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Ningbo Meishan Free Trade Port Area Kingenta Investment Co., Ltd

Linshu, Ningbo/China

Audit Report

Zhongxinghua Audit (2023) No. 022031

All shareholders of Ningbo Meishan Free Trade Port Area Kingenta Investment Co., Ltd:

I. Audit opinions

We have audited the financial statement of Ningbo Meishan Free Trade Port Area Kingenta Investment Co., Ltd (hereinafter referred to as “Ningbo Kingenta”), including the Consolidated and Parent Company Balance Sheet as of 31 December 2022, Consolidated and Parent Company Income Statement, Consolidated and Parent Company Cash Flow Statement, Consolidated and Parent Company Owner’s Equity Change Statement and relevant Financial Statement Notes in 2022.

In our opinions, the attached financial statement is formulated pursuant to provisions in the Accounting Standards for Business Enterprises from all major perspectives, and offers a fair view on financial conditions of consolidated and parent company of Ningbo Kingenta as of 31 December 2022, as well as operation performance and cash flow of consolidated and parent company in 2022.

II. Foundation of audit opinions

We conducted the audit work as per provisions of the Chinese Certified Public Accountant Auditing Standards. The part of “CPA’s responsibilities for financial statement audit” in the audit report further elaborates on our responsibilities under the Standards. In compliance with the code of ethics for Chinese Certified Public Accountant, we are independent from Ningbo Kingenta, and fulfill other responsibilities of professional ethics. We believe the audit evidence we obtained is sufficient and appropriate, and provides the foundation for our audit opinions.

III. Management and governance liabilities for financial statement

The management of Ningbo Kingenta (hereinafter referred to as "the management") is responsible for the preparation of financial statements in accordance with the requirements of the Accounting Standards for Business Enterprises to enable them to achieve fair reflection, and design, implementation, and maintenance of necessary internal controls so that material misstatements due to fraud or mistakes do not exist in the financial statements.

When preparing the financial statement, the management level is responsible for assessing Ningbo Kingenta capabilities of sustainable operation, disclosing matters related to sustainable operation (if applicable), and adopting the assumption of sustainable operation, unless the management level plans to liquidate Ningbo Kingenta, terminate the operation, or there is no other practical option.

The governance level is responsible for supervising the financial report process of Ningbo Kingenta.

IV. Auditor’s Responsibility for the Audit of the Financial Statements

Our objective is to obtain reasonable assurance as to whether the financial statements as a whole are free from material misstatement due to fraud or error, and issue an audit report containing audit opinions. Reasonable assurance is a high level of assurance, but it does not guarantee the audit performed in accordance with auditing standards can surely find a certain existing material misstatement. Misstatement may be caused by fraud or error; if a reasonably expected misstatement alone or aggregated may affect financial statement user's economic decision made based on financial statement, it is generally considered to be material misstatement.

As part of an audit in accordance with auditing standards, we exercise professional judgment and maintained professional skepticism throughout the audit. Meanwhile, we also performed the following tasks:

(I) Identify and assess material misstatement risk of financial statement caused by fraud or error, design and implement audit procedures to address these risks, and obtain sufficient and appropriate audit evidences as the basis for issuing audit opinions. Since fraud may involve collusion, forgery, intentional omission, false statement or overriding internal controls, the risk of failing to detect material misstatement due to fraud is higher than that due to error.

(II) Understand audit-related internal control, to design appropriate audit procedures, but the purpose is not to express opinions on the effectiveness of internal control.

(III) Evaluate the appropriateness of accounting policy adopted by the management level and the reasonableness of accounting estimates and related disclosures.

(IV) Determine whether the going-concern assumption used by management is appropriate. Meanwhile, based on the audit evidences acquired, it may lead to conclusions on whether there are significant uncertainties in the matters or circumstances causing major doubts about the capabilities of Ningbo Kingenta's sustainable operation. If we conclude that there are significant uncertainties, the auditing standards require us to notify the users about relevant disclosures of the financial statement in the audit report; if the disclosures are insufficient, we should express opinions without reservations. Our conclusions are based on the information available as of the audit report date. Nevertheless, future matters or circumstances may lead to the inability of Ningbo Kingenta for sustainable operation.

(V) Evaluate the overall presentation, structure and content of financial statement, and evaluate whether the financial statement has fairly reflected relevant transactions and events.

(VI) Sufficient and appropriate audit evidence on the financial information of Ningbo Kingenta entity or business activities is acquired, to express opinions on the financial statement. We are responsible for guiding, supervising and executing group audit. We hold full responsibilities for the audit opinions.

We communicate with the governance about planned audit scope, schedule, major audit findings and other matters, including the internal control flaws that need attention, which we have identified during the audit.

Consolidated Balance Sheet 31 December 2022

Ningbo Meishan Free Trade Port Area Kingenta Investment Co., Ltd.

Amount unit: RMB yuan

(The attached annex to the financial statements is an integral part of the financial statements)

Consolidated Income Statement 2022 year

Ningbo Meishan Free Trade Port Area Kingenta Investment Co., Ltd.

Amount unit: RMB yuan

(The attached annex to the financial statements is an integral part of the financial statements)

Consolidated Cash Flow Statement 2022 year

Ningbo Meishan Free Trade Port Area Kingenta Investment Co., Ltd.

Amount unit: RMB yuan

(The attached annex to the financial statements is an integral part of the financial statements)

Statement of Changes in Owners' Equity 2022

Ningbo Meishan Free Trade Port Area Kingenta Investment Co., Ltd.

Amount unit: RMB yuan

(The attached annex to the financial statements is an integral part of the financial statements)

Ningbo Meishan Free Trade Port Area Kingenta Investment Co., Ltd.

Amount unit: RMB yuan

(The attached annex to the financial statements is an integral part of the financial statements)

2022 Financial Statement Notes

(Unless otherwise specified, the unit of amount is RMB)

I. Company Profile

1. Registered location, organization form and headquarter address of the company

Ningbo Meishan Free Trade Port Area Kingenta Investment Co., Ltd. (hereinafter referred to as “corporate” or “the company”) is a company funded by Nongshang Yihao E-commerce Ltd., Kingenta Ecological Engineering Group Co., Ltd. and Linyi Rongtuo Investment Partnership Enterprise (Limited Partnership). On 16 March 2016, it obtained the business license (Unified Social Credit Code: 91330206MA281M9G1F) approved by the Ningbo Beilun District Market Supervision Administration, with registered capital of RMB 846,000,000.00 and legal representative Hao Ailing.

Registered company address: F3136, Zone A, Room 401, Building 1, No.88 Qixing Road, Meishan, Beilun District, Ningbo City, Zhejiang Province.

2. Business nature and main operating activities of the company

Corporate business scope: project investment, investment management and investment consulting. (It is forbidden to engage in financial businesses such as deposit absorption, financing guarantee, wealth management agent and fund collecting (financing) from the social public, without the approval of financial and other regulatory authorities).

II. Preparation basis of the financial statements

1. Preparation basis

The company prepares financial statements pursuant to the Accounting Standards for Business Enterprises-Basic Standards (MOF Decree Release No.33, MOF Decree Amendment No.76) promulgated by the Ministry of Finance, the 42 Items of Specific Accounting Standards promulgated and amended on and after 15 February 2006, the Accounting Standards for Business Enterprises Application Guidelines, the Guidelines for the Application of Accounting Standards for Business Enterprises, the Accounting Standards for Business Enterprises Interpretations and other relevant regulations (collectively referred to as the "Accounting Standards for Business Enterprises"), based on sustainable operation, actual transaction and event.

According to relevant provisions of the accounting standards for enterprises, accounting in the company is conducted based on the accrual system. Apart from certain financial instruments, the financial statements are computed on the basis of historical costs. If an asset is impaired, the corresponding provision for impairment shall be made in accordance with the relevant provisions.

2. Continuous operation

The financial statement is presented based on sustainable operation, and the company has the ability of sustainable operation within at least 12 months from the end of reporting period.

III. Statement on compliance with Accounting Standards for Business Enterprises

The financial statement prepared by the company complied with Accounting Standards for Business Enterprises, to truly and completely reflect the consolidated and parent company financial status on 31 December 2022, consolidated and parent company operating achievement, consolidated and parent company cash flow and other relevant information in 2022.

IV. Significant accounting policies and accounting estimate

The company and its subsidiaries mainly specialize in compound fertilizer production and sales. According to actual production and operation characteristics, relevant provisions of the Accounting Standards for Business Enterprises, the company and its subsidiaries have formulated specific accounting policies and accounting estimates on income recognition and other transactions and matters; see descriptions in the Note IV. 23 "Income". For details of the major accounting judgments and estimates made by management, please refer to Note IV. 30 "Major accounting judgments and estimates".

1. Accounting period

The company’s accounting period is divided into annual and medium-term periods. The latter is shorter than the reporting period of a complete accounting year. Fiscal year of the company follows the Gregorian calendar year, namely from January 1 to December 31 every year.

2. Business cycle

The normal operating cycle refers to the period from purchasing assets for processing to realizing retrieval of cash or cash equivalents. With 12 months as an operating cycle, the company also uses this as a dividing standard for the liquidity of assets and liabilities.

3. Accounting standard currency

The company and its domestic subsidiaries use RMB as the accounting standard currency and their currency in main economic environment. The currency used by the company in preparing the financial statement is RMB.

4. Accounting treatment method for business combination under the same and different control

Business Combination, refers to the transactions or events of combining two or more than two separate businesses into one reporting entity. Business Combination includes business combination involving entities under common control and business combination involving entities not under common control.

(1) Enterprise merge under the same control

The enterprises involved in combination are ultimately controlled by the same party or parties before and after the combination. The control is not temporary, and the combination is under the same control. For business combinations under the same control, the party that obtains control over other participating enterprises on the acquisition date is the acquirer, and other enterprises that participate in the combination are the acquirees. Combination date refers to the date on which the combing party actually obtains control to the combined party.

