 | 326,194 | ||||||||||||||||||||||
| Travel expenses | 143,920 | 134,004 | ||||||||||||||||||||||
| Warehouse expenses | 132,629 | 121,591 | ||||||||||||||||||||||
| Registration | 108,600 | 111,615 | ||||||||||||||||||||||
| Insurance | 75,095 | 77,433 | ||||||||||||||||||||||
| Professional services | 76,084 | 67,252 | ||||||||||||||||||||||
| Others | ||||||||||||||||||||||||
380,823
349,701
4,630,117
4,280,335
41 General and Administrative Expenses
Years ended December 31
2018
2017
| Salaries | and related expenses | 431,722 | 597,849 | |||||||||||||||||||||||||||
| Professional services | 1 | 32 | 667 | 135,345 | ||||||||||||||||||||||||||
| IT systems | 69,632 | 60,536 | ||||||||||||||||||||||||||||
| Office rent, maintenance and expenses | 62,924 | 68,378 | ||||||||||||||||||||||||||||
| Depreciation | and amortization | 60 | 079 | 58,092 | ||||||||||||||||||||||||||
| Other |
136,083
121,094
893,107
1,041,294
Notes to the Financial Statements
- 176 -
V. Notes to the consolidated financial statements - (cont'd)
42 Research and development expenses
Years ended December 31
2018
2017
| Salaries | and related expenses | 168,405 | 155,282 | |||||||||||||||||||||||||||
| Materials | 77,399 | 34,300 | ||||||||||||||||||||||||||||
| Professional services | 54,435 | 56,902 | ||||||||||||||||||||||||||||
| Field trial | 53,663 | 19,123 | ||||||||||||||||||||||||||||
| Depreciation | and amortization | 28,953 | 41,501 | |||||||||||||||||||||||||||
| Office rent, maintenance and expenses | 7,708 | 8,609 | ||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||
51,334
44,761
441,897
360,478
43 Financial Expenses, net
Years ended December 31
2018
2017
| Interest expenses on debentures and loans | 585,14 | 9 | 666,048 | |||||||||||||||||||||||||||||
| CPI expense in respect of debentures | 85,533 | 25,279 | ||||||||||||||||||||||||||||||
| Loss in respect of sale of trade receivables | 79,060 | 47,707 | ||||||||||||||||||||||||||||||
| Revaluation of put option, net | 49,65 | 5 | 7,429 | |||||||||||||||||||||||||||||
| Interest expense in respect of post | employment benefits, net | 16,914 | 16, | 531 | ||||||||||||||||||||||||||||
| Interest income from customers, banks and others | (80,96 | 4 | (222,01 | 7 | ||||||||||||||||||||||||||||
| Exchange rate differences, net | ( | 191,027 | 638, | 240 | ||||||||||||||||||||||||||||
| Other expenses | ||||||||||||||||||||||||||||||||
8,387
26,069
552,707
1,205,286
44 Asset impairment Losses
Years ended December 31
2018
2017
| Fixed | assets | 129,214 | 51,135 | ||||||||||||||||
| Inventories | 79,287 | 53,984 | |||||||||||||||||
| Intangible asset | 21,887 | - | |||||||||||||||||
| Trade and other receivable | s | 67,975 | |||||||||||||||||
| Other | |||||||||||||||||||
230,999
173,325
45 Credit impairment loss
Year endedDecember 31
2018
| Bills receivable and accounts | receivable | 50,50 | 8 | |||||
| Other receivables | ||||||||
)135(
50,373
Notes to the Financial Statements
- 177 -
V. Notes to the consolidated financial statements - (cont'd)
46 Investment income
Years ended December 31
2018
2017
| Investment income from disposal of derivatives | 619,447 | 62,982 |
Income from long-term equity investments accounted for using
| the equity method | 7,001 | 22,239 | |||||||||||
| Loss from disposal of long | - | term equity investment | (11,363) | ||||||||||
| Other |
1,809
-
628,257
73,858
47 Gains (losses) from Changes in Fair Value
Years ended December 31
2018
2017
| Gain (loss) from changes in fair value of derivative financial instruments | (974,413) | 269,222 | ||||||||||
| Others | ||||||||||||
(4,921)
(979,334)
269,351
48 Gain from Disposal of Assets
Years ended December 31
Included innon-recurring items
2018
2017
| Gain from disposal of intangible | assets | (1) | 2,029,965 | 59,959 |
2,029,965
Loss from disposal of fixed assets(63,349)
(4,799)
(63,349)
1,966,616
55,160
1,966,616
(1) See Note V.15(2).
49 Non-Operating Expenses
Years ended December 31
Included innon-recurring items
2018
2017
| Donation expenses | 12,474 | 13,695 | 12,474 | |||||||||||
Other23,492
30,979
23,492
35,966
44,674
35,966
Notes to the Financial Statements
- 178 -
V. Notes to the consolidated financial statements - (cont'd)
50 Income Tax Expenses
Years ended December 31
2018
2017
| Current year | 518,199 | 344,411 | ||||||||||||
| Deferred tax expenses (income) | 239,501 | (286,940) | ||||||||||||
| Adjustments for previous years, net | ||||||||||||||
75,546
64,652
833,246
122,123
(1) Reconciliation between income tax expense and accounting profit is as follows:
| Years ended December 31 | ||||||||||||||
| 2018 | 2017 | |||||||||||||
| Profit before taxes | 3,235,708 | 1,668,002 | ||||||||||||
| Statutory tax in china |
25%
25%
| Tax calculated according to | statutory tax in china | 808,927 | 417,001 | ||||||||||
| Tax benefits from Approved | Enterprises | (77,014) | (61,907) | ||||||||||
Difference between measurement basis of income for financial statement
| and for tax purposes | 107,435 |
| (16,295) | |||||||||||||
| Taxable income and temporary differences at other tax rate | (72,241) | (50,037) | |||||||||||
| Taxes in respect of prior years | 75,546 | 64,652 | |||||||||||
Utilization of tax losses from prior years for which deferred taxes were
| not created | (58,723) |
| (39,073) |
Temporary differences and losses in the report year for which deferred
| taxes | were not created | 31,034 |
| 7,154 | |||||||||||||
| Non | - | deductible | expenses and other differences | 12,141 | 36,895 | ||||||||
Neutralization of tax calculated in respect of the Company’s share in
| results of | equity accounted investees | (2,911) |
| (5,661) | ||||||||||
| Effect of change in tax rate in respect of deferred taxes | (5,662) | (38,783) | ||||||||
Creation and reversal of deferred taxes for tax losses and temporary
| differences from previous years |
14,714
(191,823)
| Income tax expenses |
833,246
122,123
Notes to the Financial Statements
- 179 -
V. Notes to the consolidated financial statements - (cont'd)
51 Other comprehensive income
Details of the Other comprehensive income are set out in Note V.35
52 Notes to items in the cash flow statements
(1) Other cash received relevant to operating activities
Years ended December 31
2018
2017
| Financial institutions | 140,559 | 98,240 | ||||||||||||||||||
| Derivatives transactions | 471,597 | 390,703 | ||||||||||||||||||
| Interest income | 62,028 | 259,276 | ||||||||||||||||||
| Government subsidies | 2,828 | 1,775 | ||||||||||||||||||
| Others | ||||||||||||||||||||
60,558
51,596
737,570
| 801,590 |
(2) Other cash paid relevant to operating activities
Years ended December 31
2018
2017
| Transportation and Commissions | 687,366 | 629,465 | |||||||||||||||
| Advertising and sales promotion | 288,127 | 316,156 | |||||||||||||||
| Professional services | 265,682 | 267,317 | |||||||||||||||
| Financial institutions | 162,681 | 245,516 | |||||||||||||||
| Derivatives transactions | 128,503 | 278,260 | |||||||||||||||
| Registration | 113,861 | 101,745 | |||||||||||||||
| Insurance | 77,192 | 45,908 | |||||||||||||||
| Others |
1,074,209
1,287,514
| Net cash flow from operating activities |
2,797,621
3,171,881
(3) Other cash received relevant to investment activities
Years ended December 31
2018
2017
| Investment | grant | - | 29,205 | |||||||||||
| Other | ||||||||||||||
29,801
Notes to the Financial Statements
- 180 -
V. Notes to the consolidated financial statements - (cont'd)
52 Notes to items in the cash flow statements - (cont'd)
(4) Other cash paid relevant to investment activities
Years ended December 31
2018
2017
| Short term investments | - | 25,796 | |||||||
| Long term investments |
-
23,713
-
49,509
(5) Other cash received relevant to financing activities
Years ended December 31
2018
2017
| Other |
-
7,800
(6) Other cash paid relevant to financing activities
Years ended December 31
2018
2017
| Financing deposit | - | 100,000 | |||||||||||
| Bank deposit | 48,340 | - | |||||||||||
| Other |
8,610
4,600
56,950
104,600
Notes to the Financial Statements
- 181 -
V. Notes to the consolidated financial statements - (cont'd)
53 Supplementary Information on Cash Flow Statement
(1) Supplementary information on Cash Flow Statement
a. Reconciliation of net profit to cash flows from operating activities:
Years ended December 31
2018
2017
| Net profit | 2,402,462 | 1,545,879 | |||||||||||||||||||||||||||||||||||||||||
| Add: Impairment provisions for assets | 230,999 | 173,325 | |||||||||||||||||||||||||||||||||||||||||
| Credit impairment loss | 50,373 | N/A | |||||||||||||||||||||||||||||||||||||||||
| Depreciation of fixed assets and investment property | 712,414 | 670,473 | |||||||||||||||||||||||||||||||||||||||||
| Amortization of intangible asset | 1,233,358 | 997,717 | |||||||||||||||||||||||||||||||||||||||||
| Gains on disposal of fixed | assets, intangible assets, and other long | - | term assets, net | (1,966,616) | (55,160) | ||||||||||||||||||||||||||||||||||||||
| Loss | (gain) | from | changes in fair value | 979,334 | (269,351) | ||||||||||||||||||||||||||||||||||||||
| Financial expenses | 30, | 374 | 1,408,859 | ||||||||||||||||||||||||||||||||||||||||
| Investment income | (628,257) | (73,858) | |||||||||||||||||||||||||||||||||||||||||
| Decrease (increase) in deferred tax | assets | 113,801 | (265,962) | ||||||||||||||||||||||||||||||||||||||||
| Increase (decrease) in deferred tax liabilities | 125,700 | (20,978) | |||||||||||||||||||||||||||||||||||||||||
| Decrease (increase) in inventories, net | (1,572,726) | (431,226) | |||||||||||||||||||||||||||||||||||||||||
| Increase in operating receivables | (761,291) | (639,485) | |||||||||||||||||||||||||||||||||||||||||
| Increase in operating payables | 1,0 | 51 | 749 | 918,156 | |||||||||||||||||||||||||||||||||||||||
| Others | |||||||||||||||||||||||||||||||||||||||||||
-
Net cash flow from operating activities
| Net cash flow from operating activities |
2,002,139
3,958,389
Years ended December 31
2018
2017
b.
