Jiangnan : 2020 Interim Report

江南集團有限公司

Jiangnan Group Limited

(Incorporated in the Cayman Islands with limited liability)

Stock Code: 1366

Interim Report

One of the Largest Suppliers of

Jiangnan Group Limited Interim Report 2020

CONTENTS

CHAIRMAN'S STATEMENT	3
CORPORATE INFORMATION		9
MANAGEMENT DISCUSSION AND ANALYSIS			11
UNAUDITED INTERIM RESULTS
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR	20
	LOSS AND OTHER COMPREHENSIVE INCOME
CONDENSED CONSOLIDATED STATEMENT OF	21
	FINANCIAL POSITION
CONDENSED CONSOLIDATED STATEMENT OF	22
	CHANGES IN EQUITY
CONDENSED CONSOLIDATED STATEMENT OF CASH	23
	FLOWS
NOTES TO THE CONDENSED CONSOLIDATED	24
	FINANCIAL STATEMENTS
INTERESTS OF DIRECTORS AND CHIEF EXECUTIVES	39
INTERESTS OF SUBSTANTIAL SHAREHOLDERS AND OTHER	40
PERSONS
CORPORATE GOVERNANCE AND OTHER INFORMATION	41
CORPORATE SOCIAL RESPONSIBILITY	43

Strengthening the Group's Leading Position as

a Manufacturer-Cum-Supplier of Composite

Wires and Cables

Jiangnan Group Limited Interim Report 2020

CHAIRMAN'S STATEMENT

Dear shareholders,

I am pleased to present the 2020 interim results report of Jiangnan Group Limited (the "Company", together with its subsidiaries, the "Group") for the six months ended 30 June 2020 to our shareholders.

BUSINESS ENVIRONMENT

In the first half of 2020, the national economy in the People's Republic of China ("China" or the "PRC") faced a downward pressure under the outbreak of the Novel Coronavirus (the "COVID-19"). According to the National Bureau of Statistics of China, while China's gross domestic product ("GDP") dropped by 1.6% in the first half of 2020, it decreased by 6.8% in the first quarter of 2020 and grew by 3.2% in the second quarter of 2020 over the corresponding periods in 2019. National fixed asset investments declined by 2.3% over the corresponding period in 2019 to RMB28.2 trillion.

According to the National Bureau of Statistics of China, in the first half of 2020, the utilisation rate of industrial production capacity in China was 71.1%, representing a decrease of 5.1 percentage points over the corresponding period in 2019. In June 2020, China's composite Purchasing Managers' Index ("PMI") output index was 50.9%, representing an increase of 0.3 percentage point from the previous month, an increase of 1.5 percentage points as compared to that in June 2019. In February 2020, the PMI dropped to 35.7% and bounced back to over 50% in June 2020, indicating that the production and operation activities of enterprises in China were recovering.

According to the National Development and Reform Commission of China, total electricity consumption in China was 3.4 trillion kilowatt-hours in the first half of 2020, representing a slight decrease of 1.3% over the corresponding period in 2019, notwithstanding that there was an increase of 6.1% in electricity consumption in June 2020 as compared to June 2019. In the first half of 2020, electricity consumption in the industrial and manufacturing sectors declined by 2.4% as compared to the same period last year. Residential electricity consumption increased by 6.6% as compared to the same period last year. In respect of the supply and transmission of electricity, according to the statistics of the Industry Development and Environmental Resources Division of the China Electricity Council, a joint organisation of China's power enterprises and institutions approved to be established by the State Council, the national production capacity was 2.05 billion kilowatts in the first half of 2020, representing an increase of 5.5% as compared to the same period in last year, which was mainly due to the increase in the installed power generation capacity of new energy. In the first half of 2020, the national infrastrucuture production capacity increased by 36.95 million kilowatts, representing a decrease of 3.78 million kilowatts as compared to the same period in 2019. In the first half of 2020, the major power generation enterprises in China completed investments in respect of power supply works of RMB17.38 billion, which were 51.5% higher than those in the corresponding period in 2019. The investments completed under the national grid project amounted to RMB165.7 billion in the first half of 2020, representing an increase of 0.7% over those in the corresponding period in 2019. In spite of the decrease in electricity consumption in the industrial and manufacturing sectors, the increase in completed investments in power supply works provided a support to the Group's sales of cables in the power segment during the first half of 2020.

According to the National Bureau of Statistics of China, national infrastructure investments (excluding the production and supply of electricity, heat, gas and water) reached RMB6.4 trillion in the first half of 2020, representing a decrease of 2.7% over the corresponding period in 2019, which was mainly dragged down by the 6.2% drop in the investments of public utilities. On the other hand, investments in the road transportation industry and the railway transportation industry increased by 0.8% and 2.6% respectively. The increase in infrastructure investments in the railway transportation industry has provided support to the stable demand for both the general and special power cables of the Group.

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Jiangnan Group Limited Interim Report 2020

CHAIRMAN'S STATEMENT

With regard to the property sector, according to the National Bureau of Statistics of China, Investments in real estate development in China reached RMB6.3 trillion in the first half of 2020, representing an increase of 1.9% over the corresponding period in 2019. In the first half of 2020, the floor space of commodity housing sold in China decreased by 8.4% over the corresponding period in 2019 to 690 million square metres and the sales decreased by 5.4% to RMB6.7 trillion. In the first half of 2020, the floor space of houses under development decreased by 7.6% over the corresponding period in 2019 to 980 million square metres, and the floor space of houses completed decreased by 10.5% over the corresponding period in 2019 to 290 million square metres. At the end of June 2020, the floor space of houses under construction by developers reached 7.93 billion square metres, representing an increase of 2.6% over the corresponding period in 2019. The land areas purchased by the real estate developers in the first half of 2020 amounted to 80 million square metres, representing a decrease of 0.9% over the corresponding period in 2019. With the implementation of "city- specific policies" based on the principle of "one policy for one city" and in the absence of major policy changes and new external shocks, China's real estate market will continue the trend of stable recovery and growth, which also supports the sales of the relevant cable products of the Group.

In the first half of 2020, the trend of the price of copper, a key raw material of the cable products of the Group, can be divided into two stages. In the first stage, copper prices on the London Metal Exchange Limited ("LME") fell from $6,166 per tonne in January to a low of $4,617 per tonne on 23 March 2020, representing a decline of 25.1%. The main reason was that the operations of most enterprises were suspended due to the outbreak of COVID-19 and the demand for copper did not start to slowly recover until the end of March 2020. The second stage began in April 2020. Following the control of the epidemic in China, Chinese enterprises gradually resumed production and operations, and demand for copper gradually recovered. At the same time, the epidemic has become more severe overseas, leading to frequent stoppage of copper mining in overseas countries which affected copper supply. As a result, LME copper prices rose back to $6,038 per tonne at the end of June 2020. For the six months ended 30 June 2020, the average price of copper on the LME was USD5,490 per tonne, which was 11.0% lower than that in the corresponding period in 2019. For the six months ended 30 June 2020, the average price of aluminium (another major raw material of the cable products of the Group) on the LME was USD1,267 per tonne, which was 8.0% lower than that in the corresponding period in 2019. As the Group prices its products on a cost-plus basis, the decrease in raw material prices has led to the downward adjustment of the Group's product prices, affecting the turnover of the Group for the period under review.

BUSINESS REVIEW

For the six months ended 30 June 2020, being held back by the outbreak of COVID-19 and the decline in the prices of its raw materials, such as copper and aluminium, the Group recorded a turnover of approximately RMB4,996.7 million, representing a decrease of approximately 20.0% as compared to that in the corresponding period in 2019.

Looking back into the first half of 2020, the outbreak of COVID-19 has caused significant adverse impacts on the economy in the PRC. The wire and cable industry is one of the largest supporting industries in the national economy of China with its products being applied to all areas of the national economy, yet the industry has been inevitably hit by COVID-19. As the overall demand for copper and aluminium decreased, their prices fell and would not pick up until the economy began to recover, which would tighten up the supply of these raw materials in the market. In the first half of 2020, the actual investments made by State Grid Corporation of China ("SGCC"), a major customer of the Group, did not reach 40% of its planned investments, which has also caused a negative impact on the turnover of the Group directly. The Group has strived to overcome the difficulties in these tough economic times and strengthen its employee health management to prevent the spread of COVID-19 among its employees. With the efforts and support from its staff, the Group was among the first batch of enterprises which have resumed production and operation in Yixing City. The Group has made all efforts to minimise the impacts caused by COVID-19. For the six months ended 30 June 2020, as its turnover decreased and its costs increased, the Group recorded a considerable decrease in profit, as compared with the six months ended 30 June 2019. Accordingly, the profit of the Group amounted to approximately RMB20.7 million for the first half of 2020, representing a decrease of approximately 82.5% as compared with that for the corresponding period in 2019.