The company measures the assets and liabilities obtained from consolidation of enterprises, according to the book value of consolidated party’s assets and liabilities (including the goodwill arising from ultimate controller’s acquisition of the consolidated party) in the ultimate controller’s consolidated financial statement on the consolidation date; adjusts the capital premium in capital reserve, by the difference between obtained net asset book value and paid consolidated consideration book value (or total par value of shares issued), and adjusts retained earnings, if the capital premium in capital reserve is insufficient to offset.

The direct expenses generated by the acquirer for the purpose of business combinations shall be recorded into the profits and losses for the current period.

(2) Business combination not under the same control

For consolidation of enterprises under different control, consolidation cost is the sum of assets paid by the acquirer to obtain control right of the acquiree on the purchase date, incurred or borne liabilities and issued equity securities fair value. The acquiree’s identifiable assets, liabilities and contingent liabilities obtained during consolidation of enterprises under different control in line with recognition conditions are measured at fair value on the purchase date. The difference of consolidation cost larger than fair value portion of acquiree’s identifiable net assets obtained during consolidation is manifested as goodwill value by the acquirer. Where the consolidation cost is smaller than fair value portion of the acquiree’s identifiable net assets obtained during consolidation, and consolidation cost is still smaller than fair value portion of the acquiree’s identifiable net assets obtained during consolidation after review, the acquirer records the difference in the current profits and losses.

5. Consolidated financial statement preparation method

(1) The principle of determining the scope of consolidated financial statements

The company includes all subsidiaries (including separate entities controlled by the company) into the scope of consolidated financial statements, including enterprises controlled by the company, divisible parts of investee companies and structural entities.

(2) Unified accounting policy of parent company and subsidiaries, balance sheet date and accounting period of parent company and subsidiaries

If the accounting policy or accounting period adopted by subsidiaries and the company are inconsistent, necessary adjustments shall be made to financial statements of subsidiaries in accordance with accounting policy or accounting period of the company.

(3) Offset items in consolidated financial statements

Consolidated financial statements are based on financial statements of the company and subsidiaries, and have offset internal transactions between the company and subsidiaries or among subsidiaries. The portion in owner’s equity of subsidiaries not attributable to the company is presented as “minority shareholders’ equity” item under shareholders’ equity item in the consolidated balance sheet, as minority shareholders’ equity. Long-term equity investment of the company held by subsidiaries is deemed as treasury stock of the company, presented as “less: treasury stock” item under shareholders’ equity item in the consolidated balance sheet, as less item of shareholders’ equity.

(4) Accounting treatment of subsidiaries obtained through consolidation

For subsidiaries obtained through consolidation of enterprises under the same control, it is deemed that this enterprise consolidation has happened since ultimate controller began to exercise control, and the assets, liabilities, operation achievements and cash flow shall be included in consolidated financial statements from the beginning of current consolidation period; for subsidiaries obtained through consolidation of enterprises under different control, when preparing consolidated financial statements, the individual financial statements shall be adjusted based on fair value of identifiable net assets on the purchase date.

(5) Accounting treatment of the disposal of subsidiaries

The parent company disposes of partially long-term equity investments in subsidiaries without losing control. In the consolidated financial statements, disposes of the difference between the price and the net assets shares of long-term equity investments that the subsidiary calculates continuously from the purchase date or the merger date, adjust the capital reserve (capital premiums or stock premium), for the insufficient capital reserve, adjust the retained earnings.

If the company loses control of the investee due to disposal of some equity investment, etc., when prepare the consolidated financial statements, the remaining equity should be re-measured based on its fair value on the date of loss of control. The sum of the consideration from disposing of the equity and the fair value of the remaining equity, minus the difference between share of the net assets calculated on the basis of the original shareholding percentage of the original subsidiary and the share continued from the purchase date or the combination date, is included in the current investment gains and losses without control, while reduce the goodwill. Other comprehensive incomes related to equity investment of the original subsidiary will be converted into current investment gains and losses when the control right is lost.

6. Classification of joint arrangements and accounting of joint operations

(1) Classification of joint arrangement

Joint arrangement is divided into joint operation and joint venture. The joint arrangement that has not been reached through separate entity is classified as joint operation. Separate entity refers to the entity with separately identifiable financial structure, including the separate legal entity and the entity without legal entity qualification but legally recognized. The joint arrangement that has been reached through separate entity is classified as joint venture. Where changes of relevant facts and circumstances lead to changes of entitled rights and assumed obligations in joint venture arrangement, joint venture party reassesses the classification of joint venture arrangement.

(2) Joint operation accounting treatment

As a participant in joint operation, the company recognizes the following items concerning portion of interests in joint operation, and makes accounting treatment in accordance with relevant accounting standards for business enterprises: recognize the assets or liabilities held separately, and recognize the assets or liabilities held jointly as per the portion; recognize the income arising from sale of the output portion of joint operation; recognize the income from sale of joint operation output as per the portion; recognize the expense incurred separately and the expense incurred by joint operation as per the portion.

For the participants of joint operation without joint control, if entitled to relevant assets of such joint operation and assumed relevant liabilities of such joint operation, the company makes accounting treatment with reference to the provisions on joint operation participants; otherwise, it makes accounting treatment in accordance with relevant accounting standards for business enterprises.

(3) Accounting treatment of joint venture

If the company is a joint venture party, it makes accounting treatment for joint venture investment in accordance with Accounting Standards for Business Enterprises No.2- Long-term Equity Investment; if the company is a non-joint venture party, it makes accounting treatment according to the degree of impact on such joint venture.

7. Determination standards of cash and cash equivalents

The company's cash and cash equivalents include cash on hand, deposits that can be used for payment at any time, investments that owned by the company which are in short-term (usually due within three months from the purchase date), highly liquid, easy to convert to a known amount of cash, low risk of value change.

8. Foreign currency transactions and conversion of foreign currency statements

(1) Conversion of foreign currency transactions

The company converts the occurred foreign currency transactions into standard currency at the spot exchange rate on the date of transaction occurrence for accounting.

(2) Conversion methods for foreign currency monetary items and foreign currency non-monetary items

On the balance sheet date, foreign currency monetary items are converted at the spot exchange rate on that date, and the exchange difference arising from different spot exchange rate on this date from the spot exchange rate at the time of initial recognition or on the previous balance sheet date is included in the current profits and losses, except the exchange difference arising from special borrowings of foreign currency eligible for capitalization is capitalized during the capitalization period and recorded in the costs of relevant assets. Non-monetary items in foreign currencies measured in historical costs are still translated at spot exchange rate at the date of transaction without changing the amount of functional currency. Non-monetary foreign currency items measured at fair value shall be converted at the spot exchange rate on the date when the fair value was determined. The difference between the converted functional currency amount and the original functional currency amount shall be treated as changes in fair value (including changes in exchange rates) and included in current profit or loss or confirming as other comprehensive income.

(3) Conversion method of foreign currency financial statements

If subsidiaries, joint ventures and associated enterprises of the company adopt different accounting standard currency from that of the company, they shall conduct accounting and preparation of consolidated financial statements after conversion of their foreign currency financial statements. Asset and liability items in the balance sheet were translated according to spot rate on the balance sheet date; for owner’s equity items, apart from “undistributed profit”, other items were translated at spot rate upon occurrence. Income and expense items in the income statement are converted by the spot exchange rate on the transaction date. The difference of conversion of foreign currency financial statements arising from conversion is presented under other comprehensive incomes of owner’s equity item in balance sheet. Foreign currency cash flow shall follow the spot exchange rate on the cash flow occurrence date. The impact of exchange rate changes on cash is separately presented in the cash flow statement. When disposing of overseas operation, foreign currency statement conversion difference related to such overseas operation is transferred into the disposal of current profits and losses in full or in proportion to the disposal of such overseas operation.

9. Financial instruments

(1) Classification and reclassification of financial instruments

Financial instruments refer to the contracts that form the financial assets of one party and form the financial liabilities of other parties or equity instruments.

1 Financial assets

The company classifies financial assets that meet the following conditions simultaneously as financial assets measured at amortized cost: The corporate business model for managing financial assets aims at charging contractual cash flow; as stipulated in contractual clauses of such financial assets, the cash flow generated on a specific date is only for the payment of principal and interest based on the outstanding principal amount.

The company classifies financial assets that meet the following conditions simultaneously as financial assets measured at fair value with changes recorded in other comprehensive incomes: The corporate business model for managing financial assets aims at both charging contractual cash flow and selling such financial assets; as stipulated in contractual clauses of such financial assets, the cash flow generated on a specific date is only for the payment of principal and interest based on the outstanding principal amount.

For non-trading equity instrument investments, the company may irrevocably designate them as financial assets measured at fair value with changes recorded in other comprehensive incomes at the time of initial recognition. This designation is made on an individual investment basis and relevant investments meet the definition of equity instruments from the issuer perspective.

Except for the financial assets classified as financial assets measured at amortized cost and financial assets measured at fair value with changes recorded in other comprehensive incomes, the company classifies them as financial assets measured at fair value with changes recorded in the current profits and losses. At the time of initial recognition, if accounting misallocation can be eliminated or reduced, the company may irrevocably designate financial assets as financial assets measured at fair value with changes recorded in the current profits and losses.

When the company changes the business model of managing financial assets, it will conduct reclassification on all the affected relevant financial assets on the first day of the first report period after the change in business model, and adopt future applicable method for relevant accounting treatment from the reclassification date, rather than make retroactive adjustment of previously recognized gains, losses (including impairment losses or gains) or interests.

2 Financial liabilities

At the time of initial recognition, financial liabilities are classified as: financial liabilities measured at fair value with changes recorded in the current profits and losses; financial liabilities arising from financial asset transfer at variance with de-recognition conditions or continuous involvement of transferred financial assets; financial liabilities measured at amortized cost. All financial liabilities are not reclassified.

(2) Financial instrument measurement

The initial recognition of corporate financial instruments is measured at fair value. Regarding financial assets and financial liabilities measured at fair value with changes included in current profits and losses, relevant transaction expense is directly included in current profits and losses; for other categories of financial assets or financial liabilities, relevant transaction expense shall be included in the initially recognized amount. For the accounts receivable or bills receivable arising from product sales or labor service provision excluding or not considering significant financing components, the company regards the amount of consideration expected to charge as the initial recognition amount. Subsequent measurement of financial instruments depends on their classification.

