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MarketScreener Homepage  >  Equities  >  Hong Kong Stock Exchange  >  China Feihe Limited    6186   KYG2121Q1055

CHINA FEIHE LIMITED

(6186)
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China Feihe : Interim Report 2020

09/21/2020 | 05:00am EST

中國飛鶴有限公司

China Feihe Limited

(Incorporated in the Cayman Islands with limited liability)

Stock Code: 6186

INTERIM REPORT 2020

CONTENTS

  • Corporate Information
  • Financial Highlights
  • Management Discussion and Analysis

15 Other Information and Corporate Governance

  1. Independent Review Report
  2. Interim Condensed Consolidated Statement of Profit or Loss
  3. Interim Condensed Consolidated Statement of Comprehensive Income
  4. Interim Condensed Consolidated Statement of Financial Position
  1. Interim Condensed Consolidated Statement of Changes in Equity
  2. Interim Condensed Consolidated Statement of Cash Flows

36 Notes to Interim Condensed Consolidated Financial Information

51 Definitions

Corporate Information

BOARD OF DIRECTORS

Executive Directors

Mr LENG Youbin (Chairman & Chief Executive Officer) Mr LIU Hua

Mr CAI Fangliang

Ms Judy Fong-Yee TU

Mr CHEUNG Kwok Wah

Non-executive Directors

Mr GAO Yu

Mr Kingsley Kwok King CHAN

Independent Non-executive Directors

Ms LIU Jinping

Mr SONG Jianwu

Mr FAN Yonghong

Mr Jacques Maurice LAFORGE

AUDIT COMMITTEE

Mr FAN Yonghong (Chairman)

Mr GAO Yu

Mr Jacques Maurice LAFORGE

REMUNERATION COMMITTEE

Ms LIU Jinping (Chairman)

Mr LIU Hua

Mr Jacques Maurice LAFORGE

NOMINATION COMMITTEE

Mr LENG Youbin (Chairman)

Ms LIU Jinping

Mr SONG Jianwu

JOINT COMPANY SECRETARIES

Ms Judy Fong-Yee TU

Ms CHAN Wai Ling

AUDITORS

Ernst & Young

AUTHORISED REPRESENTATIVES

Mr LIU Hua

Ms Judy Fong-Yee TU

COMPLIANCE ADVISER

Anglo Chinese Corporate Finance, Limited

40/F Two Exchange Square

8 Connaught Place

Central

Hong Kong

PRINCIPAL BANK

China Construction Bank Corporation

Qiqihar Branch

No 267, Yongan Avenue

Longsha District

Qiqihar

Heilongjiang

PRC

REGISTERED OFFICE

Maricorp Services Ltd.

PO Box 2075 George Town

Grand Cayman KY1-1105

Cayman Islands

CORPORATE HEADQUARTER AND PRINCIPAL PLACE OF BUSINESS IN THE PRC

C-16th Floor, Star City International Building

10 Jiuxianqiao Road

Chaoyang District

Beijing

PRC

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

Level 54, Hopewell Centre

183 Queen's Road East

Hong Kong

PRINCIPAL SHARE REGISTRAR AND TRANSFER AGENT

Maricorp Services Ltd.

PO Box 2075 George Town

Grand Cayman KY1-1105

Cayman Islands

HONG KONG BRANCH SHARE REGISTRAR

Computershare Hong Kong Investor Services Limited

Shops 1712-1716, 17th Floor

Hopewell Centre 183 Queen's Road East

Wanchai

Hong Kong

INVESTOR RELATIONS CONTACT

Email: ir@feihe.com

CORPORATE WEBSITE

www.feihe.com

STOCK CODE

6186

2

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Financial Highlights

KEY FINANCIAL DATA

FINANCIAL HIGHLIGHTS

The table below sets out our financial highlights for the six months ended 30 June 2020.

For the six months ended 30 June

Percentage

2020

2019

changed

(In thousands of RMB)

(Unaudited)

(Audited)

Revenue

8,706,593

5,891,721

47.8%

Gross profit

6,176,215

3,975,491

55.4%

Profit for the period

2,753,131

1,750,833

57.2%

Earnings per share attributable to ordinary equity

holders of the parent (RMB):

- Basic

0.31

0.22

40.9%

- Diluted

0.30

0.22

36.4%

INTERIM REPORT 2020

CHINA FEIHE LIMITED

3

Management Discussion and Analysis

INDUSTRY OVERVIEW

China is the world's most populous country and one of the fastest growing infant milk formula markets in the world. With continued urbanization and the rise in the number of women in the workplace, an increasing number of mothers in China have grown to accept the convenience and nutritional benefits offered by infant milk formula products as a supplement to and/or substitute for breast milk for their infants. Due to the decline in birth rates, the growth of the retail sales value of the infant milk formula market in China is anticipated to slow down in the future. However, China's infant milk formula market is expected to continue to grow, driven by the growth of the high-end market segment supported by positive factors such as an increasing focus on product quality and safety, appreciation for the nutrients of infant milk formulas, favorable industry policies, as well as growth in consumers' confidence in the quality of and increased preference for China's infant milk formula products. China has also implemented the "Universal Two-Child Policy". The following are key market drivers and trends of the infant milk formula market in China:

  • Growth in consumers' confidence in the quality of and preference for China's infant milk formula products. With the enhancement in the quality management regime of China's dairy industry and the increased competitiveness of Chinese dairy brands, consumers' confidence in and consumption preference for China's infant milk formula products continued to increase. The growth in consumer demand for infant milk formula products will drive the production and sales of China's infant milk formula products, which could in turn better satisfy consumers' diversified and unique consumption needs.
  • Growth of the high-end infant milk formula segment. Due to increasing urbanization, rising disposable income and growing health awareness, the demand for high-end infant milk formula products, particularly super-premium products, is expected to be the driving force of the overall infant milk formula industry in China. According to the National Bureau of Statistics' 2019 Statistical Report on National Economic and Social Development, China's total economic volume in 2019 is close to RMB100 trillion, with a per capita GDP of RMB70,892, exceeding USD$10,000 (converted at the average exchange rate for the year), which will in turn increase the consumption momentum of China's high-end infant milk formula products.
  • Increasing urbanization and rising disposable income. The increase in the urbanization rate and the per capita annual disposable income of Chinese residents will enhance the purchasing power of consumers, allowing them to purchase more infant milk formula products, especially high-end products. Lower-tier cities as well as rural areas in China are becoming wealthier and more urbanized, and families in such regions are increasingly able to afford higher-quality infant milk formula products. In general, these regions have larger populations and therefore higher potential for consumption growth.

4

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Management Discussion and Analysis

  • Favorable industry policies by the PRC government:
    o The National Development and Reform Commission of China unveiled the Action Plan for the Promotion of Domestic Infant Milk Formula (國產嬰幼兒配方乳粉提升行動方案) in May 2019, aiming to increase the portion of domestically manufactured infant milk formula in China with a target to maintain a 60% self-sufficient level in the industry, and to encourage the use of fresh milk in the production of infant milk formula.
    o The Administrative Measures for the Registration of Product Formulas of Infant Formula Milk Powder (嬰幼 兒配方乳粉產品配方註冊管理辦法) (issued in June 2016 and became effective on 1 January 2018) limit each registered infant milk formula product manufacturer to the registration of up to three product series, resulting in a higher market concentration which would benefit major infant milk formula market players with a strong presence in small cities and rural areas in China.
  • Low level of exclusive breastfeeding rate. The rate of infants that are fed exclusively with breast milk for the first six months after birth was 29% in 2019. The increasing resemblance of infant milk formula to breast milk, availability of infant milk formula and inconvenience of breastfeeding for working mothers are among the primary factors that have influenced a mother's choice of whether or not to breastfeed her baby. With China's continued economic growth and urbanization process, breastfeeding rates are forecasted to remain at low levels, creating more demand for infant milk formula products.

The infant milk formula market in China has been impacted by the COVID-19 pandemic (the "Pandemic") in terms of production and logistics distribution in the first quarter of 2020. However, due to China's effective control of the Pandemic and the robust demand for infant milk formula products, the retail sales value of infant milk formula in China is expected to remain stable in 2020.

BUSINESS OVERVIEW

Dairy Products

The Group's infant milk formula products are designed to closely simulate the composition of the breast milk of Chinese mothers through in-house research and development formulations, with the aim of achieving an optimal balance of key ingredients for Chinese babies based on their biological physique. The Group offers a diversified portfolio of products which caters to a wide range of customer base at different prices. In addition to super-premium and premium, the Group also offers a portfolio of well-known brands spanning the regular infant milk formula series as well as other products such as dairy products for adults and students and rice powder dietary supplement products.

INTERIM REPORT 2020

CHINA FEIHE LIMITED

5

Management Discussion and Analysis

Sales and Distribution Network

The Group primarily sells its products through an extensive nationwide distribution network of over 1,900 offline customers with more than 119,000 retail points of sale as at 30 June 2020. The Group's offline customers are distributors who sell its products to retail outlets as well as maternity store operators, supermarkets and hypermarket chains in some cases. Revenue generated from sales to the Group's offline customers accounted for 87.0% of its total revenue from dairy products for the six months ended 30 June 2020.

To capture the rapid growth from e-commerce sales in China, particularly among younger generations of consumers, the Group's products are also sold directly on some of the largest e-commerce platforms as well as through its own website and mobile applications.

Production Capacity Improvements

The Group continued to optimize its production arrangements to increase its capacity and efficiency. As at 30 June 2020, the Group had seven production facilities to manufacture its products with a designed annual production capacity of 192,400 tonnes in total. The Group regularly upgrades and expands its production facilities to meet its production needs. In anticipation of the Group's continued robust growth and increasing demand for its products, the Group is expanding one of its existing production facilities (our Longjiang plant) and constructing one new production facility (our Harbin plant).

Marketing

The Group is a pioneer in China's infant milk formula market by positioning its brand as "More Suitable for Chinese Babies" (更適合中國寶寶體質) and has an established strong brand association with this message. The Group's innovative online and offline marketing strategies have enabled Feihe to become one of the most widely recognized and reputable infant milk formula brands among Chinese consumers today. The Group's marketing strategy consists of three key components:

  • Face-to-faceseminars, including Mother's Love seminars, Carnivals and Roadshows. In the six months ended 30 June 2020, more than 330,000 face-to-face seminars were held in total, which include more than 144,000 online face-to-face seminars and 186,000 offline face-to-face seminars;
  • Maximize online interactivity with consumers; and
  • Targeted and results-driven exposure on media.

Vitamin World USA

The Group acquired the retail health care business of Vitamin World in early 2018 through Vitamin World USA ("Vitamin World USA"). Vitamin World USA engages in the retailing of vitamins, minerals, herbs, and other nutritional supplements. It operated 62 specialty stores across the United States of America (the "United States"), mostly in malls and outlet centres, and employed over 340 people as at 30 June 2020. The Group also sells such products through its own website Vitamin World USA, and e-commerce platforms. Revenue generated from nutritional supplement products was RMB186.3 million, accounting for 2.1% of the Group's total revenue for the six months ended 30 June 2020.

6

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Management Discussion and Analysis

OPERATING RESULTS AND ANALYSIS

The table below sets forth the Group's condensed consolidated statements of profit or loss and comprehensive income in amounts and as a percentage of the Group's total revenue for the periods indicated, together with changes (expressed in percentages) for the six months ended 30 June 2019 and 2020.

