CONTENTS

2

Corporate Information

3

Interim Condensed Consolidated Balance Sheet

5

Interim Condensed Consolidated Income Statement

6

Interim Condensed Consolidated Statement of Comprehensive Income

7

Interim Condensed Consolidated Statement of Changes in Equity

8

Interim Condensed Consolidated Statement of Cash Flows

9

Notes to the Interim Condensed Consolidated Financial Statements

25

Management Discussion and Analysis

Interim Report

China Boton Group Company Limited 1

CORPORATE INFORMATION

Board of Directors

Executive Directors

Mr. Wang Ming Fan, MH

  • (Chairman & Chief Executive Officer)
    Mr. Li Qing Long Mr. Yang Ying Chun

Independent non-executive Directors

Mr. Leung Wai Man, Roger

Mr. Ng Kwun Wan

Mr. Zhou Xiao Xiong

Committees of the Board

Audit Committee

Mr. Ng Kwun Wan (Chairman)

Mr. Leung Wai Man, Roger

Mr. Zhou Xiao Xiong

Remuneration Committee

Mr. Ng Kwun Wan (Chairman)

Mr. Leung Wai Man, Roger

Mr. Zhou Xiao Xiong

Mr. Wang Ming Fan, MH

Nomination Committee

Mr. Leung Wai Man, Roger (Chairman)

Mr. Ng Kwun Wan

Mr. Zhou Xiao Xiong

Mr. Wang Ming Fan, MH

Company Secretary

Mr. Ma Siu Kit

Auditors

PricewaterhouseCoopers

Principal Bankers

Bank of China (Hong Kong) Limited

Hang Seng Bank Limited

Bank of China - Shenzhen Branch

Shenzhen Ping An Bank

Registered Office

Cricket Square

Hutchins Drive

P.O. Box 2681

Grand Cayman KY1-1111

Cayman Islands

Head Office and Principal Place of Business in Hong Kong

Room 2101-02, 21st Floor

Wing On House

71 Des Voeux Road Central

Central

Hong Kong

Principal Share Registrar and Transfer Office

Tricor Services (Cayman Islands) Limited 2nd Floor, Century Yard

Cricket Square

P.O. Box 902

Grand Cayman, KY1-1103 Cayman Islands

Hong Kong Share Registrar and Transfer Office

Tricor Investor Services Limited

Level 54

Hopewell Centre

183 Queen's Road East

Hong Kong

Share Listing

The Stock Exchange of Hong Kong Limited (Stock Code: 3318)

Company Website

www.boton.com.hk

2 China Boton Group Company Limited

Interim Report 2020

INTERIM CONDENSED CONSOLIDATED BALANCE SHEET

(All amounts in Renminbi thousands unless otherwise stated)

30 June

31 December

2020

2019

Note

(Unaudited)

(Audited)

ASSETS

Non-current assets

Property, plant and equipment

7

1,448,459

1,414,837

Right-of-use assets

8

114,824

119,313

Intangible assets

7

1,893,849

1,918,439

Investment properties

586,600

591,300

Deferred income tax assets

8,790

9,599

Total non-current assets

4,052,522

4,053,488

Current assets

Inventories

246,014

213,925

Trade and other receivables

9

744,417

699,827

Deposits for bank borrowings

136,293

167,326

Financial asset at fair value through profit or loss

5,000

-

Cash

172,147

324,437

Total current assets

1,303,871

1,405,515

Total assets

5,356,393

5,459,003

EQUITY

Attributable to owners of the Company

Share capital

10

101,522

84,693

Share premium

1,292,432

926,077

Perpetual subordinated convertible securities

10

-

383,184

Other reserves

325,622

330,018

Retained earnings

942,151

877,573

2,661,727

2,601,545

Non-controlling interests

177,108

155,321

Total equity

2,838,835

2,756,866

Interim Report 2020

China Boton Group Company Limited 3

INTERIM CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)

(All amounts in Renminbi thousands unless otherwise stated)

30 June

31 December

2020

2019

Note

(Unaudited)

(Audited)

LIABILITIES

Non-current liabilities

Borrowings

11

904,264

896,111

Lease liabilities

8

19,277

22,570

Deferred government grants

2,323

3,054

Deferred income tax liabilities

114,231

119,061

Other non-current liabilities

12

287,163

301,154

Total non-current liabilities

1,327,258

1,341,950

Current liabilities

Trade and other payables

12

513,440

521,989

Contract liabilities

44,608

72,829

Lease liabilities

8

7,240

6,805

Current income tax liabilities

135,010

154,625

Borrowings

11

490,002

603,939

Total current liabilities

1,190,300

1,360,187

Total liabilities

2,517,558

2,702,137

Total equity and liabilities

5,356,393

5,459,003

The notes on pages 9 to 24 form an integral part of these interim condensed consolidated financial statements.

4 China Boton Group Company Limited

Interim Report 2020

INTERIM CONDENSED CONSOLIDATED

INCOME STATEMENT

(All amounts in Renminbi thousands unless otherwise stated)

(Unaudited)

Six months ended 30 June

Note

2020

2019

Revenue

13

1,021,303

613,405

Cost of sales

14

(641,087)

(307,022)

Gross profit

380,216

306,383

Other income

13

6,793

4,042

Other (losses)/gains - net

13

(3,191)

6,114

Selling and marketing expenses

14

(61,034)

(47,227)

Net impairment losses on financial assets

(7,777)

(743)

Administrative expenses

14

(147,372)

(131,179)

Operating profit

167,635

137,390

Finance income

15

2,163

519

Finance costs

15

(57,964)

(49,198)

Finance costs - net

15

(55,801)

(48,679)

Profit before income tax

111,834

88,711

Income tax expense

16

(30,414)

(10,990)

Profit for the period

81,420

77,721

Attributable to:

Owners of the Company

64,578

69,347

Non-controlling interests

16,842

8,374

81,420

77,721

Earnings per share attributable to owners of the Company

during the period

(expressed in Renminbi per share)

- basic

17

0.07

0.08

- diluted

17

0.07

0.07

Information of dividends to owners of the Company is set out in Note 18.

The notes on pages 9 to 24 form an integral part of these interim condensed consolidated financial statements.

Interim Report 2020

China Boton Group Company Limited 5

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(All amounts in Renminbi thousands unless otherwise stated)

(Unaudited)

Six months ended 30 June

2020

2019

Profit for the period

81,420

77,721

Other comprehensive income

Items that may be subsequently reclassified to profit or loss

Currency translation differences

(4,491)

(2,730)

Total comprehensive income for the period

76,929

74,991

Attributable to:

Owners of the Company

60,182

66,370

Non-controlling interests

16,747

8,621

Total comprehensive income for the period

76,929

74,991

The notes on pages 9 to 24 form an integral part of these interim condensed consolidated financial statements.