1 Financial assets

Financial assets measured at amortized costs. After initial recognition, effective interest rate method is used for such financial assets to measure at amortized cost. Gains or losses arising from financial assets measured at amortized cost, rather than a part of any hedging relationship, are included in the current profits and losses when derecognized, reclassified, amortized as per effective interest rate method or recognized for impairment.

Financial liabilities measured at fair value with changes included in current profit and loss. After initial recognition, gains or losses (including interests and dividend incomes) arising from subsequent measurement at fair value of such financial assets (except for the financial assets as a part of hedging relationship) are recorded in the current profits and losses.

Investments in debt instruments measured at fair value with changes recorded in other comprehensive incomes. After initial recognition, subsequent measurement is conducted at fair value for such financial assets. Interests calculated by the effective interest rate method, impairment losses or gains and exchange profits and losses are recorded in the current profits and losses, and other gains or losses are all recorded in other comprehensive incomes. When derecognized, the cumulative gains or losses previously included in other comprehensive income are transferred out from other comprehensive income and included in current profits and losses.

Non-trading equity instrument investments designated as measured at fair value with changes recorded in other comprehensive incomes. After initial recognition, subsequent measurement is conducted at fair value for such financial assets. Except that dividends obtained (except those as a part of investment cost recovery) are recorded in the current profits and losses, other relevant gains and losses are all recorded in other comprehensive incomes, and will not be transferred into the current profits and losses subsequently.

2 Financial liabilities

Financial liabilities measured at fair value with changes charged to current profits and losses. Such financial liabilities include trading financial liabilities (including derivative instruments belonging to financial liabilities) and financial liabilities designated as measured at fair value with changes recorded in the current profits and losses. After initial recognition, subsequent measurement is conducted at fair value for such financial liabilities, and except for those related to hedge accounting, the gains or losses (including interest expenses) arising from fair value change of trading financial liabilities are recorded in the current profits and losses. If financial liabilities are designated as measured at fair value with changes recorded in the current profits and losses, the change amount of fair value of such financial liabilities caused by the change of corporate own credit risk is recorded in other comprehensive incomes, and other fair value changes are recorded in the current profits and losses. Where accounting misallocation is caused or expanded in the profits and losses because the impact of credit risk change of such financial liabilities is recorded in other comprehensive incomes, the company will record all gains or losses of such financial liabilities into the current profits and losses.

Financial liabilities measured at amortized cost. After initial recognition, effective interest rate method is used for such financial liabilities to measure at amortized cost.

(3) Method for corporate recognition of fair value of financial instruments

Where there is an active market for a financial instrument, the fair value is determined by quoted prices in the active market; where there is no active market for a financial instrument, the value appraisal techniques are adopted to determine the fair value. Valuation techniques mainly include market method, income method and cost method. Under limited conditions, if recent information used to determine fair value is insufficient, or possible estimated amount of fair value is distributed over a wide range, and the cost represents the best estimate of fair value within the range, this cost may represent its appropriate estimate of fair value within the distribution range. The company leverages all information regarding the investee performance and operation available after initial recognition date to judge whether the cost can represent fair value.

(4) Recognition basis and measurement method for the transfer of financial assets and financial liabilities

1 Financial assets

The company derecognizes financial assets in one of the following criteria: the contractual right to receive cash flow of such financial assets is terminated; such financial assets have been transferred, and the company has transferred almost all risks and rewards on the financial asset ownership; such financial assets have been transferred, and although the company has neither transferred nor retained almost all rewards on the financial asset ownership, it has not retained control of such financial assets.

Where the company has neither transferred nor retained almost all rewards on the financial asset ownership, and it has retained control of such financial assets, relevant financial assets are recognized according to the degree of continuous involvement of transferred financial assets and relevant liabilities are recognized accordingly.

Where the transfer of financial assets meets the criteria for de-recognition as a whole, the difference between the following two amounts are recorded in the current profits and losses: book value of transferred financial assets on the de-recognition date; sum of consideration received due to transfer of financial assets and the amount of corresponding derecognized part in the cumulative amount of fair value changes originally directly recorded in other comprehensive incomes (the financial assets involved in transfer are financial assets classified as measured at fair value with changes recorded in other comprehensive incomes).

If partial transfer of financial assets meets the criteria for de-recognition, the book value of overall transferred financial assets is apportioned between derecognized part and non-derecognized part first as per their relative fair value on the transfer date, and then the difference between the following two amounts is recorded in the current profits and losses: book value of derecognized part on the de-recognition date; sum of consideration received from derecognized part and the amount of corresponding derecognized part in the cumulative amount of fair value changes originally directly recorded in other comprehensive incomes (the financial assets involved in transfer are financial assets classified as measured at fair value with changes recorded in other comprehensive incomes).

At the time of de-recognition of non-trading equity instrument investments designated by the company as measured at fair value with changes recorded in other comprehensive incomes, the cumulative gains or losses previously recorded in other comprehensive incomes are transferred out from other comprehensive incomes and recorded in retained earnings.

2 Financial liabilities

If current obligations of financial liabilities (or a part thereof) are removed, the company derecognizes such financial liabilities (or a part thereof).

If financial liabilities (or a part thereof) are derecognized, the company records the difference between their book value and consideration paid (including non-cash assets transferred out or liabilities assumed) into current profits and losses.

10. Impairment of financial assets

(1) Expected credit loss determination method

Based on expected credit loss, the company conducts impairment accounting treatment of the financial assets measured at amortized cost (including receivables) and those classified as financial assets measured at fair value with changes included in other comprehensive income (including receivables financing), and recognizes loss reserve.

The company assesses whether the credit risk of relevant financial instruments has increased significantly since initial recognition on each balance sheet date, divides the credit impairment process of financial instruments into three phases, and adopts different accounting treatment methods for the impairment of financial instruments in different phases: 1 in the first phase, if the credit risk of financial instruments has not increased significantly since initial recognition, the company measures the loss reserve according to the expected credit loss of this financial instrument in the next 12 months, and calculates interest income according to its book balance (e.g. impairment reserve is not deducted) and effective interest rate; 2 in the second phase, if the credit risk of financial instrument has increased significantly since initial recognition but no credit impairment has occurred, the company measures the loss reserve according to the expected credit loss of this financial instrument in the entire duration, and calculates interest income according to its book balance and effective interest rate; 3 in the third phase, if credit impairment occurs after initial recognition, the company measures the loss reserve according to the expected credit loss of this financial instrument in the entire duration, and calculates interest income according to its amortized cost (book balance minus the accrued impairment reserve) and effective interest rate.

(2) Method for measuring loss reserve of financial instruments with lower credit risk

For the financial instruments with lower credit risk on the balance sheet date, the company may directly assume that the credit risk of this instrument has not increased significantly since initial recognition, without comparing with the credit risk at the time of its initial recognition.

If the default risk of financial instrument is low, the debtor has a strong ability to fulfill its contractual cash flow obligation in the short term, and even if unfavorable changes exist in the economic situation and operation environment over a long period of time, it may not necessarily reduce the borrower’s ability to fulfill its contractual cash flow obligation, and such financial instrument is deemed to have lower credit risk.

(3) Method for loss reserve measurement of receivables

1 Receivables excluding significant financing element. In terms of receivables excluding significant financing element arising from transactions regulated by Accounting Standard for Business Enterprises No.14-Income, the company adopts a simplified method, namely measuring loss reserve always according to expected credit losses in the entire duration.

According to the nature of financial instruments, the company assesses whether credit risk is increased significantly based on individual financial assets or portfolio of financial assets. The company divides the notes receivable and accounts receivable into several portfolios according to credit risk characteristics, and calculates the expected credit losses based on portfolio. The basis for determining portfolio is as follows:

Portfolio of notes receivable 1 and 2: The bank acceptance bills obtained by the company are expected without credit losses, and the commercial acceptance bills obtained are regarded as receivables to calculate expected credit losses.

Portfolio of accounts receivable 1. For accounts receivable divided into aging portfolios, the company prepares comparison table of accounts receivable aging and expected credit loss rate in the entire duration, and calculates expected credit losses, with reference to historical credit loss experience, combined with current status and future economic status forecast.

Expected credit loss rate of aging portfolio:

Portfolio of accounts receivable 2. For the accounts receivable divided into related party portfolio within the consolidation scope, the company judges no expected credit losses and does not make provision for credit losses, unless objective evidence shows occurrence of impairment.

2 Receivables and lease receivables including significant financing element. Regarding receivables with significant financing element and lease receivables regulated by Accounting Standards for Business Enterprises No.21-Lease, the company measures loss reserve according to general method, namely "three-stage" model.

(4) Other methods of measuring loss reserve of financial assets

Regarding the financial assets other than the above, such as debt investments, other debt investments, other receivables and long-term receivables other than lease receivables, the company measures loss reserve according to the general method, namely “three-phase” model.

When measuring the credit impairment of financial instruments, the company considers the following factors to assess whether the credit risk has increased significantly: (1) whether internal price index caused by credit risk change has significantly changed; (2) if an existing financial instrument is originated or issued as a new financial instrument on the reporting date, whether the interest rate or other terms and conditions of this financial instrument have changed significantly; (3) whether the external market indexes of the credit risk of the same financial instrument or similar financial instruments with the same estimated duration have changed significantly; (4) whether there is a significant actual or expected change in the external credit rating of financial instrument; (5) whether the actual or expected internal credit rating of the debtor is declined; (6) adverse change in the business, financial or economic conditions expected to whether cause significant change in the debtor’s debt repayment obligation ability; (7) whether there is a significant actual or expected change in the debtor’s operating results; (8) whether the credit risk of other financial instruments issued by the same debtor has increased significantly; (9) whether there is a significant adverse change in the regulatory, economic or technological environment where the debtor is located; (10) whether there is a significant change in the value of collaterals as debt mortgage or the quality of guarantee or credit enhancement provided by a third party; (11) whether there is a significant change in the economic motive of expected to reduce the debtor’s repayment according to the period agreed in the contract; (12) whether the corporate method for credit management of financial instruments is changed, etc.