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Jiangnan Group Limited Interim Report 2020

CHAIRMAN'S STATEMENT

In respect of the Group's overseas business, direct export sales in the first half of 2020 dropped by 61.2% as compared to the corresponding period in 2019. On one hand, as COVID-19 continued to spread across the world, the epidemic remained severe in major economies, such as the United States of America (the "US"), India and South Africa, in spite of the attempts taken to control and prevent its further spread, which has caused increasing downward pressure and recession risks to the global economy. On the other hand, confrontation between China and the US continued to escalate. The US government held down high-tech enterprises from China, interfered with the affairs of Hong Kong and Xinjiang by using the excuse of human rights issues, and compulsorily ordered China to close its consulate, etc. The continuous deterioration of relations between China and the US has affected the confidence in global economic development, which has caused certain impacts on the overseas export business of the Group. The Group will continue to vigorously explore both its domestic and overseas markets, aiming to establish a new development pattern, under which the domestic cyclic economy will play a leading role, while the domestic cyclic economy and the overseas cyclic economy will be able to generate mutual benefits. In the domestic market, the Group will fully exploit the potential of its existing market and actively expand into new ones; in the overseas market, the Group will restart and accelerate the sales and delivery of goods in foreign markets such as Singapore, and try to make up the short fall in the sales balance previously caused by COVID-19 as soon as possible.

In respect of the internal management of the Group, the Group continued to further push forward its Secondary Production Assessment and Secondary Back-Office Assessment in the first half of 2020, and devoted great efforts to the cultivation of three types of talents, i.e. high-level personnel, reserve personnel and industrial workers. The Group has entered into joint personnel training agreements between university and enterprise with Jiangsu University of Science and Technology (江蘇 科技大學) and Wuxi Vocational Institute of Arts & Technology (無錫工藝職業技術學院). Pursuant to these agreements, Jiangnan Group Engineer Training Camp and Reserve Personnel Training Classes have been launched, which will provide talent and intelligence support for the high quality development of the Group. The Group continued to boost intelligent manufacturing, green manufacturing and safe development. In terms of intelligent manufacturing, the Group introduced world-class production equipment, devoted greater efforts to the intelligent transformation of its existing equipment, and established SAP business and finance integration system, remote supervision system on manufacturing and other systems to promote in-depth integration of industrialisation and informatisation. In terms of green manufacturing, the Group established a comprehensive production and energy management mode in respect of green design, green manufacturing, environmentally friendly products, green supply chain, clean production and recycling, etc., and was awarded the first "Pioneering Enterprise in Global Climate" in the cable industry in the PRC. In terms of safety development, the Group placed an unprecedented emphasis on production safety. During the period under review, the Group improved the production safety awareness of all of its staff by organising a series of activities with the theme of "Production Safety Month", aiming to provide strong support for the continuing stable development of the Group.

In respect of the research and development and innovation of the Group, the Group established cooperation relationships in respect of university research with Germany Rhine Science and Technology (Shanghai) Company Limited* (德國萊茵科技 （上海）有限公司), Naval University of Engineering and Shanghai Jiao Tong University in the first half of 2020. The Group is committed to the research and development of new products, new materials and new technology as well as the synchronous research and development of civilian goods and military supplies. The Group adheres to a customer demand- oriented philosophy. During the period under review, the Group focused on the research and development of products required in the areas of construction under the "Two New and One Major" initiative taken by the Chinese government, being the new type of infrastructure construction, new type of urbanisation construction and major engineering construction, such as traffic and hydraulic engineering. Several new products, such as fire-resistantsub-cables, waterproof tree-like and medium-voltage power cables and electric automobile charging cables, were put into the trial production stage, and relevant application of intellectual property was also in progress. In March 2020, Jiangsu Provincial Government issued the "Decision on Granting 2019 Jiangsu Province Science and Technology Awards" (《關於2019年度江蘇省科學技術 獎勵的決定》), in which Wuxi Jiangnan Cable Co., Ltd. (無錫江南電纜有限公司) ("Jiangnan Cable"), a subsidiary of the Company, was awarded the Second Class Prize for developing the key technology and its series of products specific to low- consumption and green energy-saving cables for intelligent grids. This prize reflected that the Group's devotion to research and development and its innovation were fully recognised.

*  For identification purpose only

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Jiangnan Group Limited Interim Report 2020

CHAIRMAN'S STATEMENT

The Group was committed to exercise measures to prevent and control the spread of COVID-19 and push forward with the resumption of its production and operation simultaneously in the first half of 2020. The Group was among the first batch of enterprises which were approved to resume production and operation in Yixing City. During the period under review, while the Group pushed forward resumption of its internal production and operation, it also actively fulfilled its social responsibilities. During the Spring Festival, Jiangnan Cable took the initiative to work overtime to arrange for the sourcing of goods and the timely delivery of the same for the construction of Leishenshan Hospital in Wuhan. It spared no effort to guarantee the supply of the cables for the construction of the hospital in Wuhan and ensured completion of the construction as scheduled. In July 2020, as Enshi in Hubei Province was damaged by heavy rainstorm which triggered floods, Jiangnan Cable urgently allocated cable materials to Enshi, which demonstrated its commitment as a large enterprise and its active fulfilment of its social responsibilities.

During the period under review, the Group was awarded "Wuxi Public Overseas Warehouse"* (無錫市公共海外倉), "Excellent Enterprise in Outstanding Industrial City of Wuxi"* (無錫市產業強市優秀企業), "Wuxi Demonstrative Enterprise in Credit Management"* (無錫市信用管理示範企業), "Yixing City Top Ten Enterprises in Tax Contribution"* (宜興市稅收貢獻十 強企業), "Yixing City Demonstrative Enterprise for High Quality Industrial Development"* (宜興市工業高品質發展示範企業), "Yixing City Demonstrative Enterprise for Scientific and Technological Advancement"* (宜興市科技進步示範企業), "Yixing City Advanced Collective for Science and Technology Association Work of Enterprise"* (宜興市企業科協工作先進集體), among other honours. The academician research workstation of the Group was also awarded "Wuxi Excellent Institution in Research and Development"* (無錫市優秀研發機構).

STRATEGIES AND PROSPECTS

According to the "Government Work Report of the State Council for the Year 2020" (《2020年國務院政府工作報告》), the PRC government would place an emphasis on supporting the "Two New and One Major" construction initiative. Such initiative would principally involve seven major sectors, including the construction of 5G base stations, ultra-high voltage, intercity high speed railways and urban rail transit, charging stations for new energy automobiles, big data centers, artificial intelligence and industrial internet. The initiative would also involve a number of industry chains. Behind each sector of intercity high speed railways, urban rail transit, construction of 5G base stations and big data centers, there would be a market worth at least RMB1 trillion with enormous investment potential. This will bring a wave of benefits to the cable industry, and the demand for cables will experience another wave of growth. Therefore, the Group is still full of confidence towards the prospects of the wire and cable industry in China.

On 21 July 2020, Xi Jinping, the General Secretary of China, chaired and convened an entrepreneur forum in Beijing and delivered an important speech. He expressly indicated that the government would implement hardship relief and preferential policies for enterprises to stimulate the vitality of the major market players, so as to create a market-oriented, institutionalised and internationalised business environment, build close relationships between the government and the business sector that are free of corruption, give a strong emphasis and provide support to the development of individual industrial and commercial enterprises, etc. The speech further strengthened the confidence of enterprises on development and provided guidelines for enterprises on development.

The estimated investment of SGCC for the year 2020 amounted to RMB450 billion, and was revised to RMB460 billion in July 2020. However, since the actual investments made by SGCC did not exceed 40% of its planned investments during the first half of 2020, there is a possibility that SGCC would accelerate its progress of work in the second half of 2020, which is expected to boost the demand for cables.

*  For identification purpose only

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Jiangnan Group Limited Interim Report 2020

CHAIRMAN'S STATEMENT

Based on an analysis conducted on the overall economic situation in 2019 and China's national policies, the Group has finalised the overall direction of its operations. Confronted with various pressure and challenges in 2020, such as the impacts caused by COVID-19, the drastic fluctuation in the prices of raw and auxiliary materials and the uncertainties in the global economy, the Group has formulated its overall development principle of prudent progress to improve the quality and efficiency of its development. As for management, the Group continued to consolidate its management foundation and pushed forward intelligent manufacturing, green manufacturing and lean manufacturing, aiming to reduce its expenditure and consumption and implement highly efficient management; as for research and development, the Group further optimised its product mix and steadily improved its product quality, aiming to create more "quality" and "new" cables; as for production, in the first half of 2020, the Group set up four 35kV ultra high-speed production lines for medium voltage cross-linked cables. As at the date hereof, the Group has completed the installation of these production lines and is currently carrying out trial operation. With the gradual growth of the quantity of orders from its customers as the economy starts to recover, the Group is planning to import four additional ultra high-speed production lines for cross-linked cables. Meanwhile, for the purpose of being able to better participate in the "Two New and One Major" construction initiative, the Group is planning to acquire land for construction use, aiming to release its development potential by devoting greater efforts to technology advancement and production capacity improvement. While the performance of its sales in the first half of 2020 was affirmative under the harsh economic environment, the Group is clearly aware of certain problems in its operation:

1. In the first half of 2020, demand for the Group's products from its domestic and overseas markets shrank as a result of the outbreak of COVID-19. In particular for the Group's export business, as the logistics channels were blocked, the projects of counterparties were suspended, and a number of completed orders of the Group were backlogged and could not be delivered, there was considerable pressure on the Group's cash flow. Moreover, as it is expected that the Group will increase its future capital expenditures, it will consider and explore more financing options to provide sufficient resources for its future development.
2. In the first half of 2020, the production operation of the Group was generally suspended throughout February due to the outbreak of COVID-19. Nevertheless, the Group actively fulfiled its social responsibilities during the period under review. It did not lay off any employee during the outbreak of COVID-19, and paid their remuneration in strict accordance with relevant laws and regulations. To support its operation in the then adverse business environment, the Group incurred substantially higher administrative costs, finance costs, selling costs and transportation costs, which resulted in a significant decrease in its net profit as compared with that in the corresponding period in the previous year.
3. At present, the biggest challenge facing the development of the Group is that the overall domestic and overseas economic situation is confronted with various risks and uncertainties. It is expected that the impacts on the global economy caused by the spread of COVID-19 across the world will not disappear in a short period of time. Furthermore, the prospects of the global economy are shadowed by increasingly intensified conflicts between China and the US. Against this background, the Group must accurately grasp the market situation for its development and steadily push forward its expansion in the international and domestic markets.
4. The Group will persistently devote its continuous efforts in research and development of high-end wire and cable products, high-end materials and high-end techniques, focus on the breakthrough of key and core technologies, strengthen the protection of self-owned intellectual property rights and accelerate the transformation and upgrade of the Group, so as to deliver high quality products, build a high-end brand image and enhance its competitiveness in the international market.

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Jiangnan Group Limited Interim Report 2020

CHAIRMAN'S STATEMENT

ACKNOWLEDGEMENT

On behalf of the board (the "Board") of directors (the "Directors", each a "Director") of the Company, I would like to express my heartfelt gratitude to the shareholders, investors, business partners, customers and suppliers of the Group for their long-lasting support and to all Board members, the management team and all employees of the Group for their efforts and commitment.

Chu Hui

Chairman and Chief executive officer

Hong Kong, 24 August 2020

8

EXECUTIVE DIRECTORS

Chu Hui (Chairman, Chief Executive Officer and Chairman of

• the Corporate Governance Committee) Xia Yafang (Executive Vice-president)Jiang Yongwei (Vice-president)

INDEPENDENT NON-EXECUTIVE DIRECTORS

He Zhisong (Chairman of the Nomination Committee and

• the Remuneration Committee) Yang Rongkai
  Kan Man Yui Kenneth (Chairman of the Audit Committee)

AUTHORISED REPRESENTATIVES

Chan Man Kiu

Xia Yafang

COMPANY SECRETARY

Chan Man Kiu, CPA, FCCA

PRINCIPAL SHARE REGISTRAR

AND TRANSFER OFFICE

Conyers Trust Company (Cayman) Limited Cricket Square, Hutchins Drive, P.O. Box 2681 Grand Cayman, KY1-1111, Cayman Islands

HONG KONG BRANCH SHARE REGISTRAR AND TRANSFER OFFICE

Tricor Investor Services Limited

Level 54 Hopewell Centre

183 Queen's Road East, Wanchai

Hong Kong

REGISTERED OFFICE

Cricket Square, Hutchins Drive, P.O. Box 2681 Grand Cayman, KY1-1111, Cayman Islands

Jiangnan Group Limited Interim Report 2020

CORPORATE INFORMATION

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

Unit 09, 23/F, Metropole Square, 2 On Yiu Street Shatin, N.T., Hong Kong

PRINCIPAL PLACE OF BUSINESS IN CHINA

53 Xinguandonglu, Guanlin Town, Yixing City Jiangsu Province, China

INDEPENDENT AUDITOR

Deloitte Touche Tohmatsu

Certified Public Accountants, Hong Kong

LEGAL ADVISORS

Conyers Dill & Pearman (Cayman) Limited   (Cayman Islands laws)

LCH Lawyers LLP (Hong Kong laws) AllBright Law Offices (PRC laws)

STOCK CODE

1366

WEBSITE

www.jiangnangroup.com

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Steady Growth in the Wire and Cable industry in the past and for the Future

Jiangnan Group Limited Interim Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS

OVERALL PERFORMANCE

For the period under review, the Group recorded a turnover of approximately RMB4,996.7 million, representing a decrease of approximately 20.0% as compared with that in the corresponding period in 2019, and a profit for the period under review of approximately RMB20.7 million, representing a decrease of approximately 82.5% as compared with that in the corresponding period in 2019. The decrease in the profit for the period under review was mainly due to (i) the decrease in turnover as compared with that in the corresponding period in 2019 due to various preventive and emergency measures, such as a partial lockdown policy and extension of the Chinese New Year holidays for the sake of minimising the population movements to mitigate the threat of spreading COVID-19 across the PRC, implemented by the Chinese government during the outbreak of COVID-19 in the PRC in early 2020; (ii) the increase in selling and distribution costs by approximately 52.5% to approximately RMB221.5 million as compared with that in the corresponding period in 2019, which was mainly due to (a) the increase in the costs incurred in providing better technical supports and after-sales services to the customers; and (b) the increase in costs incurred in bidding projects; (iii) the increase in administrative expenses by approximately 14.8% to approximately RMB134.8 million as compared with that in the corresponding period in 2019, which was mainly due to the increase in staff costs and general expenses for enhancement of business and employee health management; and (iv) the turning of an exchange gain of approximately RMB14.2 million for the six months ended 30 June 2019 to an exchange loss of approximately RMB15.4 million for the period under review, all partially offset by (i) the substantial reduction in impairment loss under expected credit loss ("ECL") model, net of reversal by approximately 96.8% to approximately RMB3.4 million (six months ended 30 June 2019: RMB104.5 million), mainly due to the amount and aging of trade and other receivables over one year remaining stable during the period under review; (ii) the turning of share of losses from associates of approximately RMB5.4 million for the six months ended 30 June 2019 to share of profits from associates of approximately RMB2.1 million during the period under review; (iii) the reduction in finance costs by approximately 12.2% to approximately RMB135.5 million compared with that in the corresponding period in 2019, which was mainly due to the reduction in the interest rates used in the discounting of bank and commercial bills during the period under review; and (iv) the decrease in taxation by approximately 73.2% to approximately RMB8.5 million as compared to that in the corresponding period in 2019 as a result of the substantial reduction in taxable profit for the period under review. Basic earnings per share for the period under review was RMB0.34 cents while that for the six months ended 30 June 2019 was RMB2.93 cents (restated), representing a decrease of approximately 88.4%.

MARKET AND BUSINESS REVIEW

According to the statistical data published by the National Bureau of Statistics of the PRC, the gross domestic product of the PRC dropped by 1.6% in the first half of 2020 due to the outbreak of COVID-19 in the PRC in early 2020 and around the world which caused significant adverse impacts on the economy in the PRC. As COVID-19 continued to spread across the world, the epidemic remained severe in major economies, such as the US, India and South Africa, in spite of the attempts taken to control and prevent its further spread, which has caused increasing downward pressure and recession risks to the global economy. On the other hand, the confrontation between China and the US continued to escalate. The US government held down high-tech enterprises from China, interfered with the affairs of Hong Kong and Xinjiang by using the excuse of human rights issues, and compulsorily ordered China to close its consulate, etc. The continuous deterioration of relations between China and the US has affected the confidence in global economic development, which has caused certain impacts on the overseas export business of the Group. For the six months ended 30 June 2020, the average price of copper on the LME was USD5,490 per tonne, which was 11.0% lower than that in the corresponding period in 2019. For the six months ended 30 June 2020, the average price of aluminium was USD1,267 per tonne, which was 8.0% lower than that in the corresponding period in 2019. As the Group prices its products on a cost-plus basis, the decrease in raw material prices has driven down the Group's average product prices during the period under review.

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Jiangnan Group Limited Interim Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS

TURNOVER

For the six months
ended 30 June		Turnover		Gross Profit Margin
			Percentage
	2020	2019	Change	2020	2019	Change
	RMB million	RMB million
Power cables	3,289.3	4,443.4	-26.0%	11.0%	10.4%	0.6%
Wires and cables for electrical
equipment	1,042.2	1,240.8	-16.0%	5.1%	6.7%	-1.6%
Bare wires	185.5	162.3	14.4%	11.8%	10.5%	1.3%
Special cables	479.7	400.5	19.8%	20.2%	23.8%	-3.6%
Total	4,996.7	6,247.0	-20.0%	10.7%	10.5%	0.2%

Power Cable Products - 65.8% of Total Turnover

For the period under review, turnover from power cable products amounted to approximately RMB3,289.3 million, representing a decrease of approximately 26.0% over that for the corresponding period in 2019 (six months ended 30 June 2019: RMB4,443.4 million), and turnover of power cables accounted for approximately 65.8% of the total turnover of the Group. Sales volume of the Group's power cable products significantly decreased by approximately 19.3% to approximately 82,896 km (six months ended 30 June 2019: 102,711 km), mainly attributable to the outbreak of COVID-19, which had reduced customers' consumption of the Group's products during the period under review. Due to the decrease in the average copper price, the average price of the power cable products for the period under review decreased by approximately 8.3% to approximately RMB39,680 per km (six months ended 30 June 2019: RMB43,261 per km). Gross profit for the period under review decreased to approximately RMB363.2 million (six months ended 30 June 2019: RMB461.2 million) in line with the decrease in turnover during the period under review, while gross profit margin increased to approximately 11.0% (six months ended 30 June 2019: 10.4%) due to the increase in sales proportion of higher profit margin products.