6 China Boton Group Company Limited

Interim Report 2020

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(All amounts in Renminbi thousands unless otherwise stated)

(Unaudited)

Attributable to owners of the Company

Perpetual

Non-

subordinated

Share

Share

Other

convertible

Retained

controlling

Total

capital

premium

reserves

securities

earnings

Total

interests

equity

Balance at 1 January 2019

81,698

860,414

342,541

429,568

804,020

2,518,241

133,485

2,651,726

Comprehensive income

Profit for the period

-

-

-

-

69,347

69,347

8,374

77,721

Other comprehensive income

Currency translation differences

-

-

(2,977)

-

-

(2,977)

247

(2,730)

Total comprehensive income

-

-

(2,977)

-

69,347

66,370

8,621

74,991

Transactions with owners

Capital injection from non-controlling

interests

-

-

-

-

-

-

14,365

14,365

Conversion of perpetual subordinated

convertible securities related to

business combination

1,914

44,470

-

(46,384)

-

-

-

-

Dividend payable to non-controlling

interests

-

-

-

-

-

-

(37,600)

(37,600)

Final cash dividend of 2018 (with

a scrip dividend option)

1,081

21,193

-

-

(26,439)

(4,165)

-

(4,165)

Total transactions with owners

2,995

65,663

-

(46,384)

(26,439)

(4,165)

(23,235)

(27,400)

Balance at 30 June 2019

84,693

926,077

339,564

383,184

846,928

2,580,446

118,871

2,699,317

Balance at 1 January 2020

84,693

926,077

330,018

383,184

877,573

2,601,545

155,321

2,756,866

Comprehensive income

-

-

-

-

64,578

64,578

16,842

81,420

Profit for the period

Other comprehensive income

-

-

(4,396)

-

-

(4,396)

(95)

(4,491)

Currency translation differences

Total comprehensive income

-

-

(4,396)

-

64,578

60,182

16,747

76,929

Transactions with owners

Capital injection from non-controlling

-

-

-

-

-

-

5,040

5,040

interests

Conversion of perpetual subordinated

convertible securities related to

16,829

366,355

-

(383,184)

-

-

-

-

business combination (Note 10)

Total transactions with owners

16,829

366,355

-

(383,184)

-

-

5,040

5,040

Balance at 30 June 2020

101,522

1,292,432

325,622

-

942,151

2,661,727

177,108

2,838,835

The notes on pages 9 to 24 form an integral part of these interim condensed consolidated financial statements.

Interim Report 2020

China Boton Group Company Limited 7

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(All amounts in Renminbi thousands unless otherwise stated)

(Unaudited)

Six months ended 30 June

2020

2019

Net cash (used in)/generated from operating activities

(1,410)

10,263

Cash flows from investing activities

- Purchase of property, plant and equipment

(65,619)

(85,718)

- Addition of right-of-use assets (land use rights)

-

(10,917)

- Purchase of intangible assets

-

(10,331)

- Purchase of financial asset at fair value through profit or loss

(5,000)

-

- Proceeds from disposals of property, plant and equipment

2,212

124

- Interest received

2,163

519

Net cash used in investing activities

(66,244)

(106,323)

Cash flows generated from financing activities

- Proceeds from borrowings

420,067

535,075

- Repayment of borrowings

(539,221)

(158,826)

- Dividends paid

-

(4,165)

- Capital injection from non-controlling interests shareholders

5,040

14,365

- Principal elements of lease payments

(3,652)

(2,424)

- Increase/(decrease) in deposits for bank borrowings

31,033

(80,000)

Net cash (used in)/generated from financing activities

(86,733)

304,025

Net (decrease)/increase in cash

(154,387)

207,965

Effects of currency translation on cash

2,097

(145)

Cash at beginning of period

324,437

306,055

Cash at end of period

172,147

513,875

The notes on pages 9 to 24 form an integral part of these interim condensed consolidated financial statements.

8 China Boton Group Company Limited

Interim Report 2020

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June 2020 (All amounts in Renminbi thousands unless otherwise stated)

1. General Information

China Boton Group Company Limited (previously known as China Flavors and Fragrances Company Limited) (the "Company") and its subsidiaries (together, the "Group") are principally engaged in trading, manufacturing and selling of extracts, flavors and fragrances in the People's Republic of China (the "PRC"), and starting in 2016, penetrating into the market of e-cigarettes and e-cigarette-related products, which are sold by tobacco companies, independent e-cigarette makers and other customers under different brands to consumers in over 20 countries with major markets in the United States of America and European Union. The Company was incorporated in the Cayman Islands on 9 March 2005 as an exempted company with limited liability under the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The address of its registered office is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands.

On 9 December 2005, shares of the Company were listed on The Stock Exchange of Hong Kong Limited.

These unaudited interim condensed consolidated financial statements are presented in thousands of units of Renminbi (RMB'000), unless otherwise stated.

These unaudited interim condensed consolidated financial statements have been approved for issue by the Board of Directors (the "Board") of the Company on 21 August 2020.

These interim condensed consolidated financial statements have not been audited.

2. Basis of Preparation

These unaudited interim condensed consolidated financial statements for the six months ended 30 June 2020 (the "Period") have been prepared in accordance with Hong Kong Accounting Standard 34 "Interim Financial Reporting" issued by Hong Kong Institute of Certified Public Accountants. These unaudited interim condensed consolidated financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2019 (the "2019 Financial Statements"), which have been prepared in accordance with Hong Kong Financial Reporting Standards ("HKFRSs").

Interim Report 2020

China Boton Group Company Limited 9

NOTES TO THE INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (CONTINUED)

For the six months ended 30 June 2020

(All amounts in Renminbi thousands unless otherwise stated)

3. Accounting Policies

  1. New and amended standards adopted by the Group
    A number of new or amended standards became applicable for the current reporting period. The Group did not have to change its accounting policies or make retrospective adjustments as a result of adopting these standards.
    1. Definition of Material - amendments to HKAS 1 and HKAS 8
    2. Definition of a Business - amendments to HKFRS 3
    3. Revised Conceptual Framework for Financial Reporting
    4. COVID-19-RelatedRent Concessions - Amendments to HKFRS16
    5. Interest Rate Benchmark Reform - amendments to HKFRS 9, HKAS 39 and HKFRS 7.
  3. Impact of standards issued but not yet applied by the Group

Effective for

annual periods

beginning

on or after

Amendments to HKFRS 10

Sale or Contribution of Assets between an

The effective date has

and HKAS 28

Investor and its Associate or Joint Venture

now been deferred

HKFRS 17

Insurance Contracts

1 January 2021

The Group is in the process of making an assessment of the impact of these new and revised HKFRS upon initial application. So far the Group has identified no aspects of the new and revised standards and interpretations that are expected to have significant financial impact on the Group's performance and position.

4. Estimates

The preparation of interim condensed consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these interim condensed consolidated financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2019.

10 China Boton Group Company Limited

Interim Report 2020

NOTES TO THE INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (CONTINUED)

For the six months ended 30 June 2020 (All amounts in Renminbi thousands unless otherwise stated)

5. Financial Risk Management

The Group's activities expose it to a variety of financial risk: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.

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

6. Revenue and Segment Information

The Group considers the business from product perspective. The Group is organised into five segments: flavor enhancers, food flavors, fine fragrances, healthcare products and investment properties.

The Group assesses the performance of the segments based on the profit before income tax.

The segment information for the six months ended 30 June 2020 is presented below.

Flavor

Food

Fine

Healthcare

Investment

Total

enhancers

flavors

fragrances

products

properties

Unallocated

segments

Segment revenue - sales of goods

332,319

70,499

73,325

530,628

-

-

1,006,771

Segment revenue - rental income

-

-

-

-

16,690

-

16,690

Inter-segment revenue

(2,158)

-

-

-

-

-

(2,158)

Revenue from external customers

330,161

70,499

73,325

530,628

16,690

-

1,021,303

Timing of revenue recognition

At a point in time

330,161

70,499

73,325

530,628

-

-

1,004,613

Over time

-

-

-

-

16,690

-

16,690

Other income

9,097

118

99

2,481

(5,274)

272

6,793

Other (losses)/gains - net

1,522

-

-

(13)

(4,700)

-

(3,191)

Operating profit/(loss)

126,352

22,719

6,960

20,822

4,126

(13,344)

167,635

Finance income

-

115

95

255

-

1,698

2,163

Finance costs

(28,856)

(992)

(1,475)

(1,309)

-

(25,332)

(57,964)

Finance costs - net

(28,856)

(877)

(1,380)

(1,054)

-

(23,634)

(55,801)

Profit/(loss) before income tax

97,496

21,842

5,580

19,768

4,126

(36,978)

111,834

Income tax expense

(11,825)

(4,265)

(1,108)

(9,048)

(2,197)

(1,971)

(30,414)

Profit/(loss) for the period

85,671

17,577

4,472

10,720

1,929

(38,949)

81,420

Depreciation and amortisation

34,902

2,594

2,564

11,217

-

9,825

61,102

Net impairment losses/

(reversal of net impairment losses)

on financial assets

(3,297)

(42)

(42)

11,158

-

-

7,777

Provision for write-down of inventories

621

715

744

9,565

-

-

11,645

Interim Report 2020

China Boton Group Company Limited 11

NOTES TO THE INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (CONTINUED)

For the six months ended 30 June 2020

(All amounts in Renminbi thousands unless otherwise stated)

6. Revenue and Segment Information (continued)

The segment information for the six months ended 30 June 2019 is presented below.

