Chaoda Modern Agriculture (CMGHF)

[ErnieBilco]

ANNUAL RESULTS ANNOUNCEMENT
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2014
AND
PROFIT WARNING
RESULTS

http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0130/LTN20150130895.pdf

The board of directors (the “Board”) of Chaoda Modern Agriculture (Holdings) Limited (the
“Company”) is pleased to announce the audited consolidated annual results of the Company
and its subsidiaries (collectively referred to as the “Group” or “Chaoda”) for the financial year
ended 30 June 2014, together with the comparative figures for the previous financial year as
follows:-2-
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2014
Notes 2014 2013
RMB’000 RMB’000
Turnover 3 1,459,321 2,281,882
Cost of sales (1,730,580) (2,422,787)
Gross loss (271,259) (140,905)
Other revenues 4 64,571 69,889
Gain arising from changes in fair value less costs
to sell of biological assets 12 263,369 363,758
Selling and distribution expenses (266,708) (471,425)
General and administrative expenses (145,429) (176,970)
Research expenses (11,743) (28,559)
Other operating expenses 6 (1,511,722) (2,757,222)
Loss from operations (1,878,921) (3,141,434)
Finance costs 7(a) (839) (369)
Share of results of associates 944 686
Impairment loss on available-for-sale investments (60,094) (77,826)
Loss before income tax 7 (1,938,910) (3,218,943)
Income tax expense 8 (756) (1,081)
Loss for the year (1,939,666) (3,220,024)
Other comprehensive income/(expense), including
reclassification adjustments and net of income tax
Items that may be reclassified subsequently to profit or loss:
Exchange gain/(loss) on translation of financial
statements of foreign operations 2,091 (26,110)
Change in fair value of available-for-sale investments (60,094) (92,038)
Release upon impairment of available-for-sale investments 60,094 77,826
Other comprehensive income/(expense) for the year,
including reclassification adjustments and net of
income tax 2,091 (40,322)
Total comprehensive expense for the year (1,937,575) (3,260,346)
Loss for the year attributable to:
Owners of the Company (1,940,728) (3,220,015)
Non-controlling interests 1,062 (9)
(1,939,666) (3,220,024)
Total comprehensive expense for the year
attributable to:
Owners of the Company (1,939,019) (3,256,522)
Non-controlling interests 1,444 (3,824)
(1,937,575) (3,260,346)
Loss per share for loss attributable to the owners of the
Company during the year
– Basic 10(a) RMB(0.59) RMB(0.98)
– Diluted 10(b) RMB(0.59) RMB(0.98)-3-
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2014
Notes 2014 2013
RMB’000 RMB’000
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment 5,831,067 6,678,361
Investment properties 59,078 -
Construction-in-progress 607 53,832
Prepaid premium for land leases 11 4,508,700 5,244,703
Biological assets 12 2,234,252 2,246,750
Available-for-sale investments 104,220 161,025
Deferred development costs 460 4,460
Deferred expenditure 370,068 437,191
Intangible assets 467,700 466,141
Interests in associates 11,667 8,955
13,587,819 15,301,418
Current assets
Prepaid premium for land leases 11 133,220 140,262
Biological assets 12 494,260 360,954
Inventories 39,742 39,433
Trade receivables 13 39,979 39,172
Other receivables, deposits and prepayments 890,144 1,183,450
Cash and cash equivalents 432,321 371,419
2,029,666 2,134,690
Current liabilities
Trade payables 14 14,316 11,501
Other payables and accruals 294,657 208,076
Bank loans 29,404 -
338,377 219,577
Net current assets 1,691,289 1,915,113
Total assets less current liabilities 15,279,108 17,216,531
Non-current liabilities
Deferred tax liabilities 20,655 20,655
Net assets 15,258,453 17,195,876
EQUITY
Equity attributable to the owners of the Company
Share capital 332,787 332,787
Reserves 14,784,670 16,723,537
15,117,457 17,056,324
Non-controlling interests 140,996 139,552
Total equity 15,258,453 17,195,876-4-
EXTRACT OF INDEPENDENT AUDITORS’ REPORT
The following is the extract of the independent auditors’ report from Elite Partners CPA
Limited, the external auditors of the Company, on the Group’s consolidated financial
statements for the year ended 30 June 2014:
BASIS OF QUALIFIED OPINION
The auditors’ report on the consolidated financial statements of the Group for the year ended
30 June 2013 contained a qualification on the possible effect of the limitation of scope in
relation to the physical counting and inspection of the Group’s property, plant and equipment,
construction-in-progress, biological assets and inventories. Any adjustments found to be
necessary in respect of the prior year’s qualification would have an effect on the opening
balances and consequential effect on the consolidated financial position of the Group as at 30
June 2014 and the results and cash flows for the year ended 30 June 2014.