For the six months ended 30 June

Percentage

2020

2019

Changed

(In thousands of RMB, except percentages)

(Unaudited)

(Audited)

Revenue

8,706,593

100%

5,891,721

100%

47.8%

Cost of sales

(2,530,378)

(29.1)%

(1,916,230)

(32.5)%

32.0%

Gross profit

6,176,215

70.9%

3,975,491

67.5%

55.4%

Other income and gains, net

763,038

8.8%

371,745

6.3%

105.3%

Selling and distribution expenses

(2,196,836)

(25.2)%

(1,553,183)

(26.4)%

41.4%

Administrative expenses

(526,765)

(6.1)%

(289,671)

(4.9)%

81.8%

Other expenses

(219,444)

(2.5)%

(16,868)

(0.3)%

1,200.9%

Finance costs

(26,544)

(0.3)%

(23,031)

(0.4)%

15.3%

Share of loss of an associate

(347)

0%

-

-

N/M

Profit before tax

3,969,317

45.6%

2,464,483

41.8%

61.1%

Income tax expense

(1,216,186)

(14.0)%

(713,650)

(12.1)%

70.4%

Profit for the period

2,753,131

31.6%

1,750,833

29.7%

57.2%

Other comprehensive

income/loss

Other comprehensive income/(loss)

to be reclassified to profit or

loss in subsequent periods:

Exchange differences on translation

of foreign operations

107,202

1.2%

(445)

0%

N/M

Total comprehensive income

for the period

2,860,333

32.8%

1,750,388

29.7%

63.4%

INTERIM REPORT 2020

CHINA FEIHE LIMITED

7

Management Discussion and Analysis

Revenue

The Group's revenue increased by 47.8% from RMB5,891.7 million for the six months ended 30 June 2019 to RMB8,706.6 million for the six months ended 30 June 2020, primarily due to (i) an increase in revenue generated from the high-end infant formula product series primarily attributable to the increase in revenue from Super-premium Astrobaby and Super-premium Organic Zhenzhi product series, (ii) an increase in revenue generated from regular infant milk formula product series primarily attributable to the enhanced recognition of the Group's brand, and (iii) the Group's swift response to the development of the Pandemic in China, which helped minimize the impact of the Pandemic on the Group's production, logistics and sales. The decrease in the revenue from nutritional supplement products during the same periods was primarily due to the store closures resulting from the Pandemic in the United States.

The following table sets forth a breakdown of the Group's revenue by product category for the periods indicated.

For the six months ended 30 June

Percentage

2020

2019

Changed

(In thousands of RMB, except percentages)

(Unaudited)

High-end infant milk formula

product series

6,773,217

77.8%

3,915,966

66.5%

73.0%

Regular infant milk formula

product series

1,541,784

17.7%

1,408,832

23.9%

9.4%

Other dairy products*

205,279

2.4%

247,939

4.2%

(17.2)%

Nutritional supplement products

186,313

2.1%

318,984

5.4%

(41.6)%

Total Revenue

8,706,593

100.0%

5,891,721

100.0%

47.8%

  • Other dairy products include adult milk powder, liquid milk, adult goat milk powder, rice powder dietary supplement products and other related products, among others.

Cost of Sales

The Group's cost of sales increased by 32.0% from RMB1,916.2 million for the six months ended 30 June 2019 to RMB2,530.4 million for the six months ended 30 June 2020, primarily due to the increased sales volume of the Group's dairy products.

8

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Management Discussion and Analysis

Gross Profit and Gross Profit Margin

The table below sets forth a breakdown of the Group's gross profit and gross profit margin by product category for the periods indicated.

Period-

For the six months ended 30 June

on-Period

Change in

2020

2019

Gross Profit

Gross Profit

Gross Profit

Gross Profit

Margin

Gross Profit

Margin

(In thousands of RMB, except percentages)

(Unaudited)

High-end infant milk formula

product series

5,023,827

74.2%

2,880,037

73.5%

74.4%

Regular infant milk formula

product series

973,432

63.1%

852,020

60.5%

14.2%

Other dairy products*

76,492

37.3%

87,440

35.3%

(12.5)%

Nutritional supplement products

102,464

55.0%

155,994

48.9%

(34.3)%

Gross profit

6,176,215

70.9%

3,975,491

67.5%

55.4%

As a result of the foregoing, the Group's gross profit increased by 55.4% from RMB3,975.5 million for the six months ended 30 June 2019 to RMB6,176.2 million for the six months ended 30 June 2020.

The Group's gross profit margin increased from 67.5% for the six months ended 30 June 2019 to 70.9% for the six months ended 30 June 2020, primarily due to the Group's high-end infant milk formula product series, which had a relatively high gross profit margin among the Group's products, accounted for an increased portion in the Group's total sales in the six months ended 30 June 2020 as compared to that in the same period in 2019.

Other Income and Gains, Net

Other income and gains, net increased by 105.3% from RMB371.7 million for the six months ended 30 June 2019 to RMB763.0 million for the six months ended 30 June 2020, primarily due to (i) an increase in government grants, and (ii) an increase in other interest income.

INTERIM REPORT 2020

CHINA FEIHE LIMITED

9

Management Discussion and Analysis

Selling and Distribution Expenses

Selling and distribution expenses increased by 41.4% from RMB1,553.2 million for the six months ended 30 June 2019 to RMB2,196.8 million for the six months ended 30 June 2020, primarily due to (i) an increase in advertising and promotional expenses, and (ii) an increase in staff costs in relation to sales and distribution.

Administrative Expenses

Administrative expenses increased by 81.8% from RMB289.7 million for the six months ended 30 June 2019 to RMB526.8 million for the six months ended 30 June 2020, primarily due to (i) an increase in staff costs, and (ii) expenses in relation to share option scheme.

Other Expenses

Other expenses significantly increased from RMB16.9 million for the six months ended 30 June 2019 to RMB219.4 million for the six months ended 30 June 2020, primarily due to the donations of cash and nutritional supplement made to the Chinese Red Cross Foundation in relation to the Pandemic.

Finance Costs

Finance costs increased by 15.3% from RMB23.0 million for the six months ended 30 June 2019 to RMB26.5 million for the six months ended 30 June 2020, primarily due to an increase in the Group's interest-bearing borrowings.

Profit before Tax

As a result of the foregoing, the Group's profit before tax increased by 61.1% from RMB2,464.5 million for the six months ended 30 June 2019 to RMB3,969.3 million for the six months ended 30 June 2020.

Income Tax Expenses

Our income tax expense increased by 70.4% from RMB713.7 million for the six months ended 30 June 2019 to RMB1,216.2 million for the six months ended 30 June 2020 as a result of an increase in our profit before tax for the six months ended 30 June 2020.

The Group's effective tax rate, calculated by dividing the Group's income tax expense by the Group's profit before tax, was 29.0% for the six months ended 30 June 2019 and 30.6% for the six months ended 30 June 2020.

Profit for the Period

As a result of the foregoing, our profit for the period increased by 57.2% from RMB1,750.8 million for the six months ended 30 June 2019 to RMB2,753.1 million for the six months ended 30 June 2020.

10

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Management Discussion and Analysis

LIQUIDITY AND CAPITAL RESOURCES

In the six months ended 30 June 2020, the Group financed its operations primarily through cash flows from operations, interest-bearing bank and other borrowings, and net proceeds from the global offering of the Company (the "Global Offering"). The Group monitors its bank balances on a daily basis and conduct monthly reviews of our cash flows. We also prepare a monthly cash flow plan and forecast, which is submitted for approval by our Chief Financial Officer and Vice President of Finance Department, to ensure that we are able to maintain an optimum level of liquidity and meet our working capital needs.

In addition, we also used cash to purchase wealth management products. The underlying financial assets of the wealth management products generally are a basket of assets with a combination of money market instruments such as money market funds, interbank lending and time deposits, debt, bonds and other assets such as assets in insurance, trust fund plans and letters of credit. We form our portfolio of wealth management products with the view of achieving (i) a relatively low level of risk, (ii) good liquidity and (iii) an enhanced yield. Our investment decisions are made on a case-by-case basis and after due and careful consideration of a number of factors, including but not limited to our overall financial condition, market and investment conditions, economic developments, investment cost, duration of investment and the expected returns and potential risks of such investment.

Cash and Cash Equivalents

As at 30 June 2020, the Group had cash and cash equivalents of RMB10,583.3 million, which primarily consisted of cash on hand and at banks, including term deposits, and assets similar in nature to cash, which are not restricted for use.

Net Proceeds from the Global Offering

For net proceeds from the Global Offering, please see "Use of Net Proceeds from Initial Public Offering".

Bank and Other Borrowings

As at 30 June 2020, the Group's interest-bearing bank and other borrowings were approximately RMB1,236.6 million, of which RMB344.6 million are repayable within one year and the remaining balances are repayable within two to five years. 3.7% of the interest-bearing bank and other borrowings were bearing interest at fixed rates. Apart from RMB45.9 million and RMB1,040.7 million of such borrowings, which were denominated in US dollars and Canadian dollars, respectively, the rest of the Group's borrowings were denominated in Renminbi.

CAPITAL STRUCTURE

As at 30 June 2020, the Group had net assets of RMB14,362.9 million, comprising current assets of RMB17,336.0 million, non-current assets of RMB5,171.2 million, current liabilities of RMB6,213.4 million and non-current liabilities of RMB1,930.9 million.

The Group's gearing ratio was calculated by net debt divided by the capital plus net debt. Net debt is calculated as interest-bearing bank and other borrowings, as shown in the consolidated statements of financial position less cash and bank balances, time deposits, restricted cash and pledged deposits. Total capital is calculated as equity holders' funds (i.e. total equity attributable to equity holder of the Company), as shown in the consolidated statements of financial position. The Group's gearing ratio decreased from (0.49) as at 31 December 2019 to (0.68) as at 30 June 2020.

INTERIM REPORT 2020

CHINA FEIHE LIMITED

11

Management Discussion and Analysis

INTEREST RATE RISK AND EXCHANGE RATE RISK

We are exposed to interest rate risk due to changes in interest rates of interest-bearing financial assets and liabilities. During the six months ended 30 June 2020, we have not used any derivatives to hedge interest rate risk.

We have transactional currency exposures mainly with respect to (i) our bank and other loans denominated in U.S. dollars and Canadian dollars; and (ii) our investment in the construction of the overseas plant in Canada, which is made in Canadian dollars. During the six months ended 30 June 2020, we did not have a foreign currency hedging policy in respect of other foreign currency transactions, assets and liabilities. We will monitor our foreign currency exposure closely and will consider hedging significant foreign currency exposure in accordance with our plans to develop overseas business.

MATERIAL ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES

During the six months ended 30 June 2020, the Group did not have any material acquisitions and disposals of subsidiaries or associated companies.

PLEDGE OF THE GROUP'S ASSETS

The Group's pledged assets primarily represent construction in progress of RMB721.9 million, property, plant and equipment of RMB1,068.2 million and pledged deposits of RMB403.0 million. As at 30 June 2020, the total pledged group assets amounted to approximately RMB2,193.1 million, representing a decrease of RMB3,269.1 million as compared to the beginning of 2020.

FUTURE PLANS FOR MATERIAL INVESTMENTS OR CAPITAL ASSETS

Save for the expansion plans as disclosed in the sections headed "Business" and "Future Plans and Use of Proceeds" in the Prospectus, the Group has no specific plan for major investment or acquisition for major capital assets or other businesses. However, the Group will continue to identify new opportunities for business development.

CONTINGENT LIABILITIES

As at 30 June 2020, the Group did not have any contingent liabilities.

FUTURE PROSPECTS

Striving to lead R&D and technology development

Feihe Industry Chain Innovation Center for Infant Milk Formula, together with the efforts of leading research and academic institutions, will strive to lead R&D and technology development by strengthening basic research, analysing nutritional components of breast milk and developing raw materials that simulate the composition of breast milk with native functions. It also published several thesis and academic articles on SCI and important academic journals.