Flavor

Fine

Healthcare

Investment

Total

enhancers

Food flavors

fragrances

products

properties

Unallocated

segments

Segment revenue - sales of goods

274,154

63,697

60,713

200,916

-

-

599,480

Segment revenue - rental income

-

-

-

-

14,402

-

14,402

Inter-segment revenue

(477)

-

-

-

-

-

(477)

Revenue from external customers

273,677

63,697

60,713

200,916

14,402

-

613,405

Timing of revenue recognition

At a point in time

273,677

63,697

60,713

200,916

-

-

599,003

Over time

-

-

-

-

14,402

-

14,402

Other income

4,237

24

23

(283)

-

41

4,042

Other gains - net

-

-

-

14

6,100

-

6,114

Operating profit/(loss)

72,216

16,088

(924)

37,908

17,187

(5,085)

137,390

Finance income

-

121

115

32

-

251

519

Finance costs

(997)

(93)

(88)

-

-

(48,020)

(49,198)

Finance costs - net

(997)

28

27

32

-

(47,769)

(48,679)

Profit/(loss) before income tax

71,219

16,116

(897)

37,940

17,187

(52,854)

88,711

Income tax (expense)/credit

(9,028)

(2,471)

138

(6,130)

(2,003)

8,504

(10,990)

Profit/(loss) for the period

62,191

13,645

(759)

31,810

15,184

(44,350)

77,721

Depreciation and amortisation

34,168

3,115

3,004

14,737

-

10,285

65,309

Net impairment losses/

(reversal of net impairment losses)

on financial assets

644

146

140

(187)

-

-

743

Provision/(reversal of provision)

for write-down of inventories

(2)

63

60

-

-

-

121

12 China Boton Group Company Limited

Interim Report 2020

NOTES TO THE INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (CONTINUED)

For the six months ended 30 June 2020 (All amounts in Renminbi thousands unless otherwise stated)

7. Land Use Rights, Property, Plant and Equipment and Intangible Assets

Property,

Land use

plant and

Intangible

rights

equipment

assets

Six months ended 30 June 2020

Opening net book amount as at

1 January 2020

-

1,414,837

1,918,439

Additions

-

65,555

-

Disposals

-

(703)

-

Depreciation and amortisation

-

(31,230)

(24,590)

Closing net book amount as at 30 June 2020

-

1,448,459

1,893,849

Six months ended 30 June 2019

Net book amount as at 31 December 2018

as originally presented

82,043

1,156,400

1,955,241

Effects of the adoption of HKFRS 16

(82,043)

-

-

Opening net book amount as at

1 January 2019

-

1,156,400

1,955,241

Additions

10,917

97,300

10,331

Disposals

-

(74)

-

Depreciation and amortisation

-

(36,117)

(24,910)

Closing net book amount as at 30 June 2019

10,917

1,217,509

1,940,662

Interim Report 2020

China Boton Group Company Limited 13

NOTES TO THE INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (CONTINUED)

For the six months ended 30 June 2020

(All amounts in Renminbi thousands unless otherwise stated)

8. Leases

  1. Amounts recognised in the balance sheet
    The interim condensed consolidated balance sheet shows the following amounts relating to leases:

As at

30 June

31 December

2020

2019

Right-of-use assets

Land use rights

89,903

91,160

Buildings

24,542

27,673

Vehicles

379

480

114,824

119,313

Lease liabilities

Current

7,240

6,805

Non-current

19,277

22,570

26,517

29,375

  1. Amounts recognised in the statement of profit or loss
    The interim condensed consolidated statement of profit or loss shows the following amounts relating to leases:

As at

30 June

31 December

2020

2019

Depreciation and amortisation charge of right-of-use assets:

Land use rights

1,256

2,137

Buildings

3,920

6,615

Vehicles

106

15

5,282

8,767

Interest expenses (included in finance costs - net) (Note 15)

883

968

Expenses relating to short-term leases (included in cost of sales,

selling and marketing expenses and administrative expenses)

(Note 14)

(2,521)

(1,452)

14 China Boton Group Company Limited

Interim Report 2020

NOTES TO THE INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (CONTINUED)

For the six months ended 30 June 2020 (All amounts in Renminbi thousands unless otherwise stated)

9. Trade and Other Receivables

As at

30 June

31 December

Note

2020

2019

Trade receivables

(a)

389,156

386,777

Less: provision for impairment

(52,994)

(45,217)

Trade receivables - net

336,162

341,560

Bills receivable

(b)

58,017

75,685

Prepayments

278,457

220,240

Advances to staff

3,621

6,119

Staff benefit payments

488

844

Other deposits

26,806

25,721

Excess of input over output value added tax

8,072

5,294

Others

32,794

24,364

744,417

699,827

  1. The credit period granted to customers is between 30 and 360 days. The ageing analysis of the trade receivables based on invoice date is as follows:

As at

30 June

31 December

2020

2019

Current

329,877

201,167

More than 1 day but not exceeding 90 days past due

35,563

73,685

More than 90 days but not exceeding 360 days past due

13,281

80,083

More than 360 days past due

10,435

31,842

389,156

386,777

  1. Bills receivable are with maturity mainly between 30 and 150 days.

The carrying amounts of trade and other receivables are mainly demonstrated in RMB and approximate their fair value.

Interim Report 2020

China Boton Group Company Limited 15

NOTES TO THE INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (CONTINUED)

For the six months ended 30 June 2020

(All amounts in Renminbi thousands unless otherwise stated)

10. Share Capital

Movements of the share capital are as follows:

Issued and fully paid

Number of shares

Note

('000)

RMB'000

As at 1 January 2019

861,681

81,698

Issue of shares - final scrip dividends

12,292

1,081

Issue of shares - Conversion of perpetual subordinated

convertible securities

22,302

1,914

As at 30 June 2019

896,275

84,693

As at 1 January 2020

896,275

84,693

Issue of shares - Conversion of perpetual subordinated

convertible securities

(b)

184,237

16,829

As at 30 June 2020

1,080,512

101,522

Notes:

  1. All shares issued have the same rights as the other shares in issue.
  2. The Company issued perpetual subordinated convertible securities ("PSCS") on 15 August 2016 to Shenzhen Huiji Company Limited, Shenzhen Da Herong Spice Company Limited, Guangzhou Fangyuan Spice Company Limited, Hainan Central South Island Spice and Fragrance Company Limited (collectively "Four Businesses"), respectively as part of the purchase consideration for acquisition of the Four Businesses. The PSCS is convertible into 378,544,000 shares of the Company at an initial conversion price of HKD3.00 per share.
    The PSCS constitutes direct, unsecured and subordinated obligations of the Company and rank pari passu without any preference or priority among themselves. In the event of the winding-up of the Company, the rights and claims of the PSCS holder(s) shall: (a) rank ahead of those persons whose claims are in respect of any class of share capital of the Company; and (b) be subordinated in right of payment to the claims of all other present and future senior and subordinated creditors of the Company.
    The PSCS has no maturity date and does not confer a right to receive distributions.
    As at 1 January 2020, out of the 184,237,332 shares to be allotted and issued by the Company upon conversion of the PSCS at the initial conversion price, a total 184,237,332 shares were converted during the Period.