QUALIFIED OPINION ARISING FROM LIMITATION OF SCOPE
In our opinion, except for the possible effects of the matters described in the paragraph
headed “Basis of Qualified Opinion” above, the consolidated financial statements give a true
and fair view of the state of affairs of the Company and the Group as at 30 June 2014, and of
the Group’s loss and cash flows for the year then ended in accordance with Hong Kong
Financial Reporting Standards and have been properly prepared in compliance with the
disclosure requirements of the Hong Kong Companies Ordinance.-5-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
1. BASIS OF PREPARATION
The consolidated financial statements have been prepared in accordance with Hong Kong
Financial Reporting Standards (“HKFRSs”), which collectively includes all applicable
individual Hong Kong Financial Reporting Standard (“HKFRS”), Hong Kong
Accounting Standard (“HKAS”) and Interpretation issued by the Hong Kong Institute of
Certified Public Accountants (the “HKICPA”). In addition, the consolidated financial
statements include applicable disclosures required by the Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited and by the Hong Kong
Companies Ordinance.
The accounting policies have been consistently applied to all the years presented unless
otherwise stated. The adoption of new and revised HKFRSs and the impacts on the
Group’s consolidated financial statements, if any, are disclosed in Note 2.
The consolidated financial statements incorporate the financial statements of the
Company and its subsidiaries.
Items included in the financial statements of each of the Group’s entities are measured
using the currency of the primary economic environment in which the entity operates (the
“functional currency”). The consolidated financial statements are presented in Renminbi
(“RMB”) since most of the companies comprising the Group are operating in RMB
environment and the functional currency of most of the companies comprising the Group
is RMB.
The consolidated financial statements have been prepared under historical cost
convention except for certain assets such as biological assets and financial instruments
classified as available-for-sale investments which are measured at fair values.
In the application of the Group’s accounting policies, management is required to make
judgements, estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The estimates and underlying
assumptions are based on historical experience and other factors that are considered to be
relevant. Actual results may differ from these estimates.
The consolidated financial statements for the year ended 30 June 2014 were approved for
issue by the Board on 30 January 2015.
2. APPLICATION OF NEW AND REVISED HKFRSs
In the current year, the Group has applied for the first time the following new standards,
amendments and interpretations (the “new HKFRSs”) issued by the HKICPA, which are
relevant to and effective for the Group’s consolidated financial statements for the annual
period beginning on 1 July 2013:
HKFRS 10 Consolidated Financial Statements
HKFRS 12 Disclosure of Interests in Other Entities
HKFRS 13 Fair Value Measurement-6-
2. APPLICATION OF NEW AND REVISED HKFRSs (Continued)
Except as explained below, the application of the new HKFRSs in the current year has
had no material effect on the amounts reported in these consolidated financial statements
and/or disclosures set out in these consolidated financial statements:
HKFRS 10 – Consolidated Financial Statements
HKFRS 10 replaces the requirements in HKAS 27 “Consolidated and Separate Financial
Statements” relating to the presentation of consolidated financial statements and HK(SIC)
Interpretation 12 “Consolidation – Special Purpose Entities”. It introduces a single
control model to determine whether an investee should be consolidated, by focusing on
whether the entity has power over the investee, exposure or rights to variable returns from
its involvement with the investee and the ability to use its power to affect the amount of
those returns. As a result of the adoption of HKFRS 10, the Group has changed its
accounting policy with respect to determining whether it has control over an investee.
The adoption does not change any of the control conclusions reached by the Group in
respect of its involvement with other entities as at 1 July 2013.
HKFRS 12 – Disclosure of Interests in Other Entities
HKFRS 12 is a new disclosure standard and is applicable to entities that have interests in
subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. In
general, the application of HKFRS 12 has resulted in more extensive disclosures in the
consolidated financial statements.
HKFRS 13 – Fair Value Measurement
HKFRS 13 establishes a single source of guidance for, and disclosures about, fair value
measurements. The scope of HKFRS 13 is broad: the fair value measurement
requirements of HKFRS 13 apply to both financial instrument items and non-financial
instrument items for which other HKFRSs require or permit fair value measurements and
disclosures about fair value measurements, except for share-based payment transactions
that are within the scope of HKFRS 2 Share-based Payment, leasing transactions that are
within the scope of HKAS 17 Leases, and measurements that have some similarities to
fair value but are not fair value (e.g. net realisable value for the purposes of measuring
inventories or value in use for impairment assessment purposes).
HKFRS 13 defines the fair value of an asset as the price that would be received to sell an
asset (or paid to transfer a liability, in the case of determining the fair value of a liability)
in an orderly transaction in the principal (or most advantageous) market at the
measurement date under current market conditions. Fair value under HKFRS 13 is an exit
price regardless of whether that price is directly observable or estimated using another
valuation technique. Also, HKFRS 13 includes extensive disclosure requirements.
HKFRS 13 requires prospective application. In accordance with the transitional
provisions of HKFRS 13, the Group has not made any new disclosures required by
HKFRS 13 for the comparative period. Other than the additional disclosures, the
application of HKFRS 13 has not had any material impact on the amounts recognised in
the consolidated financial statements.-7-
2. APPLICATION OF NEW AND REVISED HKFRSs (Continued)
At the date of authorisation of the consolidated financial statements, certain new or
amended HKFRSs have been published but are not yet effective, and have not been
adopted early by the Group.
The directors of the Company (the “Directors”) anticipate that all of the pronouncements
will be adopted in the Group’s accounting policy for the first period beginning after the
effective date of the pronouncement. Information on new and amended HKFRSs that are
expected to have impact on the Group’s accounting policies is provided below. Certain
other new and amended HKFRSs have been issued but are not expected to have a
material impact of the Group’s consolidated financial statements.