Wires and Cables for Electrical Equipment Products - 20.9% of Total Turnover

For the period under review, turnover from wires and cables for electrical equipment decreased by approximately 16.0% to approximately RMB1,042.2 million (six months ended 30 June 2019: RMB1,240.8 million). Sales volume of wires and cables for electrical equipment decreased by approximately 5.3% from approximately 634,916 km for the six months ended 30 June 2019 to approximately 601,445 km for the period under review due to the outbreak of COVID-19, which had reduced customers' consumption of the Group's products during the period under review. The average price of wires and cables for electrical equipment decreased by approximately 11.3% from approximately RMB1,954 per km for the six months ended 30 June 2019 to approximately RMB1,733 per km for the period under review, mainly due to the decrease in the average copper price during the period under review. The gross profit for the period under review decreased to approximately RMB52.8 million (six months ended 30 June 2019: RMB83.3 million) and the gross profit margin for the period under review decreased to approximately 5.1% (six months ended 30 June 2019: 6.7%), mainly due to the decrease in turnover during the period under review and the fierce market competition of the cable products which carried lower profit margin.

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Jiangnan Group Limited Interim Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Bare Wire Products - 3.7% of Total Turnover

Turnover from bare wires increased by approximately 14.4% to approximately RMB185.5 million (six months ended 30 June 2019: RMB162.3 million) for the period under review and sales volume of bare wires increased by approximately 8.9% from approximately 12,200 tonnes for the six months ended 30 June 2019 to approximately 13,287 tonnes for the period under review, attributable to the increase in the demand for aluminum-alloy products by SGCC, a major customer of the Group. The average price of bare wire products increased by approximately 5.0% to approximately RMB13,962 per tonne (six months ended 30 June 2019: RMB13,296 per tonne) due to the increase in the sales of aluminum-alloy bae wire products with higher voltage carrying higher selling prices, which outweighed the decrease in the average aluminum price during the period under review. Due to the same reason as above mentioned, the gross profit margin of bare wire products increased by approximately 1.3% to 11.8% for the period under review (six months ended 30 June 2019: 10.5%).

Special Cable Products - 9.6% of Total Turnover

During the period under review, the sales volume of special cables increased to approximately 25,439 km (six months ended 30 June 2019: 22,791 km) due to the increase in infrastructure investments in the railway transportation industry, which has provided support to the stable growth of the demand for the special power cables of the Group. The average selling price of special cables increased by approximately 7.3% from approximately RMB17,574 per km for the six months ended 30 June 2019 to approximately RMB18,857 per km for the period under review. This increase in the average selling price was mainly due to the decrease in the average price of copper being outweighed by the increase in the sales of cables with special functionality which carried higher production costs during the period under review. However, the gross profit margin of special cables decreased by approximately 3.6% to approximately 20.2% (six months ended 30 June 2019: 23.8%) due to the change of product mix during the period under review.

Turnover by Geographical Markets

The PRC remains the Group's key market. Sales in the PRC market for the period under review decreased by approximately 19.0% to approximately RMB4,936.0 million (six months ended 30 June 2019: RMB6,090.4 million), which accounted for approximately 98.8% of the Group's total turnover, and such decrease was primarily due to the outbreak of COVID-19 which had reduced customers' consumption of the Group's products during the period under review.

Revenue contributed by the overseas markets for the period under review decreased by approximately RMB95.9 million or approximately 61.2% as compared with that for the corresponding period in 2019. This decrease was mainly attributable to the decrease in sales in Singapore and South Africa as a result of the outbreak of COVID-19 in the local markets of those countries during the period under review.

Cost of Goods Sold

Cost of goods sold which was composed of the costs of raw materials, production costs and direct labour costs, decreased by approximately 20.2% to approximately RMB4,462.1 million during the period under review (six months ended 30 June 2019: RMB5,590.0 million). Costs of raw materials accounted for approximately 95.2% of the cost of goods sold for the period under review, of which copper and aluminium were the Group's major raw materials accounting for approximately 79.2% of the cost of goods sold for the period under review on an aggregate basis. Direct labour costs increased and accounted for approximately 1.5% of the total cost of goods sold for the period under review. The remaining balance of approximately 3.3% of the cost of goods sold for the period under review was attributable to production costs, which mainly consisted of depreciation of equipment used in the production process, maintenance of production lines and equipment, moulding of parts and components and other miscellaneous production-related costs.

13

Jiangnan Group Limited Interim Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Gross Profit and Gross Profit Margin

Gross profit decreased by approximately RMB122.3 million, or approximately 18.6%, from approximately RMB657.0 million for the six months ended 30 June 2019 to approximately RMB534.6 million for the period under review. Gross profit margin increased slightly to approximately 10.7% for the period under review from approximately 10.5% for the six months ended 30 June 2019. The decrease in gross profit for the period under review was in line with the decrease in turnover during the period under review.

Profit for the Period

Profit for the period under review decreased significantly by approximately 82.5% from approximately RMB118.2 million for the six months ended 30 June 2019 to approximately RMB20.7 million for the period under review. The decrease in the profit for the period under review was mainly due to (i) the decrease in turnover as compared with that in the corresponding period in 2019 due to various preventive and emergency measures, such as a partial lockdown policy and extension of the Chinese New Year holidays for the sake of minimising the population movements to mitigate the threat of spreading COVID-19 across the PRC, implemented by the Chinese government during the outbreak of COVID-19 in the PRC in early 2020; (ii) the increase in selling and distribution costs by approximately 52.5% to approximately RMB221.5 million as compared with that in the corresponding period in 2019, which was mainly due to (a) the increase in the costs incurred in providing better technical supports and after-sales services to the customers; and (b) the increase in costs incurred in bidding projects; (iii) the increase in administrative expenses by approximately 14.8% to approximately RMB134.8 million as compared with that in the corresponding period in 2019, which was mainly due to the increase in staff costs and general expenses for enhancement of business and employee health management; and (iv) the turning of an exchange gain of approximately RMB14.2 million for the six months ended 30 June 2019 to an exchange loss of approximately RMB15.4 million for the period under review, all partially offset by (i) the substantial reduction in impairment loss under ECL model, net of reversal by approximately 96.8% to approximately RMB3.4 million (six months ended 30 June 2019: RMB104.5 million), mainly due to the amount and aging of trade and other receivables over one year remaining stable during the period under review; (ii) the turning of share of losses from associates of approximately RMB5.4 million for the six months ended 30 June 2019 to share of profits from associates of approximately RMB2.1 million during the period under review; (iii) the reduction in finance costs by approximately 12.2% to approximately RMB135.5 million compared with that in the corresponding period in 2019, which was mainly due to the reduction in the interest rates used in the discounting of bank and commercial bills during the period under review; and (iv) the decrease in taxation by approximately 73.2% to approximately RMB8.5 million as compared to that in the corresponding period in 2019 as a result of the substantial reduction in taxable profit for the period under review.

Selling and Distribution Costs

Selling and distribution costs mainly represent the Group's salary and welfare expenses for employees involved in selling and distribution activities, services costs for providing technical supports and after-sales services, transportation costs for delivery of products to customers and other selling expenses, including marketing expenses, advertising and promotion expenses and other miscellaneous expenses.

The selling and distribution costs increased by approximately RMB76.2 million, or approximately 52.5%, from approximately RMB145.2 million for the six months ended 30 June 2019 to approximately RMB221.5 million for the period under review. The increase in selling and distribution costs was mainly due to (i) the increase in the costs incurred in providing better technical supports and after-sales services to the customers; and (ii) the increase in the costs incurred in bidding projects. With the decrease in turnover, the selling and distribution costs as a percentage of turnover increased from approximately 2.3% for the six months ended 30 June 2019 to approximately 4.4% for the period under review.

14

Jiangnan Group Limited Interim Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Administrative Expenses

Administrative expenses increased by approximately RMB17.4 million, or approximately 14.8%, from approximately RMB117.4 million for the six months ended 30 June 2019 to approximately RMB134.8 million for the period under review, mainly due to the increase in staff costs and general expenses for enhancement of business and employee heath management during the period under review. With the decrease in turnover, the administrative expenses as a percentage of turnover increased from approximately 1.9% for the six months ended 30 June 2019 to approximately 2.7% for the period under review.

Research and Development Costs

Research and development costs increased by approximately 6.9% from approximately RMB28.9 million for the six months ended 30 June 2019 to approximately RMB30.8 million for the period under review. This increase was mainly resulted from the increase in the Group's expenditures on research and development of new products and technology in relation to higher gross margin products during the period under review, as compared to those in the corresponding period in 2019.

Other (Losses) Gains, Net

Other (losses) gains, net were mainly composed of exchange gain and gain on disposal of property, plant and equipment. Other (losses) gains, net turned from net gains of approximately RMB14.3 million for the six months ended 30 June 2019 to net losses of approximately RMB13.9 million for the period under review, which was mainly caused by the turning of an exchange gain for the six months ended 30 June 2019 to an exchange loss for the period under review due to the depreciation of Renminbi (the "RMB") during the period under review.