The company divides other receivables into several portfolios as per credit risk characteristics, and calculates expected credit losses based on portfolios. The basis for determining portfolio is as follows:

Portfolio of other receivables 1. For other receivables divided into aging portfolios, the company prepares comparison table of other receivables aging and expected credit loss rate in the entire duration, and calculates expected credit losses, with reference to historical credit loss experience, combined with current status and future economic status forecast.

Expected credit loss rate of aging portfolio:

Portfolio of other receivables 2. For other receivables divided into related party portfolio within the consolidation scope, the company judges no expected credit losses and does not make provision for credit losses, unless objective evidence shows occurrence of impairment.

(5) Expected credit loss accounting treatment method

To reflect the changes in the credit risk of financial instruments since initial recognition, the company re-measures the expected credit loss on each balance sheet date, and the increased or reversed amount of loss reserve arising there from shall be included in the current profits and losses as impairment losses or gains, offsetting the book value of such financial assets presented in the balance sheet or included in estimated liabilities (loan commitment or financial guarantee contract) or included in other comprehensive income (debt investment measured at fair value with changes included in other comprehensive income)

according to the financial instrument categories.

11. Inventory

(1) Classification of inventory

Inventories refer to the finished products or commodities held for sale by the company in daily activities, products during production process, materials and supplies consumed during production process or offering of labor service, etc. They mainly include raw materials, inventory goods, products in progress, etc.

(2) Valuation method for inventory acquisition and delivery

When inventories are delivered, the weighted average method is adopted to determine their actual cost of delivery.

(3) Confirmation of the net realizable value of inventories and withdrawal method for falling prices

On the balance sheet date, inventories are measured by the lower of cost and net realizable value, and the provision for inventory depreciation reserve is made as per a single inventory item, but regarding inventories with a large quantity and low unit price, the provision for inventory depreciation reserve is made according to the inventory category.

Basis for determination of net realizable value of inventories: 1 net realizable value of finished products is the amount of estimated selling price minus estimated sales expenses and relevant taxes; 2 regarding the materials held for production and the like, if net realizable value of finished products manufactured by them is higher than cost, they are measured at cost; when material price decline indicates the net realizable value of finished products lower than cost, net realizable value is determined by the amount of estimated selling price minus the cost estimated to be incurred until completion, estimated sales expenses and relevant taxes; 3 regarding materials held for sale and the like, net realizable value is market selling price.

(4) Corporate inventory system follows perpetual inventory method.

(5) Amortization method for low-value consumables and packages

Low-value consumables and packaging materials are amortized by one-time write-off method.

12. Contract assets

The company presents the right of receiving consideration due to commodities or services transferred to customers (and this right depends on factors other than the lapse of time) as contract assets. The provision for impairment of contract assets shall refer to the expected credit loss method of financial instruments. In terms of contract assets excluding significant financing element, the company measures loss reserve by a simplified method. In terms of contract assets including significant financing element, the company measures loss reserve according to general method.

In case of impairment losses of contract assets, debit into “asset impairment losses” as per the amount that shall be written down, and credit into “impairment reserve of contract assets”; when reversing the accrued asset impairment reserve, make the opposite entry.

13. Long-term equity investment

(1) Recognition of investment costs

For long-term equity investment obtained by consolidation of enterprises, if it is consolidation of enterprises under the same control, the book value of consolidated party owner’s equity in the ultimate controller's consolidated financial statement on the consolidation date is initial investment cost of longterm equity investment; if it is consolidation of enterprises under different control, the consolidation cost determined on the purchase date is initial investment cost of long-term equity investment; for long-term equity investment obtained by cash payment, initial investment cost is actually paid purchase price; for long-term equity investment obtained by issuing equity securities, initial investment cost is fair value of issued equity securities; for long-term equity investment obtained by debt restructuring, initial investment cost is determined in accordance with relevant provisions in Accounting Standards for Business Enterprises No.12-Debt Restructuring; for long-term equity investment obtained by non-monetary asset exchange, initial investment cost is determined in accordance with relevant provisions in Accounting Standards for Business Enterprises No.7-Non-monetary Asset Exchange.

(2) Subsequent measurement and recognition of profit and loss

The company adopts cost method accounting for the long-term equity investment that can implement control on the investee company, and equity method accounting for the long-term equity investment of joint ventures and associated enterprises. As for corporate equity investment in associated enterprises, a part of it is indirectly held through venture capital institutions, mutual funds, trust companies or similar entities including investment-linked insurance funds, and regardless of whether the above entities have a significant impact on this part of investment, the company treats in accordance with relevant provisions in Accounting Standards for Business Enterprises No.22-Recognition & Measurement of Financial Instruments and conducts accounting on the remaining part by equity method.

(3) Evidence for determining joint control and significant impact of the investee

Joint control of the investee company means that the activities with significant impact on the return of an arrangement must gain unanimous consent of participants with shared control right before decisionmaking, including the sales and purchase of commodities or services, management of financial assets, purchase and disposal of assets, R&D activities and financing activities, etc.; significant impact on the investee company means having significant impact when holding more than 20% to 50% of voting right capital of the investee company. It has a significant impact, in case of less than 20%, but when meeting one of the following conditions: representative is dispatched to the board of directors or similar authority of the investee company; participate in policy making process of the investee company; management personnel is dispatched to the investee company; investee company relies on the technology or technical data of investing company; important transactions happen with the investee company.

14. Fixed assets

(1) Fixed asset confirmation conditions

The term “fixed assets” refers to the tangible assets that are held for the sake of producing commodities, rendering labor service, renting or business management and their useful life is in excess of one fiscal year. It is recognized when meeting the following conditions simultaneously: economic benefits associated with such fixed assets are likely to flow into the enterprise; the cost of such fixed assets may be reliably measured.

(2) Depreciation methods of various fixed assets

Corporate fixed assets are mainly divided into: houses and buildings, machinery equipment, electronic equipment, transportation equipment, etc.; depreciation method follows the straight-line method. According to the nature and usage of various fixed assets, determine the service life and estimated net residual value of fixed assets. And review the service life, estimated net residual value and depreciation method of fixed assets at the end of year, and make the corresponding adjustment, in case of discrepancies from the original estimated number. Other than the fixed assets that have been fully depreciated and continue to be used and the land that is separately priced and accounted for, the Company has accrued depreciation for all fixed assets.

The expected net residual value is the amount that the company has currently reduced the estimated disposal expenses from the disposal of the asset, the estimated use life of the fixed asset is finished at the end of its useful life.

(3) Impairment test method of fixed assets and withdrawal method of impairment provision

For the details of impairment test method and withdrawal method of impairment provision of fixed assets, please refer to Note IV.19 “Long-term Asset Impairment”.

(4) Identification basis and pricing method of financing lease fixed assets

Fixed assets acquired under finance lease refer to the lease that essentially transfers all the risks and rewards associated with asset ownership. Regarding initial valuation of fixed assets acquired under finance lease, the lower of rent asset fair value on the lease start date and minimum lease payment present value is regarded as the entry value; regarding subsequent valuation of fixed assets acquired under finance lease, the depreciation policy consistent with that of self-owned fixed assets is adopted to make provision for depreciation and impairment reserve.

(5) Other instructions

For the subsequent expenditures related to fixed assets, if the economic benefits associated with the fixed assets are likely to flow in and their costs can be reliably measured, they are included in the cost of fixed assets and the recognition of the book value of the replaced part is terminated. The other subsequent expenses are included in the current profit or loss when incurred.

The fixed assets are derecognized when the fixed assets are disposed or if no economic benefits are expected to generate from the use or disposal. The difference between the disposal income of fixed assets sold, transferred, scrapped or damaged after deducting their book value and related tax fees is included in the current profit or loss.

The company reviews the use life, estimated net residual value, and depreciation method of fixed assets at least at the end of the year, and if any change, it is recorded as a change in accounting estimates.

15. Construction in process

Corporate construction in progress is divided into two types of self-operated construction and outsourcing construction. When construction in progress is completed and reaches the intended usable status, fixed assets are carried over. Criteria for judging intended usable status shall meet one of the following conditions: physical construction (including installation) work of fixed assets has been fully completed or substantially fully completed; trial production or trial operation has started, and the results show that assets can run normally or produce qualified products stably, or the results of trial operation show that they can run or operate normally; the expenditure amount on fixed assets of such construction is little or no longer occurring; the purchased and built fixed assets have reached design or contract requirements, or basically complied with design or contract requirements.

For details of the impairment test method and withdrawal method of impairment provision of construction in progress, please refer to Note IV. 19 “Long-term Asset Impairment”.

16. Borrowing costs

If the borrowing costs incurred by the company are directly attributable to purchasing, constructing or producing the assets eligible for capitalization, they may be capitalized and included in the cost of relevant assets; other borrowing costs, when incurred, are recognized as expenses as per the amount incurred, and included in current profits and losses. Assets eligible for capitalization refer to the assets such as fixed assets, investment real estate and inventories that require a relatively long period of purchasing, construction or production activities so as to achieve the intended usable or salable status.

Capitalization period refers to the period from the time point of starting capitalization of borrowing costs to the time point of stopping capitalization. The period of suspending capitalization of borrowing costs is excluded. If abnormal interruption occurs in the process of purchase and construction or production, and interruption period lasts for more than three consecutive months, the capitalization of borrowing costs shall be suspended.

In case of obtaining special borrowings, it is determined as per the interest expenses actually incurred in the current period of special borrowings, minus the interest income earned by the unused borrowing fund deposited in the bank or the amount of investment income after temporary investment; in case of using general borrowings, it is determined as per the weighted average of cumulative asset expenditure exceeding asset expenditure of special borrowings, multiplied by the capitalization rate of used general borrowings, and the capitalization rate is weighted average interest rate of general borrowings; where there is discount or premium on the borrowings, the company shall determine the amount of discount or premium to be amortized during each accounting period according to the actual interest rate method, and adjust the amount of interest for each period.

Effective interest rate method is a method to calculate the amortized discount or premium or interest expense according to the effective interest rate of borrowings. Actual interest rate is the interest rate used for discounting future cash flow of borrowings during the expected duration to current book value of such borrowings.