| Investing and financing activities that do not involve cash receipts and | ||
| payment | ||
-
18,471,007
| c. | Net increase | in cash and cash equivalents | |||||||||||||||
| Closing balance of cash | 6,180,148 | 7,864,258 | |||||||||||||||
| Less: Opening balance of cash | |||||||||||||||||
7,864,258
| 3,833,747 | |||
| Net increase in cash and cash equivalents |
(1,684,110)
| 4,030,511 |
Notes to the Financial Statements
- 182 -
V. Notes to the consolidated financial statements - (cont'd)
53 Supplementary Information on Cash Flow Statement - (cont'd)
(2) Cash or cash equivalents paid for acquired subsidiaries and other business units
December 312018
2017
| Company A | 9,334 | - | |||||||
| Company B |
4,010
-
13,344
-
(3) Details of cash and cash equivalents
December 312018
2017
| Cash on hand | 1,359 | 2,267 |
| Bank deposits available on demand without restrictions |
6,178,789
7,861,991
6,180,148
7,864,258
54 Assets with Restricted Ownership or Right of Use
December 31 2018 Reason
| Cash | 52,94 | 0 | ||||||
Pledged
| Fixed assets | 6,143 |
Mortgaged
| Other non | - | current assets |
131,039
Guarantees
190,122
Notes to the Financial Statements
- 183 -
V. Notes to the consolidated financial statements - (cont'd)
55 Foreign currencies denominated items
(1) Foreign currencies denominated items
As at December 31, 2018
Foreign currency at
the end of the year
Exchange rate
RMB at the end of
the year
| Cash and bank balances | |||||||||||||||||||||
| USD | 14,334 | 6.8632 | 98,377 | ||||||||||||||||||
| EUR | 80,255 | 7.8586 | 630,694 | ||||||||||||||||||
| BRL | 59,048 | 1.7712 | 104,588 | ||||||||||||||||||
| ILS | 60,227 | 1.8312 | 110,285 | ||||||||||||||||||
| PLN | 103,279 | 1.8255 | 188,532 | ||||||||||||||||||
| RON | 47,005 | 1.6848 | 79,194 | ||||||||||||||||||
Other
353,921
1,565,591
| Bills | and | Accounts | receivable | |||||||||||||||
| USD | 38,733 | 6.8632 | 265,832 | |||||||||||||||
| EUR | 65,313 | 7.8586 | 513,271 | |||||||||||||||
| BRL | 608,499 | 1.7712 | 1,077,797 | |||||||||||||||
| RON | 83,020 | 1.6848 | 139,872 | |||||||||||||||
| ZAR | 254,335 | 0.4757 | 120,984 | |||||||||||||||
| TRY | 86,637 | 1.3046 | 113,023 | |||||||||||||||
| RUB | 963,627 | 0.0988 | 95,199 | |||||||||||||||
Other
338,315
2,664,293
| Other receivables | ||||||||||||||||
| EUR | 42,085 | 7.8586 | 330,730 | |||||||||||||
| BRL | 30,067 | 1.7712 | 53,255 | |||||||||||||
| ILS | 43,563 | 1.8312 | 79,771 | |||||||||||||
Other
26,698
490,454
| Other current assets | ||||||||||||||||
| EUR | 12,679 | 7.8586 | 99,640 | |||||||||||||
| BRL | 39,426 | 1.7712 | 69,833 | |||||||||||||
| ILS | 94,986 | 1.8312 | 173,934 | |||||||||||||
| PLN | 12,772 | 1.8255 | 23,314 | |||||||||||||
| UAH | 89,238 | 0.2479 | 22,120 | |||||||||||||
| RMB | 15,586 | 1.0000 | 15,586 | |||||||||||||
Other
50,444
454,871
Long-term receivables
BRL88,977
1.7712
157,600
157,600
| Other non | - | current assets | |||||||||||||
| BRL | 65,624 | 1.7712 | 116,235 | ||||||||||||
Other
2,931
119,166
Short-term loans
| UAH | 274,720 | 0.2479 | 68,097 | ||||||||||
| TRY | 69,386 | 1.3046 | 90,519 | ||||||||||
Other
1,579
160,195
Notes to the Financial Statements
- 184 -
V. Notes to the consolidated financial statements - (cont'd)
55 Foreign currencies denominated items - (cont'd)
(1) Foreign currencies denominated items - (cont'd)
As at December 31, 21Foreign currency at
the end of the year
Exchange rate
RMB at the end of
the year
| Bills | and | Accounts payable | payable | |||||||||||||||
| USD | 21,162 | 6.8632 | 145,239 | |||||||||||||||
| EUR | 75,173 | 7.8586 | 590,757 | |||||||||||||||
| BRL | 137,854 | 1.7712 | 244,172 | |||||||||||||||
| ILS | 400,684 | 1.8312 | 733,717 | |||||||||||||||
Other
82,633
1,796,518
| Interestpayable | ||||||||
ILSCPI18,403
1.8312
33,698
33,698
Otherpayables
| USD | 1,536 | 6.8632 | 10,542 | |||||||||||||||
| EUR | 38,326 | 7.8586 | 301,192 | |||||||||||||||
| BRL | 62,175 | 1.7712 | 110,127 | |||||||||||||||
| ILS | 50,376 | 1.8312 | 92,247 | |||||||||||||||
| PLN | 10,614 | 1.8255 | 19,375 | |||||||||||||||
| CHF | 831 | 6.9716 | 5,793 | |||||||||||||||
Other
129,973
669,249
| Other current liabilities | ||||||||||||||||
| EUR | 5,746 | 7.8586 | 45,153 | |||||||||||||
| ILS | 11,139 | 1.8312 | 20,397 | |||||||||||||
Other
13,575
79,125
| Long | - | termloan | ||||||||||||
| BRL | 178 | 1.7712 | 316 | |||||||||||
Other
| Debenturespayable | ||||||||
ILSCPI4,177,180
1.8312
7,649,098
7,649,098
Notes to the Financial Statements
- 185 -
V. Notes to the consolidated financial statements - (cont'd)
55 Foreign currencies denominated items - (cont'd)
(1) Major foreign operations
Name of the Subsidiary
Registration &Principal place of
business
Business nature
Functional
currency
The basis of selecting functional currency
ADAMA France S.A.S FRANCE Distribution USD The main currency that represent the principal
| economic environment |
ADAMA Brasil S/A BRAZIL Manufacturing;
Distribution;
| Registration; |
USD The main currency that represent the principal
economic environmentADAMA Deutschland GmbH GERMANY Distribution;
| Registration |
USD The main currency that represent the principal
| economic environment |
ADAMA India Private Ltd. INDIA Manufacturing
| Distribution; |
INR The main currency that represent the principal
| economic environment |
Makhteshim Agan of NorthAmerica, Inc.
UNITED STATES
Manufacturing;
Distribution;
Registration;
| Registration; |
USD
The main currency that represent the principal
| economic environment |
Control Solutions Inc. UNITED STATES
Manufacturing;
Distribution;
Registration;
| Registration; |
USD
The main currency that represent the principal
| economic environment |
ADAMA Agan Ltd. ISRAEL Manufacturing
| Distribution; |
USD The main currency that represent the principal
| economic environment |
ADAMA Makhteshim Ltd. ISRAEL Manufacturing
| Distribution; |
USD The main currency that represent the principal
| economic environment |
ADAMA Australia Pty Limited
AUSTRALIA Distribution AUD The main currency that represent the principal
| economic environment |
ADAMA Italia SRL ITALY Distribution USD The main currency that represent the principal
| economic environment |
ADAMA Northern
| Europe B.V. |
NETHERLANDS
Distribution USD The main currency that represent the principal
| economic environment |
Alligare LLC UNITED STATES
Manufacturing;
Distribution;
Registration
| Registration |
USD The main currency that represent the principal
economic environment
Notes to the Financial Statements
- 186 -
VI. Changes in consolidation Scope
There were no changes in consolidation scope this year.