Impairment Losses under ECL Model, Net of Reversal

Impairment losses under ECL model, net of reversal mainly represented the net impairment losses on trade and other receivables, which decreased by approximately RMB101.1 million, or approximately 96.8%, from approximately RMB104.5 million for the six months ended 30 June 2019 to approximately RMB3.4 million for the period under review. The decrease was mainly due to the decrease in impairment losses on trade receivables because of the amount and aging of trade and other receivables over one year remaining stable during the period under review and the write-back of a debt owed to the Group of RMB25 million as at 30 June 2020 which was included in other receivables, taking into consideration the collection of such debt by the Group from the debtor.

Finance Costs

Finance costs decreased by approximately 12.2% from approximately RMB154.3 million for the six months ended 30 June 2019 to approximately RMB135.5 million for the period under review, which was mainly attributable to the reduction in the interest rates used in the discounting of bank and commercial bills used in financing the Group's operations during the period under review. Finance costs as a percentage of turnover increased from approximately 2.5% for the six months ended 30 June 2019 to approximately 2.7% for the period under review.

Taxation

The Group's taxation decreased by approximately RMB23.3 million, or approximately 73.2%, from approximately RMB31.8 million for the six months ended 30 June 2019 to approximately RMB8.5 million for the period under review. The decrease in taxation was due to the decrease in the taxable profits of the Group during the period under review. The effective tax rate for the period under review was approximately 29.2% (six months ended 30 June 2019: 21.2%). The increase in the effective tax rate was mainly due to the increase in the proportion of the losses generated from the subsidiaries of the Company overseas which did not have any assessable profits.

15

Jiangnan Group Limited Interim Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Financial Position and Liquidity

As at 30 June 2020, total assets of the Group amounted to approximately RMB15,207.7 million (31 December 2019: RMB15,579.5 million).

Non-current assets increased by approximately 1.5% from approximately RMB1,287.2 million as at 31 December 2019 to approximately RMB1,306.2 million as at 30 June 2020. The increase was due to the addition of property, plant and equipment and the increase in the deposits paid for the acquisition of property, plant and equipment, which was partially offset by the decrease in a loan advanced to an associate of the Company during the period under review.

Current assets decreased by approximately 2.7% from approximately RMB14,292.3 million as at 31 December 2019 to approximately RMB13,901.5 million as at 30 June 2020, which was mainly due to the decrease in bank balances, partially offset by the increase in inventories and trade and other receivables during the period under review.

The Group's treasury policy is to keep its investment costs under control and manage the returns of its investments efficiently. Short-term borrowings work better than long-term borrowings to finance the Group's working capital needs. Any excess cash that is generated from the Group's operations will be placed in short-term and low-risk banking products that are not sensitive to foreign exchange fluctuations to maximise the Group's investment returns.

Total bank borrowings increased by approximately 12.7% from approximately RMB3,252.8 million as at 31 December 2019 to approximately RMB3,664.8 million as at 30 June 2020. Of the Group's total bank borrowings as at 30 June 2020, approximately 97.5% of the short-term borrowings were made by the Group's subsidiaries in the PRC. These loans were not guaranteed by the Company.

Total equity was approximately RMB6,293.0 million as at 30 June 2020, which was approximately 0.2% lower than that of approximately RMB6,308.2 million as at 31 December 2019. The decrease was mainly due to the net effect of the profits generated and the payment of the final dividend for the year ended 31 December 2019 during the period under review.

The net-debt-to-equity ratio of the Group, defined as a percentage of net interest-bearing borrowings (bank borrowings less bank balances and cash, bank deposits with original maturity over three months and pledged bank deposits) of approximately negative RMB635.5 million over total equity of approximately RMB6,293.0 million as at 30 June 2020, dropped from approximately -30.1% as at 31 December 2019 to approximately -10.1%. As compared with the net-debt-to-equity ratio of -17.2% as at 30 June 2019, the net-debt-to-equity ratio of the Group as at 30 June 2020 also dropped. The deterioration in the net-debt-to-equity ratio as at 30 June 2020 as compared with that as at 31 December 2019 was mainly due to the decrease in the bank balances held by the Group as at 30 June 2020.

In addition, the Group had sufficient committed but unused banking facilities of approximately RMB1,887.0 million as at 30 June 2020 to meet the needs of the Group's business development. There was no material seasonality in relation to the borrowing requirements of the Group.

16

Jiangnan Group Limited Interim Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS

During the period under review, the Group's borrowings were mainly denominated in RMB and carried interest at a premium over the RMB benchmark loan interest rates for financial institutions set by the People's Bank of China. As at 30 June 2020, the majority of the Group's bank balances and cash were denominated in RMB. As the Group's revenue was mainly denominated in RMB and major expenses were denominated either in RMB or Hong Kong Dollars, the Group faced relatively low currency risk during the period under review.

As at 30 June 2020, approximately 90.6% (31 December 2019: 89.8%) of the Group's total bank borrowings carried fixed interest rates.

All of the Group's bank borrowings as at 30 June 2020 and 31 December 2019 were due within one year.

During the period under review, the Group disposed of certain property, plant and equipment with an aggregate carrying amount of approximately RMB107,000 (six months ended 30 June 2019: RMB57,000) for cash proceeds of approximately RMB195,000 (six months ended 30 June 2019: RMB138,000), resulting in a gain on disposal of approximately RMB88,000 (six months ended 30 June 2019: RMB81,000).

As at 30 June 2020, the Group has pledged certain of its buildings and machinery with carrying amounts of approximately RMB180.4 million and approximately RMB60.3 million respectively (31 December 2019: buildings with carrying values of approximately RMB162.0 million) to certain banks to secure credit facilities granted to the Group.

During the six months ended 30 June 2020 and 2019, no interest expense was capitalised.

During the six months ended 30 June 2020 and 2019, the Group did not employ any financial instruments for hedging purposes.

Capital Commitments

The capital expenditures in the second half of 2020 are expected to be settled by cash through internal resources of the Group. Please refer to Note 16 of Notes to the Condensed Consolidated Financial Statements for the details of the capital commitments of the Group as at 30 June 2020. Other than those as disclosed, the management of the Group does not expect there to be any plans for material investments or capital assets in the second half of 2020 with reference to the current situation as at the date of this interim report.

Contingent Liabilities

As at 30 June 2020, neither the Group nor the Company had any significant contingent liabilities.

17

Jiangnan Group Limited Interim Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Use of Net Proceeds

Net proceeds from the Initial Public Offering (the "Listing")

The net proceeds from the Listing (after deducting underwriting fees and related expenses) amounted to approximately HK$448.1 million. The amount of unutilised net proceeds from the Listing of approximately HK$51.5 million was brought forward from the year of 2019. The intended use and the actual use of the net proceeds from the Listing as at 30 June 2020 are as follows:

	Intended
	use of net
	proceeds as
	stated in the
	prospectus of	Actual
	the Company	use of
	dated	net proceeds
	10 April	as at
	2012	30 June 2020
	HK$'million	HK$'million
Setting up of production facilities for aluminium alloy and
double capacity conductors	115.0	115.0
Setting up of a manufacturing facility in South Africa	97.0	97.0
Upgrade and expansion of existing production facilities and
enhancement of research and development capabilities	74.0	74.0
Potential acquisitions of the Group	14.1	14.1
Expansion of the Group's production facilities for high and
extra-high voltage cables	148.0	101.4
Total	448.1	401.5

During the period under review, net proceeds from the Listing of approximately HK$4.9 million were used in the expansion of the Group's production facilities for high and extra-high voltage cables. As at the date hereof, the unutilised net proceeds from the Listing amounted to approximately HK$46.6 million, which are expected to be used in the expansion of the Group's production facilities for high and extra-high voltage cables in the coming two years.

18

Jiangnan Group Limited Interim Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Net proceeds from the Rights Issue

The net proceeds from the tights issue (the "Rights Issue") under which the Company issued 2,039,433,000 of its ordinary shares on the basis of one share (the "Rights Share") for every two existing shares in issue held on the record date at the subscription price of HK$0.28 per Rights Share, the completion of which took place on 22 October 2019, amounted to approximately HK$555.5 million (after deducting related expenses). The amount of unutilised net proceeds from the Rights Issue of approximately HK$361.8 million was brought forward from the year of 2019. The intended use and the actual use of the net proceeds from the Rights Issue, as well as the unutilised net proceeds therefrom as at 30 June 2020 are as follows:

	Intended
	use of net
	proceeds as
	stated in the
	prospectus of	Actual
	the Company	use of	Unutilised net
	dated	net proceeds	proceeds
	27 September	as at	as at
	2019	30 June 2020	30 June 2020
	HK$'million	HK$'million	HK$'million
Expansion of the Group's production facilities for
mid-rated voltage power cables	218.2	70.1	148.1
Upgrade and development of the Group's production
facilities for flexible fire-proof cables	37.9	4.5	33.4
Upgrade and expansion of the Group's existing
production facilities and management systems	46.9	37.5	9.4
Repayment of borrowings of the Group	120.0	120.0	-
Potential investment or acquisitions of the Group	110.0	-	110.0
General working capital of the Group	22.5	22.5	-
Total	555.5	254.6	300.9

The unutilised net proceeds from the Rights Issue are expected to be used according to the intended use of net proceeds as stated the the prospectus of the Company dated 27 September 2019 in the coming three years.