HKFRS 9 – Financial instruments
HKFRS 9 is effective for accounting periods beginning on or after 1 January 2018 and
introduces a logical model for classification and measurement, a single, forward-looking
“expected loss” impairment model and a substantially-reformed approach to hedge
accounting.
Key requirements of HKFRS 9 are described as follows:
• All recognised financial assets that are within the scope of HKAS 39 “Financial
instruments: Recognition and Measurement” are subsequently measured at amortised
cost or fair value. Specifically, debt investments that are held within a business model
whose objective is to collect the contractual cash flows, and that have contractual cash
flows that are solely payments of principal and interest on the principal outstanding
are generally measured at amortised cost at the end of subsequent accounting periods.
All other debt investments and equity investments are measured at their fair values at
the end of subsequent reporting periods. In addition, under HKFRS 9, entities may
make an irrevocable election to present subsequent changes in the fair value of an
equity investment (that is not held for trading) in other comprehensive income, with
only dividend income generally recognised in profit or loss.
• With regard to the measurement of financial liabilities designated as at fair value
through profit or loss, HKFRS 9 requires that the amount of change in the fair value of
the financial liability that is attributable to changes in the credit risk of that liability is
presented in other comprehensive income, unless the recognition of the effects of
changes in the liability’s credit risk in other comprehensive income would create or
enlarge an accounting mismatch in profit or loss. Changes in fair value of financial
liabilities attributable to changes in the financial liabilities’ credit risk are not
subsequently reclassified to profit or loss. Under HKAS 39, the entire amount of the
change in the fair value of the financial liability designated as fair value through profit
or loss was presented in profit or loss.-8-
2. APPLICATION OF NEW AND REVISED HKFRSs (Continued)
HKFRS 9 – Financial instruments (Continued)
• The new general hedge accounting requirements retain the three types of hedge
accounting. However, greater flexibility has been introduced to the types of
transactions eligible for hedge accounting, specifically broadening the types of
instruments that qualify for hedging instruments and the types of risk components of
non-financial items that are eligible for hedge accounting. In addition, the
effectiveness test has been overhauled and replaced with the principle of an “economic
relationship”. Retrospective assessment of hedge effectiveness is also no longer
required. Enhanced disclosure requirements about an entity’s risk management
activities have also been introduced.
• The impairment requirements relating to the accounting for an entity’s expected credit
losses on its financial assets and commitments to extend credit were added. Those
requirements eliminate the threshold that was in HKAS 39 for the recognition of credit
losses. Under the impairment approach in HKFRS 9 it is no longer necessary for a
credit event to have occurred before credit losses are recognised. Instead, an entity
always accounts for expected credit losses, and changes in those expected credit losses.
The amount of expected credit losses is updated at each reporting date to reflect
changes in credit risk since initial recognition and, consequently, more timely
information is provided about expected credit losses.
The Directors expect that the implementation of HKFRS 9 in the future will affect the
classification and measurement in respect of the Group’s available-for-sale investments.
However, it is not practicable to provide a reasonable estimate of that effect until a
detailed review has been completed.
HKAS 16 and HKAS 41 (Amendments) – Bearer plants
The amendments are effective for the accounting periods beginning on or after 1 January
2016. The amendments introduce the definition of bearer plants and extend the scope of
HKAS 16 to include bearer plants, and explicitly exclude bearer plants from the scope of
HKAS 41. The produce on bearer plants remains within the scope of HKAS 41. Prior to
the amendments, the accounting for bearer plants was within the scope of HKAS 41,
which requires all biological assets to be measured at fair value less costs to sell (except
for rare cases in which the presumption that fair value can be measured reliably is
rebutted). The measurement principle of fair value for biological assets is based on the
premise that the transformation of biological assets is best reflected by fair value
measurement. The amendments enable entities to account for bearer plants in accordance
with HKAS 16, using either the cost model or the revaluation model. Before bearer plants
are able to bear agricultural produce (i.e. before maturity), they are accounted for as
self-constructed items of property, plant and equipment. The agricultural produce of the
bearer plant remains within the scope of HKAS 41 and is therefore accounted for at fair
value. The Directors are currently assessing the possible impact of the amendments on the
Group’s results and financial position in the first year of application.-9-
3. TURNOVER
The principal activities of the Group are the growing and sales of crops, and breeding and
sales of livestock.
Turnover represents the sales value of goods supplied to customers. The amount of each
significant category of revenue recognised in turnover during the year is as follows:
2014 2013
RMB’000 RMB’000
Sales of crops 1,442,490 2,247,247
Sales of livestock 16,831 34,635
1,459,321 2,281,882
4. OTHER REVENUES
2014 2013
RMB’000 RMB’000
Interest income 6,029 4,940
Dividend income from available-for-sale investments 2,880 12,660
Agency fee income 544 369
Sales of milk 44,717 37,433
Sundry income 10,401 14,487
64,571 69,889
5. SEGMENT INFORMATION
The Group identifies operating segments and prepares segment information based on the
regular internal financial information reported to the executive directors for their decisions
about resources allocation to the Group's business components and for their review of the
performance of those components. The business components in the internal financial
information reported to the executive directors are determined following the Group's
major operations. The Group's operating business are organised and managed separately
according to the nature of products, which each segment representing a strategic business
segment that offers different products in the People’s Republic of China (“PRC”) market.