VII. Interests in Other Entities
1. Interests in subsidiaries
Composition of the largest subsidiaries of the Group in respect of assets and operating income
Name of the Subsidiary
Registration &Principal place of
business
Business nature Direct Indirect
Method ofobtaining the
subsidiary
| ADAMA France S.A.S | FRANCE | Distribution | 100% | Established | ||||||||||||||||||||||
ADAMA Brasil S/A BRAZIL Manufacturing; Distribution;
| Registration; |
100% Purchased
| ADAMA Deutschland GmbH | GERMANY | Distribution; Registration; | 100% | Established |
ADAMA India Private Ltd. INDIA Manufacturing;
| Distribution; |
100% EstablishedMakhteshim Agan of North
| America, Inc. |
UNITED STATES Manufacturing; Distribution;
| Registration; |
100% EstablishedControl Solutions Inc. UNITED STATES Manufacturing; Distribution;
| Registration; |
67% Purchased
| ADAMA Agan Ltd. | ISRAEL | Manufacturing; Distribution; | 100% | Restructure | |||||||||||||||||||||||||||||
| ADAMA Makhteshim Ltd. | ISRAEL | Manufacturing; Distribution; | 100% | Restructure | |||||||||||||||||||||||||||||
| ADAMA Australia Pty Limited | AUSTRALIA | Distribution; | 100% | Purchased | |||||||||||||||||||||||||||||
| ADAM Italia SRL | ITALY | Distribution; | 100% | Established | |||||||||||||||||||||||||||||
| ADAMA Northern Europe B.V. | NETHERLANDS | Distribution; | 55% | Purchased | |||||||||||||||||||||||||||||
Alligare LLC UNITED STATES
Manufacturing; Distribution;
| Registration; |
80% Purchased
2. Interests in joint ventures or associates
Years ended December 31
2018
2017
| Joint ventures | 68,584 | 56,871 | |||||||
| Associates | |||||||||
39,766
37,860
108,350
94,731
3. Summarized financial information of joint ventures and associates
Closing balance/ amountrecognized in the current year
Opening balance/ amountrecognized in the prior year
Joint ventures:
Total carrying amount
| 68,584 | 56,871 |
The Group's share of the following items:
Net profit
| 7,00 | 1 | 22,612 |
Total comprehensive income
| 7,00 | 1 | 22,612 |
Associates:
Total carrying amount
| 39,766 | 37,860 |
The Group's share of the following items:
Net profit
| - | (373) |
Total comprehensive income
| - | (373) |
Notes to the Financial Statements
- 187 -
VIII. Risk Related to Financial Instruments
A. GeneralThe Group has extensive international operations, and, therefore, it is exposed to credit risks, liquidity risks and market risks(including currency risk, interest risk and other price risk). In order to reduce the exposure to these risks, the Group usesfinancial derivatives instruments, including forward transactions, swaps and options (hereinafter - “derivatives”).
Transactions in derivatives are undertaken with major financial institutions, and therefore, in the opinion of Group Managementthe credit risk in respect thereof is low.
This note provides information on the Group’s exposure to each of the above risks, the Group’s objectives, policies and processesregarding the measurement and management of the risk. Additional quantitative disclosure is included throughout the consolidatedfinancial statements.
The Board of Directors has overall responsibility for establishing and monitoring the framework of the Group's risk managementpolicy. The Finance Committee is responsible for establishing and monitoring the Group's actual risk management policy. TheChief Financial Officer reports to the Finance Committee on a regular basis regarding these risks.
The Group’s risk management policy, established to identify and analyze the risks facing the Group, to set appropriate risk limitsand controls, and to monitor risks and adherence to limits. The policy and methods for managing the risks are reviewed regularly,in order to reflect changes in market conditions and the Group's activities. The Group, through training, and management standardsand procedures, aims to develop a disciplined and constructive control environment in which all the employees understand theirroles and obligations.
B. Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet itscontractual obligations, and derives mainly from trade receivables and other receivables as well as from cash and deposits infinancial institutions.
Accounts and other receivables
The Group’s revenues are derived from a large number of widely dispersed customers in many countries. Customers includemulti-national companies and manufacturing companies, as well as distributors, agriculturists, agents and agrochemicalmanufacturers who purchase the products either as finished goods or as intermediate products for their own requirements.
The Company entered into an agreement for the sale of trade receivables in a securitization transaction, for details see note V.4(2)e.
In April 2018, a two-year agreement with an international insurance company was renewed. The amount of the insurance coveragewas fixed at $150 million cumulative per year. The indemnification is limited to about 90% of the debt.
The Group’s exposure to credit risk is influenced mainly by the personal characterization of each customer, and by thedemographic characterization of the customer’s base, including the risk of insolvency of the industry and geographic region inwhich the customer operates. No single customer accounted for greater than 5% of total accounts receivable.
Notes to the Financial Statements
- 188 -
VIII . Risk Related to Financial Instruments - (cont’d)
B. Credit risk - (cont’d)
The Company management has prescribed a credit policy, whereby the Company performs current ongoing credit evaluations ofexisting and new customers, and every new customer is examined thoroughly regarding the quality of his credit, before offeringhim the Group’s customary shipping and payment terms. The examination made by the Group includes an outside credit rating, ifany, and in many cases, receipt of documents from an insurance company. A credit limit is prescribed for each customer,outstanding amount of the accounts receivable balance. These limits are examined annually. Customers that do not meet theGroup’s criteria for credit quality may do business with the Group on the basis of a prepayment or against furnishing ofappropriate collateral.
Most of the Group’s customers have been doing business with it for many years. In monitoring customer credit risk, the customerswere grouped according to a characterization of their credit, based on geographical location, industry, aging of receivables,maturity, and existence of past financial difficulties. Customers defined as “high risk” are classified to the restricted customer listand are supervised by management. In certain countries, mainly, Brazil, customers are required to provide property collaterals(such as agricultural lands and equipment) against execution of the sales, the value of which is examined on a current ongoingbasis by the Company. In these countries, in a case of a doubtful debt, the Company records a provision for the amount of the debtless the value of the collaterals provided and acts to realize the collaterals.
The Group closely monitors the economic situation in Eastern Europe and South America where necessary it operates to limit itsexposure to customers in countries having significantly unstable economies.
The Group recognizes an impairment provision, which reflects its assessment regarding the credit risk of account receivables.Other receivables and investments on a lifetime expected credit loss basis. See also notes Ⅲ.10 and Ⅲ.11.
Cash and deposits in banks
The Company holds cash and deposits in banks with a high credit rating. These banks are also required to comply with capitaladequacy or maintain a level of security based on different situations.
Guarantees
The Company’s policy is to provide financial guarantees only to investee companies.
Aging of receivables and allowance for doubtful accounts
Presented below is the aging of the past due trade receivables:
December 31, 2018
| Past due by less than 90 days | 483,421 | |||||
Past due by more than 90 days 562,108
1,045,529
The company measure the provision for credit losses on a collective group basis, where receivables share similar credit riskcharacteristics based on geographical locations. The examination for expected credit losses is performed using model including aginganalysis and historical loss experiences, and adjusted by the observable factors reflecting current and expected future economicconditions.When credit risk on a receivable has increased significantly since initial recognition, the group records specific provision or generalprovision, which is determined for groups of similar assets in countries in which there are large number of customers with immaterialbalances.
Notes to the Financial Statements
- 189 -
VIII . Risk Related to Financial Instruments - (cont’d)
B. Credit risk - (cont’d)
The group have credit risk exposures for accounts receivables amounted to RMB 6,312,140 thousand relate to category of"Lifetime expected credit losses (credit losses has not occurred)" and amounted to RMB 627,397 thousand related to category of"Lifetime expected credit losses (credit losses occurred)". The group have credit risk exposures for other receivables amounted toRMB 5,260 thousand related to category of "Lifetime expected credit losses (credit losses occurred)". The credit risk exposures forall remaining balance of financial assets at amortised cost and financial assets at FVTOCI are related to "12-month expected creditlosses".
C. Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting its financial obligation when they come due. TheGroup's approach to managing its liquidity risk is to assure, to the extent possible, an adequate degree of liquidity for meeting itsobligations timely, under ordinary conditions and under pressure conditions, without sustaining unwanted losses or hurting itsreputation.
The cash-flow forecast is determined both at the level of the various entities as well as of the consolidated level. The Companyexamines the current forecasts of its liquidity requirements in order to ascertain that there is sufficient cash for the operating needs,including the amounts required in order to comply with the financial liabilities, while taking strict care that at all times there willbe unused credit frameworks so that the Company will not exceed the credit frameworks granted to it and the financial covenantswith which it is required to comply with. These forecasts take into consideration matters such as the Company’s plans to use debtfor financing its activities, compliance with required financial covenants, compliance with certain liquidity ratios and compliancewith external requirements such as laws or regulation.
The surplus cash held by the Group companies, which is not required for financing the current ongoing operations, is invested inshort-term interest-bearing investment channels.
(1) Presented below are the contractual maturities of the financial liabilities at undiscounted amounts, includingestimated interest payments:
As at December 31, 2018
Third-
Fifth year
Contractual
Carrying
First year
Second year
Fourth year
and above
Cash flow
amount
Non-derivative financial
| liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Short | - | term loans | 59 | 0 | 883 | - | - | 59 | 0 | 883 | 572,774 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Bills and accounts payables | 5,019,316 | 5,019,316 | 5,019,316 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other payables | 1,591,742 | 1,591,742 | 1,591,742 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other current liabilities | 404,463 | 404,463 | 404,463 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debentures payable | 39 | 7 | 228 | 850 | , | 941 | 1, | 631 | , | 774 | 8, | 805 | , | 424 | 11, | 685 | 367 | 7,649,098 | |||||||||||||||||||||||||||||||||||||||||||||||
| Long | term loans | 332,462 | 209,856 | 42,653 | 584,971 | 537,448 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long | term payables | 1,751 | 1,662 | 2,906 | 26,272 | 32,591 | 25,291 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other non | current liabilities | 2,061 | 2,061 | 61,036 | 117,949 | 183,107 | 171,784 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative financial liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency derivatives | 1,450,645 | 14 | 1,450,659 | 1, | 450,645 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CPI/shekel forward transactions | 1,025 | 1,025 | 1,025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
9,791,576
1,064,534
1,738,639
8,949,645
21,544,124
17,423,586
Notes to the Financial Statements
- 190 -
VIII . Risk Related to Financial Instruments - (cont’d)
D. Market risks
Market risk is the risk that changes in market prices, such as foreign exchange rates, CPI, interest rates and prices of capitalinstruments, will affect the Group’s revenues or the value of its holdings in its financial instruments. The objective of market riskmanagement is to manage and monitor the exposure to market risks within acceptable parameters, while optimizing the return.
During the ordinary course of business, the Group purchases and sells derivatives and assumes financial liabilities for the purposeof managing market risks.
(1) CPI and foreign currency risksCurrency risk
The Group is exposed to currency risk from its sales, purchases, expenses and loans denominated in currencies that differ from theGroup’s functional currency. The main exposure is in Euro, Brazilian real, USD and in NIS. In addition, there are smallerexposures to various currencies such as the British pound, Polish zloty, Australian dollar, Indian rupee, Argentine peso, Canadiandollar, South African Rand and Ukraine Hryunia, Turkish lira and Chinese Renminbi.
