Basic Information Chairman's Statement
Management Discussion and Analysis Corporate Governance Report
Notices (Replacement of Lost Certificates)

Year 2016 First six months of 2016 Year 2015 First six months of 2015

BUSINESS REVIEW

Tinplating

Zhongshan Zhongyue Tinplate Industrial Co., Ltd. ("Zhongyue Tinplate") is a wholly-owned subsidiary of the Company. The Company holds a 66% interest in Zhongyue Posco (Qinhuangdao) Tinplate Industrial Co., Ltd. ("Zhongyue Posco"), while POSCO Co., Ltd., an internationally renowned iron and steel enterprise, holds the remaining 34%. Currently, the annual production capacity of tinplate products and blackplates of the Group is 550,000 tonnes and 140,000 tonnes respectively, of which 350,000 tonnes of tinplate products and 140,000 tonnes of blackplates are from Zhongyue Tinplate's capacity, whereas 200,000 tonnes of tinplate products are from Zhongyue Posco's capacity.

Demand for tinplate products remained weak amidst lingering global economy and slowdown in Chinese economic growth. Meanwhile, competition pattern of the sector has changed dramatically due to the escalating tinplate production capacity of steel conglomerates and the merger of two steel conglomerates in China. Together with the surging raw material and production costs, these factors have created new conditions for the tinplating sector featuring high cost, low growth, thin profit margin and strict environmental regulations. In response to the intense competition and complex and dynamic external environment, the Group has vigorously adjusted its product mix, improved its product quality, integrated the services offered, innovated production techniques, controlled risks and enhanced cost-saving and overall effectiveness in respect of the tinplating business based on a centralised supply chain operation. Such organisational transformation and control and marketing improvements have contributed to the achievement of the operating targets set at the beginning of the year.

In 2016, the Group produced 319,102 tonnes of tinplate products, which represented an increase of 1.1% as compared to that in 2015. Among which, Zhongyue Tinplate and Zhongyue Posco produced 185,676 tonnes and 133,426 tonnes respectively. In addition, the blackplate manufacturing plant of Zhongyue Tinplate produced 117,213 tonnes of blackplates, an increase of 4.8% as compared to that in 2015, providing a steady supply of raw materials (i.e. blackplates) for its production of tinplate products. The Group's tinplating plants in northern and southern China sold 332,722 tonnes of tinplate products, an increase of 5.3% as compared to that in 2015, of which Zhongyue Tinplate and Zhongyue Posco sold 192,140 tonnes and 140,582 tonnes respectively. Revenue was HK$1,821,204,000, a decrease of 13.6% as compared to that in 2015. Segment loss was HK$9,475,000, an increase of 13.2% from that in 2015. The tinplating business accounted for 81.1% of the Group's revenue.

Fresh and Live Foodstuffs

Guangnan Hong Company Limited ("Guangnan Hong") is a wholly-owned subsidiary of the Company. Guangnan Hong holds a 51% interest in Guangnan Live Pigs Trading Limited, a 15.45% interest in an associate, Hubei Jinxu Agriculture Development Co., Ltd. ("Hubei Jinxu"), and a 34% interest in an associate, Guangdong Zijin Baojin Livestock Co., Ltd. ("Guangdong Baojin").

In 2016, the fresh and live foodstuffs business gained momentum amidst favourable conditions in the "live pig cycle" and set the best record in its operating history by focusing on and continually improving operations, capitalising on the rising price of live pigs and acting swiftly during emergencies.

The major key performance indicators of the Group's fresh and live foodstuffs business are market share in live pigs supply to Hong Kong, revenue and segment profit. The performance for this year was satisfactory. The Group's overall market share in the live pigs supply into Hong Kong was about 46% in 2016, slightly increased as compared to that in 2015. In 2016, the revenue of the fresh and live foodstuffs business amounted to HK$404,391,000, representing an increase of 15.8% as compared to that in 2015. Together with the share of profits of associates, namely Hubei Jinxu and Guangdong Baojin, of HK$21,495,000 (2015: share of loss less profit of HK$282,000), segment profit was HK$118,663,000, representing an increase of HK$22,143,000 or 22.9% as compared to HK$96,520,000 in 2015.

Property Leasing

The Group's leasing properties comprise the plant and staff dormitories of Zhongyue Tinplate and the office units in Hong Kong.

In 2016, the property occupancy rate for the property leasing business of the Group was 92.1%, slightly decreased as compared to that in 2015. Revenue was HK$20,519,000, a decrease of 4.4% as compared to that in 2015. Segment profit amounted to HK$14,823,000, a decrease of 0.7% as compared to that in 2015. In addition, the value of the plant and staff dormitories of Zhongyue Tinplate and the office units in Hong Kong saw a slight growth, and net valuation gains on investment properties of HK$3,738,000 (2015: HK$4,200,000) were recorded for the year.

Yellow Dragon

The Group holds a 40% interest in an associate, Yellow Dragon Food Industry Co., Ltd. ("Yellow Dragon").

In 2016, Yellow Dragon recorded a sales volume of 363,707 tonnes of corn starch, its major product, representing an increase of 9.0% as compared to that in 2015. Revenue amounted to HK$1,384,286,000, a decrease of 16.0% as compared to that in 2015, as product selling prices dropped. While recording a loss from operation, Yellow Dragon recorded a net profit of HK$22,626,000, compared with a loss of HK$43,387,000 in 2015, mainly due to the government grants income. As the Company holds a 40% interest in Yellow Dragon, the Group's share of profit was HK$9,050,000 (2015: share of loss of HK$17,355,000).