However, the Group's executive directors considered that over 90% of the Group's
revenue, operating results and assets for both years ended 30 June 2014 and 2013 were
mainly derived from its growing and sales of crops. Consequently, no operating segment
analysis is presented.
The Company is an investment holding company and the principal place of the Group's
operation is in the PRC. For the purpose of segment information disclosures under
HKFRS 8, the Group regarded the PRC as its country of domicile. Over 90% of the
Group's revenue and non-current assets are principally attributable to the PRC, being the
single geographical region.
There is no single customer contributing over 10% of total revenue of the Group for the
years ended 30 June 2014 and 2013.-10-
6. OTHER OPERATING EXPENSES
2014 2013
RMB’000 RMB’000
Expenses incurred for fallow farmlands 383,550 386,635
Natural crop losses 189,642 95,168
Natural livestock losses 231 2,234
Agricultural produce written off 247,388 554,930
Loss on disposals of property, plant and equipment 198,560 1,433,643
Biological assets written off 292,735 183,464
Loss on early termination of land leases 110,717 51,660
Deferred expenditure written off 22,341 24,977
Plantation costs for windbreaks 21,822 147
Others 44,736 24,364
1,511,722 2,757,222
7. LOSS BEFORE INCOME TAX
Loss before income tax is arrived at after charging:
(a) Finance costs
2014 2013
RMB’000 RMB’000
Bank and finance charges 160 369
Interest on bank loans wholly repayable within five years 679 -
839 369
(b) Staff costs (including directors' remuneration)
2014 2013
RMB’000 RMB’000
Salaries, wages and other benefits 618,827 901,734
Employee share option benefits 152 589
Retirement benefit costs 5,174 5,377
624,153 907,700
(c) Other items
2014 2013
RMB’000 RMB’000
Auditors' remuneration 2,377 1,608
Amortisation of deferred development costs 4,000 4,580
Amortisation of prepaid premium for land leases, net of
amount capitalised 98,620 115,690
Amortisation of deferred expenditure, net of amount
capitalised 138,620 166,118
Cost of inventories sold 1,730,580 2,422,787
Depreciation of property, plant and equipment, net of
amount capitalised 626,262 717,858
Depreciation of investment properties 797 -
Operating lease expense in respect of land and buildings 291,156 225,981-11-
8. INCOME TAX EXPENSE
The amount of income tax expense charged to the consolidated statement of profit or loss
and other comprehensive income represents:
2014 2013
RMB’000 RMB’000
Current tax
– PRC income tax (Note (a)) 37 166
– Hong Kong profits tax (Note (b)) 719 915
756 1,081
Notes:
(a) According to the PRC tax law and its interpretation rules, enterprises that engage in qualifying
agricultural business are eligible for certain tax benefits, including full enterprise income tax exemption
or half reduction of enterprise income tax on profits derived from such business. Fuzhou Chaoda
Agriculture Development Company Limited, the Company’s principal subsidiary and other PRC
subsidiaries engaged in qualifying agricultural business, which include growing and sales of crops and
breeding and sales of livestock, are entitled to full exemption of enterprise income tax.
The enterprise income tax rate of other PRC subsidiaries of the Company not engaged in qualifying
agricultural business is 25% (2013: 25%).
(b) Hong Kong profits tax has been provided at the rate of 16.5% on the estimated assessable profit for the
years ended 30 June 2014 and 2013.
9. DIVIDENDS
The Directors do not recommend the payment of dividend for the years ended 30 June
2014 and 2013.
10. LOSS PER SHARE
(a) Basic loss per share
The calculation of basic loss per share is based on the loss attributable to the owners of
the Company of RMB1,940,728,000 (2013: RMB3,220,015,000) and the weighted
average number of 3,291,302,000 (2013: 3,291,302,000) ordinary shares in issue
during the year.