17. Intangible assets

(1) Valuation method for intangible assets

Corporate intangible assets are initially measured at cost. For intangible assets purchased, the actual cost is subject to actually paid price and relevant expenses. For intangible assets invested by investors, the actual cost is determined according to the value agreed in investment contract or agreement, but where the contract or agreement stipulates the value is not fair, actual cost is determined according to fair value. For self-developed intangible assets, the cost is total amount of expenditures incurred before reaching the intended purpose of use.

Method for subsequent measurement of corporate intangible assets: intangible assets with limited service life are amortized by the straight-line method, and it reviews the service life and amortization method of intangible assets at the end of year and makes corresponding adjustment in case of any discrepancy from original estimate; intangible assets with uncertain service life are not amortized, but it reviews the service life at the end of year, and when conclusive evidence shows that their service life is limited, it estimates the service life and amortizes them according to the straight-line method.

(2) Basis for judgment of uncertain service life

The company determines intangible assets of which the period of bringing economic benefits to the company is unforeseeable or service life is uncertain as intangible assets with uncertain service life. Basis for judgment of uncertain service life: derived from contractual rights or other legal rights, but without clear useful life stipulated in the contract or laws; still impossible to judge the period when intangible assets can bring economic benefits to the company, in conjunction with industrial situation or relevant expert arguments, etc.

At the end of each year, the service life of intangible assets with uncertain service life is reviewed, chiefly in a bottom-up manner, and relevant departments of using intangible assets conduct basic review, evaluating whether changes occur in the basis for judgment of uncertain service life.

(3) Specific standards for the research phase and development phase of internal research and development projects, as well as specific standards for compliance with capitalization conditions in the development phase

Expenditures in the research stage of internal R&D projects are recorded in the current profits and losses when incurred; expenditures in the development stage that meet the conditions for recognition as intangible assets are transferred into intangible assets for accounting. 1 The completion of such intangible assets enables their use or sales technically feasible; 2there is the intention to complete such intangible assets and use or sell them; 3the way of generating economic benefits by intangible assets includes proving that the products produced by such intangible assets have market or intangible assets per se have market, and where intangible assets will be used internally, proving their usefulness; 4there are adequate technical, financial and other resources to support the completion of developing such intangible assets, and able to use or sell such intangible assets; 5expenditures attributable to the development phase of such intangible assets can be measured reliably.

Specific standard for dividing research stage and development stage of internal R&D project: the planned investigation stage for acquiring new technology and knowledge shall be determined as the research stage, characterized by planning and exploration, etc.; before commercial production or use, the stage when research results or other knowledge is applied to a plan or design to produce new or substantially improved materials, devices or products shall be determined as the development stage, characterized by pertinency and high possibility of generating achievements.

18. Long-term deferred expenses

Corporate long-term deferred expenses refer to various expenses that have been paid but with benefit period of more than one year (excluding one year). Long-term deferred expenses are amortized over the benefit period of expense item. If the long term prepaid expense item does not benefit the subsequent accounting period, the surplus value of the item that has not been amortized shall be transferred to the current profits and losses.

19. Long-term asset impairment

For long-term equity investment, investment real estate measured by cost model, fixed assets, construction in progress, productive biological assets measured by cost model, oil and gas assets, intangible assets and other long-term assets that show signs of impairment on the balance sheet date, impairment test is conducted. If the impairment test results indicate that the recoverable amount of the asset is less than its book value, the difference should be withdrawn and accounted as impairment loss.

The recoverable amount is the higher of the fair value of the assets minus the disposal expenses and the present value of the estimated future cash flow of the assets. The provision for impairment of assets is calculated and confirmed on the basis of individual assets. If it is difficult to estimate the recoverable amount of a single asset, the asset group to which the asset belongs should be used to determine the recoverable amount of the asset group. Asset groups are the smallest portfolio of assets that can generate cash inflows independently.

No matter whether there is any sign of possible assets impairment, the goodwill separately listed in the financial report shall be subject to impairment test every year. When making an impairment test, the book value of the goodwill shall be apportioned to the asset group or combination of asset groups that expect to benefit by merger of enterprises. If the test result shows that the recoverable amount of an asset group or a combination of asset groups which includes the goodwill that have been apportioned to is lower than its book value, it shall be recognized as the corresponding impairment loss. The amount of impairment loss is at first written down against the book value of the goodwill allocated to the asset group or combination of asset groups, and then as the proportion to the book value of other assets other than goodwill in the asset group or combination of asset groups, it is used to write down the book value of other assets.

Once any loss of the above asset impairment is recognized, the value recoverable shall not be switched back in the future accounting periods.

20. Contract liabilities

The obligation that the company shall transfer commodity or provide service to customers for the consideration received or receivable from customers is presented as contract liabilities.

21. Staff salary

Employee remuneration refers to all forms of remuneration or compensation granted for the purpose of obtaining service provided by employee or rescinding labor relationship. Staff remuneration includes short-term remuneration, post-employment welfare, dismissal welfare and other long-term staff welfares.

(1) Short-term remuneration

During the accounting period when employees provide service for the company, the actually incurred short-term remuneration is recognized as liability and recorded in the current profits and losses, unless the Accounting Standards for Business Enterprises requires or allows to record in the asset costs. Employee welfare expense incurred by the company is recorded in the current profits and losses or related asset costs according to the actually incurred amount when actually incurred. If employee welfare expense is non-monetary welfare, it is measured at fair value. For medical insurance premium, work injury insurance premium, maternity insurance premium, other social insurance premiums and housing provident fund paid by the company for employees, as well as trade union funding and employee education funding drawn as stipulated, during the accounting period when employees provide service, the corresponding employee remuneration amount is calculated and determined according to the prescribed accrual basis and accrual ratio, and corresponding liabilities are recognized, recorded in the current profits and losses or related asset costs.

(2) Post-employment welfare

During the accounting period when employees provide service, the company recognizes the payable amount calculated as per the defined contribution plan as liabilities, and records in the current profits and losses or related asset costs. According to the formula determined by the expected cumulative welfare unit procedure, the company categorizes the welfare obligations arising from the defined benefit plans to the period during which the employees provide the services, included in the current profits and losses or related asset costs.

(3) Dismissal benefits

When the company provides dismissal welfare to employees, it recognizes employee remuneration liabilities arising from dismissal welfare on the earlier date between the following two and records in the current profits and losses: when the company cannot unilaterally revoke the dismissal welfare provided due to termination of labor relationship plan or layoff proposal; when the company recognizes the costs or expenses related to restructuring for payment of dismissal welfare.

(4) Other long-term employee welfares

Where other long-term employee welfare provided by the company to employees meets the conditions of defined contribution plan, treat them in accordance with relevant provisions of defined contribution plan; otherwise, recognize and measure net liabilities or net assets of other long-term employee welfare in accordance with relevant provisions of defined benefit plan.

22. Estimated debts

When the obligations related to contingencies are current obligations assumed by the company, the fulfillment of such obligations is likely to cause outflow of economic benefits, and concurrently the amount can be reliably measured, such obligations are recognized as estimated liabilities. The company conducts initial measurement according to the best estimate of expenditure required to fulfill relevant current obligations. If there is a continuous range of the expenditure required and various outcomes within this range are equally likely to occur, the best estimate is determined as per the middle value in this range; if multiple items are involved, the best estimate is calculated and determined according to various possible outcomes and relevant probabilities.

The book value of estimated liabilities shall be reviewed on the balance sheet date, and if conclusive evidence shows that this book value cannot truly reflect current best estimate, this book value shall be adjusted according to the current best estimate.

23. Income

When the company has fulfilled contract performance obligations, namely customers obtain the control right of relevant commodities or services, it recognizes income according to the transaction price apportioned to such contract performance obligations. Acquisition of relevant commodity control rights refers to leading the use of such commodity and obtaining almost all economic benefits therefrom. Contract performance obligations refer to the corporate commitment to transfer clearly distinguishable commodities to customers. Transaction price refers to the amount of consideration that the company expects to have the right of receiving due to transfer of commodities to customers, excluding amount received on behalf of third parties and amount that the company expects to refund to customers.

Whether contract performance obligations are fulfilled within a certain period of time or at a certain point of time, it depends on contract clauses and relevant legal provisions. If contract performance obligations are fulfilled within a certain period of time, the company recognizes income according to contract performance progress. Otherwise, the company recognizes income at a certain point of time when customers obtain control right of relevant assets.

Specific method of corporate income recognition:

Commodity sales contract

Commodity sales contract between the company and customers generally includes only the contract performance obligations of commodity transfer. Contract performance obligations of corporate transfer of commodities do not meet three conditions for fulfillment within a certain period of time; therefore, the company generally recognizes realization of income when the company delivers goods to customers and products complete shipment and leave the company, after financial department has received payment of goods from customers or obtained charging right, based on overall consideration of obtaining current charging right of commodities, transferring main risks and rewards on the ownership of commodities, transferring legal ownership of commodities, transferring physical assets of commodities, customers’ acceptance of such commodities and other factors.

24. Contract costs

The incremental costs incurred by the company for the acquisition of the contract that is expected to be recovered are recognized as an asset as the contract acquisition costs.

Where the cost incurred for contract performance falls beyond the scope of accounting standards for business enterprises other than Accounting Standards for Business Enterprises No.14 - Income (2017 Amendment) and simultaneously meets the following conditions, an asset is recognized as contract performance cost: 1 such cost is directly associated with a current or expected contract, including direct labor, direct material, manufacturing expense (or similar expense), cost explicitly borne by customers and other costs incurred simply due to such contract; 2 such cost increases future resources of the Group for performance obligation; 3 such cost is expected to be recovered.

Assets related to contract costs are amortized on the same basis as income recognition of commodity associated with such assets, and included in current profits and losses.

25. Government subsidies

(1) Government subsidy type and accounting treatment

Government subsidy refers to the company’s free acquisition of monetary assets and non-monetary assets from the government (but excluding the capital invested by government as the owner). If government grants are monetary assets, it shall be measured according to received or receivable amount.

Government grants as non-monetary assets shall be measured at fair value; if fair value can’t be obtained reliably, it shall be measured at nominal amount.