16 China Boton Group Company Limited

Interim Report 2020

NOTES TO THE INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (CONTINUED)

For the six months ended 30 June 2020 (All amounts in Renminbi thousands unless otherwise stated)

11. Borrowings

As at

30 June

31 December

Note

2020

2019

Non-current

Secured bank loans

(a)

902,537

893,953

Unsecured bank loans

1,727

2,158

904,264

896,111

Current

Secured bank loans

(a)

164,761

429,590

Unsecured bank loans

325,241

174,349

490,002

603,939

Total borrowings

1,394,266

1,500,050

  1. As at 30 June 2020, borrowings amounting to approximately RMB1,067,298,000 (31 December 2019: RMB1,323,543,000) were secured by pledge of equity interests in some subsidiaries, Phase 1 Workshop and Phase 2 Building of Shenzhen Boton Flavors and Fragrances Co., Ltd., right-of-use assets of Dongguan Boton Flavors and Fragrances Co., Ltd. and investment properties of the Group.
  2. The carrying amounts of the borrowings were denominated in the following currencies:

As at

30 June

31 December

2020

2019

RMB

871,048

821,827

Hong Kong dollars

523,218

576,110

United States dollars

-

102,113

1,394,266

1,500,050

Interim Report 2020

China Boton Group Company Limited 17

NOTES TO THE INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (CONTINUED)

For the six months ended 30 June 2020

(All amounts in Renminbi thousands unless otherwise stated)

12. Trade and Other Payables

As at

30 June

31 December

Note

2020

2019

Trade payables

(a)

293,927

293,524

Payables for business combinations

287,163

301,154

Interest payable

12,511

13,740

Other taxes payable

12,648

29,368

Accrued expenses

14,822

10,890

Salaries payable

24,965

42,613

Dividends payable to non-controlling interests

37,600

37,600

Notes payable

20,000

-

Payables for additions of right-of-use assets

34,684

34,684

Other payables

62,283

59,570

800,603

823,143

Less: non-current portion - long-term other payables

(Other non-current liabilities)

(287,163)

(301,154)

Current portion

513,440

521,989

  1. The ageing analysis of the trade payables based on invoice date is as follows:

As at

30 June

31 December

2020

2019

Up to 3 months

203,923

201,398

3 to 6 months

36,654

27,150

6 to 12 months

16,217

22,265

Over 12 months

37,133

42,711

293,927

293,524

18 China Boton Group Company Limited

Interim Report 2020

NOTES TO THE INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (CONTINUED)

For the six months ended 30 June 2020 (All amounts in Renminbi thousands unless otherwise stated)

13. Revenue, Other Income and Other (Losses)/Gains - Net

The Group is principally engaged in trading, manufacturing and selling of extracts, flavors and fragrances. Revenue consists of sales of extracts, flavors, fragrances, healthcare products and rental on investment properties. Revenue, other income and other losses - net recognised for the six months ended 30 June 2020 were as follows:

Six months ended 30 June

2020

2019

Revenue

Sales of goods

1,004,613

599,003

Rental income

16,690

14,402

1,021,303

613,405

Other income

Government grants

5,000

4,042

Others

1,793

-

6,793

4,042

Other (losses)/gains - net

Fair value (losses)/gains on investment properties

(4,700)

6,100

Others

1,509

14

(3,191)

6,114

Interim Report 2020

China Boton Group Company Limited 19

NOTES TO THE INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (CONTINUED)

For the six months ended 30 June 2020

(All amounts in Renminbi thousands unless otherwise stated)

14. Expenses by Nature

Expenses included in cost of sales, selling and marketing expenses and administrative expenses are analysed

as follows:

Six months ended 30 June

2020

2019

Depreciation and amortisation

61,102

65,309

Employee benefit expenses, excluding amount included in research and

112,123

development and share option expenses

79,917

Changes in inventories of finished goods and work in progress

20,931

(5,333)

Raw materials and consumables used

544,507

259,296

Provision for write-down of inventories

11,645

121

Operating lease payments

2,521

508

Transportation and traveling expenses

9,480

8,922

Advertising cost

23,180

12,800

Research and development costs

14,258

- Employee benefit expenses

9,462

- Others

9,163

13,945

Consulting expenses

9,214

6,402

Entertainment expenses

2,579

4,795

Office expenses

9,792

11,569

Other expenses

18,998

17,715

Total

849,493

485,428

15. Finance Costs - Net

Six months ended 30 June

2020

2019

Finance income

2,163

- Interest income

519

Finance costs

(54,714)

- Interest on borrowings

(47,909)

- Interest on lease liabilities

(883)

(968)

- Exchange losses

(2,367)

(321)

(57,964)

(49,198)

Finance costs - net

(55,801)

(48,679)

20 China Boton Group Company Limited

Interim Report 2020

NOTES TO THE INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (CONTINUED)

For the six months ended 30 June 2020 (All amounts in Renminbi thousands unless otherwise stated)

16. Income Tax Expense

The amount of taxation charged to the interim condensed consolidated income statement represents:

Six months ended 30 June

2020

2019

Current income tax

34,435

20,534

Deferred income tax

(4,021)

(9,544)

Total

30,414

10,990

  1. No provision for profits tax in the British Virgin Islands, the Cayman Islands and Hong Kong was made as the Group has no income assessable for profits tax for the six months period ended 30 June 2020 in those jurisdictions.
  2. Pursuant to the corporate income tax law effective from 1 January 2008, the subsidiaries of the Group established in the PRC are subject to income tax at a rate of 25% unless preferential rates are applicable.
    Shenzhen Boton Flavors and Fragrances Co., Ltd., a major subsidiary of the Group, was qualified as High/ New Technology Enterprises, and accordingly it is entitled to the preferential rate of 15% for the years from 2017 to 2019.
    Dongguan Boton Flavors and Fragrances Co., Ltd., a major subsidiary of the Group, was qualified as High/ New Technology Enterprises, and accordingly it is entitled to the preferential rate of 15% for the years from 2019 to 2021.
    Kimsun Technology (Huizhou) Co., Ltd., a major subsidiary of the Group, was qualified as High/New Technology Enterprises, and accordingly it is entitled to the preferential rate of 15% for the years from 2017 to 2019.
    Kimree Korea Co., Ltd., a major subsidiary of the Group, was incorporated in Korea, and its applicable income tax rate ranged from 11% to 22%.

Interim Report 2020

China Boton Group Company Limited 21

NOTES TO THE INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (CONTINUED)

For the six months ended 30 June 2020

(All amounts in Renminbi thousands unless otherwise stated)

16. Income Tax Expense (continued)

  1. The tax charge on the Group's profit before tax differs from the theoretical amount that would arise using the tax rate of 15%, the applicable tax rate of the relevant subsidiaries of the Group, as below:

Six months ended 30 June

2020

2019

Profit before taxation

111,834

88,711

Tax calculated at a tax rate of 15% (2019: 15%)

16,775

13,307

Effect of different tax rates available to different companies of

234

the Group

(2,925)

Tax losses not recognised

8,345

8,276

Utilization of previously unrecognised tax losses

(452)

-

Withholding tax on the profits to be distributed by the Group

4,849

companies in the PRC

(8,504)

Expenses not deductible for tax purposes

663

836

Income tax expense

30,414

10,990

17. Earnings Per Share

  1. Basic
    Basic earnings per share is calculated by dividing the profit attributable to owners of the Company by the weighted average number of ordinary shares in issue during the Period.