(b) Diluted loss per share
The calculation of diluted loss per share is based on the loss attributable to the owners
of the Company of RMB1,940,728,000 (2013: RMB3,220,015,000) and the weighted
average number of 3,291,302,000 (2013: 3,291,302,000) ordinary shares. The
computation of diluted loss per share does not assume the conversion of the
Company’s share options and call options outstanding since their exercise would result
in a decrease in loss per share.-12-
11. PREPAID PREMIUM FOR LAND LEASES
Long-term
prepaid rentals
Land
use rights Total
RMB’000 RMB’000 RMB’000
Cost
At 1 July 2012 7,349,383 127,970 7,477,353
Early termination of leases (1,138,445) - (1,138,445)
Exchange realignment (28,094) - (28,094)
At 30 June 2013 and 1 July 2013 6,182,844 127,970 6,310,814
Early termination of leases (641,300) - (641,300)
Exchange realignment (7,272) - (7,272)
At 30 June 2014 5,534,272 127,970 5,662,242
Accumulated amortisation and impairment loss
At 1 July 2012 897,329 38,578 935,907
Amortisation for the year 152,460 4,889 157,349
Early termination of leases (139,313) - (139,313)
Exchange realignment (28,094) - (28,094)
At 30 June 2013 and 1 July 2013 882,382 43,467 925,849
Amortisation for the year 133,769 4,889 138,658
Early termination of leases (36,913) - (36,913)
Exchange realignment (7,272) - (7,272)
At 30 June 2014 971,966 48,356 1,020,322
Net carrying value
At 30 June 2014 4,562,306 79,614 4,641,920
At 30 June2013 5,300,462 84,503 5,384,965
2014 2013
RMB’000 RMB’000
Non-current portion 4,508,700 5,244,703
Current portion 133,220 140,262
Net carrying value at 30 June 4,641,920 5,384,965
The Group's interests in long-term prepaid rentals and land use rights represent the
prepaid operating leases payments and their net carrying values are analysed as follows:
2014 2013
RMB’000 RMB’000
Outside Hong Kong held on:
Leases of over 50 years 520,616 669,486
Leases of between 10 to 50 years 4,121,304 4,715,479
4,641,920 5,384,965
As at 30 June 2014, long-term prepaid rentals for the farmlands which have not yet been
occupied by the Group amounted to RMB688,500,000 (2013: RMB1,078,500,000).-13-
12. BIOLOGICAL ASSETS
Fruit trees
and
tea trees Livestock Vegetables
Trees in
plantation
forest Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 July 2012 875,396 52,451 500,983 886,761 2,315,591
Additions 279,198 49,451 2,404,605 295,333 3,028,587
Decrease due to harvest or sales (264,848) (77,692) (2,462,980) (111,248) (2,916,768)
Written off (183,464) - - - (183,464)
Gain/(Loss) arising from changes in
fair value less costs to sell 355,358 9,900 (81,654) 80,154 363,758
At 30 June 2013 and
1 July 2013 1,061,640 34,110 360,954 1,151,000 2,607,704
Additions 360,654 42,505 1,565,961 206,420 2,175,540
Decrease due to harvest or sales (310,354) (47,011) (1,668,001) - (2,025,366)
Written off (292,735) - - - (292,735)
Gain/(Loss) arising from changes in
fair value less costs to sell 40,473 10,364 235,346 (22,814) 263,369
At 30 June 2014 859,678 39,968 494,260 1,334,606 2,728,512
Biological assets as at 30 June 2014 and 2013 are stated at fair values less costs to sell and
are analysed as follows:
Fruit trees
and
tea trees Livestock Vegetables
Trees in
plantation
forest
2014
Total
2013
Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Non-current portion 859,678 39,968 - 1,334,606 2,234,252 2,246,750
Current portion - - 494,260 - 494,260 360,954
859,678 39,968 494,260 1,334,606 2,728,512 2,607,704-14-
13. TRADE RECEIVABLES
The Group's trading terms for its local wholesale and retail sales are mainly cash on
delivery whereas local sales to institutional customers and export trading companies are
mainly on credit. The credit period is generally for a period from one month to three
months depending on the customers' credit worthiness.
The Group seeks to maintain strict control over its outstanding receivables to minimise the
credit risk. Overdue balances are reviewed regularly by senior management. As the
Group's trade receivables relate to a wide range of customers, there is no significant
concentration of credit risk.
Ageing analysis of trade receivables (net of allowance for doubtful debts) is as follows:
2014 2013
RMB’000 RMB’000
0 – 1 month 17,692 15,865
1 – 3 months 5,221 6,842
Over 3 months 17,066 16,465
39,979 39,172
14. TRADE PAYABLES
Ageing analysis of trade payables is as follows:
2014 2013
RMB’000 RMB’000
0 – 3 months 1,999 2,119
Over 3 months 12,317 9,382
14,316 11,501-15-
INDUSTRY AND BUSINESS REVIEW
During the financial year under review, agricultural market was largely stable. Food safety
continues to be a major concern in China. Adverse food contamination problems have made
food safety a top priority in domestic market. The consumers in China demand high quality
of food and are more vigilant about the safety of food. Same as prior years, the Chinese
government continued to introduce more preferential policies and measures for agricultural
sector. The Central Committee of the Communist Party of China and the State Council
issued the “Number One Document” in January 2014. This document emphasised on
perfecting the national food safety assurance system. Its core content also included
strengthening the support for Agricultural Industry, establishing mechanisms for the
sustainable development of the Agricultural Industry, enhancement of land reform in Rural
Areas, formulating advanced agricultural operation models, expediting of rural financial
system innovations, improving institutional mechanisms for the development of the integration
of rural and urban and boosting governing mechanisms for rural villages. This document
focused on the “Three Rural” (which stands for “Agricultural Industry”, “Rural Areas” and
“Farmers”) issues for the eleventh consecutive year.
The Group welcomes the introduction of preferential policies and measures for the agricultural
industry and the trend towards an awareness of food safety issues, as they are favourable and
instrumental to the sustainable development of the business of the Group. The
implementation of Chaoda’s product whole-chain tracking system for its agricultural products,
the application of technologies for standardised vegetable production and comprehensive
product quality control and the Group’s endeavours to build a “quality brand” portfolio are
evidence of the Group’s dedication to provide quality, safe and reliable branded agricultural
products to the consumer public.
During the financial year under review, Chaoda maintained its competitive edges and continue
to retain its position in “China’s 500 Most Valuable Brands” published by the World Brand
Laboratory as well as passed the re-assessment of its designation of the “State-Level Dragon
Head Leading Agricultural Enterprises” in 2014.