Government subsidy related to daily activities is included in other incomes according to the nature of economic business. Government subsidy unrelated to daily activities is recorded in the non-operating income and expenditure.

The government subsidy used for the purpose of purchasing, constructing or otherwise forming longterm assets as explicitly specified in government documents is recognized as asset-related government subsidy. If government documents do not explicitly specify the object of subsidy, and long-term assets can be formed, the part of government subsidy corresponding to asset value is regarded as asset-related government subsidy, and the remaining part is regarded as income-related government subsidy; if it is difficult to distinguish, government subsidy is regarded as income-related government subsidy as a whole. Asset-related government subsidy is recognized as deferred income. The amount recognized as deferred income is recorded in the current profits and losses by reasonable and systematic method within the service life of relevant assets.

The government subsidy other than asset-related government subsidy is recognized as the incomerelated government subsidy. The government grants related to income for the period after compensation to the enterprise for the related expenses or losses, confirmed as deferred income and confirmed that during the relevant expenses included in profit or loss for the current period; used to compensate for the businesses that have occurred the related expenses or losses of shall be directly included in the profit or loss for the current period.

Where the company obtains preferential policy loan with discounted interest, the finance allocates discounted interest funds to the lending bank, and the lending bank provides loan to the company at the preferential policy interest rate, the actually received borrowing amount is recorded value of borrowings, and relevant borrowing costs are calculated according to borrowing principal and such preferential policy interest rate; where the finance directly allocates discounted interest funds to the company, the company writes off relevant borrowing costs by the corresponding discounted interest.

(2) Government subsidy recognition point of time

Government subsidies are confirmed when meeting government subsidies attached conditions and being able to be received. The government subsidy measured at receivable amount is recognized when conclusive evidence shows that it can meet relevant conditions of financial support policy and expected to receive financial support funds at the end of period. Other government subsidies beyond those measured at receivable amount are recognized when the subsidy funds are actually received.

26. Deferred income tax assets/deferred income tax liabilities

(1) Current income tax

On the balance sheet date, the current income tax liabilities (or assets) formed in current and prior period are measured at the expected amount of income tax payable (or refundable) calculated in accordance with the tax law. The amount of taxable income based on which the current income tax expense is calculated is drawn after corresponding adjustment of this year's pre-tax accounting profit made pursuant to relevant tax law.

(2) Deferred income tax assets/deferred income tax liabilities

For the gap between book value of some assets and liabilities and their tax basis, as well as the temporary difference arising from the gap between book value of the items which are not recognized as assets and liabilities but whose taxable basis can be determined according to the tax law, the balance sheet liability method is used to recognize deferred income tax assets and deferred income tax liabilities.

For the taxable temporary difference related to initial recognition of goodwill and initial recognition of assets or liabilities arising from the trade, instead of enterprise merger, unaffecting accounting profit and taxable income (or deductible loss) when incurred, relevant deferred income tax liabilities are not recognized. In addition, for the taxable temporary difference related to investment of subsidiaries, associated enterprises and joint ventures, if the company is able to control the time of temporary difference return, and such temporary difference is unlikely to reverse in the foreseeable future, relevant deferred income tax liabilities are not recognized as well. Except for the above exceptions, the company recognizes deferred income tax liabilities arising from all other taxable temporary differences.

For the deductible temporary difference related to initial recognition of assets or liabilities arising from the trade, instead of enterprise merger, unaffecting accounting profit and taxable income (or deductible loss) when incurred, relevant deferred income tax assets are not recognized. In addition, for the deductible temporary difference related to investment of subsidiaries, associated enterprises and joint ventures, if the temporary difference is unlikely to reverse in the foreseeable future, or the taxable income is unlikely to acquire to offset the deductible temporary difference in the future, relevant deferred income tax assets are not recognized. Except for the above exceptions, the company recognizes deferred income tax assets arising from other deductible temporary differences, limited to the taxable income that is likely to obtain to offset the deductible temporary difference.

For the deductible losses and tax credits that can be carried forward in subsequent years, relevant deferred income tax assets are recognized, limited to the future taxable income that is likely to obtain to offset the deductible losses and tax credits.

On the balance sheet date, deferred income tax assets and deferred income tax liabilities are measured as per the applicable tax rate during the period of expected recovery for relevant assets or liquidation of relevant liabilities, according to the tax law.

On the balance sheet date, the book value of deferred income tax assets is reviewed; if it is likely not to obtain sufficient taxable income to offset the benefits of deferred income tax assets in the future, the book value of deferred income tax assets shall be written off. If sufficient taxable income may be obtained, the write-off amounts shall be reversed.

(3) Income tax expenses

Income tax expenses include current income tax and deferred income tax.

Except that the current income tax and deferred income tax recognized as other comprehensive revenue or related to the transaction and matter directly included in shareholder's equity are charged to other comprehensive revenue or shareholder's equity, as well as the deferred income tax arising from enterprise merger to adjust book value of goodwill, other current income tax and deferred income tax expenses or revenues are charged to current profits and losses.

(4) Income tax offsetting

When having legitimate right of net settlement, and intending to execute net settlement or concurrently obtaining assets and settling liabilities, the company's current income tax assets and current income tax liabilities shall be reported at the net amount after offsetting.

When having legitimate right of net settlement for current income tax assets and current income tax liabilities, and the deferred income tax assets and deferred income tax liabilities are related to the income tax levied on the same taxpayer by the same tax collection department or related to different taxpayers, but in every future period of reversal for the important deferred income tax assets and liabilities, the involved taxpayer intends to execute net settlement of current income tax assets and liabilities or simultaneously obtains assets and settles liabilities, the company’s deferred income tax assets and deferred income tax liabilities are reported at the net amount after offsetting.

27. Leasing

Lease means that the company has transferred or obtained the control of one or more identified asset use rights within a certain period to exchange for or pay the consideration contract. On the start date of a contract, the company assesses whether the contract is for lease or contains lease.

(1) The company acts as a lessee

Main categories of corporate leased assets are houses.

1 Initial measurement

On the lease start date, the company recognizes the right to use the leasing assets during the lease term as right-of-use assets, and the present value of unpaid lease payment amount as leasing liabilities. When calculating the present value of lease payment amount, the company adopts interest rate implicit in lease as discount rate; if the interest rate implicit in lease cannot be determined, the lessee’s incremental borrowing interest rate is regarded as discount rate.

2 Subsequent measurement

The company accrues depreciation for the right-of-use assets from the current month of starting lease term. If leased asset ownership can be properly determined upon expiration of lease term, the company accrues depreciation within the remaining service life of leased assets. If the ownership of lease assets cannot be reasonably determined at the expiration of lease term, the company makes depreciation provision during the period of lease term or remaining service life of lease assets, whichever is shorter.

As to lease liabilities, the company calculates their interest expense during each period of lease term according to fixed periodic rate, and records them in current profits and losses or relevant asset costs. Variable lease payment amount excluded from the measurement of lease liabilities is recorded in current profits and losses or relevant asset costs when it actually occurs.

After the lease start date, when actual fixed payment amount changes, the expected amount payable of guaranteed residual value changes, the index or ratio used to determine the lease payment amount changes, the evaluation result of purchase option right, lease renewal option right or termination option right or actual exercise situation changes, the company re-measures lease liabilities according to the present value of lease payment amount after change, and adjusts book value of right-of-use assets accordingly. If the book value of right-of-use assets has been reduced to zero, but lease liabilities still need to be further reduced, the company records remaining amount in current profits and losses.

3 Short-term lease and low-value asset lease

For short-term lease (lease of which lease term does not exceed 12 months on the lease start date) and low-value asset lease, the company leverages a simplified treatment method, rather than recognize the right-of-use assets and lease liabilities, but to record lease payment amount in relevant asset cost or current profits and losses by the straight-line method or other systematic reasonable methods during each period of lease term.

4 Lease change

If the lease is changed and the following conditions are met simultaneously, the company conducts accounting treatment of this lease change as a separate lease:

Where accounting treatment is not conducted on lease change as a separate lease, on the effective date of lease change, the company re-allocates the consideration of contract after change, re-determines the lease term, and re-measures lease liabilities according to the present value calculated by the changed lease payment amount and the revised discount rate.

If lease change causes reduced lease scope or shortened lease term, the company decreases the book value of right-of-use assets accordingly, and includes relevant gains or losses on partially or entirely terminated lease into current profits and losses. If other lease changes cause re-measurement of lease liabilities, the company adjusts the book value of right-of-use assets accordingly.

(2) The company acts as a lessor

Based on transaction nature, the company divides lease into financial lease and operating lease on the lease start date. Financial lease refers to the lease of which almost all risks and rewards pertaining to the ownership of lease assets have been substantially transferred. The term operating lease shall refer to a lease other than a financing lease.

1 Operating leasing

The company adopts the straight-line method to recognize lease receipts from operating lease as the rental income for each period of the lease term. Variable lease payment amount related to operating lease and excluded from the lease receipt amount is recorded in current profits and losses when it actually occurs.

2 Financial leasing

On the lease start date, the company recognizes financial lease receivables, and de-recognizes financial lease assets. Financial lease receivables are initially measured by net lease investment (the sum of unguaranteed residual value and present value of lease payment amount not yet received on the lease start date discounted at the interest rate implicit in lease), and interest income during the lease term is calculated and recognized as per fixed periodic rate. Variable lease payment amount obtained by the company and excluded from the measurement of net lease investment is recorded in current profits and losses when it actually occurs.

3 Lease change

If operating lease is changed, the company regards it as a new lease for accounting treatment from the effective date of change, and deems as the new lease receipt amount of advance receipts or lease receivables related to the lease before change.

Where financial lease changes and meets the following conditions, the company conducts accounting treatment for this change as a separate lease:

Where accounting treatment is not conducted for financial lease change as a separate lease, the company treats the changed lease under the following circumstances:

28. Other important accounting policies and accounting estimates

(1) Discontinued operations

Discontinued operation refers to the integral part that meets one of the following conditions, can be distinguished separately, and has been disposed of or classified as held-for-sale by the company: 1 this integral part represents an independent main business or a separate main operating area; 2 this integral part is a part of a related plan intended to dispose of an independent main business or a separate main operating area; 3 this integral part is a subsidiary acquired solely for resale.