Six months ended 30 June

2020

2019

Profit attributable to owners of the Company

64,578

69,347

Weighted average number of ordinary shares in issue

(thousand shares)

897,287

882,228

Basic earnings per share (RMB per share)

0.07

0.08

22 China Boton Group Company Limited

Interim Report 2020

NOTES TO THE INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (CONTINUED)

For the six months ended 30 June 2020 (All amounts in Renminbi thousands unless otherwise stated)

17. Earnings Per Share (continued)

  1. Diluted
    Diluted earnings per share for the six months ended 30 June 2020 is calculated based on the weighted average number of ordinary shares outstanding, assuming that all dilutive potential ordinary shares have been issued. For the Period, perpetual subordinated convertible securities ("PSCS") have been fully converted and have no potential dilutive effect on the earnings per share.

Six months ended 30 June

2020

2019

Profit attributable to owners of the Company

64,578

69,347

Weighted average number of ordinary shares used to calculate

basic earnings per share (thousand shares)

897,287

882,228

Adjustments for:

- conversion of PSCS (thousand shares)

-

184,237

Weighted average number of ordinary shares for diluted earnings

per share (thousand shares)

897,287

1,066,465

Diluted earnings per share (RMB per share)

0.07

0.07

18. Dividends

The Board does not recommend payment of interim dividend for the six months ended 30 June 2020 (2019: nil).

19. Contingent Liabilities

The Group has no contingent liabilities in respect of bank and other guarantees and other matters arising in the ordinary course of business. It is not anticipated that any material liabilities will arise from contingent liabilities.

Interim Report 2020

China Boton Group Company Limited 23

NOTES TO THE INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (CONTINUED)

For the six months ended 30 June 2020

(All amounts in Renminbi thousands unless otherwise stated)

20. Commitments

  1. Capital commitments
    Capital expenditure of the Group at the balance sheet date but not yet incurred is as follows:

As at

30 June 31 December

2020 2019

Property, plant and equipment contracted but not provided for

43,350

13,438

  1. Operating lease commitments
    The Group leases various plants and offices under non-cancellable operating lease agreements. The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

As at

30 June 31 December

2020 2019

Not later than 1 year

309

1,124

21. Significant Related Party Transactions

There was no significant transaction with related parties during the six months ended 30 June 2020 (2019: nil).

24 China Boton Group Company Limited

Interim Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Principal Businesses of the Group

During the six months period ended 30 June 2020, the Group was principally engaged in the research and development, manufacturing, trading and selling of extracts, flavors and fragrances. It also engaged in design and manufacturing of high quality electronic cigarettes and the related products as well.

As one of the major flavors and fragrances manufacturers in the PRC, our flavors products are sold to wide range of manufacturers of difference industries in China and overseas, such as tobacco, beverages, daily foods, preserved food, savory and confectionery industries, and our fragrances products are sold to the manufacturers of cosmetics, perfumes, soaps, toiletries, hair care products, deodorant, detergent and air fresheners industries. For our electronic cigarette ("e-cigarettes") products, such as disposable e-cigarettes,re-chargeablee-cigarettes and e-cigarette accessories, they are sold to the tobacco companies, independent e-cigarette makers and other customers under various brands, covering end users from different countries globally.

Business Review

Reviewing the global economic environment during the six months ended 30 June 2020, there was sharp contraction around the developed and developing countries. Besides the Sino-US trade war, the outbreak of Coronavirus Disease 2019 (the "COVID-19") pandemic was the most crucial factor which dragged the sluggish economy. The COVID-19 pandemic had been swept through many countries since the end of Year 2019. It gave a devastating thump on the global economy and triggered an unprecedented global crisis in Year 2020. The developed and developing countries were suffered from economic shutdown which was leading to serious global recession since the financial crisis in 2008. Many industries, such as the manufacturing, international trading and retail trading industries were seriously affected.

Although there were staggering economic impacts, the economy of the PRC began to show slight improvement in the second quarter of Year 2020 after the COVID-19 lockdown. The economists envisioned that the economy of the PRC shall continue to regain growth momentum in the second half year of 2020 and shall be on track of gradual recovery.

During the period under review, the management and the staffs of the Group were attentive to the business operation, products production, marketing and distribution functions of each business segment after the re-open of the production plants but remained vigilant to counter different challenges during the adverse economic and financial environment. The business operation of the Group had recovered gradually and overcame the sluggish period in the first quarter with a resilient recovery in the second quarter. The business segments of the Group restored quickly back to the normal production scale and exceed the sales volume when compared to the same period of last year.

For the six months ended 30 June 2020, the Group's total revenue amounted to approximately RMB1,021.3 million (2019: RMB613.4 million), representing an increase of 66.5% when compared to the same period of last year. The Group's gross profit increased to approximately RMB380.2 million (2019: RMB306.4 million), representing an increase of 24.1% when compared to the same period of last year. The Group's net profit for the reporting period was approximately RMB81.4 million (2019: approximately RMB77.7 million) representing an increase of 4.8% when compared to the same period of last year.

Interim Report 2020

China Boton Group Company Limited 25

MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)

Revenue

The breakdowns of the total revenue of the Group for the six months period ended 30 June 2020 (excluding inter- segment revenue) were as follows:

For the six months ended 30 June

2020

2019

Revenue

% of total

Revenue

% of total

RMB (m)

revenue

RMB (m)

revenue

% change

Flavor enhancers

330.2

32.3%

273.7

44.6%

+20.6%

Food flavors

70.5

6.9%

63.7

10.4%

+10.7%

Fine fragrances

73.3

7.2%

60.7

9.9%

+20.8%

Healthcare products

530.6

52.0%

200.9

32.8%

+164.1%

Investment properties

16.7

1.6%

14.4

2.3%

+16.0%

Total

1,021.3

100.0%

613.4

100.0%

+66.5%

Flavor enhancers

Revenue of flavor enhancers amounted to approximately RMB330.2 million during the reporting period, representing a significant increase of 20.6% from approximately RMB273.7 million of the corresponding period last year. There was a significant increase in the revenue of this segment during the reporting period, which was due to the stable growth of the tobacco market in certain provinces in the PRC which led to the increase of sales. During the year of 2020, the Group continued its pioneer position in the industry and produced good quality and customized products to our customers. The Group has deployed more resources to enhance the quality of flavor enhance products for the traditional tobacco industries.

Food flavors

Revenue of food flavors amounted approximately RMB70.5 million during the reporting period, indicating an increase of 10.7% from approximately RMB63.7 million of the corresponding period last year. The increase was due to the expansion of new market in the South East Asia region in addition to the stable growth of the PRC market.

Fine fragrances

Revenue of fine fragrances amounted approximately RMB73.3 million during the reporting period, representing a significant increase of 20.8% from approximately RMB60.7 million of the corresponding period last year. During the reporting period, the PRC government implemented a series of strict measures to prevent the spread of the COVID-19 pandemic, most citizen stayed at home with long hours and increased the need and sales of various fragrances products, such as cleaning, personal hygiene and laundry products, etc. These caused the increase of revenue of this segment.

Healthcare products

Revenue of sales of e-cigarettes (which comprised disposable e-cigarettes and rechargeable e-cigarettes) and its accessories continuously surged to approximately RMB530.6 million during the reporting period, representing a significant increase of 164.1% from approximately RMB200.9 million of the corresponding period last year. It was mainly due to the revenue contribution of the subsidiary in Korea which had extensive sales network to facilitate the direct sales and distribution of our good quality products to the different levels of customers in Korea. In addition, the Group had continued to launch new and safe products periodically. For long term strategy, the Group would deploy more resources to produce more innovative, good quality and safe e-liquids products for the e-cigarettes and also would diversify the services and products in this business segment as well.

26 China Boton Group Company Limited

Interim Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)

Investment properties

Revenue of this segment was in the amount of approximately RMB16.7 million, representing an increase of 16.0% from approximately RMB14.4 million of the corresponding period last year. The increase was due to the renewal of contracts with existing tenants and the progressive rental increase pursuant to the existing rental agreements of certain tenants.