By grasping favourable opportunities and striking aside those encumbrances, the Group timely
returned certain leasehold farmlands to the PRC government. Meanwhile, the Group
continuously adhered to prudent investment policies, that was, apart from minimal
upkeep and maintenance for indispensable production infrastructure, there were no large
scale investments and new constructions. By so doing, the Group was and is capable of
satisfying the production needs while reducing its financial burden.
The Group placed great emphasis on its core staff. It was of utmost importance to stabilise the
morale and spirit of our staff, especially the frontline staff, to ensure the quality as well as
quantity of the output from our production bases. In line with the market expectation, the
Group took an active part in scaling down its cultivation area to relieve market pressure.
Since the pressure caused by sluggish sales has been intensifying, the Group took a decisive
measure to adopt “maintaining brand, price and key objectives” as its marketing strategy,
stepping up efforts to improve market confidence and stabilise market expectation. Such
measure had produced a good effect on narrowing down the gross loss and loss from
operations of the Group.-16-
The unfortunate suspension of trading in the Company’s shares on the Stock Exchange may be
a temporary setback in the Group’s business development and has shaken consumers’
confidence to a certain extent. The Group, however, is fearless in face of the challenge and
believes that, with the relentless efforts of our staff, the business of the Group will rebound in
a better shape after the trading resumption.
FINANCIAL REVIEW
During the financial year under review, the Group continued to adapt its business strategies
and production plan accordingly to respond to market demand for the Group’s produce,
including downsizing its production. The Group recorded a substantial decrease in the sales
volume of crops to 625,707 tonnes (2013: 1,331,864 tonnes). Approximately 94% (2013:
96%) of crops sales of the Group came from China, among which 95% (2013: 98%) were sold
to the wholesale markets in China. The Group’s turnover amounted to RMB1,459 million
(2013: RMB2,282 million). The average selling price (the “ASP”) for crops sold in China’s
markets increased from RMB1.52 per kilogram to RMB2.17 per kilogram. Notwithstanding
the increase in the ASP, as the farmlands for crops production were downsized and the
farmlands available were not utilized in full, the Group could not take full advantage of
economies of scale that could help decrease the costs for the Group overall. The situation,
coupled with the fact that the overall production costs for crops had kept increasing in China
and the decline in the sales volume of crops, led to the gross loss of RMB271 million (2013:
RMB141 million).
A gain of RMB263 million was resulted from changes in fair value less costs to sell of
biological assets under the valuation. In adherence to prudent financial management and
through reasonable control of operating costs, selling and distribution expenses substantially
lowered by 43% to RMB267 million (2013: RMB471 million) which were mainly due to the
decrease in the sales volume of the crops. General and administrative expenses also reduced
by 18% to RMB145 million. Other operating expenses dropped from RMB2,757 million to
RMB 1,512 million. Such drop was mainly attributable to, inter alia, the decrease in loss on
disposals of property, plant and equipment as a result of the returned leasehold farmlands.
As a whole, loss from operations of RMB1,879 million (2013: RMB3,141 million) was
recorded for the financial year under review.
AGRICULTURAL LAND
The Group applies stringent land selection criteria underpinned by high standards for air, soil
and water resources. Suitable agricultural land is acquired to satisfy the needs of producing
Chaoda’s vegetables and fruits and to enhance the strategic network of production bases
spanning across the country from the North to the South, so that highland and lowland bases of
the Group complement each other to enable an even supply throughout the year while
mitigating the impact of adverse weather.
As at 30 June 2014, the Group’s production bases amounted to 18 in 8 different provinces and
cities in China, with a total production area (including vegetable land and fruit garden) of
543,213 mu (36,214 hectares), representing a decrease of 11% when compared with the total
production area of 608,113 mu (40,541 hectares) as at the end of the previous financial year.
Such decrease was mainly resulted in the returned leasehold farmlands as disclosed above. -17-
The weighted average production area for vegetables for the financial year under review was
397,735 mu (26,516 hectares), representing a decrease of 23% when compared with 518,475
mu (34,565 hectares) for the previous financial year.
LIQUIDITY AND FINANCIAL RESOURCES
During the financial year under review, net cash generated from operating activities of the
Group amounted to RMB49 million whereas in previous year, net cash used in operating
activities of the Group was RMB368 million. As at 30 June 2014, the Group’s cash and cash
equivalents amounted to RMB432 million (2013: RMB371 million). The majority of the
Group’s operating transactions were settled in RMB. The effect of exchange rate fluctuations
was relatively immaterial to the Group.
As at 30 June 2014, the total equity of the Group (including non-controlling interests)
amounted to RMB15,258 million (2013: RMB17,196 million). Besides, the Group had bank
loans in total amount of RMB29 million which were repayable within one year (30 June 2013:
Nil). Thus, as at 30 June 2014, the debt to equity ratio (total of bank loans over total equity)
of the Group was 0.2%. The current ratio (dividing total current assets by total current
liabilities) was 6 times (30 June 2013: 10 times).
As at 30 June 2013 and 2014, the Group did not have any material contingent liabilities.
PROSPECTS AND DEVELOPMENT STRATEGY
We believe that China will continue to allocate additional resources to cope with the “Three
Rural” issues for a stable and sustainable development in the Agricultural Industry. The
overall operating environment will continue to improve.