FINANCIAL POSITION

As at 31 December 2016, the Group's total assets and total liabilities amounted to HK$2,854,348,000 and HK$383,558,000, representing a decrease of HK$286,181,000 and HK$255,455,000 respectively when compared with the positions at the end of 2015. Net current assets increased from HK$1,034,574,000 at the end of 2015 to HK$1,140,721,000. The current ratio (current assets divided by current liabilities) increased from 2.7 at the end of 2015 to 4.3.

Liquidity and Financial Resources

In January 2016, the Group fully repaid unsecured bank borrowings of HK$271,300,000, bringing the Group's cash and bank balances as at 31 December 2016 to HK$777,612,000, representing a decrease of 19.0% when compared with the position at the end of 2015, of which 22.9% was denominated in Renminbi, 52.2% was denominated in United States Dollars while the remaining balance was denominated in Hong Kong Dollars. Interest income decreased from HK$41,050,000 in 2015 to HK$10,406,000 in 2016.

As at 31 December 2016, the Group had outstanding loans from a related company denominated in United States Dollars equivalent to HK$42,900,000 (31 December 2015: HK$71,760,000), which were repayable within 1 year and subject to floating interest rate. The annual interest rate was 3-month London Interbank Offered Rate ("LIBOR") +1.3% (31 December 2015: 3-month LIBOR +1.4%).

As at 31 December 2016, the Group's gearing ratio, calculated by dividing the net borrowings (being borrowings less restricted deposits and cash and bank balances) of the Group by total equity attributable to equity shareholders of the Company, was -31.9% (2015: -26.5%).

As at 31 December 2016, the Group's available banking facilities used for working capital and trade finance purposes amounted to HK$228,143,000, of which HK$101,565,000 was utilised and HK$126,578,000 was unutilised. Currently, the cash reserves and available banking facilities, as well as the steady cash flow generated from operations, are sufficient to meet the Group's debt obligations and needs for business operations.

Capital Commitments and Capital Expenditure

The Group's capital expenditure in 2016 amounted to HK$5,826,000 (2015: HK$133,980,000). Capital commitments outstanding at 31 December 2016 not provided for in the financial statements amounted to HK$3,371,000 (2015: HK$8,899,000) and it was expected that the capital expenditure for 2017 will be approximately HK$9,000,000.

Acquisitions and Disposals of Investments

The Group had no material acquisitions and disposals of investments during the year of 2016.

Pledge of Assets

As at 31 December 2016, the Group's interest in Guangdong Baojin was pledged to the major shareholder of Guangdong Baojin as a security for a loan and the related interest due to this shareholder by Guangdong Baojin, and the guarantee amounted to HK$7,555,000 (2015: HK$11,711,000). In addition, as at 31 December 2016, the Group was required to place deposits at designated bank accounts amounting to HK$1,809,000 (2015: HK$Nil) for potential default in payment of construction cost payables. Other than the above, none of the assets of the Group was pledged.

Contingent Liabilities

As at 31 December 2016, the Group had no material contingent liabilities.

Exchange Rate and Interest Rate Exposures

The Group's operations are mainly conducted in Mainland China and Hong Kong. The Group is exposed to foreign currency risk primarily through purchases from overseas suppliers and export sales to overseas customers that are denominated in a currency other than the functional currency of the operations to which they relate. The currency giving rise to this risk is mainly the United States Dollars against the Renminbi. In respect of trade receivables and payables denominated in currencies other than the functional currency of the operations to which they relate, the Group ensures that the net exposure is kept to an acceptable level, by buying or selling foreign currencies at spot rates where necessary to address short-term imbalances.

In view of the market expectation of the depreciation of the Renminbi against the United States Dollars in the short to medium term, the Group has enhanced research and monitoring of the foreign exchange market since the second half of 2015 in order to reasonably mitigate the financial impact from the fluctuations in the exchange rate of the Renminbi on the Group. While balancing interest income and exchange rate risks, the Group has been gradually increasing its foreign currency assets and reducing its foreign currency liabilities in order to reduce the exposure to exchange rate risks. As the Group considers that its current exposure to exchange rate risks is not material, no exchange rate hedging has been carried out. The management closely monitors the changes in the foreign exchange market and will take appropriate measures to hedge the risks when necessary.

The Group's interest rate risk arises primarily from interest-bearing borrowings, restricted deposits and cash and bank balances. Borrowings and lendings carried at variable rates and at fixed rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. As the Group considers that its current exposure to interest rate risk is not material, no interest rate hedging has been carried out. The management closely monitors the changes in market interest rates.

EMPLOYEES AND REMUNERATION POLICIES

As at 31 December 2016, the Group had a total of 1,091 full-time employees, a decrease of 64 from the number at the end of 2015. 175 employees were based in Hong Kong and 916 were based in Mainland China. Staff remuneration is determined in accordance with the duties, workload, skill requirements, hardship, working conditions and individual performance and with reference to the prevailing industry practices. In 2016, the Group continued to implement control over the headcount, organisational structure and total salaries of each subsidiary. The performance bonus incentive scheme for the management is in place for accruing performance bonus according to various profit rankings and with reference to net cash inflow from operations and profit after taxation based on the assessment of the operating results of each subsidiary. In addition, bonuses are rewarded to the management, key personnel and outstanding staff based on the assessment of individual performance, and these incentive schemes are proven effective to improve the morale of the staff members.