29. Changes in significant accounting policies and accounting estimates

(1) Changes in accounting policies

No.

(2) Changes in accounting estimates

No.

30. Significant accounting judgments and estimates

In the process of applying accounting policies, due to internal uncertainties of operating activities, the company needs to make judgments, estimates and assumptions on the book value of report items that cannot be accurately measured. These judgments, estimates and assumptions are made based on past experience of the company executives, and considering other relevant factors. These judgments, estimates and assumptions affect the reporting amount of incomes, expenses, assets and liabilities, as well as disclosure of contingent liabilities on the balance sheet date. Nevertheless, the actual results caused by uncertainties of these estimates may be different from current estimates of the company executives, and further cause significant adjustment on the book value of affected assets or liabilities in the future.

The company conducts periodic review on the foregoing judgments, estimates and assumptions on the basis of continuous operation; if changes in accounting estimates only affect the current period of changes, the affected amount shall be recognized in the current period of changes; if it affects both current period of changes and future period, the affected amount shall be recognized in the current period of changes and future period.

On the balance sheet date, important areas for the company’s judgments, estimates and assumptions on financial statement item amount are as follows:

(1) Income recognition

As stated in Note IV. 23 “Income”, the company involves the following major accounting judgments and estimates in terms of income recognition: identify customer contracts; estimate recoverability of the consideration that is entitled to obtain due to the transfer of commodities to customers; identify performance obligations in the contract; estimate variable consideration in contract and amount of cumulative recognized income that is most likely not to incur significant reversal when relevant uncertainty is eliminated; whether there is significant financing element in contract; estimate separate sales price of individual performance obligation in contract; determine whether performance obligation is conducted within a certain period of time or at a certain point in time; determine performance progress, etc.

(2) Classification of lease

1 Lease identification

When the group identifies whether a contract is for lease or contains lease, it must evaluate whether there is an identified asset and the customer has controlled the right of using this asset in a certain period. During evaluation, it is required to consider the nature of asset, substantive right of replacement, and whether the customer has the right to obtain almost all economic benefits arising from the use of this asset during this period and can dominate the use of this asset.

2 Lease classification

When the group is the lessor, the lease is classified as operating lease and financial lease. When classifying, the management needs to analyze and judge whether all risks and rewards pertaining to the ownership of rented assets have been transferred to the lessee in substance.

3 Lease liabilities

When the group is the lessee, leasing liabilities are initially measured at the present value of unpaid lease payment amount on the lease term start date. When measuring the present value of lease payment amount, the group estimates the discount rate used and the lease term of lease contract with lease renewal option right or termination option right. When assessing lease term, the group comprehensively considers all relevant facts and circumstances of economic benefits brought by its exercise of the option, including expected changes in facts and circumstances between lease term start date and option exercise date, etc. Different judgments and estimates may affect the recognition of lease liabilities and right-of-use assets, and will affect the profits and losses of subsequent periods.

(3) Impairment of financial assets

When the company adopts the expected credit loss model to evaluate impairment of financial instruments, the application of expected credit loss model requires major judgments and estimates, and all reasonable and reference information must be considered, including forward-looking information. When making such judgments and estimates, the company infers the expected changes in the debtor’s credit risk based on historical data in conjunction with economic policies, macroeconomic indicators, industrial risks, external market environment, technological environment, customer condition changes and other factors.

(4) Inventory depreciation reserve

The company measures as per the lower of cost and net realizable value, and makes provision for inventory devaluation to the obsolete and unsalable inventory of which the cost exceeds the net realizable value, according to inventory accounting policy. The inventory devaluation to net realizable value is based on assessing the saleability of inventory and its net realizable value. To identify inventory devaluation requires judgments and estimates of executives based on obtaining conclusive evidence, and considering the purpose of holding inventory, influence of events after balance sheet date and other factors. The difference between actual result and original estimate will affect the book value of inventory, as well as the reversal or accrued provision for inventory devaluation during the period of estimates changed.

(5) Fair value of financial instruments

Fair value of financial instruments without active trading market is determined by the Company with many valuation methods. These valuation methods include discounted cash flow model analysis, etc. During valuation, the Company needs to evaluate future cash flow, credit risks, market volatility and relevance etc., and select appropriate discount rate. Such relevance assumption has uncertainty and its changes may affect fair value of financial instruments. In case of equity instrument investment or publicly quoted contract, the company does not use cost as the best estimate of its fair value.

(6) Provision for long-term asset impairment

The company judges if there is possible sign of impairment on the non-current assets other than financial assets on the balance sheet date. For intangible assets with uncertain service life, in addition to annual impairment test, when there is sign of impairment, impairment test shall be conducted as well. If there is indication showing that the carrying amount is not retrieved, non-liquid assets apart from financial assets shall be provided with impairment testing.

When the book value of asset or asset group is higher than the recoverable amount, which is the higher of net amount after fair value deducting disposal expense and present value of estimated future cash flow, it indicates occurrence of impairment.

The net amount of fair value deducting disposal expense is determined by reducing the incremental cost that can be directly attributed to such asset disposal, with reference to sales agreement price of similar assets in fair trade or observable market price.

When estimating the present value of future cash flow, major judgments are required on the asset (or asset group) output, selling price, related operating cost, discount rate used when calculating the present value, etc. When estimating recoverable amount, the company may use all relevant information available, including forecasts of output, selling price and related operating cost which are made based on reasonable and supportable assumptions.

The company tests whether goodwill is impaired at least every year. This requires estimation on the present value of future cash flow of asset group or asset group portfolio with goodwill allocated. When estimating the present value of future cash flow, the company needs to estimate the future cash flow generated by asset group or asset group portfolio, and concurrently select appropriate discount rate to determine the present value of future cash flow.

(7) Depreciation and amortization

After considering residual value of investment real estate, fixed assets, right-of-use assets and intangible assets, the company makes provision for depreciation and amortization on a straight-line basis within the service life. The company regularly reviews the service life, to determine the amount of depreciation and amortization expenses included in each reporting period. The service life is determined by the company based on past experience of similar assets and combined with expected technical updates. In case of significant change in previous estimates, the depreciation and amortization expenses will be adjusted in the future.

(8) Deferred income tax assets

Insofar as it is highly probable to offset losses with sufficient taxable profits, the company recognizes deferred income tax assets with all unused tax losses. This requires the company executives to use a large number of judgments to estimate the time and amount of future taxable profits, and combine the tax planning strategy, to determine the amount of deferred income tax assets that shall be recognized.

(9) Income tax

In normal operating activities of the company, final tax treatment and calculation of some transactions have certain uncertainties. Whether some items can be listed as pre-tax shall gain approval of the tax authority. If there is difference between the final recognized result of these taxation matters and the originally estimated amount, such difference will have an impact on the current income tax and deferred income tax during the period of final recognition.

(10) Estimated debts

Based on contractual terms, existing knowledge and historical experience, the company estimates product quality assurance, expected contract losses, liquidated damages of delayed delivery, etc and makes corresponding provision. In the event that such contingencies have become a current obligation, and the performance of such current obligation is likely to cause economic benefits flowing out of the company, the company recognizes the contingencies as estimated liabilities, as per the best estimates to spend in fulfilling relevant current obligation. The recognition and measurement of estimated liabilities largely depend on judgment of the management level. In the process of making judgment, the company needs to assess the risks, uncertainties, time value of currency and other factors related to these contingencies.

Among them, the company provides customers with after-sales quality repair commitments on the sale, repair and modification of the products sold, as estimated liabilities. During estimated liabilities, the company has taken into account recent repair experience data, whereas the recent repair experience may not reflect future repair circumstances. Any increase or decrease in this preparation may affect the profits and losses in the future years.

V. Taxation

1. Main tax categories and tax rates

2. Tax benefit and approval document

No.

VI. Notes on consolidated financial statement items

Unless otherwise specified, in the following items of notes (including notes on main items of corporate financial statement), “end of period” refers to 31 December 2022, “end of last year” refers to 31 December 2021, “current period” refers to the year 2022, and “last period” refers to the year 2021.

1. Monetary fund

2. Trading financial assets

3. Accounts receivable

(1) Disclosure by age

(2) Classified and presented by bad debt provision method

(3) Bad debt reserve status

(4) Receivables actually written-off in the current period

No.

(5) Top 5 closing balance of receivables classified by parties in arrears

The total accounts receivable of the Top 5 closing balance classified by the overdue party is RMB 155,408,549.84, accounting for 98.53% of the total closing balance of accounts receivable, and the total closing balance of corresponding bad debt provision is RMB 4,588,448.93.

4. Advanced payment

(1) Advance payment is listed by age

(2) Advance payment of Top 5 closing balance classified by advance payment objects

The company’s total advance payment of the Top 5 closing balance classified by advance payment recipients was RMB 68,589,041.70, accounting for 94.63% of the total closing balance of advance payment.

5. Other receivables

(1) Other receivables

1 Disclosure by age

2 Classification by fund nature

3 Provision for bad debt reserve

4 Bad debt reserve status

5 Other receivables actually written-off in this period

No.

6 Top 5 closing balance of other receivables classified by debtors

6. Inventory

(1) Inventory classification

(2) Inventory depreciation reserve

7. Other current assets

8. Fixed assets

(1) Fixed assets

1 Fixed assets

2 Temporarily idle fixed assets

No.

9. Construction in process

10. Right-of-use assets

11. Intangible assets

(1) Intangible assets

(2) Land use right without handling property certificate

No.

(3) Intangible assets with restricted ownership or right of use

No.

12. Deferred income tax assets/deferred income tax liabilities

(1) Details of deferred income tax assets not offset

(2) Details of non-offset deferred tax liabilities

(3) Unrecognized deferred income tax assets

(4) The deductible losses of unrecognized deferred income tax assets will expire in the following years

13. Other non-current assets

14. Short-term loan

(1) Short-term loan classification

(2) Overdue and outstanding short-term borrowings

No.