Concentration on Core Business
Considering the favourable conditions with generous support for the development of the
Agricultural Industry from the central government, we believe the industry will continue to
thrive in an improving overall operating environment. It offers great opportunities of growth
for Chaoda. In the wake of escalating industrialisation and urbanisation, the Agricultural
Industry in China is at a critical stage of transformation from fragmented small scale
production in the past to an intensively industrialised, standardised and modernised operating
model. This highly efficient development approach is what Chaoda, as a pioneer in modern
agriculture, has persistently taken. The Group’s business model of “Company + Production
Bases + Farmers” has become a paradigm for modernised vegetable cultivation in China. In
the future, the Group will continue to take advantage of preferential agricultural policies and
opportunities generated by the improving operating environment in the industry by focusing
on its core business of vegetable and fruit cultivation. The Group will also continue to lead
the industrialisation of vegetable cultivation, improve farming efficiency and boost farmers’
income so as to thrive as a driving force for modern cultivation industry and a prominent
provider of quality standardised agricultural products.-18-
Enhancing Quality Control
A series of food safety issues around the world had aroused market’s attention to the issue,
resulting in surging demands for quality and healthy agricultural products. Chaoda’s product
whole-chain tracking system for its agricultural products was highly-recognised in the 2nd
Cross-Strait Modern Agriculture Expo. The Group is dedicated to the promotion of
technologies for standardised vegetable production and comprehensive product quality control,
as well as the establishment of product quality management system to offer quality and safe
products, which help to boost our corporate image and appeal to a wider market.
Dedicated Brand Building
Branding is an integral part of modern agriculture. Accordingly, Chaoda has devoted
substantial corporate resources in this aspect. With our own competitive edges, we continued
to be ranked on the list of “China’s 500 Most Valuable Brands” and entitled as one of the
“State-Level Dragon Head Leading Agricultural Enterprises” in 2014. Relentless efforts will
continue to be spent on the maintenance and improvement of product quality so as to
reinvigorate the Group as well as our brand image. In the future, the Group will endeavour to
build a “quality brand” portfolio and focus on the development and building of agricultural
brands so as to offer reliable branded agricultural products with specific traits, high quality and
market appeal. With prominent market share, the offerings are competitive enough to stand
out in the international market. The Group will further integrate brand management concepts
into every step of production, processing and distribution to enhance standardised production
and to explore market with brands, as well as to realise brand values in terms of product
marketing efficiency and competitive strengths.
The central government has been committed to tackling the “Three Rural” issues in the past
decade and launched a series of preferential policies to create a more favourable operating
environment in the Agricultural Industry, which fuels our enthusiasm on the future of the
industry.
Over the years, we have been devoted to the industrialisation of vegetable cultivation and
allocated enormous resources to quality management, brand building, talent recruitment and
nurturing and scientific research and development for the Agricultural Industry. We
command well-rounded competitive strengths in respect of quality, branding, human resources
and technologies. Confronted with the difficulties, the Group, as a leading enterprise in
vegetable cultivation, will insist on modernisation of vegetable cultivation to provide
customers with quality vegetables and maintain our competitive strengths.
Looking forward, we will continue to leverage on our competitive strengths with due
consideration, explore different growth opportunities, expand our business, exhaust every
means to overcome any existing or possible challenges with a view to achieving our business
objectives, turning our business goals into reality, and creating enduring value for our
shareholders.-19-
PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES
During the financial year under review, neither the Company nor any of its subsidiaries
purchased, sold or redeemed any of the Company’s listed securities.
AUDIT COMMITTEE
During the financial year under review, due to the retirement of Ms. Luan Yue Wen after the
conclusion of the annual general meeting of the Company held on 30 December 2013 (the
“2013 AGM”), the number of both the independent non-executive Directors and members of
the Audit Committee fell below the minimum requirements respectively stipulated under
Rules 3.10A and 3.21 of the Rules Governing the Listing of Securities on the Stock Exchange
(the “Listing Rules”).
As at the date of this announcement, the Company is in compliance with the minimum
requirement as stipulated under Rules 3.10A and 3.21 of the Listing Rules. The members of
the Audit Committee comprise Mr. Tam Ching Ho (the Chairman), Mr. Fung Chi Kin and
Mr. Chan Yik Pun, all are independent non-executive Directors.
The audited financial statements of the Group for the financial year ended 30 June 2014 have
been reviewed by the Audit Committee.
CORPORATE GOVERNANCE
The Board is committed to maintaining good corporate governance practices and high
standards of business ethics. The Board believes that good corporate governance provides a
framework for effective management, achieving business goals and maximising long term
value to our shareholders.
During the financial year under review, the Company had applied the principles of the
Corporate Governance Code (the “CG Code”) contained in Appendix 14 to the Listing Rules
and complied with the code provisions set out in the CG Code, except for the deviations as
stated below:
(i) Code provision A.2.1 of the CG Code
Under code provision A.2.1 of the CG Code, the roles of chairman and chief executive
officer should be segregated. The Board considers that with his profound knowledge
and expertise in agricultural business, Mr. Kwok Ho, being the Chairman and the Chief
Executive Officer of the Company, provides a strong and consistent leadership to
formulate efficient strategies, to implement prompt decisions and to complete effective
business plans of the Group. It is in the best interests of the Company that Mr. Kwok
Ho shall continue his dual capacity as the Chairman and the Chief Executive Officer of
the Company.-20-
(ii) Code provisions A.1.8 and A.5.1 of the CG Code
Under code provision A.1.8 of the CG Code, appropriate insurance cover in respect of
legal action against directors of a listed issuer should be arranged. Under code
provision A.5.1 of the CG Code, a nomination committee should be established with
specific written terms of reference (code provision A.5.2), and the same should be
made available on the websites of the Stock Exchange and the listed issuer (code
provision A.5.3).