Gross Profit

The Group recorded a gross profit of approximately RMB380.2 million, representing an increase of 24.1% for the six months ended 30 June 2020 (2019: RMB306.4 million) which was contributed significantly by the Flavor Enhancers Segment and the Healthcare Products Segment of the Group. Among which, the contribution made by the Healthcare Products Segment has been increased substantially from 32.8% in the last year to 52.0% of the total revenue in 2020.

Net Profit

The Group's net profit for the six months ended 30 June 2020 was in the amount of approximately RMB81.4 million (2019: RMB77.7 million), representing a mild increase of 4.8% from the corresponding period last year. Despite the adverse situation of the global and PRC economies, the Group had achieved to maintain a stable growth of the net profit during the reporting period. Net profit margin for the reporting period had decreased to approximately 8.0% (2019: 12.7%).

Other Income

Other income was RMB6.8 million for the six months ended 30 June 2020 (2019: RMB4.0 million), representing an increase of 70%. The increase was, inter alia, due to the increase of government subsidizes granted to certain PRC subsidiaries of the Group during the reporting period.

Other (Losses)/Gains - Net

Other losses - net was approximately RMB3.2 million for the six months ended 30 June 2020 (2019: gains of RMB6.1 million). The loss was mainly due to the revaluation loss of the investment properties of the Group during the reporting period.

Expenses

Selling and marketing expenses amounted to approximately RMB61.0 million for the six months ended 30 June 2020 (2019: RMB47.2 million), representing approximately 6.0% (2019: 7.7%) of the total revenue of the reporting period and also representing an increase of 29.2% when compared to the corresponding period of last year. The increase in selling and marketing expenses was mainly attributable to the increase in the advertising cost for brand promotion of the e-cigarette in the reporting period.

Administrative expenses amounted to approximately RMB147.4 million for the six months ended 30 June 2020 (2019: RMB131.2 million), representing approximately 14.4% (2019: 21.4%) of the total revenue of the reporting period and also representing an increase of 12.4% when compared to the corresponding period of last year. The increase of the administrative expenses was mainly due to increase in the employee benefit expenses of certain subsidiaries and of the research and development section of the Group and other expenses of the research and development section of the Group during the reporting period.

Net Impairment Losses on Financial Assets

The Group had applied the expected credit losses for all trade receivables. There was a net impairment loss of RMB7.8 million for trade receivables of the Group during the reporting period (2019: RMB0.7 million).

Interim Report 2020

China Boton Group Company Limited 27

MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)

Finance Costs - Net

Net finance costs was approximately RMB55.8 million for the six months ended 30 June 2020 (2019: RMB48.7 million). The increase in net finance costs for the reporting period was mainly attributable to the increase in the interest expenses due to the interest payment of certain loans.

Prospects

Despite the outbreak of the COVID-19 pandemic, the Directors, management and staffs of our Group would continue to concentrate and be attentive to the existing business operation of the Group and would closely monitor all the business activities during these adverse economic environment. The Group will continue to strive for maintaining its leading position in the flavors and fragrances industries by the reinforcement of the existing five business segments and would continue to deploy stringent cost control. In addition, the Group will continue to develop more innovative flavors and fragrances products and e-cigarette products to all existing and potential customers globally.

Financial Review

Liquidity and Financial Resources

As at 30 June 2020, the Group had net current assets of approximately RMB113.6 million (31 December 2019: RMB45.3 million). As at 30 June 2020, the Group's cash and deposit for bank borrowings were approximately RMB308.4 million (31 December 2019: RMB491.8 million). The current ratio of the Group was approximately 1.1 as at 30 June 2020 (31 December 2019: 1.0). The increase in net current assets in the reporting period was mainly attributable to the decrease in the short term bank borrowings.

The equity attributable to shareholders of the Company as at 30 June 2020 amounted to approximately RMB2,661.7 million (31 December 2019: RMB2,601.5 million). As at 30 June 2020, the Group had a total borrowings of approximately RMB1,394.3 million (31 December 2019: RMB1,500.1 million) therefore a debt gearing ratio of 49.1% (total borrowings over total equity) (31 December 2019: 54.4%). The debt gearing ratio was decreased in the reporting period when compared to the corresponding period last year due to the decrease in the short term bank loan. During the period, interest rates of the short-term borrowings range from 5% to 5.66% while those of the long-term borrowings range from 1.8% to 6.4%. The Group adopts a central management of its financial resources and always maintain a prudent approach for a steady financial position.

Financing

The Group has secured financing for its acquisitions, either by bank borrowings or fund raising by equity. Together with funds generated from business operations, the Group is confident of sufficient funding to meet its operation and expansion plans.

Capital Structure

The share capital of the Company comprised ordinary shares for the reporting period. On 30 June 2020, all the holders of the perpetual subordinated convertible securities ("PSCS") in the total principal amount of HKD552,712,000 exercised their rights and converted all the PSCS to 184,237,332 ordinary shares of the Company. As a result, the total number of issued shares of the Company was 1,080,512,146 ordinary shares as at 30 June 2020.

28 China Boton Group Company Limited

Interim Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)

Foreign Exchange Risk and Interest Rate Risk

The Group had net exchange losses of approximately RMB2.4 million for the six months ended 30 June 2020 (2019: exchange losses of RMB0.3 million). The Group mainly has operation in the PRC and South Korea. Most of its transactions are basically denominated in RMB and KRW save for some transactions and some bank borrowings in USD and HKD. The Company shall monitor the exchange rate of RMB against the USD, HKD and KRW closely.

It is looking into the possibility of currency hedging and will take appropriate action when favourable opportunities arise. As at 30 June 2020, the Group had bank borrowings of a total of RMB1,394.3 million (31 December 2019: RMB1,500.1 million) denominated in RMB and HKD. Lending rates on bank borrowings denominated in RMB fluctuate with reference to the People's Bank of China prescribed interest rate while bank borrowings denominated in HKD fluctuate with reference to the Hong Kong Inter-bank rates. The Group did not hedge its interest rate risk. The Board is of the opinion that the interest rate risk would not have material impact on the Group.

Charge on Group's Assets

As at 30 June 2020, the Group had charged: (i) its equity interests in some subsidiaries; (ii) land use rights located at Dongguan City owned by Dongguan Boton Flavors and Fragrances Co., Ltd.; (iii) certain buildings, warehouses and investment properties located at Shenzhen City owned by Shenzhen Boton Flavors and Fragrances Co., Ltd., as pledge of financing raised in the last financial year.

Capital Expenditure

During the six months ended 30 June 2020, the Group had cash outflow of approximately RMB65.6 million (2019: RMB85.7 million) for investment in fixed assets, of which RMB1.2 million (2019: RMB1.4 million) was used for the purchase of machineries.

Capital Commitments

At 30 June 2020, the Group had capital commitments of RMB43.4 million approximately (31 December 2019: RMB13.4 million) in respect of fixed assets, which are to be funded by internal resources and financing.

Interim Dividend

The Board does not recommend payment of interim dividend for the six months ended 30 June 2020 (2019: nil).

Staff Policy

The Group had 1,571 employees in the PRC, Hong Kong and South Korea as at 30 June 2020 (2019: 1,538 employees in the PRC and Hong Kong). The Group offers a comprehensive and competitive remuneration, retirement schemes, a share option scheme and benefit package to its employees. Discretionary bonus is offered to the Group's staff depending on their performance. The Group is required to make contribution to a social insurance scheme in the PRC. The Group and its employees in the PRC are each required to make contribution to fund the endowment insurance and unemployment insurance at the rates specified in the relevant PRC laws and regulations. In addition, the Group has adopted a provident fund scheme, as required under the Mandatory Provident Fund Schemes Ordinance, for its employees in Hong Kong. The Group has also made contribution to the National Pension for its employees in South Korea pursuant to the National Pension Act of South Korea.