Outlook and Prospects

The details of the Group's outlook and prospects are set out in the "Chairman's Statement" in this interim report on pages 6 to 7.

19

Jiangnan Group Limited Interim Report 2020

UNAUDITED INTERIM RESULTS

As at 30 June 2020

The Board is pleased to announce the unaudited condensed consolidated interim results of the Group for the six months ended 30 June 2020 together with the comparative figures for the corresponding period in 2019:

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the six months ended 30 June 2020

			Six months ended
			30.6.2020		30.6.2019
		Notes	RMB'000		RMB'000
			(unaudited)		(unaudited)
Turnover	3	4,996,722		6,246,963
Cost of goods sold		(4,462,085)		(5,590,002)
Gross profit		534,637		656,961
Other income	4	32,286		34,400
Selling and distribution costs		(221,464)		(145,234)
Administrative expenses		(134,807)		(117,427)
Research and development costs		(30,838)		(28,858)
Other (losses) gains, net	5	(13,867)		14,311
Impairment losses under ECL model, net of reversal	6	(3,368)		(104,508)
Share of results of associates		2,072		(5,390)
Finance costs		(135,490)		(154,267)
Profit before taxation	7	29,161		149,988
Taxation	8	(8,503)		(31,769)
Profit for the period		20,658		118,219
Other comprehensive income for the period
Item that will not be reclassified to profit or loss:
	Fair value loss on investment in equity instrument
	at fair value through other comprehensive income		-	(301)

• Item that may be reclassified subsequently to profit or loss:
• Exchange differences arising from translation

of a foreign operation	(8,216)	1,275
Total comprehensive income for the period	12,442	119,193
Earnings per share	10	(restated)
- Basic	RMB0.34 cents	RMB2.93 cents
- Diluted	RMB0.34 cents	RMB2.93 cents

20

Jiangnan Group Limited Interim Report 2020

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2020

				30.6.2020	31.12.2019
			Notes	RMB'000	RMB'000
				(unaudited)	(audited)
	Non-current assets
		Property, plant and equipment	11	913,467	882,855
		Right-of-use assets		298,267	301,862
	Deposits paid for acquisition of property, plant and equipment		12,226	7,242
		Goodwill		54,775	54,775
		Interests in associates		2,919	2,969
	Loan to an associate		21,777	34,404
	Equity instrument at fair value through other comprehensive
		income		964	964
		Deferred tax assets		1,825	2,120
				1,306,220	1,287,191
	Current assets
		Inventories		3,341,723	3,000,870
		Trade and other receivables	12	6,043,399	5,533,205
		Structured deposits		216,000	604,559
		Pledged bank deposits		2,321,592	2,069,840
	Bank deposits with original maturity over three months		735,475	861,345
	Bank balances and cash		1,243,294	2,222,470
				13,901,483	14,292,289
	Current liabilities
		Trade and other payables	13	4,274,592	5,157,812
		Contract liabilities		836,409	710,949
	Amounts due to directors		5,810	5,325
		Bank borrowings - due within one year	14	3,664,821	3,252,800
		Lease liabilities		330	169
		Taxation payable		85,860	96,404
				8,867,822	9,223,459
	Net current assets		5,033,661	5,068,830
	Total assets less current liabilities		6,339,881	6,356,021
	Non-current liabilities
		Lease liabilities		313	-
		Deferred tax liabilities		46,615	47,821
				46,928	47,821
	Net assets		6,292,953	6,308,200
	Capital and reserves
		Share capital	15	51,350	51,350
		Reserves		6,241,603	6,256,850
	Total equity		6,292,953	6,308,200

21

Jiangnan Group Limited Interim Report 2020

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2020

				Shares held	Employee
				for share	share-based	Investment	Non-
	Share	Share	Special	award	compensation	revaluation	distributable	Statutory	Translation	Accumulated
	capital	premium	reserve	scheme	reserve	reserve	reserve	reserve	reserve	profits	Total
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
			(Note a)	(Note 18)	(Note 18)		(Note b)	(Note c)
As at 31 December 2018 (audited)	32,951	1,983,889	148,696	(46,702)	4,691	(2,828)	77,351	449,579	(33,046)	2,809,844	5,424,425
Fair value loss on investment in equity instrument
at fair value through other comprehensive
income	-	-	-	-	-	(301)	-	-	-	-	(301)
Exchange differences arising from translation of
a foreign operation	-	-	-	-	-	-	-	-	1,275	-	1,275
Profit for the period	-	-	-	-	-	-	-	-	-	118,219	118,219
Total comprehensive income for the period	-	-	-	-	-	(301)	-	-	1,275	118,219	119,193
Recognition of equity-settledshare-based
payments	-	-	-	-	394	-	-	-	-	-	394
Deregistration of a subsidiary	-	-	-	6,512	(5,085)	-	-	-	-	(1,427)	-
Transfers	-	-	-	-	-	-	-	17,670	-	(17,670)	-
As at 30 June 2019 (unaudited)	32,951	1,983,889	148,696	(40,190)	-	(3,129)	77,351	467,249	(31,771)	2,908,966	5,544,012
As at 31 December 2019 (audited)	51,350	3,466,619	148,696	(40,190)	-	(6,126)	77,351	487,762	(30,723)	3,153,461	6,308,200
Exchange differences arising from translation of
a foreign operation	-	-	-	-	-	-	-	-	(8,216)	-	(8,216)
Profit for the period	-	-	-	-	-	-	-	-	-	20,658	20,658
Total comprehensive income for the period	-	-	-	-	-	-	-	-	(8,216)	20,658	12,442
Dividend recognised as distribution	-	-	-	-	-	-	-	-	-	(27,689)	(27,689)
Transfers	-	-	-	-	-	-	-	6,175	-	(6,175)	-
As at 30 June 2020 (unaudited)	51,350	2,466,619	148,696	(40,190)	-	(6,126)	77,351	493,937	(38,939)	3,140,255	6,292,953

Notes:

1. The special reserve represents the difference between the nominal value of the shares of the Company issued in exchange for the entire equity interest in Extra Fame Group Limited pursuant to the Group's reorganisation in 2012.
2. The non-distributable reserve represents the capitalisation of retained profit of Jiangnan Cable for the capital re-investment in Jiangnan Cable in 2007.
3. As stipulated by the relevant laws and regulations for foreign investment enterprises in the PRC, the PRC subsidiaries of the Group are required to maintain a statutory surplus fund. Appropriation to such reserve is made out of net profit after taxation as reflected in the statutory financial statements of the Group's PRC subsidiaries while the amounts and allocation basis are decided by their board of directors annually. The statutory surplus reserve fund can be used to make up prior year losses, if any, and can be applied in conversion into capital by means of capitalisation issue.

22

Jiangnan Group Limited Interim Report 2020

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2020

			Six months ended
			30.6.2020	30.6.2019
			RMB'000	RMB'000
			(unaudited)	(unaudited)
	Cash used in operations	(1,398,833)	(203,222)
	PRC income tax paid	(19,991)	(53,072)
	Net cash used in operating activities	(1,418,824)	(256,294)
	Investing activities
	Release of pledged bank deposits	1,644,018	1,273,884
	Withdrawal of bank deposits with original maturity over three months	861,345	-
	Proceeds from redemption of structured deposits	604,559	-
		Interest received	23,124	23,083
	Repayment from an associate	4,522	-
	Proceeds from disposal of property, plant and equipment	195	138
		Bank deposits pledged	(1,895,770)	(1,439,625)
	Placement of bank deposits with original maturity over three months	(735,475)	-
	Purchase of structured deposits	(216,000)	-
	Purchase of property, plant and equipment	(79,812)	(30,009)
	Deposits paid for acquisition of property, plant and equipment	(12,226)	(17,796)
	Payments for rental deposits	-	(95)
	Net cash generated from (used in) investing activities	198,480	(190,420)
	Financing activities
	New bank borrowings raised	2,419,996	2,099,300
		Advances from directors	558	1,764
	Repayment of bank borrowings	(2,007,975)	(1,761,713)
		Interest paid	(135,190)	(154,258)
		Dividend paid	(27,689)	-
	Repayment of lease liabilities	(172)	(351)
		Repayment to directors	(73)	(1,854)
	Interest on lease liabilities	(2)	-
	Net cash generated from financing activities	249,453	182,888
	Net decrease in cash and cash equivalents	(970,891)	(263,826)
	Cash and cash equivalents at beginning of the period	2,222,470	2,592,456
	Effect of foreign exchange rate changes	(8,285)	805
	Cash and cash equivalents at end of the period,
	represented by bank balances and cash	1,243,294	2,329,435

23

Jiangnan Group Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PREPARATION

The condensed consolidated financial statements have been prepared in accordance with Hong Kong Accounting Standard ("HKAS") 34 "Interim Financial Reporting" issued by the Hong Kong Institute of Certified Public Accountants (the "HKICPA") as well as with the applicable disclosure requirements in Appendix 16 to the Rules (the "Listing Rules") Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Stock Exchange").