12

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Management Discussion and Analysis

Feihe will leverage the core capabilities of its dairy engineering academician workstation of Heilongjiang Feihe Dairy Products Co., Ltd. to build four platforms in 2020, namely, the Frontier Competition Research Platform, the Technology Development Platform, the Technology Cooperation Platform and the Intellectual Property Right Platform. These platforms will establish a mechanism for cooperation with the top scientific research institutions to foster development in the fields of global agriculture and farming, nutritional science, food innovation and life sciences. In addition, Feihe will also build technology platforms in areas such as the development of breast milk simulated raw materials, biological function enhancement technologies and agriculture and farming development. Feihe's basic research will continue to focus on the important features of breast milk of Chinese mothers as well as the development of immune system and brain to discover raw materials that are closer simulates of breast milk. Furthermore, Feihe will adhere to the concept of "Original Innovation" and establish a model which covers the entire industrial chain including agriculture and farming development, technology development and product development, which will in turn realise its vision of "Managing the Lifelong Health of Human Beings".

Enhancing brand power by continuously providing value-added consumer services

In the past 58 years, Feihe has always regarded the infant milk formula business as a business of conscience, a business for mothers and a business for the nation. As a leading brand for domestic infant milk formula products, Feihe's commitment to social responsibilities has brought hope and joy to millions of families through its constantly optimized products and services for Chinese babies. Feihe will enhance its brand image by placing customers at its center. It will continuously develop suitable media channels to reach consumers, build brand IP and improve brand communication with customers in first-andsecond-tier cities, so as to enhance customers' recognition of Feihe as a professional infant nutrition expert.

In the future, Feihe will continue to provide value-added consumer services. Feihe has fully upgraded the Super-premium Astrobaby ("星飛帆") product series. It will further promote concept of natural life and parenting through its Super- premium Organic Zhenzhi ("臻稚有機") product series and its innovative Zhuoran (茁然) infant milk formula products. The abovementioned efforts will improve super-premium consumers' product experience. During the Pandemic, Feihe provided parents with high-quality parenting content through online live broadcast, Star Mother Class and other innovative forms. Feihe will strive to provide high-quality nutrition, health and parenting content services.

Feihe will continue to campaign for 28 May as "Chinese Baby Day". Such campaign will improve Feihe's brand power and influence, allow Feihe to gain consumer trust and preference in markets in first - and second-tier cities, and enhance consumers' awareness and demand for our products. We will act more proactively to embrace new technologies, directions and business models, gain deeper insights into consumer needs and focus more on product innovation and R&D, in order to provide consumers with high-quality products, services and experience.

INTERIM REPORT 2020

CHINA FEIHE LIMITED

13

Management Discussion and Analysis

Empower business development with digital and intelligent transformation

Feihe will fully digitalise its businesses, processes and touchpoints. It will apply digitalisation to production, R&D, transportation and service to fully explore the value of data and secure the quality and safety of its products. Feihe will also continue to construct middle data platform and support management decisions with the help of big data analytics, which will in turn improve its business operations, thereby contributing to the exploration and innovation of its business. Feihe will also strive to provide consumers with "fresher and more suitable" products through an optimized supply chain management by collaborating with external partners in the ecosystem, including the upstream partners and downstream partners in the industry value chain, on data sharing and intelligence synergy. The exploration of smart marketing and smart supply chain, will rely on the middle data platform. As such middle data platform gradually matures, it will enable interactive sharing, exploration and prediction capabilities in network collaboration and data intelligence, which will improve consumer experience.

Enable problem-solving through innovative marketing

In the first half of 2020, businesses were moved to online platforms due to the Pandemic. Feihe responded swiftly and made suitable arrangements for production and supply. Feihe has fully utilized the industrial synergies in the industrial value chain. The close collaboration between its production, logistics, and customer service centers, as well as the collaboration within the industrial value chain as a result of our proposal to our partners, ensured that there was no shortage of products in market and stores. Feihe also provided secure and contactless door-to-door delivery services, which effectively guaranteed the availability of milk powder for many Chinese babies, thereby contributed to the stability of China's infant milk formula market.

As the online operation model features "transparency, realness, zero distance and unrestricted by physical space", Feihe quickly transformed the traditional operation model to a "fast, abundant, accurate and comprehensive" online operation model. Such online operation model allowed Feihe to quickly find the right connection with customers, and provide tailored comprehensive protection system for mothers and babies.

Feihe believes that the current consumption scene is facing great changes, the convenience of online platforms has become the mainstream, and enterprises should strive to win the hearts of customers and gain their trust. Feihe will study the impact of the Pandemic on China's economy and the industry, identify development trends, and actively adapt to the changes in consumption patterns and purchase methods to continuously win the trust and support of consumers. Feihe will work together with other national dairy enterprise brands to satisfy consumers' pursuit of a better life with better products and services.

14

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Other Information and Corporate Governance

SUBSEQUENT EVENTS

Due to personal health reasons, Mr. Liu Shenghui (劉聖慧) resigned as an executive director and the vice president of finance of the Company on 31 July 2020. For further details, please refer to the announcement of the Company dated 31 July 2020.

The Company and YuanShengTai Dairy Farm Limited ("YST") jointly announced on 6 September 2020 that CLSA Limited will, on behalf of the Company, make voluntary conditional cash offers (i) to acquire all of the outstanding ordinary shares in the issued share capital of YST; and (ii) to cancel all the outstanding share options granted by YST pursuant to the share option scheme adopted by YST on 7 November 2013, whether vested or not. For further details, please refer to the joint announcement made by the Company and YST on 6 September 2020.

COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE

The Company recognizes the importance of maintaining and promoting sound corporate governance. The principles of the Company's corporate governance are to promote effective internal control measures, to ensure that its business and operations are conducted in accordance with applicable laws and regulations and to enhance the transparency and accountability of the Board to the Company and its shareholders. The Company has adopted the CG Code as set out in Appendix 14 to the Listing Rules as its own code of corporate governance.

The Board is of the view that during the Reporting Period, the Company has complied with all of the applicable code provisions as Set out in the CG Code except code provision A.2.1.

The Chairman and Chief Executive Officer of the Company are held by Mr. Leng Youbin ("Mr. Leng"), who has in-depth industry experience and knowledge about the operation and management of the business of the Company. Mr. Leng is the founder of the Group and has been operating and managing the Group. He is responsible for the overall development strategies and business plans of the Group.

The Board believes that it is beneficial to the business operations and management of the Group that Mr. Leng continues to service as both the Chairman of the Board and the Chief Executive Officer of the Company. The Board is of the view that given that Mr. Leng had been responsible for leading the strategic planning and business development of the Group, the arrangement would allow for effective and efficient planning and implementation of business decisions and strategies under the strong and consistent leadership, and should be overall beneficial to the management and development of the Group's business.

COMPLIANCE WITH THE MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS AND EMPLOYEES

The Company has adopted the Model Code as its own code of conduct for dealing in securities of the Company by the Directors. Having made specific enquiry of all Directors, all the directors confirmed that they have complied with the required standards set out in the Model Code throughout the six months period ended 30 June 2020.

The Company has also established the "Code of Conduct for Securities Transactions for Relevant Employees" on terms no less exacting than the Model Code for securities transactions by employees who are likely to be in possession of inside information of the Company. No incident of non-compliance of the "Code of Conduct for Securities Transactions for Relevant Employees" by the employees was noted by the Company during the Reporting Period.

INTERIM REPORT 2020

CHINA FEIHE LIMITED

15

Other Information and Corporate Governance

INTERESTS AND SHORT POSITIONS OF THE DIRECTORS AND CHIEF EXECUTIVE IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY OR ANY OF ITS ASSOCIATED CORPORATIONS

As at 30 June 2020, the interests and short positions of the Directors and chief executive of the Company in the Shares, underlying shares or debentures of the Company and any of its associated corporations (within the meaning of Part XV of the SFO), which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including those taken or deemed as their interests and short position in accordance with such provisions of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the register kept by the Company referred to therein, or which were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange were as follows:

  1. Interest in Shares/derivative shares of the Company

Approximate

Long

Number of

Percentage of

Name of

position/

Shares/

shareholding

Director/

Nature of

Short

derivative

in the

Chief Executive

interest

Capacity

position

shares

Company (1)

Leng Youbin

Corporate interest

Interest of controlled

Long

587,516,458

(2)

6.58%

("Mr. Leng")

corporation

Other interest

Founder of a

Long

3,869,911,881

(3)

43.32%

discretionary trust

Liu Hua

Corporate interest

Interest of controlled

Long

587,516,458

(4)

6.58%

corporation

Other interest

Founder of a

Long

345,681,920

(5)

3.87%

discretionary trust

Liu Shenghui (resigned

Corporate interest

Interest of controlled

Long

587,516,458

(6)

6.58%

on 31 July 2020)

corporation

Other interest

Founder of a

Long

226,146,556

(7)

2.53%

discretionary trust

Cai Fangliang

Corporate interest

Interest of controlled

Long

101,647,734

(8)

1.14%

corporation

Judy Fong-Yee Tu

Other interest

Founder of a

Long

23,717,804

(9)

0.27%

discretionary trust

Notes:

  1. The percentage has been computed based on the total number of Shares of the Company in issue as at 30 June 2020 (i.e. 8,933,340,000 Shares).

16

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Other Information and Corporate Governance

  1. 587,516,458 Shares were held by Mr. Leng through his controlled corporation - Dasheng Limited. 33.33% of the equity interests in Dasheng Limited were held directly by Mr. Leng.
  2. 3,869,911,881 Shares were held by Harneys Trustees Limited as the trustee of Leng Family Trust, which in its capacity as trustee holds the entire issued share capital of LYB International Holding Limited, which in turn holds the entire issued share capital of Garland Glory Holdings Limited. Leng Family Trust was established by Mr. Leng as the settlor and the only discretionary object.
  3. 587,516,458 Shares were held by Mr. Liu Hua through his controlled corporation - Dasheng Limited. 33.33% of the equity interests in Dasheng Limited were held directly by Mr. Liu Hua.
  4. 345,681,920 Shares were held by Harneys Trustees Limited as the trustee of LH Family Trust, which in its capacity as trustee holds the entire issued share capital of LH Capital Holding Limited, which in turn holds the entire issued share capital of LH Financial Holding Limited, LH Family Trust was established by Mr. Liu Hua as the settlor and the only discretionary object.
  5. 587,516,458 Shares were held by Mr. Liu Shenghui through his controlled corporation - Dasheng Limited. 33.33% of the equity interests in Dasheng Limited were held directly by Mr. Liu Shenghui.
  6. 226,146,556 Shares were held by Harneys Trustees Limited as the trustee of Liu Family Trust, which in its capacity as trustee holds the entire issued share capital of LSH International Holding Limited, which in turn holds the entire issued share capital of LSH Investment Holding Limited, Liu Family Trust was established by Mr. Liu Shenghui as the settlor and the only discretionary object.
  7. 101,647,734 Shares were held by Mr. Cai Fangliang through his controlled corporation - Adroit Shipping Limited. Adroit Shipping Limited is directly wholly owned by Mr. Cai Fangliang.
  8. 23,717,804 Shares were held by Ms. Judy Fong-Yee Tu as the trustee of the J.T. Living Trust, which in its capacity as trustee holds the entire issued share capital of Oaktree Capital Investment Limited, the J.T. Living Trust was established by Ms. Judy Fong-Yee Tu as the settlor, trustee and the only discretionary object.

INTERIM REPORT 2020

CHINA FEIHE LIMITED

17

Other Information and Corporate Governance

  1. Interest in associated corporations

Percentage of

shareholding in

Name of Director/

Associated

Number of

the associated

Chief Executive

Nature of interest

Capacity

corporation

ordinary shares

corporation

Cai Fangliang

Beneficial interest

Beneficial owner

Jilin Green Energy

N/A (2)

7.66%

Ecological

Livestock Co.,

Limited (1)

Notes:

  1. Jilin Green Energy Ecological Livestock Co., Limited is held as to 40% by the Company and therefore is an associated corporation of the Company under the SFO.
  2. Jilin Green Energy Ecological Livestock Co., Limited is a limited liability company incorporated in the PRC and does not issue any shares.