Interim Report 2020

China Boton Group Company Limited 29

MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)

Material Investment

During the six months ended 30 June 2020, the Group had no material investment.

Contingent Liabilities

At 30 June 2020, the Group had no contingent liabilities.

Connected Transaction - Disposal of Equity Interest in Dongguan Boton

On 12 June 2020, the Company announced that (i) Shenzhen Boton Flavors and Fragrances Co., Ltd. ("SZ Boton"), an indirect wholly-owned subsidiary of the Company, and (ii) Champion Sharp International Investment Limited ("Champion"), a company directly wholly-owned by Mr. Wang Ming Fan (Chairman and Executive Director of the Company), acted as the vendors and had entered into an equity transfer agreement (the "Equity Transfer Agreement") with various senior management and general staffs of Dongguan Boton Flavors and Fragrances Co., Ltd. ("DG Boton") and a director or connected person of the Company, who were as the purchasers of the transaction. Pursuant to the Equity Transfer Agreement, SZ Boton and Champion had conditionally agreed to sell to the purchasers 30% in aggregate of the equity interest in DG Boton to the aforesaid purchasers at the aggregate consideration of approximately RMB68,850,000 (equivalent to approximately HKD75,576,290) (the "Transaction").

With reference to the announcement of the Company dated 10 October 2018 in relation to the Proposed Spin-off of DG Boton and the Proposed A-Share Listing of DG Boton on the Shenzhen Stock Exchange, it was a legal requirement that DG Boton must be a joint stock limited company to qualify for the Proposed A-Share Listing. To, inter alia, satisfy the aforesaid requirement, the Transaction was taken place and 30% of the entire equity interest of DG Boton were then proposed to be transferred by the vendors to the purchasers to facilitate its conversion to a joint stock limited company.

In addition, each of the purchasers had unconditionally and irrevocably warranted to SZ Boton while certain purchasers had unconditionally and irrevocably warranted to Champion that DG Boton group would maintain an annual growth of not less than 10% of its revenue and net profit excluding extraordinary items (the "Profit Guarantee") in the five financial years after the completion date (the "Relevant Period"). The amount of the Profit Guarantee for the first financial year ending 31 December 2020 shall be calculated based on the revenue and net profit excluding extraordinary items stated in the audited report of DG Boton group for the financial year ended 31 December 2019. If there was any event of force majeure relating to natural disasters including flooding which might materially and adversely affect the achievement of the Profit Guarantee, subject to the approval of SZ Boton, the Profit Guarantee in the relevant financial year should be achieved in the subsequent financial year and the Relevant Period shall be extended accordingly. The Profit Guarantee shall survive Completion but shall be automatically terminated upon completion of the Proposed Spin-off and the Proposed A-Share Listing.

Since various senior management staffs were directors or connected persons of the Company and/or DG Boton. The Transaction constituted a connected transaction under the Listing Rules of Hong Kong. As the applicable percentage ratios exceeded 0.1% but were less than 5%, the Transaction was subject to the reporting and announcement requirements but were exempt from the independent Shareholders' approval and circular requirements under Chapter 14A of the Listing Rules.

As at the date of this report, the Transaction was not yet completed.

Details of the Transaction were disclosed in the Company's announcement dated 12 June 2020.

30 China Boton Group Company Limited

Interim Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)

Change of Company Name, Stock Short Name and Company Logo

On 10 June 2020, the Company announced that subsequent to (i) the passing of the special resolution approving the change of the Company's name by the shareholders of the Company at the annual general meeting held on 15 May 2020 and (ii) the issue of the certificate of incorporation on change of name of the Company by the Registrar of Companies in the Cayman Islands on 19 May 2020, the change of the Company's official registered English name from "China Flavors and Fragrances Company Limited" to "China Boton Group Company Limited" and the change of the Chinese name of the Company from "中國香精香料有限公司" to "中國波頓集團有限公司" became effective on 19 May 2020. The logo of the Company had also been changed to reflect the change of the Company's name.

Subsequently, on 8 June 2020, the Registrar of Companies in Hong Kong had issued the certificate of registration of alteration of name of registered non-Hong Kong company and confirmed the Company's new name of "China Boton Group Company Limited 中國波頓集團有限公司" was registered in Hong Kong under Part 16 of the Companies Ordinance (Chapter 622 of the Laws of Hong Kong).

Accordingly, the Company's English and Chinese stock short names had been changed from "CHINA FLAVORS" / "中 國香精香料" to "CHINA BOTON" / "中國波頓" respectively on 16 June 2020.

Details of the name change of the Company were disclosed in the Company's announcements dated 28 February 2020, 15 May 2020 and 10 June 2020 respectively.

Change of Company website

On 6 August 2020, the Company announced that the website of the Company had been changed from "http://www. chinaffl.com" to "http://www.boton.com.hk" with effect from 7 August 2020 to reflect the Change of the Company Name. All announcements, notices or other documents submitted by the Company for publication on the website of The Stock Exchange of Hong Kong Limited would also be published on the aforesaid new website of the Company.

Details of the change of the Company website were disclosed in the Company's announcement dated 6 August 2020.

Legal Proceedings against two Vendors of an Acquisition

On 13 August 2020, the Company announced that it has commenced legal proceedings in Hong Kong on 10 August 2020 against two vendors, Mr. Liu Qiuming and Mr. Xiang Zhiyong (the "Vendors"), of an acquisition in relation to a share purchase agreement dated 26 January 2016 (the "Share Purchase Agreement"), pursuant to which the Company had acquired Kimree, Inc. and its subsidiaries at a consideration of RMB750 million. Since the Vendors had breach the non-competition clauses of the Share Purchase Agreement, the Company claimed, inter alia, for injunction order to restrain Mr. Liu from committing acts in breach of the non-competition clauses and damages against the Vendors.

Details of the legal proceedings were disclosed in the Company's announcement dated 13 August 2020.

Interim Report 2020

China Boton Group Company Limited 31

MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)

Directors' and Chief Executives' Interests in Securities

As at 30 June 2020, the interests or short positions of each Director and chief executive of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance ("SFO")) which were required pursuant to (a) Divisions 7 and 8 of Part XV of the SFO, to be notified to the Company and the Stock Exchange, or (b) Section 352 of the SFO, to be entered in the register required to be kept by the Company under such provision, or (c) the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

Long Positions - Ordinary Shares

  1. Interests in the Shares and underlying shares of the Company

Percentage of

aggregate

Number of Shares

interests to the

Personal

Family

Corporate

total number of

Name of Director

Interests

Interests

Interests

Total

Shares in issue

Mr. Wang Ming Fan (Note 1)

193,127,201

25,262,431

367,638,743

586,028,375

54.24%

Mr. Yang Ying Chun (Note 2)

2,000,000

-

-

2,000,000

0.19%

Notes:

  1. The family interests of 25,262,431 Shares represents the shares held by Ms. Yang Yifan, the spouse of Mr. Wang Ming Fan as at 30 June 2020.
    The corporate interests of 367,638,743 Shares represents the total of (i) 348,320,509 Shares held by Creative China Limited ("Creative China") and (ii) 19,318,234 Shares held by Full Ashley Enterprises Limited ("Full Ashley"). Creative China is owned as to 41.19% by Mr. Wang Ming Fan whereas Full Ashley is a private company which is wholly-owned by Mr. Wang Ming Fan. By virtue of the SFO, Mr. Wang Ming Fan is deemed to be interested in (i) all the 348,320,509 Shares held by Creative China, being 32.24% of the issued share capital of the Company; and (ii) all the 19,318,234 Shares held by Full Ashley, being 1.79% of the issued share capital of the Company.
  2. Mr. Yang Ying Chun, holds a personal interest of 2,000,000 Shares of the Company, being 0.19% of the issued share capital of the Company.