The Group uses foreign currency derivatives – forward transactions and currency options – in order to hedge the cash flows risk,which derive from existing monetary assets and liabilities and anticipated sales and purchases, which may be affected by exchangerate fluctuations.
The Group hedged a part of the estimated currency exposure to anticipate sales and purchases for the subsequent year. Likewise,the Group hedges most of its monetary assets and liabilities denominated in a non- U.S. dollar currency. The Group uses foreigncurrency derivatives to hedge its currency risk, mostly with maturity dates of less than one year from the reporting date.
The wholly-owened subsidiary debentures are linked to the NIS-CPI and, therefore, an increase in the NIS-CPI, as well as changesin the NIS exchange rate, could cause significant exposure with respect to the subsidiary functional currency – the U.S. dollar. Asof the approval date of the financial statements, the subsidiary had hedged most of its exposure deriving from issuance of thedebentures, in options and forward contracts.
Notes to the Financial Statements
VIII . Risk Related to Financial Instruments - (cont'd)
D. Market risks - (cont'd)
(1) CPI and foreign currency risks - (cont’d)(A). The Group’s exposure to NIS-CPI and foreign currency risk, except in respect of derivative financial instruments(see hereunder) is as follows:
December 31, 2018
Total assets
Total liabilities
Denominated in or linked to the Dollar
| Denominated in or linked to the Dollar | 832,205 | 925,421 | |||||||||||||||||||
| In Euro | 1,627,669 | 957,747 | |||||||||||||||||||
| In Brazilian real | 1,595,505 | 410,324 | |||||||||||||||||||
| CPI | - | linked NIS | - | 7,683,728 | |||||||||||||||||
| In New Israeli Shekel | 367,552 | 845,429 | |||||||||||||||||||
| Denominated in or linked to other foreign currency | 2,434,783 | 421,802 | |||||||||||||||||||
Total
6,587,714
11,244,451
(B) The exposure to CPI and foreign currency risk in respect of derivatives is as follows:
December 31, 2018
Currency/
linkagereceivable
Currency/
linkagepayable
Averageexpiration
date
USDthousandsPar value
RMBthousandsPar value
Fair value
| Forward foreign currency |
USD
| EUR | 201 | 9 | / | 0 | 7 | / | 02 | 254,664 | 1,747,809 | (294,706) | ||||||||||||||
| Contracts and call options |
USD
| PLN | 201 | 9 | / | 05 | / | 17 | 24,368 | 167,242 | 6,156 | |||||||||||||
USD
| BRL | 201 | 9 | / | 02 | / | 14 | 160,770 | 1,103,397 | 18,030 | |||||||||||||
USD
| GBP | 201 | 9 | / | 05 | / | 01 | 16,978 | 116,525 | 3,905 | |||||||||||||
USD
| ZAR | 201 | 9 | / | 01 | / | 2 | 3 | 20,629 | 141,581 | (15,902) | |||||||||||||
ILS
| USD | 201 | 9 | / | 01 | / | 2 | 2 | 1,386,184 | 9,513,657 | (678,8 | 32 | ) | |||||||||||||
USD
| Others | 579,582 | 3,977,190 | 20,953 | ||||||||||||||
| CPI forward contracts |
CPI
| ILS | 201 | 9 | / | 0 | 6 | / | 05 | 560,299 | 3,845,443 | 6,438 |
(C). Sensitivity analysis
The appreciation or depreciation of the Dollar against the following currencies as of December 31, 2018 and the increase ordecrease in the CPI would increase (decrease) the equity and profit or loss by the amounts presented below. This analysis assumesthat all the remaining variables, among others interest rates, remains constant.
December 31, 2018Decrease of 5% Increase of 5%
Equity Profit (loss)
Equity Profit (loss)
New Israeli shekel
| New Israeli shekel | 16,787 | 10,673 | (9,265) | (3,151) | |||||||||||||||||||||||||||||||||||
| British pound | (2,182) | (569) | 2,182 | 569 | |||||||||||||||||||||||||||||||||||
| Euro | (82,704) | 5,628 | 106,946 | (5,628) | |||||||||||||||||||||||||||||||||||
| Brazilian real | 8,064 | 9,415 | (8,064) | (9,415) | |||||||||||||||||||||||||||||||||||
| Polish zloty | (4,200) | 3,134 | 4,200 | (3,134) | |||||||||||||||||||||||||||||||||||
| South African Rand | 954 | 954 | (954) | (654) | |||||||||||||||||||||||||||||||||||
| Chinese Yuan Renminbi | (4,661) | (4,661) | 4,661 | 4,661 | |||||||||||||||||||||||||||||||||||
| CPI | - | linked NIS | 205,176 | 205,176 | (205,176) | (205,176) | |||||||||||||||||||||||||||||||||
Notes to the Financial Statements
VIII . Risk Related to Financial Instruments - (cont'd)
D. Market risks - (cont'd)
(2) Interest rate risks
The Group has exposure to changes in the variable interest rate. The Group has different assets and liabilities in different countrieswhich bear interest according to the economic environment in each country. Most of the loans, other than the debentures, bearDollar Libor interest. As a result, most of the variable interest exposure of those loans is to the Libor interest. Due to marketconditions, the variable interest rates on cash are relatively low.
The Company prepares a quarterly summary of exposure to a change in the Libor interest rate. As at the approval date of thefinancial statements, the Company had not hedged this exposure.
(A). Type of interest
The interest rate profile of the Group’s interest-bearing financial instruments was as follows:
December 31, 2018
Fixed-rate instruments – unlinked to the CPI
Financial assets
Other non-current assets
| 8,648 |
Financial liabilities
Long-term loans
| 72,741 |
Long-term payables
| 19,450 |
Other non-current liabilities171,770
(255,313)
Fixed-rate instruments – linked to the CPI
Financial liabilities
Debentures payable7,649,098
| Variable | - | rate instruments | |||||||||||||
| Financial assets | |||||||||||||||
| Cash at banks | 457,624 | ||||||||||||||
| Financial assets at fair value through profit or loss | 46,095 | ||||||||||||||
| Other non | - | current assets | 41,914 | ||||||||||||
Financial liabilities
| Short | - | term loans | and credit from banks(1) | 801 | ,9 | 77 | ||||||
Long-term loans235,504
)491,848(
(1) Including long-term loans current maturities.
Notes to the Financial Statements
VIII . Risk Related to Financial Instruments - (cont’d)
D. Market risks - (cont'd)
(2) Interest rate risks - (cont’d)
(B). Sensitivity analysis of cash flows regarding variable-interest instruments
A change of 5% in the interest rates on the reporting date would increase or reduce equity and profit or loss bythe amounts presented below. This analysis assumes that all the remaining variables, among others exchangerates, remained fixed.
Profit or loss EquityIncrease in
interest
Decrease in
interest
Increase in
interest
Decrease in
interest
As at December 31, 2018
1,168
(1,175)
1,168
(1,175)
Notes to the Financial Statements
IX. Fair Value
The fair value of forward contracts on foreign currency is based on their listed market price, if available. In the absence of marketprices, the fair value is estimated based on the discounted difference between the stated forward price in the contract and thecurrent forward price for the residual period until redemption, using an appropriate interest rate.
The fair value of foreign currency options is based on bank quotes. The reasonableness of the quotes is evaluated throughdiscounting future cash flow estimates, based on the conditions and duration to maturity of each contract, using the market interestrates of a similar instrument at the measurement date and in accordance with the Black & Scholes model.
1. Financial instruments measured at fair value for disclosure purposes only
The carrying amount of certain financial assets and liabilities, including cash at bank and on hand, bills and accounts receivable,other receivables, derivatives financial assets, short-term loans, bills and accounts payable and other payable, are the same orproximate to their fair value.
The following table details the carrying amount in the books and the fair value of groups of non-current financial instrumentspresented in the financial statements not in accordance with their fair values:
December 31, 2018
Carrying amount
Fair value
Financial assets
Other non-current assets (a – Level 2) 51,982
52,797
Financial liabilities
Long-term loans and others (b – Level 2) 735,882
725,762
Debentures (c – Level 1) 7,649,098
8,982,344
(a) The fair value of the other non-current assets is based on a discounted future cash flows, using the acceptable interest
rate for similar investment having similar characteristics (Level 2).(b) The fair value of the long-term loans and others is based on a discounted future cash flows, using the acceptable interest
rate for similar loans having similar characteristics (Level 2).(c) The fair value of the debentures is based on stock exchange quotes (Level 1).
2. The interest rates used determining fair value
The interest rates used to discount the estimate of anticipated cash flows are:
December 31, 2018%
| Brazilian real interest | 6.16 | - | 7.22 | |||||||
| U.S. dollar interest | 2.97 | - | 3.04 | |||||||
| Indian Rupee | 6.85 | - | 7.43 | |||||||
Notes to the Financial Statements
- 195 -
IX. Fair Value - (cont’d)
3. Fair value hierarchy of financial instruments measured at fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date. The table below presents an analysis of financial instruments measured at fair value. Thevarious levels have been defined as follows:
? Level 1: quoted prices (unadjusted) in active market for identical instrument.? Level 2: inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly.? Level 3: inputs that are not based on observable market data (unobservable inputs).
The Company’s forward contracts and options are carried at fair value and are evaluated by observable inputs and therefore areconcurrent with the definition of level 2.