Save as disclosed above, as at 30 June 2020, none of the Directors or the chief executive of the Company have an interest in the Shares or debentures of the Company or any interests in the shares or debentures of the Company's associated corporations (within the meaning of Part XV of the SFO) which: (i) will have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests which they are taken or deemed to have under such provisions of the SFO); (ii) will be required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (iii) will be required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange. As at 30 June 2020, neither the Directors nor chief executive of the Company have any short position in either the Shares or in the debentures of the Company, or in shares or debentures of any of the Company's associated corporations (within the meaning of Part XV of the SFO).

18

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Other Information and Corporate Governance

INTERESTS OF SUBSTANTIAL SHAREHOLDERS

So far as the Directors are aware, as at 30 June 2020, the following persons (other than the Directors and chief executive of the Company) had interest or short positions in the Shares of the Company which would be required to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or which will be required, pursuant to Section 336 of the SFO, to be recorded in the register kept by the Company:

Number of

Shares/

Percentage of

Long position/

derivative

shareholding in

Name of shareholder

Nature of interest

Short position

shares

the Company (1)

Mr. Leng

Interest in a controlled

Long

4,457,428,339

(2)

49.90%

corporation and founder

of a discretionary trust

Harneys Trustees Limited

Trustee of a trust

Long

4,441,740,357

(3)

49.72%

LYB International Holding

Interest in a controlled

Long

3,869,911,881

(3)

43.32%

Limited

corporation

Garland Glory Holdings

Beneficial owner

Long

3,869,911,881

(3)

43.32%

Limited

Morgan Stanley

Interest in a controlled

Long

1,387,426,661(L) (5)(6)

15.53%

corporation

Short

11,229,568(S)

0.12%

MS Holdings Incoporated

Interest in a controlled

Long

1,368,651,860

(5)

15.32%

corporation

Morgan Stanley Private

Interest in a controlled

Long

1,368,651,860

(5)

15.32%

Equity Asia III, Inc.

corporation

Morgan Stanley Private

Interest in a controlled

Long

1,368,651,860

(5)

15.32%

Equity Asia III, L.L.C.

corporation

North Haven Private Equity

Interest in a controlled

Long

1,368,651,860

(5)

15.32%

Asia III, L.P. (NH LP)

corporation

Morgan Stanley Private

Interest in a controlled

Long

1,368,651,860

(5)

15.32%

Equity Asia III Holdings

corporation

(Cayman) Ltd (MSPEA III)

North Haven Private Equity

Beneficial owner

Long

1,368,651,860

(5)

15.32%

Asia IMF Holding Limited

(NHPEA)

Mr. Liu Hua

Interest in a controlled

Long

933,198,378

(7)

10.45%

corporation and founder

of a discretionary trust

Mr. Liu Shenghui

Interest in a controlled

Long

813,663,014

(8)

9.11%

corporation and founder

of a discretionary trust

Dasheng Limited

Beneficial owner

Long

587,516,458

(4)

6.58%

INTERIM REPORT 2020

CHINA FEIHE LIMITED

19

Other Information and Corporate Governance

Notes:

  1. The percentage has been computed based on the total number of Shares of the Company in issue as at 30 June 2020 (i.e. 8,933,340,000 Shares).
  2. 4,457,428,339 Shares include 3,869,911,881 Shares held by Harneys Trustees Limited as trustee (as described in note (3a) below) and 587,516,458 Shares through Mr. Leng's controlled corporation - Dasheng Limited (as described in note (4) below).
  3. Harneys Trustees Limited is deemed to be interested in 4,441,740,357 Shares in aggregate by virtue of the Securities and Futures Ordinance (Cap. 571) ("SFO"). By virtue of the SFO:
    1. 3,869,911,881 Shares were held by Harneys Trustees Limited as the trustee of Leng Family Trust, which in its capacity as trustee holds the entire issued share capital of LYB International Holding Limited, which in turn holds the entire issued share capital of Garland Glory Holdings Limited. Leng Family Trust is a discretionary trust established by Mr. Leng as the settlor and the only discretionary object. Accordingly, Harneys Trustees Limited is deemed to be interested in 3,869,911,881 Shares directly held by Garland Glory Holdings Limited;
    2. 345,681,920 Shares were held by Harneys Trustees Limited, the trustee of LH Family Trust, in its capacity as trustee holds the entire issued share capital of LH Capital Holding Limited, which in turn holds the entire issued share capital of LH Financial Holding Limited. LH Family Trust is a discretionary trust established by Mr. Liu Hua as the settlor and the only discretionary object. Accordingly, Harneys Trustees Limited is deemed to be interested in 345,681,920 Shares directly held by LH Financial Holding Limited; and
    3. 226,146,556 Shares were held by Harneys Trustees Limited, the trustee of Liu Family Trust, in its capacity as trustee holds the entire issued share capital of LSH International Holding Limited, which in turn holds the entire issued share capital of LSH Investment Holding Limited. Liu Family Trust is a discretionary trust established by Mr. Liu Shenghui as the settlor and the only discretionary object. Accordingly, Harneys Trustees Limited is deemed to be interested in 226,146,556 Shares directly held by LSH Investment Holding Limited.
  4. Dasheng Limited holds 397,325,754 Shares and has been granted Pre-IPO Share Options to subscribe for 190,190,704 Shares. Each of Mr. Leng, Mr. Liu Hua and Mr. Liu Shenghui holds one-third of the equity interest in Dasheng Limited and is therefore deemed to be interested in the Shares and Pre-IPO Share Options directly held by Dasheng Limited.
  5. Each of MSPEA III, NH LP, Morgan Stanley Private Equity Asia III, L.L.C., Morgan Stanley Private Equity Asia III, Inc., MS Holdings Incorporated and Morgan Stanley is deemed to be interested in the 1,368,651,860 Shares held by NHPEA. By virtue of the SFO:
    1. MSPEA III is the sole shareholder of NHPEA. The controlling shareholder of MSPEA III is NH LP (formerly known as Morgan Stanley Private Equity Asia III, L.P.) which holds 92.13% equity interest in MSPEA III.
    2. The general partner of NH LP is Morgan Stanley Private Equity Asia III, L.L.C., whereby Morgan Stanley Private Equity Asia III, L.L.C. is also the general partner of Morgan Stanley Private Equity Asia Employee Investors III, L.P., which holds the remaining 7.87% equity interest in MSPEA III.
    3. The managing member of Morgan Stanley Private Equity Asia III, L.L.C. is Morgan Stanley Private Equity Asia III, Inc., a wholly owned subsidiary of MS Holdings Incorporated which is in turn a wholly owned subsidiary of Morgan Stanley.
  6. The long position in respect of 1,387,426,661 Shares includes 1,368,651,860 Shares held by NHPEA as described in note (5) above and 14,784,865 Shares held by Morgan Stanley & Co. International plc, an indirectly wholly owned subsidiary of Morgan Stanley and 3,679,000 Shares held by Morgan Stanley & Co. LLC, an indirectly wholly owned subsidiary of Morgan Stanley, 281,825 Shares held by Morgan Stanley Capital Services LLC, an indirectly wholly owned subsidiary of Morgan Stanley, and 29,111 Shares held by Morgan Stanley Europe SE, an indirectly wholly owned subsidiary of Morgan Stanley.

20

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Other Information and Corporate Governance

  1. 933,198,378 Shares include 345,681,920 Shares held by Harneys Trustees Limited as trustee (as described in note (3b) above) and 587,516,458 Shares through Mr. Liu Hua's controlled corporation - Dasheng Limited (as described in note (4) above).
  2. 813,663,014 Shares include 226,146,556 Shares held by Harneys Trustees Limited as trustee (as described in note (3c) above) and 587,516,458 Shares through Mr. Liu Shenghui's controlled corporation - Dasheng Limited (as described in note (4) above).
  3. The letter "L" denotes the person's long position and the letter "S" denotes the person's short position in such Shares.

Save as disclosed above, as at 30 June 2020, no other person (other than the Directors and chief executive of the Company) had any interest or short position in the Shares or underlying shares of the Company as recorded in the register required to be kept by the Company under Section 336 of the SFO, or as otherwise notified to the Company and the Stock Exchange.

EMPLOYEES AND REMUNERATION

As of 30 June 2020, the Group had 5,638 full-time employees, the majority of whom are based in China.

In order to maintain the performance of the Group and individual employees, the Group strives to offer a good working environment, various training programs as well as an attractive remuneration package to its employees. The Group provides training programs to our employees, including new hire training for new employees and regular quality control, production safety and other technical training for our personnel to enhance their skill and knowledge. The Group takes measures to promote equal opportunities, anti-discrimination, and diversity among employees. In addition, the Group endeavours to motivate its staff with performance-based remuneration. On top of basic salary, the Group will reward staff with outstanding performance by way of bonuses, honorary awards, promotions, options or a combination of the above to further align the interests of the employees and the Company, to attract talented individuals, and to create long-term incentive for its staff.

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

Neither the Company nor any member of the Group purchased, sold or redeemed any of the Company's shares for the six months ended 30 June 2020.

USE OF NET PROCEEDS FROM INITIAL PUBLIC OFFERING

The Company was listed on the Stock Exchange on 13 November 2019 and the net proceeds raised from the Global Offering were approximately HK$6,554.7 million. During the Reporting Period, there was no change in the intended use of net proceeds as disclosed in the Prospectus.

As at 30 June 2020, the Company has utilized the net proceeds from the Global Offering for the following purpose:

  1. HK$1,118.1 million being used for the payment of offshore debts; (ii) HK$62.5 million being used for the expansion of Vitamin World USA operations; and (iii) HK$67.9 million being used for the working capital and general corporate purposes. For the amounts not yet utilized, the Company will apply the remaining net proceeds in the manner set out in the Prospectus.

INTERIM REPORT 2020

CHINA FEIHE LIMITED

21

Other Information and Corporate Governance

INTERIM DIVIDEND AND CLOSURE OF REGISTER OF MEMBERS

The Board resolved to declare an interim dividend of HK$0.1375 per Share for the six months ended 30 June 2020 (the "2020 Interim Dividend") with an aggregate amount of approximately HK$1,228,334,250 (equalling approximately RMB1,101,476,800) to shareholders of the Company (the "Shareholders") whose names are listed on the Company's register of members on 3 September 2020. The 2020 Interim Dividend is 40% of our net profit for the six months ended 30 June 2020, which is based on (i) our dividend policy set out in the Prospectus for distributing 30% of our net profit, and (ii) an additional special interim dividend of 10% of our net profit for the six months ended 30 June 2020 in RMB denomination being converted into Hong Kong dollar denomination based on the average central parity rate of RMB to Hong Kong dollar as announced by the People's Bank of China for the five business days prior to 18 August 2020. The 2020 Interim Dividend will be declared and paid in Hong Kong dollars, and is expected to be paid on or around 18 September 2020.

In order to ascertain Shareholders' entitlement to the proposed 2020 Interim Dividend, the register of members of the Company will be closed from 2 September 2020 to 3 September 2020 (both days inclusive), during which period no transfer of shares will be registered. In order to qualify for the 2020 Interim Dividend, all transfer documents accompanied by the relevant share certificates must be lodged for registration with the Company's branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited, Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong for registration no later than 4:30 p.m. on 1 September 2020.

We intend to maintain our dividend policy of distributing no less than 30% of our total net profit each financial year to our shareholders going forward, subject to our future investments plans.

AUDIT COMMITTEE

The Company has established the Audit Committee with written terms of reference in compliance with the CG Code. The Audit Committee comprises three members, namely Mr. FAN Yonghong, Mr. GAO Yu and Mr. Jacques Maurice LAFORGE. Mr. FAN Yonghong is the chairman of the Audit Committee.

The financial information for the six months ended 30 June 2020 set out in this interim report is unaudited. The audit committee of the Company has reviewed with the Company's management and the external auditors, the accounting principles and practices adopted by the Company and discussed auditing, risk management, internal control, and financial reporting matters, including the review of the Group's financial statements and interim results for the six months ended 30 June 2020 and this interim report.