32 China Boton Group Company Limited

Interim Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)

  1. Interests in Dongguan Boton Flavors and Fragrances Company Limited (東莞波頓香料有限公司) (the "JV Company"), an associated corporation (as defined in the SFO) of the Company

Amount of paid-up

Percentage of

registered capital

registered capital

Name of Director

of the JV Company

of the JV Company

Mr. Wang Ming Fan (Note 2)

Approximately

Approximately

RMB40,000,000

47%

Notes:

    1. The total paid-up registered capacity of the JV Company is approximately RMB85,000,000.
    2. On 12 June 2020, Champion Sharp International Investment Limited ("Champion"), wholly-owned by Mr. Wang Ming Fan, had entered into an equity transfer agreement (the "Agreement") with various senior management and general staffs of the JV Company and a director of the Company. Pursuant to the terms of the Agreement, Champion had agreed to sell 14.1% in aggregate of the equity interest in the JV Company at RMB32,359,500 to the purchasers (the "Transaction"). As at the date of this report, the Transaction was not yet completed. Details of the Transaction were disclosed in a paragraph with title "Connected Transaction - Disposal of Equity Interest in Dongguan Boton" under the "Management Discussion and Analysis" Section of this Report.
  2. Interests in the shares of Creative China, an associated corporation (as defined in the SFO) of the Company

Class and number

of shares held in

Percentage of

Name of Director

associated corporation

issued shares

Mr. Wang Ming Fan

4,559 ordinary shares

41.19%

Mr. Li Qing Long

436 ordinary shares

3.94%

Share Options

There was no outstanding share option during the six months ended 30 June 2020.

Save as disclosed above, none of the Directors or chief executives of the Company is aware of any other Director or chief executive of the Company who has any interests or short positions in any shares and underlying shares in, and debentures of, the Company or any associated corporations as at 30 June 2020.

Directors' Rights to Acquire Shares or Debenture

At no time during the period under review was the Company, or any of its subsidiaries a party to any arrangements to enable the Directors of the Company to acquire by means of acquisition of shares in, or debt securities, including debentures, of the Company or any other body corporate.

Interim Report 2020

China Boton Group Company Limited 33

MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)

Substantial Shareholders' Interests in Securities

As at 30 June 2020, the register of substantial shareholders maintained by the Company pursuant to Section 336 of the SFO shows that other than the interests disclosed in the section headed "Directors' and Chief Executives' Interests in Securities" above, the following shareholders had notified the Company of its relevant interests in the issued share capital of the Company.

Long Positions - Ordinary Shares (Note 1)

Number of

Percentage of

Name of Shareholder

Capacity/Nature of interest

Shares

issued shares

Mr. Wang Ming Fan (Note 2)

Beneficial owner and interest in

586,028,375

54.24%

controlled corporations

Creative China Limited (Note 3)

Beneficial owner

348,320,509

32.24%

Full Ashley Enterprises Limited (Note 4)

Beneficial owner

19,318,234

1.79%

Notes:

  1. Long position in the shares (other than pursuant to equity derivatives such as share options, warrants to subscribe or convertible bonds).
  2. By virtue of the SFO, Mr. Wang Ming Fan is deemed to be interested in: (a) 25,262,431 Shares being held by Ms. Yang Yifan, the spouse of Mr. Wang; (b) 348,320,509 Shares being held by Creative China (which is duplicated in the interests described in Note 3); and (c) 19,318,234 Shares being held by Full Ashley (which is duplicated in the interests described in Note 4). Together with his personal shareholding of 193,127,201 Shares, Mr. Wang Ming Fan was taken to be interested in 586,028,375 shares (approximately 54.24% of the total issued share capital of the Company) as at 30 June 2020.
  3. Creative China is owned as to 41.19% by Mr. Wang Ming Fan, as to 28.11% by Mr. Wong Ming Bun (a former director of the Company), as to 10.01% by Mr. Wang Ming Qing, as to 9.86% by Mr. Wang Ming You (a former director of the Company), as to 6.89% by Mr. Qian Wu (a former director of the Company) and as to 3.94% by Mr. Li Qing Long. As at 30 June 2020, Mr. Wang Ming Fan and Mr. Li Qing Long were Directors of the Company and also directors of Creative China. Mr. Qian Wu, who was an ex-director of the Company, is a director of Creative China.
  4. Full Ashley is a private company which is wholly-owned by Mr. Wang Ming Fan who has a duty of disclosure under SFO in the issued share capital of the Company as Director of the Company, therefore Full Ashley is taken to have a duty of disclosure in relation to the Shares of the Company under the SFO.

Save as disclosed above, the Company has not been notified of any other relevant interests or short positions in the issued share capital of the Company as at 30 June 2020.

Purchase, Sale or Redemption of the Company's Listed Securities

Neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities during the six months ended 30 June 2020.

34 China Boton Group Company Limited

Interim Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)

Audit Committee

The committee was established with written terms of reference which has been adopted for the purpose of reviewing and providing supervision on the financial reporting process and risk management and internal control systems of the Group. The Audit Committee (the "Committee") comprises three members, all being independent non-executive directors of the Company, namely, Mr. Ng Kwun Wan (Chairman), Mr. Leung Wai Man, Roger and Mr. Zhou Xiao Xiong. The Committee has reviewed the Group's unaudited interim condensed consolidated financial statements for the six months ended 30 June 2020.

Remuneration Committee

The committee was set up to consider and approve the remuneration packages of the senior employees of the Group, including the terms of salary and bonus schemes and other long-term incentive schemes. The committee comprises three independent non-executive directors of the Company, namely, Mr. Ng Kwun Wan (Chairman), Mr. Leung Wai Man, Roger, Mr. Zhou Xiao Xiong and one executive director, Mr. Wang Ming Fan.

Nomination Committee

The committee reviews the structure, size and diversity (including but not limited to gender, age, cultural and educational background, or professional experience) of the Board from time to time and recommends to the Board on appointments of Directors and the succession plan for Directors. The committee comprises three independent non- executive directors of the Company, namely, Mr. Leung Wai Man, Roger (Chairman), Mr. Ng Kwun Wan, Mr. Zhou Xiao Xiong and one executive director, Mr. Wang Ming Fan.

Corporate Governance

The Board of the Company recognises the importance of and is committed to maintaining high standards of corporate governance so as to enhance corporate transparency and safeguard the interests of the Company and its shareholders, customers, staff and other stakeholders. It strives to maintain effective accountability systems through well-developed corporate policies and procedures, risk management and internal systems and controls. The Company has complied with all the code provisions and, where applicable, adopted the recommended best practices, as set out in the Corporate Governance Code contained in Appendix 14 of the Listing Rules throughout the six-month period ended 30 June 2020, except code provision A.2.1.

Pursuant to code provision A.2.1, the roles of chairman and chief executive should be separate and should not be performed by the same individual. The division of responsibilities between the chairman and chief executive should be clearly established and set out in writing, to ensure a balance of power and authority. Mr. Wang Ming Fan, who is an executive director and chief executive of the Company, is also the Chairman of the Company. The Board considers that the present structure is more suitable for the Company for it provides strong and consistent leadership in the planning and execution of long-term business plans and strategies of the Company.

Interim Report 2020

China Boton Group Company Limited 35

MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)

Model Code for Securities Transactions by Directors of Listed Issuers

The Company has adopted the model code set out in Appendix 10 to the Listing Rules as its code of conduct regarding directors' securities transactions. All directors of the Company have confirmed, following specific enquiry by the Company, that they have compiled with the required standard set out in the model code throughout the six-month period ended 30 June 2020.

By order of the Board

Wang Ming Fan

Chairman

Hong Kong

21 August 2020

36 China Boton Group Company Limited

Interim Report 2020

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China Boton Group Co. Ltd. published this content on 11 September 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 11 September 2020 04:04:00 UTC