2. PRINCIPAL ACCOUNTING POLICIES

The condensed consolidated financial statements have been prepared on the historical cost basis.

Other than changes in accounting policies resulting from the application of new and amendments to Hong Kong Financial Reporting Standards ("HKFRSs"), the accounting policies and methods of computation used in the condensed consolidated financial statements for the six months ended 30 June 2020 are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2019.

Application of new and amendments to HKFRSs

In the current interim period, the Group has applied, for the first time, the following new and amendments to HKFRSs issued by the HKICPA which are mandatorily effective for the annual period beginning on or after 1 January 2020 for the preparation of the Group's condensed consolidated financial statements:

Amendments to HKAS 1 and HKAS 8	Definition of Material
Amendments to HKFRS 3	Definition of a Business
Amendments to HKFRS 9, HKAS 39 and HKFRS 7	Interest Rate Benchmark Reform

Except as described below, the application of the Amendments to References to the Conceptual Framework in HKFRS Standards and the amendments to HKFRSs in the current period has had no material impact on the Group's financial positions and performance for the current and prior periods and/or on the disclosures set out in these condensed consolidated financial statements.

Impacts of application on Amendments to HKAS 1 and HKAS 8 "Definition of Material"

The amendments provide a new definition of material that states "information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity." The amendments also clarify that materiality depends on the nature or magnitude of information, either individually or in combination with other information, in the context of the financial statements taken as a whole.

The application of the amendments in the current period had no impact on the condensed consolidated financial statements. Changes in presentation and disclosures on the application of the amendments, if any, will be reflected in the consolidated financial statements for the year ending 31 December 2020.

24

Jiangnan Group Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. PRINCIPAL ACCOUNTING POLICIES (continued)

Impacts and accounting policies on application of Amendments to HKFRS 9, HKAS 39 and HKFRS 7 "Interest Rate Benchmark Reform"

Accounting policies

Hedge accounting

For the purpose of determining whether a forecast transaction (or a component thereof) in a cash flow hedge is highly probable, the Group assumes that the interest rate benchmark on which the hedged cash flows (contractually or non-contractually specified) are based is not altered as a result of interest rate benchmark reform.

Assessment of hedging relationship and effectiveness

In assessing the economic relationship between the hedged item and the hedging instrument, the Group assumes that the interest rate benchmark on which the hedged cash flows and/or the hedged risk (contractually or non- contractually specified) are based, or the interest rate benchmark on which the cash flows of the hedging instrument are based, is not altered as a result of interest rate benchmark reform.

Cash flow hedges

For the purpose of reclassifying the amount of accumulated in the cash flow hedge reserve in order to determine whether the hedged future cash flows are expected to occur, the Group assumes the interest rate benchmark on which the hedged cash flows (contractually or non-contractually specified) are based is not altered as a result of interest rate benchmark reform.

Transition and summary of effects

The amendments had no impact on the condensed consolidated financial statements of the Group.

3. TURNOVER AND SEGMENT INFORMATION

The Group's chief operating decision maker has been identified as the executive Directors who review the business of the following reportable operating segments by products:

• Power cables
• Wires and cables for electrical equipment
• Bare wires
• Special cables (including rubber cables, flexible fire proof cables and others)

The above segments have been identified on the basis of internal management reports prepared and regularly reviewed by the executive Directors when making decisions about allocating resources and assessing the performance of the Group.

Turnover represents the fair value of the consideration received and receivable for goods sold to external customers during the reporting periods.

25

Jiangnan Group Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. TURNOVER AND SEGMENT INFORMATION (continued)

The segment results represent the gross profits earned by each segment (segment revenue less segment cost of goods sold), which are internally generated financial information that has been regularly reviewed by the executive Directors. However, other income, selling and distribution costs, administrative expenses, research and development costs, other (losses) gains, net, impairment losses under ECL model, net of reversal, share of results of associates and finance costs have not been allocated to each reportable segment. The segment results are reported to the executive Directors for the purposes of resource allocation and assessment of segment performance.

The information of segment results is as follows:
	Six months ended
	30.6.2020	30.6.2019
	RMB'000	RMB'000
	(unaudited)	(unaudited)
Revenue
- power cables	3,289,309	4,443,395
- wires and cables for electrical equipment	1,042,187	1,240,822
- bare wires	185,516	162,215
- special cables	479,710	400,531
	4,996,722	6,246,963
Cost of goods sold
- power cables	2,926,076	3,982,226
- wires and cables for electrical equipment	989,353	1,157,552
- bare wires	163,693	145,197
- special cables	382,963	305,027
	4,462,085	5,590,002
Segment results
- power cables	363,233	461,169
- wires and cables for electrical equipment	52,834	83,270
- bare wires	21,823	17,018
- special cables	96,747	95,504
	534,637	656,961

26

Jiangnan Group Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. TURNOVER AND SEGMENT INFORMATION (continued)

The reportable segment results are reconciled to profit before taxation of the Group as follows:

	Six months ended
	30.6.2020	30.6.2019
	RMB'000	RMB'000
	(unaudited)	(unaudited)
Reportable segment results	534,637	656,961
Unallocated income and expenses
- Other income	32,286	34,400
- Selling and distribution costs	(221,464)	(145,234)
- Administrative expenses	(134,807)	(117,427)
- Research and development costs	(30,838)	(28,858)
- Other (losses) gains, net	(13,867)	14,311
- Impairment losses under ECL model, net of reversal	(3,368)	(104,508)
- Share of results of associates	2,072	(5,390)
- Finance costs	(135,490)	(154,267)
Profit before taxation	29,161	149,988

As no discrete information in respect of segment assets, segment liabilities and other information is used for the assessment of performance and allocation of resources of different reportable segments, other than reportable segment revenue and segment results as disclosed above, no analysis of segment assets and segment liabilities is presented.

Geographical information

More than 90% of the Group's sales were made to customers in the PRC (country of domicile) for both reporting periods. More than 90% of the Group's non-current assets were located in the PRC at 30 June 2020 and 31 December 2019.

Information about major customers

The Group had no customer that contributed over 10% of the total turnover of the Group in any of the reporting periods.

27

Jiangnan Group Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. OTHER INCOME

	Six months ended
	30.6.2020	30.6.2019
	RMB'000	RMB'000
	(unaudited)	(unaudited)
Bank interest income	18,864	17,495
Interest income from an associate	2,465	3,083
Investment income from structured deposits	4,187	6,458
Government subsidies (Note)	6,156	6,543
Others	614	821
	32,286	34,400

Note: The amount represents the incentive subsidies provided by the PRC local authorities to the Group to encourage business development in the Yixing region and research and energy reduction activities conducted by the Group, and all of them had no specific conditions imposed.

5. OTHER (LOSSES) GAINS, NET

	Six months ended
	30.6.2020	30.6.2019
	RMB'000	RMB'000
	(unaudited)	(unaudited)
Exchange (loss) gain	(15,440)	14,230
Gain on disposal of property, plant and equipment	88	81
Others	1,485	-
	(13,867)	14,311

28

Jiangnan Group Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. IMPAIRMENT LOSSES UNDER ECL MODEL, NET OF REVERSAL

Six months ended

		30.6.2020	30.6.2019
		RMB'000	RMB'000
		(unaudited)	(unaudited)
	Impairment losses under ECL model, net of reversal on:
	Trade receivables	20,581	103,785
	Other receivables	(17,213)	723
		3,368	104,508
7. PROFIT BEFORE TAXATION
		Six months ended
		30.6.2020	30.6.2019
		RMB'000	RMB'000
		(unaudited)	(unaudited)
	Profit has been arrived at after charging:
	Interest on bank borrowings	135,488	154,220
	Interest on lease liabilities	2	47
		135,490	154,267
	Cost of inventories recognised as expenses	4,452,322	5,575,023
	Depreciation of property, plant and equipment	56,351	51,456
	Depreciation of right-of-use assets	4,241	4,654
	Short term lease payments	1,442	2,476

29

Jiangnan Group Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8. TAXATION

	Six months ended
	30.6.2020	30.6.2019
	RMB'000	RMB'000
	(unaudited)	(unaudited)
The charge comprises:
Current tax
PRC income tax	9,414	30,293
Deferred taxation	(911)	1,476
Taxation charged for the period	8,503	31,769

The PRC income tax is calculated at the applicable rates in accordance with the relevant laws and regulations in the PRC. Under the Law (the "EIT Law") of the PRC on Enterprise Income Tax (the "EIT") and the Regulations of the PRC on the Implementation of the EIT Law, the tax rate of the PRC subsidiaries has been 25% from 1 January 2008 onwards. Pursuant to the approval published on the website of the Yixing Provincial Commission of Science and Technology, Jiangnan Cable and Jiangsu Zhongmei Cable Group Co., Ltd. (江蘇中煤電纜有限公司) were endorsed as a High and New Technology Enterprise on 4 March 2009 (renewed on 30 November 2018) and 2 September 2014 (renewed on 7 December 2017) respectively and were entitled to and were charged income tax in the PRC at a reduced income tax rate of 15% till next renewal in 2021 and 2020 respectively.