PRE-IPO SHARE OPTION SCHEME

The Company adopted the Pre-IPO Share Option Scheme on 14 October 2019 and a summary of the principal terms of the Pre-IPO Share Option Scheme is set out as below.

Purposes

The purposes of the Pre-IPO Share Option Scheme are to: (i) replace the DIF Share Option Schemes; (ii) attract and retain the best available personnel for positions of substantial responsibility; (iii) provide additional incentive to the Directors and employees of the Group (the "Employee(s)," together with the Directors, the "Service Providers"); and (iv) promote the success of the business of the Group.

22

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Other Information and Corporate Governance

Pre-IPO Participants

A grant of the pre-IPO share option (the "Pre-IPOShare Option") under the Pre-IPO Share Option Scheme (the "Pre-IPOAward") may be made to the Service Providers selected by the Board (including any committee of Directors or of other individuals appointed by the Board or by the compensation committee of the Board satisfying relevant requirements of applicable laws) of the Company (the "Pre-IPOAdministrator"). A holder of an outstanding Pre-IPO Award will be a participant (the "Pre-IPOParticipant") under the Pre-IPO Share Option Scheme. For the avoidance of doubt, Pre-IPO Awards may be granted to any holder of the outstanding DIF Share Options, who is a company wholly owned, directly or indirectly, by (i) one or more Service Providers or (ii) any trusts, if all of the beneficiaries consist only of the Service Providers (in the case of a discretionary trust, all discretionary objects consist only of the Service Providers).

Maximum Number of Shares in Respect of Which Pre-IPO Awards May Be Granted

The maximum number of the Shares that may be subject to Pre-IPO Awards and issued under the Pre-IPO Share Option Scheme is 190,190,704, representing approximately 2.13% of the total number of the issued shares of the Company as at the date of this interim report.

Grant of Options

Subject to the terms and provisions of the Pre-IPO Share Option Scheme, the Pre-IPO Administrator may grant Pre-IPO Share Options in such amounts as the Pre-IPO Administrator, in its sole discretion, will determine; provided that, no Pre- IPO Share Option authorized by the Pre-IPO Share Option Scheme shall be granted upon and following the Listing.

The date of grant of an Pre-IPO Award will be, for all purposes, the date on which the Pre-IPO Administrator makes the determination granting such Pre-IPO Award, or such other later date as is determined by the Pre-IPO Administrator. Notice of the determination will be provided to each Pre-IPO Participant within a reasonable time after the date of such grant.

Exercise Price

The per Share exercise price for the Shares to be issued pursuant to the exercise of an Pre-IPO Share Option shall be determined by the Pre-IPO Administrator, provided that such exercise price shall be no less than one hundred percent of the fair market value (the "Fair Market Value") per Share on the date of grant. For the avoidance of doubt, for the per Share exercise price for the Shares to be issued upon the exercise of an Pre-IPO Share Option granted in order to replace the existing DIF Share Options as of the date of adoption of the Pre-IPO Share Option Scheme, the relevant Fair Market Value per Share shall be with reference to that of the respective date of grant of such outstanding DIF Share Options.

Duration of Pre-IPO Share Option Scheme

Unless sooner terminated in accordance with the terms of the Pre-IPO Share Option Scheme, it will continue in effect for a term of seven years from the effective date. The term of each Pre-IPO Share Option will be stated in the Award Agreement and will be no more than five years from the date of grant thereof.

INTERIM REPORT 2020

CHINA FEIHE LIMITED

23

Other Information and Corporate Governance

Time of Vesting and Exercise of Pre-IPO Share Options

Any Pre-IPO Share Option granted will be exercisable according to the terms of the Pre-IPO Share Option Scheme and at such times and under such conditions as determined by the Pre-IPO Administrator and set forth in the Award Agreement. A Pre-IPO Share Option may not be exercised for a fraction of a Share.

In respect of any particular Pre-IPO Share Option, the exercise period shall commence on the later of:

  1. the Business Day immediately following the expiry of six months from the Listing Date, or
  2. where the exercise of such Pre-IPO Share Option is subject to any performance target being met, the date of such performance target being proved (to the reasonable satisfaction of the Pre-IPO Administrator) to have been met.

Details of the Pre-IPO Share Options Granted under the Pre-IPO Share Option Scheme

All the Pre-IPO Share Options representing 190,190,704 Shares were granted to Dasheng Limited on 14 October 2019 under the Pre-IPO Share Option Scheme with a term of five years. Dasheng Limited is not required to pay for the grant of any Pre-IPO Share Option. As at 30 June 2020, Mr. LENG Youbin, Mr. LIU Hua and Mr. LIU Shenghui each hold one- third equity interests in Dasheng Limited. Details of the outstanding Pre-IPO Share Options are set out below:

Number of

Approximately

Number of

Shares

percentage of

Shares

represented

the issued

represented

by outstanding

Shares of the

by outstanding

Pre-IPO Options

Company as at

Pre-IPO

as at the end of

the end of

Name of

Position held

Options

the Reporting

Exercise

the Reporting

Grantee

in the Group

Date of Grant

upon Listing

Period

price

Period

Dasheng Limited

N/A

14 October 2019

190,190,704

190,190,704

USD0.1416

2.13%

Pre-IPO Share Options granted to Dasheng Limited has vested and become exercisable with respect to 43% on 31 December 2019. Except as unanimously approved by the Board, the remaining 57% shall vest on 31 December 2020, provided that the performance target for the applicable fiscal year has been met. The exercise period of the remaining 57% Pre-IPO Share Options should commence on the date of the performance target being proved (to the reasonable satisfaction of the Pre-IPO Administrator) to have been met. The Pre-IPO Share Options shall lapse and become unexercisable if the performance target for such fiscal year is not met.

24

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Other Information and Corporate Governance

During the Reporting Period, no option was granted under the Pre-IPO Share Option Scheme, and none of the options granted under the Pre-IPO Share Option Scheme had been exercised, cancelled or lapsed.

2020 SHARE OPTION SCHEME

The Company adopted the 2020 Share Option Scheme on 22 June 2020 and a summary of the principal terms of the 2020 Share Option Scheme is set out as below.

Purposes

The purposes of the 2020 Share Option Scheme are (i) to attract and retain skilled and experienced personnel for positions of substantial responsibility, (ii) to provide additional incentive to directors of the Company and its Subsidiaries, key employees and other stakeholders of the Group, and (iii) to promote the success of the Company's business.

Participants

Participants (the "Participants") include:

  1. any Eligible Employee;
  2. any director (including executive director, non-executive director and independent non-executive director) of the Company or the Subsidiaries; and
  3. any consultant, adviser, agent, business partner, joint venture partner, service provider, contractor of the Company or the Subsidiaries.

The basis of eligibility of any of the class of Participants to the grant of any 2020 Share Options shall be determined by the Board from time to time.

Maximum Number of Shares in Respect of Which Awards May Be Granted

The maximum number of the Shares that may be subject to awards and issued under the 2020 Share Option Scheme is 134,000,100, representing 1.5% of the total number of the issued shares of the Company as at the date of this interim report.

INTERIM REPORT 2020

CHINA FEIHE LIMITED

25

Other Information and Corporate Governance

Maximum Entitlement of Each Participant under the 2020 Share Option Scheme

The total number of Shares issued and to be issued upon exercise of the 2020 Share Options granted to each eligible Participant (including exercised, cancelled and outstanding 2020 Share Options) in any 12-month period shall not exceed 1% of the Shares in issue.

Grant of 2020 Share Options

On and subject to the terms of the 2020 Share Option Scheme and the Listing Rules, the Board shall be entitled at any time within ten (10) years after 22 June 2020 to offer to grant to any Participant as the Board may in its absolute discretion select, and subject to such conditions as the Board may think fit, an 2020 Share Option to subscribe for such number of Shares as the Board may determine at the Subscription Price (the "Offer").

An Offer shall be made to a Participant by an Offer Letter in such form as the Board may from time to time determine requiring the Participant to undertake to hold the 2020 Share Option on the terms on which it is to be granted and to be bound by the terms of the 2020 Share Option Scheme and any other terms and conditions as contained in the Offer Letter and shall remain open for acceptance by the Participant concerned for such time to be determined by the Board, provided that no such Offer shall be open for acceptance after the expiry of ten (10) years after 22 June 2020 or after the 2020 Share Option Scheme has been terminated in accordance with the terms hereof or after the Participant to whom the Offer is made has ceased to be a Participant. The Offer Letter shall specify the terms on which the 2020 Share Option is to be granted.

An Offer shall be deemed to have been accepted and the 2020 Share Option to which such Offer relates shall be deemed to have been granted and to have taken effect when the duplicate letter comprising acceptance of offer duly signed by the Grantee, together with the payment of HK$1.00 to the Company as the consideration for the grant thereof is received by the Company. Such payment shall in no circumstances be refundable. Once accepted, the 2020 Share Option is granted as from the Offer Date.

Exercise of Options

A 2020 Share Option may, subject to the terms and conditions upon which such 2020 Share Option is granted, be exercised in whole or in part in the manner as set out below by the Grantee (or, as the case may be, his or her legal personal representative(s)) giving notice in writing to the Company stating that the 2020 Share Option is thereby exercised and the number of Shares in respect of which it is exercised. Each such notice must be accompanied by a remittance for the full amount of the Subscription Price for the Shares in respect of which the notice is given. The aggregate Subscription Price shall be paid by cash, cheque or any other means deemed acceptable by the Board. Any exercise of a 2020 Share Option by a Grantee shall be subject to the applicable laws, regulations, rules and requirements of any relevant country or jurisdiction. Within ten (10) Business Days after receipt of the notice and the remittance and, where appropriate, receipt of the certificate of the Auditors or the independent financial adviser retained by the Company, the Company shall allot and issue, and shall instruct the Share Registrar to issue, the relevant Shares to the Grantee (or his or her legal personal representative(s)) credited as fully paid and issue to the Grantee (or his or her legal personal representative(s)) a share certificate in respect of the Shares so allotted. Subject to the terms and conditions upon which such 2020 Share Option was granted and any restrictions applicable under the Listing Rules, an 2020 Share Option may be exercised by the Grantee (or their legal personal representatives) at any time during the Option Period, provided that it satisfies the requirements as set out in the supplemental circular of the Company dated 5 June 2020.

26

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Other Information and Corporate Governance

Subscription Price

The Subscription Price shall be such price as determined by the Board in its absolute discretion at the time of the grant of the relevant 2020 Share Option (and shall be stated in the Offer Letter), but in any case the Subscription Price shall not be less than the higher of:

  1. the closing price of the Shares as stated in the daily quotation sheet of the Stock Exchange on the date of grant, which must be a Business Day;
  2. the average closing price of the Shares as stated in the daily quotation sheets of the Stock Exchange for the five (5) Business Days immediately preceding the date of grant; and
  3. the nominal value of a Share.

Duration of the 2020 Share Option Scheme

The 2020 Share Option Scheme shall be valid and effective for a period of ten (10) years commencing on the 22 June 2020. After the expiry of the ten (10) year period, no further Options will be offered or granted but in all other aspects the provisions of the 2020 Share Option Scheme shall remain in full force and effect to the extent necessary to give effect to the exercise of any 2020 Share Option granted prior thereto. 2020 Share Options granted hereunder shall continue to be exercisable subject to the terms of the 2020 Share Option Scheme and in accordance with their terms of grant after the end of the ten (10) year period of the 2020 Share Option Scheme until the end of the Option Period.

During the Reporting Period and as at the Latest Practicable Date, no share option has been granted under the 2020 Share Option Scheme.

Further details of the 2020 Share Option Scheme are set out in the supplemental circular of the Company dated 5 June 2020.

CHANGE OF DIRECTORS' INFORMATION

During the Reporting Period and as at the Latest Practicable Date, changes in the information required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules are set out below:

Mr. Leng Youbin ceased to be the General Manager of Heilongjiang Feihe Diary Co., Limited with effect from 19 March 2020.