15. Accounts payable

(1) Presentation of accounts payable

(2) Major payables aged over 1 year

No.

16. Contract liabilities

(1) Contract liability

17. Payroll payable

(1) Staff remuneration payables

(2) Short-term remuneration

18. Taxes payable

19. Other payables

(1) Other payables

1 Presented by fund nature

2 Major other payables aged over 1 year

No.

20. Non-current liabilities due within 1 year

21. Long-term borrowings

22. Lease liabilities

23. Long-term accounts payable

24. Paid-in capital

25. Capital reserve

26. Other comprehensive income

27. Undistributed profits

28. Operating incomes and operating costs

(1) Operating income and operating cost

(2) Income arising from the current contract

29. Sales expense

30. Administrative expense

31. Research and development expenses

32. Financial expense

33. Investment income

34. Credit impairment losses

35. Asset impairment losses

36. Asset disposal gains

37. Income tax expenses

(1) Income tax expense statement

(2) Accounting profit and income tax expense adjustment process

38. Cash flow statement

(1) Cash inflow from other operating activities

(2) Other cash paid related to operating activities

(3) Other cash paid related to investing activities

(4) Other cash paid related to financing activities

39. Supplementary information of Cash Flow Statement

(1) Supplementary information of Cash Flow Statement

(2) Composition of cash and cash equivalents

VII. Equity in other entities

1. Interests in the subsidiaries

VIII. Associated parties and associated transactions

1. Parent company of the company

2. Subsidiaries of the company

See Note VIII. 1, Equities in subsidiaries.

3. Other associated parties

4. Conditions of related party transactions

(1) Associated transaction of purchasing and selling commodities, providing and accepting labor service

1 Purchase of goods/acceptance of labor service

2 Sales of goods/service provision

5. Receivables and payables of related parties

(1) Receivables

(2) Payables

IX. Commitments and contingencies

No.

X. Events after balance sheet date

The company has no important events after the balance sheet date for disclosure in the current period.

XI. Other important matters

No.

XII. Main item notes of corporate financial statements

1. Other receivables

(1) Other receivables

1 Disclosure by age

2 Classification by fund nature

2. Long-term equity investment

(1) Classification of long-term equity investment

(2) Investment in subsidiaries

2022 Ergänzende Konzernlageberichtsangaben

1. Grundlagen des Unternehmens

1.1. Geschäftsmodell des Unternehmens

Kingenta ist Chinas führender Spezialanbieter von hochtechnologischen, effizienten Düngemitteln. Forschungs-, Entwicklungs- und Düngemittelproduktionskapazitäten werden insbesondere in China vorgehalten. Mit Produktionsstätten u. a. in den Niederlanden und in Spanien beliefern wir die weltweiten Märkte für Landwirtschaft und Gartenbau mit speziellen Düngemitteln. Der Vertrieb erfolgt global und dabei vestärkt in China und Europa.

Der Konzern bietet eine breite Palette von Düngemitteln mit verbesserter Effizienz an, darunter Düngemittel mit kontrollierter Freisetzung, wasserlösliche Düngemittel, Biostimulanzien, Effizienzsteigerer, EDTA-verknüpfte Mikronährstoffe und kundenspezifisch formulierte Mehrnährstoffdünger.

Die globale Vision von Kingenta ist es, der weltweit führende Experte für Pflanzenernährung und Anbieter von Pflanzenschutzlösungen zu werden.

Um leistungsfähige Produkte mit hohem Mehrwert zu liefern, muss die Qualität an erster Stelle stehen. Aus diesem Grund sind unsere Produktionsstätten mit eigenen Labors ausgestattet. Unsere Qualitätskontrollverfahren sind sehr streng und umfassen die gesamte Kette vom Eingang der Rohstoffe bis zur Prüfung der Zwischenprodukte und der Qualitätskontrolle der Endprodukte. Alle Produkte sind über ein strenges QMS-System rückverfolgbar.

Unsere Produktionsstätte in Born (NL) ist RHP-zertifiziert. RHP ist das weltweite Qualitätszertifikat für die sichere Verwendung von CRF in Substraten. Darüber hinaus ist unser Werk in Born auch FPR (CE) zertifiziert, was nach der neuen EU-Düngemittelverordnung vorgeschrieben ist.

Neben unseren Labors in unseren Produktionsstätten in Spanien und den Niederlanden verfügen wir auch über ein F&E-Center in Münster (Deutschland). Unser globales Team besteht aus Agronomen und Chemikern. Wir arbeiten eng mit renommierten öffentlichen und privaten Forschungseinrichtungen zusammen. Unsere Teammitglieder sind an verschiedenen öffentlich-privaten Partnerschaftsprojekten beteiligt. Wir suchen stets den offenen und wissenschaftlichen Dialog mit unseren akademischen Partnern rund um den Globus. Unser Fachwissen deckt alle Aspekte von Spezialdüngemitteln und deren Anwendung bei Nutzpflanzen ab. Das Innovationszentrum verfügt über Entwicklungslabors, Pilotanlagen für die Testproduktion und unser Pflanzenversuchszentrum mit Gewächshaus- und Feldversuchsflächen für Pflanzenversuche.

2. Wirtschaftsbericht

2.1 Makroökonomisches Umfeld und branchenbezogene Rahmenbedingungen

Die globale Wirtschaftstätigkeit verlangsamt sich auf breiter Basis und stärker als erwartet, wobei die Inflation so hoch ist, wie seit mehreren Jahrzehnten nicht mehr. Die Lebenshaltungskostenkrise, die Verschärfung der finanziellen Bedingungen in den meisten Regionen, der Einmarsch Russlands in der Ukraine und die anhaltende COVID-19-Pandemie belasten die Aussichten stark. Das globale Wachstum wird sich voraussichtlich von 6,0 Prozent im Jahr 2021 auf 3,2 Prozent im Jahr 2022 verlangsamen. Dies ist das schwächste Wachstumsprofil seit 2001, abgesehen von der globalen Finanzkrise und der akuten Phase der COVID-19-Pandemie.

Die weltweite Inflation wird voraussichtlich von 8,8 Prozent im Jahr 2022 auf 6,5 Prozent im Jahr 2023 zurückgehen. Die Geldpolitik sollte den Kurs zur Wiederherstellung der Preisstabilität beibehalten, und die Finanzpolitik sollte darauf abzielen, den Druck auf die Lebenshaltungskosten zu verringern und gleichzeitig eine ausreichend straffe Haltung einzunehmen, die auf die Geldpolitik abgestimmt ist. Strukturreformen können die Inflationsbekämpfung weiter unterstützen, indem sie die Produktivität steigern und Versorgungsengpässe abbauen, während multilaterale Zusammenarbeit notwendig ist, um die Energiewende zu beschleunigen und eine Fragmentierung zu verhindern.

(IMF, World Economic Outlook, October 2022)

Im Zuge des russischen Angriffskriegs auf die Ukraine ist es zu globalen Verwerfungen auf den Märkten für Agrarrohstoffe und besonders für Energie gekommen. Davon blieben auch der europäische und deutsche Düngemittelmarkt nicht verschont. Während in der öffentlichen Wahrnehmung vor allem die energieintensive Produktion von Stickstoffdüngern im Fokus stand, sind auch die Entwicklungen auf den Märkten für Phosphat und Kali vom Ukrainekrieg betroffen. Die Preisrally, die im Frühjahr 2022 ihren vorläufigen Höhepunkt erreichte, schwächte sich in der zweiten Hälfte des Düngerjahres ab, wenngleich weiterhin ein vergleichsweise hohes Preisniveau verzeichnet wurde. Gleiches gilt auch für die wichtigsten Agrarrohstoffe. Somit bestätigt sich der Eindruck, dass die Kriegswirren in der Ukraine eingepreist zu sein scheinen.

(Presseinformation, Industrieverband Agrar e.V. vom 03. Mai 2023, Der Düngemittelmarkt 2022/2023 IVA)

Der globale Düngemittelmarkt verzeichnete im Jahr 2022 einen Wert von 197 Milliarden US-Dollar. China ist der größte Produzent und Exporteur von Düngemitteln in der Region und weltweit und trägt laut USDA (United States Department of Agriculture) zu 25 % der weltweiten Düngemittelproduktion bei. Frankreich ist mit einem Gesamtanteil von 20,1 % bis Ende 2022 eines der Länder mit dem größten Düngemittelverbrauch in Europa. Die Einführung fortschrittlicher Anbaumethoden wird zukünftig den Einsatz von Spezialdüngern weiter erhöhen.

(Mordor Intelligence, Analyse der Größe und des Marktanteils von Düngemitteln - Wachstumstrends und -prognosen / GMI Dünger Marktgröße)

3. Prognosebericht

Die Basisprognose geht davon aus, dass sich das globale Wachstum von 3,5 Prozent im Jahr 2022 auf 3,0 Prozent im Jahr 2023 verlangsamen wird, was deutlich unter dem historischen Durchschnitt (2000- 19) von 3,8 Prozent liegt. Es wird erwartet, dass sich die Entwicklung der fortgeschrittenen Volkswirtschaften von 2,6 Prozent im Jahr 2022 auf 1,5 Prozent im Jahr 2023 verlangsamen wird, da die Straffung der Geldpolitik zu greifen beginnt. In den Schwellen- und Entwicklungsländern wird ein leichter Wachstumsrückgang von 4,1 Prozent im Jahr 2022 auf 4,0 Prozent in den Jahren 2023 und 2024 prognostiziert. Es wird prognostiziert, dass die globale Inflation stetig zurückgehen wird, von 8,7 Prozent im Jahr 2022 auf 6,9 Prozent im Jahr 2023, was auf eine straffere Geldpolitik zurückzuführen ist, die durch niedrigere internationale Rohstoffpreise unterstützt wird. Die Kerninflation dürfte den Projektionen im Allgemeinen langsamer zurückgehen, und es wird erwartet, dass die Inflation in den meisten Fällen erst 2025 wieder auf den Zielwert zurückkehrt. (IMF, World Economic Outlook, October 2023)

Die Gesellschaft erwartet für das Geschäftsjahr 2023 eine Reduktion der Umsätze um rund 35 %.