December 31
2018
| Forward contracts and options | used for hedging | the cash flow | (Level 2) | 107,471 | ||||||||||||||||||||||||||||||||
| Forward | contracts and options | used for economic hedging | (Level 2) | (1,041,4 | 29 | |||||||||||||||||||||||||||||||
| Debt instruments | (Level | 1 | 22,108 | |||||||||||||||||||||||||||||||||
| Other equity investment (Level 2) | 91,559 | |||||||||||||||||||||||||||||||||||
| Other | non | - | current asset | Level 2 | 21,022 | |||||||||||||||||||||||||||||||
| Call option in respect of business combination (Level 2) | 11,880 | |||||||||||||||||||||||||||||||||||
| Draft receivable | Level 2 | ) | 19,917 | |||||||||||||||||||||||||||||||||
| Other | (Level 2) | 23,987 | ||||||||||||||||||||||||||||||||||
Financial Instrument Fair valueForward contracts
Fair value measured on the basis of discounting the difference between the statedforward price in the contract and the current forward price for the residual period untilredemption using an appropriate interest rates.
| Foreign currency options | The fair value is measured based on the Black | & | Scholes model. | ||||
4. No transfer between any levels of the fair value hierarchy in the reporting period.
5. No change in the valuation techniques in the reporting period.
Notes to the Financial Statements
- 196 -
X. Related parties and related party transactions
1. Information on parent Company
Company
name
Registered
place Business nature
Registered capital
(Thousand)
Shareholdingpercentage (%)
Percentageof voting rights (%)
| CNAC |
Beijing,
| China |
Production and sales
| of agrochemicals | RMB3,338,220 | 78.91 | % | 78.91 | % |
The ultimate controller of the company is China National Chemical Corporation.
2. Information on the subsidiaries of the Company
For information about the subsidiaries of the Company, refer to Note VII.1.
3. Information on joint ventures and associates of the Company
For information about the joint ventures and associates of the Company, refer to Note V.11. Other joint ventures and associates thathave related party transactions with the Group during this year or the previous periods are as follows:
Name of entity Relationship with the Company
| Negev Aroma (Ramat Hovav) Ltd. | Joint venture of the | Group | ||||||||||
| Alfa Agricultural Supplies S. | Joint venture of the Group | |||||||||||
| Innovaroma SA | Joint venture of the Group | |||||||||||
| Agribul Ltd. | Joint venture of the Group | |||||||||||
Notes to the Financial Statements
- 197 -
X. Related parties and related party transactions - (cont’d)
4. Information on other related parties
Name of other related parties Related party relationship
| Jingzhou Sanonda holdings co. LTD | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta Crop Protection AG | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta Supply AG | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta Crop Protection LLC. | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta France SAS | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta Canada INC | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta Agro Sociedad Anonima | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta Protecao De Cultivos LTDA | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta Czech s.r.o. | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta Espana S.A. | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta | India Limited | Common control | ||||||||||||||||||||||||||||||||||||||||
| Syngenta Agro AG | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta Polska Sp. z o.o. | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta Agro, S.A. DE C.V. | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta Italia S.p.A. | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta Crop Protection Lda. | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta Crop | Protection NV | Common control | ||||||||||||||||||||||||||||||||||||||||
| Syngenta Nordics A.S. | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta Tarim Sanayi ve Ticaret A.S. | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta Agro GmbH Wien | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta Agro GmbH Maintal | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta Slovakia S.R.O. | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta | Hungary Kft. | Common control | ||||||||||||||||||||||||||||||||||||||||
| Syngenta UK Ltd | Common control | |||||||||||||||||||||||||||||||||||||||||
| Syngenta Ireland Ltd | Common control | |||||||||||||||||||||||||||||||||||||||||
| China Bluestar Lehigh Engineering Corp. | Common control | |||||||||||||||||||||||||||||||||||||||||
| Bluestar Silicones USA Corp. | Common control | |||||||||||||||||||||||||||||||||||||||||
| China Bluestar Chengrand | Common control | |||||||||||||||||||||||||||||||||||||||||
| Bluestar | (Beijing) Chemical Machinery Co., Ltd. | Common control | ||||||||||||||||||||||||||||||||||||||||
| Beijing Grand AgroChem Co., Ltd. | Common control | |||||||||||||||||||||||||||||||||||||||||
| Shandong Dacheng International Trading | Common control | |||||||||||||||||||||||||||||||||||||||||
| Shandong dacheng agricultural chemical co. LTD. | Common control | |||||||||||||||||||||||||||||||||||||||||
| Southwest Chemical Research and | Design Institute Co., Ltd. | Common control | ||||||||||||||||||||||||||||||||||||||||
| Jiangsu Anpon Electrochemical Co., Ltd | Common control | |||||||||||||||||||||||||||||||||||||||||
| Jiangsu Lianhai Testing Co., Ltd. | Common control | |||||||||||||||||||||||||||||||||||||||||
| Jiamusi Black Dragon Pesticide Chemical Co., Ltd. | Common control | |||||||||||||||||||||||||||||||||||||||||
| Anhui Kelihua Chemical Co., Ltd. | Common | control | ||||||||||||||||||||||||||||||||||||||||
| Anhui Research Institute of Chemical Industry | Common control | |||||||||||||||||||||||||||||||||||||||||
| Haohua engineering co. LTD. | Common control | |||||||||||||||||||||||||||||||||||||||||
| Shanghai branch of China blue lianhai design and research institute. | Common control | |||||||||||||||||||||||||||||||||||||||||
Notes to the Financial Statements
- 198 -
X. Related parties and related party transactions - (cont’d)
5. Transactions and balances with related parties
(1) Transactions with related parties
Years ended December 31
2018
2017
Type of purchase Related Party Relationship
Purchase of goods/services received Common control under
| ChemChina |
1,529,829
424,817
Purchase of fixed assets and other assets Common control under
| ChemChina |
2,189,486
91,354
| Purchase of goods/services received | Joint venture | 7,950 | 4,404 | ||||||||||||||
| Summary of Sales | of goods | ||||||||||||||||
Sale of goods/ Service rendered Common control under
| ChemChina |
421,688
136,208
| Sale of goods/ Service rendered | Joint venture | 157,803 | 181,480 |
(2) Leases
The Group as lessor
December 31Type of leased assets Lessee 2018
2017
Building and Structures Common control under
| ChemChina | 19 | 114 |
Notes to the Financial Statements
- 199 -
X. Related parties and related party transactions - (cont’d)
5. Transactions and balances with related parties - (cont'd)
(3) Guarantee
The Group as the guarantee receiver
Amount ofguaranteed loan
Inception date
of guaranty
Maturity date
of guaranty
Guarantycompleted (Y / N)
As at December 31, 2018
| Common control under ChemChina | 303,000 | 20/02/2017 | 19/02/2020 | Y |
Parent of the Group
| 50,000 | 18/10/2017 | 18/10/2021 | N | ||||||||
| 50,000 | 10/01/2017 | 10/01/2020 | Y | ||||||||
| 300,000 | 20/11/2017 | 20/11/2022 | N | ||||||||
| 100,000 | 13/06/2018 | 12/06/2022 | N | ||||||||
Ultimate controller of the Group
| 200,000 | 25/09/2013 | 25/09/2020 | Y | |||||||
| 150,000 | 30/09/2013 | 13/10/2020 | Y | |||||||
| 160,000 | 27/05/2014 | 09/06/2021 | N |
(4) Remuneration of key management personnel and directors
Years ended December 31
2018
2017
| Remuneration of key management personnel | 46,734 | 21,268 | |||||||||||
| Directors Fee | 600 | 150 | |||||||||||
(5) Receivables from and payables to related parties (including loans)
Receivable Items
December 31 January 1 2018
2018 & December 31 2017Items
Related Party
| Relationship |
Bad debt
| Provision |
Bad debt provision
Trade receivables
Common controlunder
ChemChina
| ChemChina | 39,420 | - | 28,565 | - | ||||||||||||||||||
| Trade receivables | Joint venture | 30,562 | 33,710 | |||||||||||||||||||
Other receivables
Common controlunder
ChemChina
| ChemChina | 51,566 | - | 22,780 | - | |||||||||||
Prepayments Common control
under
| ChemChina | 298 | - | 12,357 | - | ||||||||||||||||||||
| Other assets | Joint venture | 7,543 | 7,514 | |||||||||||||||||||||
Notes to the Financial Statements
- 200 -
X. Related parties and related party transactions - (cont’d)
5. Transactions and balances with related parties - (cont'd)
(5) Receivables from and payables to related parties (including loans) - (cont'd)
Payable Items
December 31
January 1 2018
Items Related Party Relationship 2018
& December 31 2017
| Trade payables | Common control under ChemChina | 358,087 | 78,614 | |||||||||||||||
| Trade payables | Joint venture | 397 | 320 | |||||||||||||||
Other non-current
| liabilities * |
Common control under ChemChina
| 171,770 | 171,770 |
* This liability is a loan from related party, the interest expense in 2018 is 2,090 thousand RMB (2017: 2,090 thousand RMB).
(6) Issued shares to related party
Years ended December 31
Item 2018 2017
| Parent | Adama Agricultural solutions | - | 18,471,007 | |||||||||||||||
(7) Other related party transactions
The closing balance of bank deposit in ChemChina Finance Corporation was 295,661 thousand RMB (2017: 155,700 thousandRMB) Interest income of bank deposit for the current year was 1,657 thousand RMB (2017: 16 thousand RMB).
XI. Commitments and contingencies
1 Significant commitments
(1) Capital commitments
December 31
January 1 2018
2018
& December 31 2017
| Investment in Fixed assets | 638,589 | 590,043 | |||||||
Notes to the Financial Statements
- 201 -
XI. Commitments and contingencies - (cont'd)
1 Significant commitments - (cont'd)
(2) Operating lease commitments
December 31 January 1 2018
2018
& December 31
2017
| Within 1 year (inclusive) | 128,553 | 138,827 | ||||||||||||||||
| After 1 year but within 2 years (inclusive) | 108,226 | 100,043 | ||||||||||||||||
| After 2 years but within 3 years | (inclusive) | 82,448 | 69,263 | |||||||||||||||
| After 3 years | ||||||||||||||||||
142,343 126,804
461,570 434,937
The total future minimum lease payments under non-cancellable operating leases of fixed assets
2 Commitments and Contingent Liabilities
On December 10, 2018 the 9th meeting of the 8th session of the Board of Directors of the Company resolved to approve theextension of the engagement in annual liability insurance policies for directors, supervisors and senior officers of the Company asapproved by the 2nd meeting of the 7th session of Board of Directors and the 4th interim Shareholders meeting, and to authorizethe management to annually deal with all matters relating to renewal/extension of the customary D&O liability insurance policies,with up to 20% flexibility in the relevant terms of the original policy. On December 26, 2018 the 3rd interim Shareholders meetingapproved the above resolution.