Mr. Liu Shenghui resigned as an executive director and the vice president of finance of the Company with effect from 31 July 2020 due to personal health reason.

ACKNOWLEDGEMENT

On behalf of the Board, I would like to extend our sincere appreciation to our customers, suppliers and shareholders for their continuous support, and our management and staff for their contribution and dedication to the Group throughout the period.

By order of the Board

Leng Youbin

Chairman

INTERIM REPORT 2020

CHINA FEIHE LIMITED

27

Independent Review Report

To the board of directors of China Feihe Limited

(Incorporated in the Cayman Islands with limited liability)

INTRODUCTION

We have reviewed the interim financial information set out on pages 29 to 50, which comprises the condensed consolidated statement of financial position of China Feihe Limited (the "Company") and its subsidiaries (the "Group") as at 30 June 2020 and the related condensed consolidated statements of profit or loss, comprehensive income, changes in equity and cash flows for the six-month period then ended, and explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and International Accounting Standard 34 Interim Financial Reporting ("IAS 34") issued by the International Accounting Standards Board.

The directors of the Company are responsible for the preparation and presentation of this interim financial information in accordance with IAS 34. Our responsibility is to express a conclusion on this interim financial information based on our review. Our report is made solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

SCOPE OF REVIEW

We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Hong Kong Institute of Certified Public Accountants. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

CONCLUSION

Based on our review, nothing has come to our attention that causes us to believe that the interim financial information is not prepared, in all material respects, in accordance with IAS 34.

Ernst & Young

Certified Public Accountants

22/F, CITIC Tower

1 Tim Mei Avenue

Central, Hong Kong

18 August 2020

28

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Interim Condensed Consolidated Statement of Profit or Loss

For the six months ended 30 June 2020

Six months ended 30 June

2020

2019

Notes

RMB'000

RMB'000

(Unaudited)

(Audited)

REVENUE

4

8,706,593

5,891,721

Cost of sales

(2,530,378)

(1,916,230)

Gross profit

6,176,215

3,975,491

Other income and gains, net

4

763,038

371,745

Selling and distribution expenses

(2,196,836)

(1,553,183)

Administrative expenses

(526,765)

(289,671)

Other expenses

6

(219,444)

(16,868)

Finance costs

7

(26,544)

(23,031)

Share of loss of an associate

(347)

-

PROFIT BEFORE TAX

5

3,969,317

2,464,483

Income tax expense

8

(1,216,186)

(713,650)

PROFIT FOR THE PERIOD ATTRIBUTABLE TO

OWNERS OF THE PARENT

2,753,131

1,750,833

Earnings per share attributable to ordinary

equity holders of the parent:

10

Basic (expressed in RMB per share)

0.31

0.22

Diluted (expressed in RMB per share)

0.30

0.22

INTERIM REPORT 2020

CHINA FEIHE LIMITED

29

Interim Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2020

Six months ended 30 June

2020

2019

Notes

RMB'000

RMB'000

(Unaudited)

(Audited)

PROFIT FOR THE PERIOD

2,753,131

1,750,833

OTHER COMPREHENSIVE INCOME/(LOSS)

Other comprehensive income/(loss) that may be reclassified

to profit or loss in subsequent periods:

Exchange differences on translation of foreign operations

107,202

(445)

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

ATTRIBUTABLE TO OWNERS OF THE PARENT

2,860,333

1,750,388

30

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Interim Condensed Consolidated Statement of Financial Position

As at 30 June 2020

30 June

31 December

2020

2019

Notes

RMB'000

RMB'000

(Unaudited)

(Audited)

NON-CURRENT ASSETS

Property, plant and equipment

11

4,173,218

3,971,218

Right-of-use assets

299,208

377,261

Goodwill

47,976

47,976

Intangible assets

36

39

Investment in an associate

142,183

142,530

Investment in a joint venture

6,731

-

Financial asset at fair value through other comprehensive income

1,800

1,800

Deposits for purchases of items of property, plant and equipment

155,964

153,947

Deferred tax assets

274,100

208,686

Pledged deposits

70,000

811,715

Total non-current assets

5,171,216

5,715,172

CURRENT ASSETS

Inventories

12

945,294

686,094

Trade and bills receivables

13

400,526

314,353

Prepayments, deposits and other receivables

574,464

571,112

Due from a director

18(b)

80

80

Structured deposits

4,471,579

5,390,191

Pledged deposits

333,000

2,872,699

Restricted cash

27,724

76,578

Cash and cash equivalents

10,583,347

7,377,470

Total current assets

17,336,014

17,288,577

CURRENT LIABILITIES

Trade and bills payables

14

1,283,496

1,041,547

Other payables and accruals

15

2,286,385

2,631,160

Interest-bearing bank and other borrowings

344,609

3,094,214

Lease liabilities

50,850

57,145

Dividend payable

1,582,447

-

Tax payable

665,629

614,434

Total current liabilities

6,213,416

7,438,500

NET CURRENT ASSETS

11,122,598

9,850,077

TOTAL ASSETS LESS CURRENT LIABILITIES

16,293,814

15,565,249

INTERIM REPORT 2020

CHINA FEIHE LIMITED

31

Interim Condensed Consolidated Statement of Financial Position

As at 30 June 2020

30 June

31 December

2020

2019

Notes

RMB'000

RMB'000

(Unaudited)

(Audited)

NON-CURRENT LIABILITIES

Interest-bearing bank and other borrowings

892,034

1,716,064

Other payables

15

202,063

133,929

Deferred tax liabilities

709,047

557,192

Lease liabilities

127,739

128,486

Total non-current liabilities

1,930,883

2,535,671

Net assets

14,362,931

13,029,578

EQUITY

Equity attributable to owners of the parent

Issued capital

16

1

1

Reserves

14,362,930

13,029,577

Total equity

14,362,931

13,029,578

LIU Hua

Judy Fong-Yee TU

Director

Director

32

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Interim Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 June 2020

Attributable to owners of the parent

Share

Capital

Share

Exchange

Issued

premium

contribution

Reserve

option

fluctuation

Retained

Other

Total

capital

account

reserve

funds

reserve

reserve

profits

reserves

equity

Notes

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

At 1 January 2019

1

631,966

77,823

515,384

-

(45,271)

4,732,718

(125,137)

5,787,484

Profit for the period

-

-

-

-

-

-

1,750,833

-

1,750,833

Other comprehensive loss

for the period:

Exchange differences on translation

of foreign operations

-

-

-

-

-

(445)

-

-

(445)

Total comprehensive

income/(loss) for the period

-

-

-

-

-

(445)

1,750,833

-

1,750,388

Equity-settled share option arrangements

-

-

1,108

-

-

-

-

-

1,108

At 30 June 2019 (audited)

1

631,966*

78,931*

515,384*

-*

(45,716)*

6,483,551*

(125,137)*

7,538,980

At 1 January 2020

1

6,550,237

80,346

577,436

121,074

(75,458)

5,901,079

(125,137)

13,029,578

Profit for the period

-

-

-

-

-

-

2,753,131

-

2,753,131

Other comprehensive income

for the period:

Exchange differences on translation

of foreign operations

-

-

-

-

-

107,202

-

-

107,202

Total comprehensive income

for the period

-

-

-

-

-

107,202

2,753,131

-

2,860,333

Final 2019 dividend declared

9

-

-

-

-

-

-

(1,583,148)

-

(1,583,148)

Equity-settled share option arrangements

-

-

-

-

56,168

-

-

-

56,168

At 30 June 2020 (unaudited)

1

6,550,237*

80,346*

577,436*

177,242*

31,744*

7,071,062*

(125,137)*

14,362,931

  • These reserve accounts comprise the consolidated reserves of RMB14,362,930,000 (30 June 2019: RMB7,538,979,000) in the interim condensed consolidated statement of financial position.

INTERIM REPORT 2020

CHINA FEIHE LIMITED

33

Interim Condensed Consolidated Statement of Cash Flows

For the six months ended 30 June 2020

Six months ended 30 June

2020

2019

Notes

RMB'000

RMB'000

(Unaudited)

(Audited)

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax

3,969,317

2,464,483

Adjustments for:

Finance costs

7

26,544

23,031

Interest income

4

(170,384)

(52,642)

Impairment of items of property, plant and equipment

5

3,970

-

Impairment of right-of-use assets

5

59,506

-

Depreciation of property, plant and equipment

5

74,507

54,622

Depreciation of right-of-use assets

5

29,364

34,020

Amortisation of intangible assets

3

2

Loss on disposal of items of property, plant and equipment, net

5

6,119

5,470

Fair value gains on structured deposits

4

(17,414)

(13,046)

Write-down of inventories to net realisable value

5

6,834

-

Impairment/(reversal) of impairment of trade receivables, net

17,102

(1,341)

Reversal of impairment of other receivables, net

(1,050)

(122)

Amortisation of deferred income

4

(1,834)

(12,945)

Share of loss of an associate

347

-

Equity-settled share option expense

56,168

1,108

4,059,099

2,502,640

Increase in inventories

(265,182)

(39,478)

Decrease/(increase) in trade and bills receivables

(103,197)

264,262

Increase in prepayments, deposits and other receivables

(17,659)

(369,492)

Increase in an amount due from a director

-

(2,000)

Decrease in an amount due from a related company

-

750

Increase/(decrease) in trade and bills payables

241,527

(189,978)

Decrease in other payables and accruals

(341,120)

(847,115)

Cash generated from operations

3,573,468

1,319,589

Interest received

184,501

70,362

Interest paid

(38,327)

(21,452)

Income taxes paid

(1,078,584)

(608,212)

Net cash flows from operating activities

2,641,058

760,287

34

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Interim Condensed Consolidated Statement of Cash Flows

For the six months ended 30 June 2020

Six months ended 30 June

2020

2019

Notes

RMB'000

RMB'000

(Unaudited)

(Audited)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of items of property, plant and equipment and

right-of-use assets

(308,462)

(718,542)

Proceeds from disposal of items of property, plant and

equipment and right-of-use assets

12,476

17,064

Purchases of structured deposits

(5,054,365)

(2,329,890)

Proceeds from redemption of structured deposits

5,990,391

1,912,631

Placement of restricted cash

(294,580)

(41,092)

Withdrawal of restricted cash

343,434

78,579

Investment in a joint venture

(6,673)

-

Receipt of government grants

76,743

-

Deposits paid for purchases of items of property, plant and equipment

(53,461)

(22,615)

Placement of time deposits with original maturity of

more than three months when acquired

(2,894,025)

(1,926,480)

Withdrawal of time deposits with original maturity of

more than three months when acquired

1,634,862

1,510,620

Net cash flows used in investing activities

(553,660)

(1,519,725)

CASH FLOWS FROM FINANCING ACTIVITIES

New bank and other loans

150,000

1,243,829

Repayment of bank and other loans

(3,654,056)

(246,742)

Placement of pledged bank deposits

(873,000)

(611,715)

Release of pledged bank deposits

4,202,716

600,000

Principal portion of lease payments

(9,703)

(31,104)

Net cash flows from/(used in) financing activities

(184,043)

954,268

NET INCREASE IN CASH AND CASH EQUIVALENTS

1,903,355

194,830

Cash and cash equivalents at beginning of period

4,666,585

895,854

Effect of foreign exchange rate changes, net

43,385

5,393

CASH AND CASH EQUIVALENTS AT END OF PERIOD

6,613,325

1,096,077

ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS

Cash and cash equivalents

6,613,325

1,096,077

INTERIM REPORT 2020

CHINA FEIHE LIMITED

35

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

1. BASIS OF PREPARATION

The interim condensed consolidated financial information for the six months ended 30 June 2020 has been prepared in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting and the disclosure requirements of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the "Listing Rules").

The interim condensed consolidated financial information does not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual consolidated financial statements for the year ended 31 December 2019.

2. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

The accounting policies adopted in the preparation of the interim condensed consolidated financial information are consistent with those applied in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2019, except for the adoption of the following revised International Financial Reporting Standards ("IFRSs", which also include IASs and Interpretations) for the first time for the current period's financial information.

Amendments to IFRS 3

Definition of a Business

Amendments to IFRS 9, IAS 39 and IFRS 7

Interest Rate Benchmark Reform

Amendments to IAS 1 and IAS 8

Definition of Material

The nature and impact of the revised IFRSs are described below:

Amendments to IAS 1 and IAS 8 provide a new definition of material. The new definition states that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The amendments clarify that materiality will depend on the nature or magnitude of information. The amendments did not have material impact on the Group's interim condensed consolidated financial information.

The adoption of other revised IFRSs has had no material impact on the interim financial information of the Group.

Details of the Group's accounting policies applicable from 1 January 2020 are as follows:

Investment in a joint venture

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

The Group's investment in a joint venture is stated in the consolidated statement of financial position at the Group's share of net assets under the equity method of accounting, less any impairment losses. The Group's share of the post-acquisition results and other comprehensive income of a joint venture is included in the consolidated statement of profit or loss and consolidated other comprehensive income, respectively. In addition, when there has been a change recognised directly in the equity of the joint venture, the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and its joint venture are eliminated to the extent of the Group's investment in the joint venture, except where unrealised losses provide evidence of an impairment of the assets transferred.

36

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

3. OPERATING SEGMENT INFORMATION

The Group principally focuses on the production and sale of dairy products and sale of nutritional supplements. Information reported to the Group's chief operating decision maker, for the purpose of resource allocation and performance assessment, focuses on the operating results of the Group as a whole as the Group's resources are integrated and no discrete operating segment information is available. Accordingly, no operating segment information is presented.

Geographical information

  1. Revenue from external customers

Six months ended 30 June

20202019

RMB'000 RMB'000

(Unaudited) (Audited)

Mainland China

8,542,270

5,589,368

United States of America

164,323

302,353

8,706,593

5,891,721

The revenue information above is based on the locations of the customers.

(b) Non-current assets

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Mainland China

2,886,903

2,681,452

United States of America

113,962

209,660

Canada

1,824,451

1,801,859

4,825,316

4,692,971

The non-current asset information is based on the locations of the assets and excludes financial instruments and deferred tax assets.

INTERIM REPORT 2020

CHINA FEIHE LIMITED

37

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

4. REVENUE, OTHER INCOME AND GAINS, NET

An analysis of revenue is as follows:

Six months ended 30 June

20202019

RMB'000 RMB'000

(Unaudited) (Audited)

Revenue from contracts with customers

8,706,593

5,891,721

Revenue from contracts with customers

(i)

Disaggregated revenue information

Six months ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Type of goods

Sales of goods

8,706,593

5,891,721

Geographical markets

Mainland China

8,542,270

5,589,368

United States of America

164,323

302,353

Total revenue from contracts with customers

8,706,593

5,891,721

Timing of revenue recognition

Goods transferred at a point in time

8,706,593

5,891,721

38

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

4. REVENUE, OTHER INCOME AND GAINS, NET (continued)

An analysis of other income and gains, net is as follows:

Six months ended 30 June

2020

2019

Notes

RMB'000

RMB'000

(Unaudited)

(Audited)

Other income

Bank interest income

69,494

20,277

Other interest income

100,890

32,361

Government grants related to

- Assets

(i)

1,834

12,945

- Income

(ii)

550,954

286,470

Others

14,927

6,646

738,099

358,699

Gains, net

Fair value gains on structured deposits

17,414

13,046

Foreign exchange gain, net

7,525

-

24,939

13,046

Total other income and gains, net

763,038

371,745

Notes:

  1. The Group received government grants in respect of the construction and acquisition of property, plant and equipment. These government grants are recorded initially at fair value as deferred income, which are amortised to match the depreciation charge of the property, plant and equipment in accordance with their estimated useful lives.
  2. Various government grants have been received by the Group's subsidiaries operated in Heilongjiang and Jilin Provinces in Mainland China. There are no unfulfilled conditions or contingencies relating to these grants.

INTERIM REPORT 2020

CHINA FEIHE LIMITED

39

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

5. PROFIT BEFORE TAX

The Group's profit before tax is arrived at after charging:

Six months ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Cost of inventories sold

2,530,378

1,916,230

Depreciation of property, plant and equipment

74,507

54,622

Depreciation of right-of-use assets

29,364

34,020

Rent expense - short term leases

3,148

6,790

Interest expense on lease liabilities

3,330

3,980

Write-down of inventories to net realisable value

6,834

-

Impairment of items of property, plant and equipment

3,970

-

Loss on disposal of items of property, plant and equipment

6,119

5,470

Impairment of right-of-use assets

59,506

-

6.

OTHER EXPENSES

An analysis of other expenses is as follows:

Six months ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Impairment of right-of-use assets

59,506

-

Impairment of items of property, plant and equipment

3,970

-

Loss on disposal of items of property, plant and equipment

6,119

5,470

Impairment of trade receivables

17,102

-

Loss on disposal of old packaging materials

507

5,083

Donations

131,441

6,162

Others

799

153

219,444

16,868

40

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

7. FINANCE COSTS

An analysis of finance costs is as follows:

Six months ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Interest on:

Bank loans

38,513

30,947

Other loans

20,177

7,465

Lease liabilities

3,330

3,980

Total interest expense on financial liabilities not at

fair value through profit or loss

62,020

42,392

Less: Interest capitalised

(35,476)

(19,361)

26,544

23,031

8. INCOME TAX

Taxes on profits assessable in Mainland China have been calculated at the applicable PRC corporate income tax ("CIT") rate of 25% (six months ended 30 June 2019: 25%) during the period.

Subsidiaries incorporated in Hong Kong are subject to income tax at the rate of 16.5% (six months ended 30 June 2019: 16.5%) during the period. No provision for Hong Kong profits tax has been made as the Group had no assessable profits arising in Hong Kong during the period (six months ended 30 June 2019: Nil). Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the jurisdictions in which the Group operates.

Six months ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Current - PRC

Charge for the period

1,130,966

681,719

Deferred

85,220

31,931

Total tax charge for the period

1,216,186

713,650

INTERIM REPORT 2020

CHINA FEIHE LIMITED

41

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

9. DIVIDEND

During the six months ended 30 June 2020, the Company declared a final dividend of HK$0.1943 per ordinary share, equivalent to a total of approximately RMB1.58 billion for the year ended 31 December 2019 to its shareholders.

Subsequent to the end of the reporting period, the board of directors declared an interim dividend of HK$0.1375 (six months ended 30 June 2019: Nil) per ordinary share, amounting to a total of approximately RMB1.10 billion (six months ended 30 June 2019: Nil).

10. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT

The calculation of the basic earnings per share amount is based on the profit attributable to owners of the parent and the weighted average number of ordinary shares in issue during the period. The weighted average number of ordinary shares has been retrospectively adjusted for the effect of the share subdivision as disclosed in note 16 on the assumption that the share subdivision had been in effect on 1 January 2019.

The calculation of the diluted earnings per share amount for the six months ended 30 June 2020 is based on the profit for the period attributable to owners of the parent and the total of (i) the weighted average number of ordinary shares as used in the basic earnings per share calculation, and (ii) the weighted average number of ordinary shares assumed to have been issued at no consideration on the deemed exercise of all outstanding share options as at 30 June 2020 into ordinary shares under the share option scheme.

During the six months ended 30 June 2019, diluted earnings per share equaled the basic earnings per share as there were no potential dilutive ordinary shares in issue for that period.

Six months ended 30 June

20202019

RMB'000 RMB'000

(Unaudited) (Audited)

Earnings:

Profit for the period attributable to owners of the parent

2,753,131

1,750,833

42

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

10. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT (continued)

Number of shares

30 June

30 June

2020

2019

(Unaudited)

(Audited)

Shares:

Weighted average number of ordinary shares for the purpose of

basic earnings per share calculation

8,933,340,000

8,040,000,000

Effect of dilution - weighted average number of ordinary shares:

Share options

168,768,972

-

9,102,108,972 8,040,000,000

11. PROPERTY, PLANT AND EQUIPMENT

During the six months ended 30 June 2020, the Group acquired items of property, plant and equipment of RMB299,700,000 (six months ended 30 June 2019: RMB621,572,000).

Assets with a net book value of RMB18,595,000 were disposed of by the Group during the six months ended 30 June 2020 (six months ended 30 June 2019: RMB20,633,000), resulting in a loss on disposal of RMB6,119,000 (six months ended 30 June 2019: RMB5,470,000).

During the six months ended 30 June 2020, an impairment loss of RMB3,970,000 (six months ended 30 June 2019: Nil) was recognised.

At 30 June 2020, certain of the Group's construction in progress with a net carrying amount of approximately RMB721,869,000 (31 December 2019: RMB1,777,827,000) and property, plant and equipment of RMB1,068,267,000 (31 December 2019: Nil) were pledged to secure a loan borrowed from a third party.

12. INVENTORIES

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Raw materials

328,024

370,768

Work in progress

102,066

43,621

Finished goods

515,204

271,705

945,294

686,094

INTERIM REPORT 2020

CHINA FEIHE LIMITED

43

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

13. TRADE AND BILLS RECEIVABLES

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Trade receivables

322,802

214,350

Bills receivable

104,422

109,598

427,224

323,948

Impairment

(26,698)

(9,595)

400,526

314,353

The Group has a policy of requiring payment in advance from customers for the sale of products (other than cash and credit card sales), except for some major customers, where the trading terms are on credit. The Group grants a defined credit period usually ranging from one to three months from the date of invoice to these customers. The Group seeks to maintain strict control over its receivables to minimise credit risk. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that the Group's trade and bills receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. The Group does not hold any collateral or other credit enhancements over its trade receivable balances. Trade and bills receivables are non-interest-bearing.

An ageing analysis of the trade and bills receivables as at the end of the period/year, based on the invoice date and net of loss allowance, is as follows:

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Within 1 month

364,077

222,434

1 to 2 months

20,789

21,924

2 to 3 months

8,409

55,245

Over 3 months

7,251

14,750

400,526

314,353

44

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

14. TRADE AND BILLS PAYABLES

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Trade and bills payables

1,283,496

1,041,547

An ageing analysis of the trade and bills payables as at the end of the period, based on the invoice date, is as follows:

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Within three months

1,217,149

1,018,656

Three to six months

51,868

9,211

Over six months

14,479

13,680

1,283,496

1,041,547

The trade and bills payables are unsecured, non-interest-bearing and are normally settled on terms of one to three months.

15. OTHER PAYABLES AND ACCRUALS

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Deferred income

198,381

123,679

Other payables

739,913

598,663

Accruals

1,224,786

995,094

Contract liabilities

325,368

1,047,653

2,488,448

2,765,089

Non-current portion

(202,063)

(133,929)

Current portion

2,286,385

2,631,160

INTERIM REPORT 2020

CHINA FEIHE LIMITED

45

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

16. SHARE CAPITAL

Number of shares

30 June 2020 31 December 2019

30 June 2020

31 December 2019

RMB'000

RMB'000

Authorised

At the beginning of the period/year

2,000,000,000,000

50,000

303

303

Share subdivision (note (i))

-

1,999,999,950,000

-

-

At the end of the period/year

2,000,000,000,000

2,000,000,000,000

303

303

Issued and paid-up

At the beginning of the period/year

8,933,340,000

201

1

1

Share subdivision (note (i))

-

8,039,999,799

-

-

Issue of ordinary shares of the Company of

US$0.000000025 each (note (ii))

-

893,340,000

-

-

At the end of the period/year

8,933,340,000

8,933,340,000

1

1

Fully paid ordinary shares carry one vote per share and carry a right to dividends as and when declared by the Company.