The Board has considered the merits of these code provisions. However, during the
adverse period of time, the Board is of the view that the fulfilment of the conditions
prescribed by the Stock Exchange for the resumption (the “Resumption”) of trading in
the Company’s shares on the Stock Exchange (the “Trading”) is regarded as the top
priority of the Company. Besides, until the Resumption is achieved, the Board is of the
view that the Directors may be subject to such insurance premium which is much
higher than necessary, reasonably or normally charged as insurance companies may
tend to have reservation in accepting insurance coverage for directors of a listed
company whose shares are suspended from Trading for whatever cause or reasons.
The taking out of insurance policy under this situation may not be in the overall
interests of the Company and our shareholders.
During the financial year under review, no insurance cover was therefore arranged in
respect of legal action against the Directors; and the Board had not established a
nomination committee in compliance with code provision A.5.1 of the CG Code (as the
Board considers that it was and is capable to perform the function of a nomination
committee as designed under the CG Code without delegation after due consideration
and assessment).
The Board will identify potential insurance company(ies) to arrange appropriate
insurance cover in respect of legal action against its Directors and officers in due
course after the Resumption in compliance with code provision A.1.8 of the CG Code
and from time to time review the necessity of setting up a nomination committee of the
Board.
(iii) Code provisions E.1.2 and A.6.7 of the CG Code
Under E.1.2 of the CG Code, the chairman of the board should attend the annual
general meeting. Due to participation in the meeting held with the PRC government
official, Mr. Kwok Ho, the Chairman of the Board, was unable to attend the 2013
AGM. Other executive Directors, the chairmen of each of the Audit and the
Remuneration Committees had attended the 2013 AGM to answer questions regarding
the Group and to exchange views with our shareholders.
Under A.6.7 of the CG Code, independent non-executive directors should also attend
general meetings. At the 2013 AGM, Professor Lin Shun Quan was absent because
he had to attend an education seminar. Other than Professor Lin, all of the then
independent non-executive directors attended the 2013 AGM.-21-
The Board will constantly review its corporate governance policies and adopt such practices
and procedures as considered by it to be appropriate and in the interests of the Company and
our shareholders at appropriate time.
MODEL CODE FOR SECURITIES TRANSACTIONS
The Company has adopted the Model Code for Securities Transactions by Directors of Listed
Issuers (the “Model Code”) set out in Appendix 10 to the Listing Rules. Having made
specific enquiries with all Directors, all Directors confirmed that they had complied with the
Model Code throughout the financial year under review.
OTHER INFORMATION
The Board realises that, until the Trading is resumed and market confidence is regained, the
adverse impact on the business operation of the Group will continue affect and be reflected in
the financial results of the Group.
The Board remains positive at all times notwithstanding the challenges that come its way
during the period of turbulence. The Board will continue exhaust every means to mitigate
the negative impact and adapt in a positive manner by proactively and strategically
implemented measures to control the risks, and realise and enhance core strengths of the
Group for corporate development to sustain and thrive. Last but not least, the Board will
spare no efforts to resume the Trading.
PROFIT WARNING – INTERIM RESULTS FOR THE SIX MONTHS ENDED 31
DECEMBER 2014
The Board wishes to inform our shareholders and potential investors of the Company that,
based on a preliminary review of the management accounts of the Group and before any
valuation results for the six months ended 31 December 2014 (the Period), the Group expects
to record a continued loss for the Period.
The expected loss was primarily attributable to a low demand for the products of the Group
and the written off of prepaid premium for certain land leases due to their termination by the
Group during the Period. The magnitude of the increase in loss for the Period as compared to
the loss for the corresponding period in 2013 is expected to be in the range of approximately
20% to 30%.
The above is only based on the preliminary review and assessment made by the Board with
reference to the information currently available. The interim results for the Period are yet to
be finalised and have not been reviewed or approved by the audit committee of the Board, or
reviewed or audited by the Auditors. Shareholders and potential investors should read
the announcement of the interim results for the Period carefully, which is expected to be
published by the Company by 27 February 2015.-22-
As at the date of this announcement and except as disclosed above, there had been no material
adverse change in the financial or trading position of the Group since 30 June 2014, and the
Board is not aware of any material matters relating to or affecting the issue of the interim
results for the Period that need to be brought to the attention of our shareholders or the
potential investors of the Company.
APPRECIATION
On behalf of the Board, I am grateful for the perseverance and resilience of our staff shown
during suspension of the Trading and give thanks to all of them for their unswerving efforts.
I would also take this opportunity to express my heartfelt gratitude to all shareholders,
investors and business partners for their patience, understanding and continued support during
the adverse period of time.
By Order of the Board
Chaoda Modern Agriculture (Holdings) Limited
Kwok Ho
Chairman
Hong Kong, 30 January 2015