Environmental protection
The manufacturing processes of the Company, and the products it produces and markets, entail environmental risks that impact theenvironment. The Company invests substantial resources in order to comply with the applicable environmental laws and attemptsto prevent or minimize the environmental risks that could occur as a result of its activities. To the best of the Company’sknowledge, at the balance sheet date, none of its applicable permits and licenses with respect to environmental issues have beenrevoked.
Claims against subsidiaries
In the ordinary course of business, legal claims are filed against subsidiaries, including lawsuits, regarding claims for patentinfringement. Inter alia, from time to time, the Company, similar to other companies operating in the plant protection industry, isexposed to class actions for large amounts, which it must defend against while incurring considerable costs, even if these claims,from the start, have no basis. In the estimation of the Company’s management, based, inter alia, on opinions of its legal counselregarding the prospects of the proceedings, the financial statements include appropriate provisions where necessary to cover theexposure resulting from the claims.
Notes to the Financial Statements
- 202 -
XI. Commitments and contingencies - (cont'd)
2 Commitments and Contingent Liabilities - (cont'd)
Claims against subsidiaries - (cont'd)
Various immaterial claims have been filed against Group companies in courts throughout the world, in immaterial amounts, forcauses of action involving mainly employee-employer relations and various civil claims, for which the Company did not record aprovision in the financial statements. Furthermore, claims were filed for product liability damages, for which the Company hasappropriate insurance coverage, such that the Company’s exposure in respect thereof is limited to the amount its deductiblerequirement or the amount thereof does not exceed the deductible amount.
XII . Events subsequent to the balance sheet date
(1) On March, 19, 2019, after obtaining the approval of the 12th meeting of the company's 8th Board of
Directors, the Company declared RMB 0.97 (including tax) per 10 shares as cash dividend to allshareholders, resulting in a total cash dividend of 237,316 thousand RMB (including tax), and zero sharesas share dividend, as well as no reserve transferred to equity capital.
The proposal is subject to the approval by shareholders at shareholders’ general meeting.
(2) In January 2019, Solutions (through an affiliated company in the US) acquired Bonide Products Inc., a U.S.
based provider of pest-control solutions for the consumer Home & Garden market, in consideration ofRMB 834 million.
(3) On 19 March 2019, the Company entered into an agreement for the acquisition of Jiangsu Anpon
Electrochemical Co., Ltd. (hereinafter referred to as “Anpon”), a wholly-owned subsidiary of CNAC, located inHuai’An, Jiangsu Province. Anpon is a backward-integrated manufacturer of key active ingredients used incrop protection markets worldwide.
The purchase price of the transaction, which is currently in the process of being closed, is approximatelyRMB 415 million, with a potential additional payment of up to approximately RMB 405 million,depending on the realization of benefits from the future relocation of some of Anpon’s manufacturingfacilities. The transaction is considered a related party transaction and therefore will be considered as abusiness combination under common control.
(4) At the end of January 2019, the Company voluntarily suspended operations at Sanonda’s old site in
Jingzhou, which is in the process of being relocated to a nearby advanced site, due to recording of higherthan permitted levels of wastewater compounds. It was subsequently instructed by the local governmentnot to resume operations before rectification. The Company is working to rectify the discharge levels andresume operations at the old site as soon as possible.
According to the rectification plan being executed by the Company, the Company expects to commence
gradual resumption of operations at the old site around the end of March 2019.
Notes to the Financial Statements
- 203 -
XIII . Share-based Payments
(1) In December 2017, the remuneration committee and the Board of Directors (and the General Meeting with respect to the CEO) of
Adama solutions, a wholly-owned subsidiary, approved the allocation of 49,042,146 phantom warrants to officers and employeesin accordance with the long-term phantom compensation plan ("the Plan"). The allocation date is December 28, 2017
The warrants will vest in four equal portions, where the first and second quarters are exercisable after one year, the third quarterafter two years and the fourth quarter after three years from January 1, 2018. The warrants will be exercisable, in whole or in part,in accordance with the terms of the plan, and subject to achieving financial targets as determined in the plan. The warrants may beexercised until the end of 2023.
Upon exercise of each warrant, the offeree will be entitled to receive cash payment equal to the difference between the base priceas determined at the time of the grant and the closing price of one share of the company on the Shenzhen Stock Exchange, as itwill be on the exercise date up to the ceiling that was determined under the plan.
The fair value of the granted warrants as aforesaid was estimated using the binomial pricing model.
The cost of the benefit embodied in the warrants that were allocated as aforesaid, based on the fair value at the end of the reportingperiod, amounted to a total of 86 million RMB. The liability at the end of the reporting period was recorded according to thevesting period as determined in the plan, taking into account the extent of the service that the employees provided until that date.
Statement of share based payments in the year
Phantom warrants
| Total number of Phantom warrants granted in current period | 198,417 | ||||||
| Total number of Phantom warrants exercised in current period | |||||||
Total number of Phantom warrants forfeited in current period (1,139,172)
| Total number of | Phantom warrants at the end of the period | 48,101,391 |
The range of the exercise prices and the remainder of the contractual period for Phantom
| warrants | outstanding at the end of period | RMB 15.067 | 15.13, | 5 years | ||||||||||||||||||
| The parameters used in implementing the | model are as follows: | |||||||||||||||||||||
| Stock price (RMB) | 9.13 | |||||||||||||||||||||
| E | xercise increment (RMB) | 15.067 | - | 15.13 | ||||||||||||||||||
| Expected volatility | 45.47 | % | ||||||||||||||||||||
| Risk | - | free interest rate | 2.9 | 7 | % | |||||
| Economic value as of December 31, 2018 (in thousands RMB) | 85,968 | |||||||||
The methods for the determination of the fair value of liabilities arisingfrom cash-settled share-based payments
| The binomial pricing model |
Accumulated amount of liabilities arising from cash-settled share-based
| payments (in thousands RMB) | 61,961 |
Expenses arising from cash-settled share-based payments in current
| period (in thousands RMB) | 465 |
Notes to the Financial Statements
- 204 -
XIV. Other significant items
(1) Segment reporting
The Company presents its segment reporting based on a format that is based on a breakdown by business segments:
? Crop Protection (Agro)
This is the main area of the Company’s operations and includes the manufacture and marketing of conventionalagrochemical products and operations in the seeds sector.
? Other (Non Agro)
This field of activity includes a large number of sub-fields, including: Lycopan (an oxidization retardant), aromaticproducts, and other chemicals. It combines all the Company’s activities not included in the agro-products segment.
Segment results reported to the chief operating decision maker include items directly attributable to a segment as well as items thatcan be allocated on a reasonable basis. Unallocated items comprise mainly financing expenses, net, gains from changes in fairvalue, investment income and tax expenses.
All assets and liabilities that can be attributed to a specific segment were allocated accordingly. Attributed assets include: accountsand bills receivables, inventory, assets held for sale, fixed assets, construction in progress, intangible assets, goodwill, non-currenttrade receivables and long-term equity investments. Attributed liabilities include account payables, bill payables, liability in respectof long-term equity investee and deferred income. All other assets and liabilities which are not attributable to a specific segmentare presented as unallocated assets and liabilities.
Notes to the Financial Statements
- 205 -
XIV . Other significant items - (cont'd)
(1) Segment reporting - (cont’d)
Information regarding the results and assets and liabilities of each reportable segment is included below:
Crop Protection (Agro) Other (Non Agro) Elimination among segments Total
Year endedDecember 31
Year endedDecember 31
Year endedDecember 31
Year endedDecember 31
2018 2017 2018 2017 2018 2017 2018 2017
Operating income from
| external | |||||||||||||||||||||||||||||||||||||||
| customers | 23,874,56 | 4 | 22,033,564 | 1,740,555 | 1,786,004 | - | - | 25,615,119 | 23,819,568 | ||||||||||||||||||||||||||||||
| Inter | segment operating income | - | - | 719 | 5,238 | (719) | (5,238) | - | - | ||||||||||||||||||||||||||||||
Interest in the profit or loss of
| associates and joint ventures |
6,207
5,278
16,961
-
-
7,001
22,239
| Segment's results | 4, | 042 | 098 | 2,419,286 | 104 | 395 | 133,032 | - | - | 4,146,493 | 2,552,318 | ||||||||||||||||||||
| Financial expenses, net | (552,707) | (1,205,286) | |||||||||||||||||||||||||||||
Gain (loss) from changes in fair
| value | (979,334) | 269,351 | ||||||||||||||||||||||||
| Investment income | 621,256 | 51,619 | ||||||||||||||||||||||||
| Profit before tax | 3,235,708 | 1,668,002 | ||||||||||||||||||||||||
| Income tax expense |
833,246
(122,123)
| Net profit |
2,402,462
1,545,879
Crop Protection (Agro) Other (Non Agro) Unallocated assets and liabilities
Total
December 31
January 1
December 31
January 1
December 31
January 1
December 31
January 1
2018
2018
2018
2018
2018
2018
2018
2018
Total assets
| Total assets |
31,987,275
27,329,497
1,682,410
1,777,896
9,142,820
10,596,631
42,812,505
39,704,024
| Total liabilities |
4,811,684
4,027,090
235,778
198,600
15,484,917
16,610,219
20,532,379
20,835,909
Notes to the Financial Statements
- 206 -
XIV. Other significant items - (cont'd)
(1) Segment reporting - (cont’d)
Geographic information
The following tables sets out information about the geographical segments of the Group’s operating income based on the locationof customers (sales target) and the Group's non-current assets (including fixed assets, construction in progress, investmentproperties intangible assets and goodwill). In the case of investment property, fixed assets and construction in progress, thegeographical location of the assets is based on its physical location. In case of intangible assets and goodwill, the geographicallocation of the company which owns the assets.