Notes:

  1. Pursuant to the written resolution of the then shareholder of the Company passed on 14 October 2019, each of the then existing and unissued shares of US$1 each of the Company was subdivided into 40,000,000 shares of US$0.000000025 each.
  2. In connection with the Company's initial public offering, 893,340,000 ordinary shares of US$0.000000025 each were issued at a price of HK$7.50 per share for a total cash consideration, before share issue expenses, of HK$6,700,050,000 (equivalent to RMB5,983,960,000). Dealings in the shares of the Company on the Stock Exchange commenced on 13 November 2019.

17. COMMITMENTS

The Group had the following capital commitments at the end of the reporting period:

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Contracted, but not provided for:

Construction and purchases of items of property, plant and equipment

733,343

690,795

46

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

18. RELATED PARTY TRANSACTIONS

In addition to the transactions detailed elsewhere in this interim condensed consolidated financial information, the Group had the following transactions with related parties during the period:

  1. Transactions with a related company

Six months ended 30 June

20202019

RMB'000 RMB'000

(Unaudited) (Audited)

A related company:*

Interest expense (note (i))

-

154

  • The related company is controlled by a common director of the Company.
    1. The interest expense was charged based on the contract terms mutually agreed by the respective parties.
  1. Outstanding balances with related parties
    The amount due from a director included in the Group's current assets is unsecured, interest-free and repayable on demand.
  2. Compensation of key management personnel of the Group

Six months ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Salaries and allowance

21,123

8,099

Pension scheme contributions

117

175

Equity-settled share option scheme

56,168

1,108

Total compensation paid/payable to key management personnel

77,408

9,382

INTERIM REPORT 2020

CHINA FEIHE LIMITED

47

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

19. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS

The carrying amounts and fair values of the Group's financial instruments, other than those with carrying amounts that reasonably approximate to fair values, are as follows:

Carrying amounts

Fair values

30 June

31 December

30 June

31 December

2020

2019

2020

2019

RMB'000

RMB'000

RMB'000

RMB'000

(Unaudited)

(Audited)

(Unaudited)

(Audited)

Financial assets

Financial asset at fair value through other

comprehensive income

1,800

1,800

1,800

1,800

Structured deposits

4,471,579

5,390,191

4,471,579

5,390,191

Financial liabilities

Interest-bearing bank and other borrowings

1,236,643

4,810,278

1,213,322

4,738,399

Management has assessed that the fair values of cash and cash equivalents, restricted cash, pledged deposits, trade and bills receivables, trade and bills payables, financial assets included in prepayments, deposits and other receivables, financial liabilities included in other payables and accruals, amount due from a director, approximate to their carrying amounts largely due to the short term maturities of these instruments.

The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values:

The fair values of the non-current portion of interest-bearing bank and other borrowings have been calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities. The changes in fair value as a result of the Group's own non-performance risk for interest-bearing bank and other borrowings as at 30 June 2020 were assessed to be insignificant.

The fair values of the structured deposits are determined in accordance with discounted cash flow analysis. The fair values of financial assets and financial liabilities carried at amortised cost approximate to their carrying amounts.

48

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

19. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued)

Fair value hierarchy

The following tables illustrate the fair value measurement hierarchy of the Group's financial instruments:

Assets measured at fair value:

Fair value measurement using

Quoted

Significant

Significant

prices in

observable

unobservable

active markets

inputs

inputs

(Level 1)

(Level 2)

(Level 3)

Total

RMB'000

RMB'000

RMB'000

RMB'000

At 30 June 2020 (unaudited)

Financial asset at fair value through

other comprehensive income

-

-

1,800

1,800

Structured deposits

-

4,471,579

-

4,471,579

At 31 December 2019 (audited)

Financial asset at fair value through

other comprehensive income

-

-

1,800

1,800

Structured deposits

-

5,390,191

-

5,390,191

The Group did not have any financial liabilities measured at fair value as at 30 June 2020 (31 December 2019: Nil).

During the period, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 for financial assets and financial liabilities (year ended 31 December 2019: Nil).

The fair value of the financial asset at fair value through other comprehensive income was estimated using the market approach, with an unobservable input as the price-to-book ratio of comparable companies. A 20% (31 December 2019: 20%) increase/decrease in the price-to-book ratio of comparable companies would result in an increase/decrease in fair value by approximately RMB360,000 (31 December 2019: RMB360,000).

INTERIM REPORT 2020

CHINA FEIHE LIMITED

49

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

19. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued)

Fair value hierarchy (continued)

Liabilities for which fair values are disclosed:

Fair value measurement using

Quoted

Significant

Significant

prices in

observable

unobservable

active markets

inputs

inputs

(Level 1)

(Level 2)

(Level 3)

Total

RMB'000

RMB'000

RMB'000

RMB'000

At 30 June 2020 (unaudited)

Interest-bearing bank and other borrowings

-

1,213,322

-

1,213,322

At 31 December 2019 (audited)

Interest-bearing bank and other borrowings

-

4,738,399

-

4,738,399

20. APPROVAL OF THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The unaudited interim condensed consolidated financial statements were approved and authorised for issue by the board of directors on 18 August 2020.

50

CHINA FEIHE LIMITED

INTERIM REPORT 2020

Definitions

"AGM"

the 2019 annual general meeting of the Company held on 22 June 2020

"Audit Committee"

the audit committee under the Board

"Board"

the board of Directors

"BVI"

the British Virgin Islands

"CG Code"

the Corporate Governance Code as set out in Appendix 14 of the Listing

Rules

"China" or "PRC"

the People's Republic of China, and for the purposes of this interim report for

geographical reference only (unless otherwise indicated), excluding Taiwan,

Macau and Hong Kong

"Company," "us," or "we"

China Feihe Limited (中國飛鶴有限公司), an exempted company

incorporated in the Cayman Islands with limited liability on 26 October 2012,

whose Shares are listed on the main board of the Stock Exchange

"Companies Law"

the Companies Law, Cap 22 (Law 3 of 1961 as consolidated and revised) of

the Cayman Islands

"DIF Holding"

Diamond Infant Formula Holding Limited, an exempted company

incorporated in the Cayman Islands with limited liability on 24 October 2012

"DIF Share Option(s)"

option(s) granted under the DIF Share Option Schemes

"DIF Share Option Schemes"

collectively, the First DIF Share Option Scheme and the Second DIF Share

Option Scheme

"Director(s)"

director(s) of the Company

"Eligible Employee"

any employee (whether full time or part time) of the Group

"First DIF Share Option Scheme"

the first pre-IPO share option scheme adopted by DIF Holding on 18

December 2013

"Global Offering"

the offer of the Shares for subscription as described in the section headed

"Structure of the Global Offering" in the Prospectus

INTERIM REPORT 2020

CHINA FEIHE LIMITED

51

Definitions

"Grantee"

"Group" or "we" or "our" or "us"

"HK$" or "HKD"

"Hong Kong"

"IFRS"

"Kingston Plant"

"Latest Practicable Date"

"Listing"

"Listing Date"

"Listing Rules"

"Memorandum and Articles of Association"

"Model Code"

"Nomination Committee"

any Participant who accepts the offer of the grant of any 2020 Share Option in accordance with the terms of the 2020 Share Option Scheme or (where the context so permits) any person entitled to any such 2020 Share Option in consequence of the death or incapacitation of the original Grantee, or the legal personal representative of such person

the Company and its subsidiaries

Hong Kong dollars, the lawful currency for Hong Kong

the Hong Kong Special Administrative Region of the PRC

the International Financial Reporting Standards, which include standards and interpretations promulgated by the International Accounting Standards Board (IASB), and the International Accounting Standards (IAS) and interpretation issued by the International Accounting Standards Committee (IASC)

the planned production facility to be constructed in the city of Kingston, Ontario, Canada

10 September 2020, being the latest practicable date for the purpose of ascertaining certain information contained in this interim report prior to its publication

the listing of the Shares on the main board of the Stock Exchange

13 November 2019, on which the Shares were listed on the Stock Exchange and from which dealings in the Shares were permitted to commence on the Stock Exchange

the Rules Governing the Listing of Securities on the Stock Exchange, as amended from time to time

the amended and restated memorandum of association and articles of association of our Company, conditionally adopted on 14 October 2019 with effect from the Listing Date, and as amended from time to time

Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the Listing Rules

the nomination committee under the Board

52

CHINA FEIHE LIMITED

INTERIM REPORT 2020

"Offer Date"

"Offer Letter"

"Option Period"

"Pre-IPO Share Option"

"Pre-IPO Share Option Scheme"

"Prospectus"

"Remuneration Committee"

"Renminbi" or "RMB"

"Reporting Period"

"Second DIF Share Option Scheme"

"SFO"

"Shareholder(s)"

"Share(s)"

"Stock Exchange"

"Subscription Price"

"Subsidiaries"

Definitions

the date on which such 2020 Share Option is offered to a Participant under the 2020 Share Option Scheme

the letter by which an offer to grant an 2020 Share Option is made to a Participant

the period to be determined and notified by the Board to each Grantee at the time of making an offer of any 2020 Share Option, which shall not be longer than ten (10) years from the date of grant of the 2020 Share Option

the pre-IPO share option(s) granted under the Pre-IPO Share Option Scheme

the share option scheme adopted by the Company on 14 October 2019

the prospectus of the Company dated 30 October 2019 in connection with the Hong Kong public offering of the Company

the remuneration committee under the Board

the lawful currency of the PRC

the period commencing from 1 January 2020 and ended on 30 June 2020

the second pre-IPO share option scheme adopted by DIF Holding on 1 January 2017

the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as amended, supplemented or otherwise modified from time to time

holder(s) of the Shares

ordinary share(s) in the share capital of the Company, with a nominal value of US$0.000000025 each

The Stock Exchange of Hong Kong Limited

the price per Share at which a Grantee may subscribe for Shares upon the exercise of a 2020 Share Option granted under the 2020 Share Option Scheme

a company which is for the time being and from time to time a subsidiary (within the meaning of the Companies Ordinance (Chapter 622 of the Laws of Hong Kong)) of the Company, whether incorporated in Hong Kong or elsewhere, and "Subsidiaries" shall be construed accordingly

INTERIM REPORT 2020

CHINA FEIHE LIMITED

53

Definitions

"United States" or "U.S."

"US$" or "USD"

"Vitamin World USA"

"%"

"2020 Share Option"

"2020 Share Option Scheme"

the United States of America and its territories

the lawful currency of the United States

Vitamin World USA Corporation, a corporation incorporated in the State of Delaware, the United States on 13 December 2017 and a wholly-owned subsidiary of the Company

per cent.

an option to subscribe for Shares granted pursuant to the 2020 Share Option Scheme

the share option scheme adopted by the Company on 22 June 2020

54

CHINA FEIHE LIMITED

INTERIM REPORT 2020

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Sales 2020 18 781 M 2 906 M 2 906 M
Net income 2020 5 567 M 861 M 861 M
Net cash 2020 10 210 M 1 580 M 1 580 M
P/E ratio 2020 30,8x
Yield 2020 1,20%
Capitalization 177 B 27 310 M 27 313 M
EV / Sales 2020 8,86x
EV / Sales 2021 6,65x
Nbr of Employees 5 638
Free-Float 35,3%
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Technical analysis trends CHINA FEIHE LIMITED
Short TermMid-TermLong Term
TrendsBullishBullishBullish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus BUY
Number of Analysts 14
Average target price 20,53 CNY
Last Close Price 19,76 CNY
Spread / Highest target 25,0%
Spread / Average Target 3,88%
Spread / Lowest Target -26,7%
EPS Revisions
Managers and Directors
NameTitle
You Bin Leng Chairman & Chief Executive Officer
Fang Liang Cai President & Executive Director
Hua Liu Vice Chairman & Chief Financial Officer
Fong-Yee Tu Secretary, Executive Director & Vice President
Yu Gao Non-Executive Director
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