Operating income from external customers
Years ended December 312018 2017
| Europe | 6,983,00 | 2 | 7,105,622 | ||||||||||||
| North America | 4,849,616 | 4,368,907 | |||||||||||||
| Latin America | 6,172,800 | 5,045,683 | |||||||||||||
| Asia Pacific | 4,028,68 | 8 | 3,950,970 | ||||||||||||
| Africa, Middle East (including Israel) and India | |||||||||||||||
3,581,013
3,348,386
25,615,119
23,819,568
Specified non-current assets
December 31
January 1 2018
2018
& December 31 2017
| Europe | 733,855 | 732,024 | |||||||||||||||
| Latin America | 2,065,089 | 1,030,652 | |||||||||||||||
| North America | 503,093 | 464,183 | |||||||||||||||
| Asia Pacific | 2,047,724 | 2,186,442 | |||||||||||||||
| Africa, Middle East (including Israel) and India | |||||||||||||||||
11,659,705
10,592,839
17,009,466
15,006,140
The dependency on major customers
No single customer's proportion of the total amount of sales is over 10%.
Notes to the Financial Statements
- 207 -
XIV. Other significant items - (cont'd)
(2) Calculation of Earnings per share and Diluted earnings per share
Amount for the
current year
Amount for the prior
year
Net profit from continuing operations attributable to ordinary
| shareholders |
2,402,462
1,545,879
| Thousands shares |
Amount for the
current year
Amount for the prior
year
| Number of ordinary shares outstanding at the beginning of the year | 2,341,856 | 2,341,856 | |||||||||||
| Add: weighted average number of ordinary | shares issued during the year | 104,698 | |||||||||||
Less: weighted average number of ordinary shares repurchased during the
| year |
-
-
Weighted average number of ordinary shares outstanding at the end of the
| year |
2,446,554
2,341,856
On July 4, 2017 the entire share capital of Solutions was transferred from CNAC to the Company, inreturn for the issuance of 1,810,883,039 new shares of the Company to CNAC, which is a businesscombination under common control. According to “Preparation Rules for Information Disclosure byCompanies Offering Securities to the Public No. 9-Calculation and Disclosure of Return on net assets andEarnings per Share”, in a business combination involving enterprises under common control whencalculating the basic earnings per share during the comparative period, the shares shall be treated as issuedat the beginning of the comparative period.
In December 2017, non-publicly offered 104,697,982 ordinary shares (A-share) at nominal value of RMB 1 per share to specificinvestors. The Company received proceeds of 1,531,920 thousand RMB, net of the issuing cost of 28,080 thousand RMB onDecember 27, 2017.
Notes to the Financial Statements
- 208 -
XIV . Other significant items - (cont'd)
(2) Calculation of Earnings per share and Diluted earnings per share - (cont'd)
Amount for the
current year
Amount for the
prior year
Calculated based on net profit attributable to ordinaryshareholders
Basic earnings per share
| 0.98 | 0.66 |
Diluted earnings per share
| N/A | N/A |
Calculated based on net profit from continuing operationsattributable to ordinary shareholders:
Basic earnings per share
| 0.98 | 0.66 |
Diluted earnings per share
| N/A | N/A |
Calculated based on net profit from discontinued operationsattributable to ordinary shareholders:
Basic earnings per share
| N/A | N/A |
Diluted earnings per share
| N/A | N/A |
XV. Notes to major items in the Company's financial statements
1. Cash at bank and on hand
December 31 January 1 2018
2018
& December 31 2017
| D | eposits | in banks | 2,005,313 | 1,864,003 |
Other cash and bank52,940
4,600
2,058,253
1,868,603
2. Bills receivable and accounts receivable
December 31 January 1 December 31
2018 2018 2017
| Bills receivables | 19,917 | 146,525 | 146,525 |
Accounts receivable
692,199 852,185 855,116
712,116 998,710 1,001,641
(1) Bills receivable
a. By category
December 31 January 1 2018
2018
& December 31
2017
| Bank acceptance draft |
19,917 146,525
19,917 146,525
All bills receivables are due within 1 year.
Notes to the Financial Statements
- 209 -
XV. Notes to major items in the Company's financial statements - (cont'd)
2. Bills receivable and accounts receivable - (cont'd)
(2) Bills receivable which were endorsed by the Company
December 31
2018
| Bank acceptance | draft |
211,682211,682
(3) Accounts receivable
a. By category
December 31, 2018
Book value
Provision for bad and doubtful
debts
Amount
Percentage(%)
Amount
Percentage(%)
Carrying
amount
Account receivables assessed
| individually for impairment | 190,376 | 23 | 127,406 | 67 | 62,970 |
Account receivables assessed
| collectively for impairment |
631,764
2,535
-
629,229
822,140
129,941
692,199
January 1, 2018
Book value
Provision for bad and doubtful
debts
Amount
Percentage(%)
Amount
Percentage(%)
Carrying
amount
Account receivables assessed
| individually for impairment | 11,593 | 1 | 11,593 | 100 | - | ||||||||||||
Account receivables assessed
| collectively for impairment |
854,531
2,346
-
852,185
866,124
13,939
1.6
852,185
Notes to the Financial Statements
- 210 -
XV. Notes to major items in the Company's financial statements - (cont'd)
2. Bills receivable and accounts receivable - (cont'd)
b. Aging analysis
December 31, 2018
| Within 1 year (inclusive) |
704,435
| Over 1 year but within 2 years |
105,249
| Over 2 years but within 3 years |
2,634
| Over 3 years but within 4 years |
1,280
| Over 4 years but within 5 years |
Over 5 years8,025
822,140
c. Addition, written-back and written-off of provision for bad and doubtful debts during the years
Year ended December 31, 2018
| Balance as of January 1, | 13,939 | ||||||||||||||||
| Addition during the year, net | 116,295 | ||||||||||||||||
| Write back during the year | (27 | 4 | |||||||||||||||
| Write | - | off during the year | (1 | 9 | |||||||||||||
| Exchange rate effect | |||||||||||||||||
-
Balance as of December
| Balance as of December | 31 |
129,941
d. Five largest accounts receivable at December 31 2018:
Name
Closing balance
Proportion of Accounts
receivable(%)
Allowance of doubtful
debts
Party 1 569,227
-
Party 2 176,215
113,425
Party 3 31,240
-
Party 4 7,927
-
Party 57,159
-
791,768
113,425
3 Other Receivables
December 31
January 1 2018
2018
& December 31 2017
| Dividends receivable | 1,808 | - |
Other receivables29,940
1,140
31,748
1,140
Notes to the Financial Statements
- 211 -
XV. Notes to major items in the Company's financial statements - (cont'd)
3 Other Receivables - (cont'd)
(1) Dividends receivable
a. Dividends receivable by categories
December 31
January 1 2018
Items/Invested companies
| Items/Invested companies |
2018
& December 31
2017
Hubei Bank1,808
-
As at 31 December 2018, the Company did not have any significant dividends receivable exceeded 1 year.
(2) Other receivables
a. Other receivables by categories
December 31
January 1 2018
2018
& December 31
2017
| Other | 35,072 | 6,122 |
| Provision for doubtful debts |
(5,132)
(4,982)
29,940
1,140
b. Other receivables by aging
December 31, 2018
Within 1 year (inclusive)
| Within 1 year (inclusive) |
29,929
| Over 1 year but within 2 years |
| Over 2 years but | within 3 years |
| Over 3 years but within 4 years | - | |||
| Over 4 years but within 5 years | - |
Over 5 years5,061
35,072
Notes to the Financial Statements
- 212 -
XV. Notes to major items in the Company's financial statements - (cont'd)
3 Other Receivables - (cont'd)
c. Additions, recovery or reversal and written-off of provision for bad and doubtful debts during the period:
Year ended December 31, 2018
| Balance as of January 1, | 4,982 | ||||||||||||||||
| Addition during the year | 175 | ||||||||||||||||
| Written back during the year | (25) | ||||||||||||||||
| Write | - | off during the | year | - | |||||||||||||
| Exchange rate effect | |||||||||||||||||
-
Balance as of December 31
| Balance as of December 31 |
5,132
d. Five largest other receivables at December 31 2018:
Name Closing balance
Proportion of other
receivables (%)
Allowance ofdoubtful debtsParty 1 28,553
-
Party 2 3,125
3,125
Party 3 651
-
Party 4 548
Party 5
-
33,227 95 3,673
Notes to the Financial Statements
- 213 -
XV. Notes to major items in the Company's financial statements - (cont'd)
4. Long-term equity investments
ITEM
December 31, 2018 January 1, 2018 & December 31 2017Amountbalance
Impairment
loss Book value
Amountbalance
Impairment
loss Book value
| Invest in | ||||||||||||||
| subsidiaries. | ||||||||||||||
15,939,826
-
15,939,826
15,939,826
-
15,939,826
15,939,826
-
15,939,826
15,939,826
-
15,939,826
Investments in subsidiaries
Invested unit
Openingbalance Increase Decrease
Closingbalance
CurrentprovisionImpairment
loss
BalanceprovisionImpairment
loss
| Jingzhou Hongxiang chemical | |||||||||||||||||||||||||
| co. LTD. | 37,620 | - | - | 37,620 | - | - | |||||||||||||||||||
Hubei Sanonda
| foreign trade | |||||||||||||||||||||||||||
| co. LTD. | 11,993 | - | - | 11,993 | - | - | |||||||||||||||||||||
| ADAMA Agricultural | |||||||||||||||||||||||||||
| Solutions Ltd | |||||||||||||||||||||||||||
15,890,213
-
-
15,890,213
-
-
15,939,826
-
-
15,939,826
-
-
5. Operating Income and operating costs
Item Year ended December 31, 2018 Year ended December 31, 2017
Revenue Operating costs Revenue Operating costs
| Main operations | 3,008,298 | 1,959,089 | 2,681,430 | 1,949,859 | |||||||||||||||
| Other operations | |||||||||||||||||||
103,855 88,984 216,966 210,123
3,112,153 2,048,073 2,898,396 2,159,982
Notes to the Financial Statements
- 214 -
XV. Notes to major items in the Company's financial statements - (cont'd)
6． Notes to items in the cash flow statements
(1) Other cash received relevant to operating activities
Item
Year ended December 31,
2018
Year ended December 31,
2017
| Interest | income | 25,827 | 1,034 |
| Government subsidies | 2,628 | 1,774 |
| Other |
3,220 5,602
31,675 8,410
(2) Other cash paid relevant to operating activities
Item
Year ended December
31, 2018
Year ended December 31,
2017
| Professional services | 71,188 | 60,724 | |||||||||||
| Transportation and Commissions | 77,477 | 86,733 | |||||||||||
Other 24,220 63,246
172,885 210,703
(3) Other cash received relevant to financing activities
Item
Year ended December
31, 2018
Year ended December 31,
2017
Other- 7,800
(4) Other cash paid relevant to financing activities:
Item
Year ended December
31, 2018
Year ended December 31,
2017
| Funding deposit | - | 100,000 | |||||||||||||||||||
| Repurchase of B shares | 393,025 | ||||||||||||||||||||
| Restricted cash | 48,340 | 4,600 | |||||||||||||||||||
Other8,610 -
449,975 104,600
Notes to the Financial Statements
- 215 -
XV. Notes to major items in the Company's financial statements - (cont'd)
7、 Supplementary information to cash flow statement
Supplementary materialsYear ended December
2018 2017
a. Reconciliation of net profit to net cash flows
generated from operating activities:
Net
| Net | profit | 323,396 | 171,244 | |||||||||||||||||||||||||||||||||||||||
| Add: | Assets impairment loss | 75,080 | 47,818 | |||||||||||||||||||||||||||||||||||||||
| Credit impairment loss | 116,171 | N/A | ||||||||||||||||||||||||||||||||||||||||
| Depreciation of fixed assets | 218,783 | 190,317 | ||||||||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 5,516 | 5,006 | ||||||||||||||||||||||||||||||||||||||||
| Loss on disposal of fixed assets, intangible assets and other | ||||||||||||||||||||||||||||||||||||||||||
| long | - | term assets | 1,457 | 2,531 | ||||||||||||||||||||||||||||||||||||||
| Loss | from changes in | fair value | - | 130 | ||||||||||||||||||||||||||||||||||||||
| Financial | expenses | (21,47 | 6 | ) | 25,437 | |||||||||||||||||||||||||||||||||||||
| Investment loss ( | income | (1,808) | 1,650 | |||||||||||||||||||||||||||||||||||||||
| Decrease (increase) in deferred income tax | assets | (21,533) | 1,917 | |||||||||||||||||||||||||||||||||||||||
| Decrease (increase) in inventory | 25,153 | (11,201) | ||||||||||||||||||||||||||||||||||||||||
| Increase in accounts receivable from operating activities | 153,415 | (300,891) | ||||||||||||||||||||||||||||||||||||||||
Increase in payables from operating activities199,429 261,790Net cash flows generated from operating activities1,073,583 395,748
b.
cash receipts and payment
- 18,471,007
Investing and financing activities that do not involve
c. Net increase in cash and cash equivalents
| Closing balance of cash | 2,005,313 | 1,864,003 | |||||||||
Less: Opening balance of cash1,864,003 249,741Net increase in cash and cash equivalents141,310 1,614,262
Notes to the Financial Statements
- 216 -
XV. Notes to major items in the Company's financial statements - (cont'd)
8. Related parties and related parties transactions
(1) Information on parent Company
Companyname
Registered place
Business nature
Registered
capital(Thousand)
Shareholdingpercentage (%)
Percentageof voting rights (%)
| CNAC | Beijing, China |
Production and sales of
| agrochemicals | 3,338,220 | 78.91 | % | 78.91 | % |
The ultimate controller of the company is China National Chemical Corporation.
(2) Information on the subsidiaries of the Company
For information about the subsidiaries of the Company, refer to Note VII.1.
(3) Transactions with related parties
a. Transactions of goods and services
Summary of Purchase of goods/services received
Years ended December 31
2018
2017
| Related Party Relationship | |||||||||||
Purchase of goods/services received Common control under
| ChemChina | 15,733 | 13,516 |
Purchase of fixed assets and other assets Common control under
| ChemChina | 74,308 | 39,690 | |||||||||||||||||||||||||||||||
| Purchase of goods/services received | Subsidiary | 170,661 | 47,939 | ||||||||||||||||||||||||||||||
| Purchase of goods | Subsidiary | 50,010 | 164,718 | ||||||||||||||||||||||||||||||
| Summary of Sales of goods: | |||||||||||||||||||||||||||||||||
| Sale of goods | Common control | under ChemChina | - | 344 | |||||||||||||||||||||||||||||
| Sale of goods | Subsidiary | 864,946 | 390,359 | ||||||||||||||||||||||||||||||
| Sale of raw materials | Subsidiary | 54,999 | 168,480 | ||||||||||||||||||||||||||||||
| Sale of fixed assets | Subsidiary | 1,528 | 1,183 | ||||||||||||||||||||||||||||||
Notes to the Financial Statements
- 217 -
XV. Notes to major items in the Company's financial statements - (cont'd)
8. Transactions and balances with related parties - (cont'd)
(3) Transactions with related parties - (cont'd)
b. Leases
The Company as lessor
December 31Type of leased assets Lessee 2018
2017
Building and Structures Common control under ChemChina 19
The Company as the guarantee receiver
Amount ofguaranteed
loan
Inception
date ofguaranty
Maturity
date ofguaranty
Guarantycompleted
(Y/ N)
| As At December 31, 2018 |
Common control under ChemChina
| 303,000 | 20/02/2017 | 19/02/2020 | Y | |||||||||||||||
Parent
| 300,000 | 20/11/2017 | 20/11/2022 | N | ||||||||||||||||
| 50,000 | 18/10/2017 | 18/10/2021 | N | ||||||||||||||||
| 50,000 | 10/01/2017 | 10/01/2020 | Y | ||||||||||||||||
| 100,000 | 13/06/2018 | 12/06/2022 | N | ||||||||||||||||
Ultimate controller
| 200,000 | 25/09/2013 | 25/09/2020 | Y | |||||||||||||
| 160,000 | 27/05/2014 | 09/06/2021 | N | |||||||||||||
| 150,000 | 30/09/2013 | 13/10/2020 | Y |
c. Related party purchase of shares and subsidiary
Years ended December 31
Item 2018 2017
| Parent |
| Adama agricultural solutions | - | 18,471,007 |
Subsidiary Repurchase of B shares -
411,818
Notes to the Financial Statements
- 218 -
XV. Notes to major items in the Company's financial statements - (cont'd)
8. Transactions and balances with related parties - (cont'd)
(3) Transactions with related parties - (cont'd)
d. Receivables from and payables to related parties (including loans)
Receivable Items
December 31
January 1
2018
2018
Items Related Party Relationship
BookBalance
Bad debtProvision
BookBalance
Bad debtProvision
| Trade receivables | Subsidiary | 753,369 | 113,245 | 793,330 | - | |||||||||||||||||||||||
| Prepayments | Common control under ChemChina | 298 | 12,357 | |||||||||||||||||||||||||
Payable Items
December 31
January 1
Items Related Party Relationship 2018
2018
| Trade payables | Subsidiary | 3,465 |
| Trade payables |
Common control under
| ChemChina | 184 | 980 | ||||||||||||
| Other payables | Subsidiary | 105,164 | 436,268 | |||||||||||
| Other payables |
Common control under
| ChemChina | 240 | - |
Other non-current
| liabilities* |
Common control under
| ChemChina | 171,770 | 171,770 |
*loans from related party, the interest expense in 2018 and 2017 was 2,090 thousand RMB for each of the periods.
e. Other related party transactions
The closing balances of bank deposit in ChemChina Finance Corporation at December 31, 2018 and 2017 were 295,661 and25,014 thousand RMB, accordingly.Interest income of bank deposit for the years 2018 and 2017 was 146 and 14 thousand RMB, accordingly.
Notes to the Financial Statements
Supplementary information
1. Extraordinary Gain and Loss
Year ended
December 31, 2018
| Disposal of non | - | current assets | 1,959,005 | |||||||
| Government grants recognized through profit or loss | 21,089 | |||||||||
Recovery or reversal of provision for bad debts which is assessed
| individually during the years | 17,303 | |||||||||||
| Other non | - | operating income | and expenses besides items above | ( | 11,719 | ) | ||||||
| Tax effect | ||||||||||||
)442,664(
1,543,014
Note: Extraordinary gain and loss items listed above are presented in the amount before taxation
2. Return on net assets and earnings per share (“EPS”)
The information of Return on net assets and EPS is in accordance with the Preparation Rules for Information Disclosure byCompanies Offering Securities to the Public No. 9 – Calculation and Disclosure of Return on net assets and Earnings pershare (2010 Amendment) issued by China Securities Regulatory Commission
Profit during the reporting period
Weighted average rate of
return on net assets (%)
Basic EPS
(RMB/share)
Diluted EPS
(RMB/share)
Net profit attributable to ordinary
| shareholders of the Company | 11.68% |
| 0.98 |
| N/A |
Net profit after deduction of extraordinarygains/losses attributable to ordinary
| shareholders of the Company | 4.1 | 8 | % |
0.
| 0. | 35 |
N/A
| N/A |
Notes to the Financial Statements
Section XII Documents Available for Reference
(I) Financial Statements carried with signatures and seals of Legal Representative and Accounting Principal, aswell as Head of the Accounting Organ;(II) Original of the Auditor’s Report with the seals of accounting firm and the signatures and seals of certifiedpublic accountants;(III) In the reporting period, originals of all documents of the Company ever disclosed publicly in mediadesignated by China Securities Regulatory Commission as well as the originals of all the public notices weredeposited in the office of the Company.
ADAMA Ltd.
Legal Representative：Chen Lichtenstein
March 21, 2019