Dividends distributed by a PRC entity to foreign investors out of its profits generated from 1 January 2008 onwards shall be subject to the EIT at 10%, which shall be withheld by the PRC entity pursuant to Articles 3 and 37 of the EIT Law and Article 91 of the Regulations of the PRC on the Implementation of the EIT Law.

Taxation arising from South Africa is calculated at the rate prevailing in South Africa. The Group did not have assessable profit arising from its subsidiary in South Africa for both periods.

No provision for Hong Kong Profits Tax is provided in the unaudited condensed consolidated financial statements as the Group did not have assessable profit in Hong Kong for both periods.

9. DIVIDENDS

During the current interim period, a final dividend of HK0.5 cent per share in respect of the year ended 31 December 2019 (six months ended 30 June 2019: nil) was declared and paid to owners of the Company. The aggregate amount of the final dividend declared and paid in the current interim period amounted to HK$30,350,820 (six months ended 30 June 2019: nil), net of dividends payable on shares held under the share award scheme of the Company.

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

30

Jiangnan Group Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share attributable to the owners of the Company is based on the following data:

	Six months ended
	30.6.2020	30.6.2019
	RMB'000	RMB'000
	(unaudited)	(unaudited)
Earnings
Earnings for the purpose of basic and diluted earnings per share
(Profit for the period attributable to the owners of the Company)	20,658	118,219
	Six months ended
	30.6.2020	30.6.2019
	'000	'000
	(unaudited)	(unaudited)
		(restated)
Number of shares
Weighted average number of ordinary shares in issue less shares
held under the share award scheme for the purpose of
calculation of basic earnings per share	6,070,164	4,039,149
Effect of dilutive potential ordinary shares
Shares granted under the share award scheme	-	1,396
Weighted average number of ordinary shares for the purpose of
calculation of diluted earnings per share	6,070,164	4,040,545

For the six months ended 30 June 2019, the weighted average number of ordinary shares in issue less shares held for the share award scheme adopted by the Company on 9 September 2015 for the purpose of the calculation of basic earnings per share has been adjusted for the Rights Issue under which 2,039,433,000 ordinary shares of the Company were issued on the basis of one Rights Share for every two existing shares in issue held on the record date at the subscription price of HK$0.28 per Rights Share, the completion of which took place on 22 October 2019.

For the six months ended 30 June 2019, the weighted average number of ordinary shares for the purpose of the calculation of diluted earnings per share has been adjusted for the shares granted on 28 January 2016 pursuant to the share award scheme adopted by the Company on 9 September 2015.

31

Jiangnan Group Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11. PROPERTY, PLANT AND EQUIPMENT

During the six months ended 30 June 2020 and 2019, the Group incurred the following capital expenditures on property, plant and equipment:

	Six months ended
	30.6.2020	30.6.2019
	RMB'000	RMB'000
	(unaudited)	(unaudited)
Buildings	3,691	-
Plant and machinery	16,211	22,012
Furniture, fixtures and equipment	14,722	12,021
Motor vehicles	2,290	2,296
Construction in progress	50,140	5,550
Total	87,054	41,879

During the six months ended 30 June 2020, the Group disposed of certain property, plant and equipment with an aggregate carrying amount of approximately RMB107,000 (six months ended 30 June 2019: RMB57,000) for cash proceeds of approximately RMB195,000 (six months ended 30 June 2019: RMB138,000), resulting in a gain on disposal of approximately RMB88,000 (six months ended 30 June 2019: RMB81,000).

During the six months ended 30 June 2020, the Group entered into new lease agreements for the use of buildings for 2 years, under which the Group is required to make fixed monthly payments during the contract period. On commencement of these lease agreements, the Group recognised approximately RMB646,000 (six months ended 30 June 2019: RMB797,000) of right-of-use assets and approximately RMB646,000 (six months ended 30 June 2019: RMB797,000) of lease liabilities.

As at 30 June 2020, the Group has pledged certain of its buildings and machinery with carrying values of approximately RMB180,354,000 and approximately RMB60,258,000 respectively (31 December 2019: buildings with carrying values of approximately RMB161,992,000) to certain banks to secure credit facilities granted to the Group.

32

Jiangnan Group Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12. TRADE AND OTHER RECEIVABLES

		30.6.2020	31.12.2019
		RMB'000	RMB'000
		(unaudited)	(audited)
	Trade receivables from contract with customers	5,996,318	5,521,368
	Less: Allowance for credit losses	(443,087)	(422,506)
	Trade receivables, net	5,553,231	5,098,862
	Deposits paid to suppliers	290,993	254,535
	Prepayments	34,302	37,168
	Staff advances	26,243	20,845
	Tender deposits	98,125	85,208
	Value-added tax receivables	909	1,480
	Other receivables	39,596	35,107
		6,043,399	5,533,205

At 30 June 2020, total bills received amounting to RMB975,362,000 (31 December 2019: RMB452,500,000) were held by the Group for future settlement of trade receivables.

The Group maintains a defined credit policy. The Group normally allows credit terms ranging from 30 days to 180 days to its trade debtors. The ageing analysis of trade receivables, net of allowance for credit losses, based on the invoice date at the end of the reporting periods is as follows:

	30.6.2020	31.12.2019
	RMB'000	RMB'000
	(unaudited)	(audited)
Age
0 to 90 days	2,607,631	2,597,767
91 to 180 days	744,038	861,147
181 to 365 days	1,078,507	569,673
Over 365 days	1,123,055	1,070,275
	5,553,231	5,098,862

At 30 June 2020, included in the Group's trade receivables balance were debtors with an aggregate carrying amount of approximately RMB2,677,003,000 (31 December 2019: RMB2,544,875,000) which were past due as at the reporting date. Out of the past due balance, RMB2,468,534,000 (31 December 2019: RMB2,280,722,000) has been past due 90 days or more and is not considered as in default based on the good repayment records of those debtors and continuous business relationships with the Group. Other than the bills receivables amounting to RMB975,362,000 (31 December 2019: RMB452,500,000), the Group does not hold any collateral over these balances.

33

Jiangnan Group Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

13. TRADE AND OTHER PAYABLES

	30.6.2020	31.12.2019
	RMB'000	RMB'000
	(unaudited)	(audited)
Trade payables	3,910,425	4,734,360
Payroll and welfare accruals	58,885	101,447
Consideration payables (Note a)	130,698	130,698
Loans advanced from staff (Note b)	36,702	67,179
Other tax payables	21,086	27,504
Other deposits	2,980	3,880
Other payables and accruals	113,816	92,744
	4,274,592	5,157,812

Included in the Group's trade payables at 30 June 2020 were bills payables of RMB2,606,428,000 (31 December 2019: RMB2,392,462,000).

Notes:

1. The amount represents consideration payables by the Group in connection with the acquisition of subsidiaries in prior years.
2. The amount represents loans advanced from the staff of the Group which were unsecured, non-interest bearing and repayable on demand.

The Group is normally granted credit terms ranging from 30 days to 90 days by its suppliers. The ageing analysis of trade and bills payables based on the invoice date at the end of the reporting periods is as follows:

	30.6.2020	31.12.2019
	RMB'000	RMB'000
	(unaudited)	(audited)
Age
0 to 90 days	1,328,394	1,973,144
91 to 180 days	1,477,434	1,139,182
181 to 365 days	786,034	1,567,163
Over 1 year	318,563	54,871
	3,910,425	4,734,360

34

Jiangnan Group Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

14. BANK BORROWINGS - DUE WITHIN ONE YEAR

	30.6.2020	31.12.2019
	RMB'000	RMB'000
	(unaudited)	(audited)
Secured	587,971	550,050
Secured and guaranteed by independent third parties	250,000	201,900
Unsecured	1,708,850	1,327,850
Unsecured and guaranteed by independent third parties	1,118,000	1,173,000
	3,664,821	3,252,800
The bank borrowings comprise:
Variable rate borrowings	345,971	330,550
Fixed rate borrowings	3,318,850	2,922,250
	3,664,821	3,252,800

Included in bank borrowings are the following amounts denominated in currencies other than the functional currency of the group entities that they relate to:

30.6.2020 31.12.2019

RMB'000 RMB'000

(unaudited) (audited)

Euro	138,971	137,550

Certain bank borrowings and bills payables of the Group are secured by certain of the Group's assets. The carrying values of these assets at the end of the reporting periods are as follows:

	30.6.2020	31.12.2019
	RMB'000	RMB'000
	(unaudited)	(audited)
For bank borrowings:
- property, plant and equipment	240,612	161,992
- right-of-use assets	277,505	281,232
For bank borrowings and bills payables:
- pledged bank deposits	2,321,592	2,069,840
	2,839,709	2,513,064

35

Jiangnan Group Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

15. SHARE CAPITAL

Movements in the authorised and issued share capital of the Company are as follows:
			Shown in
	Number of		the financial
	shares	Amount in	statements as
		HK$	RMB'000
Ordinary shares at HK$0.01 each
Authorised:
At 1 January 2019, 31 December 2019 (audited) and 30 June 2020
(unaudited)	10,000,000,000	100,000,000
Issued and fully paid:
At 1 January 2019	4,078,866,000	40,788,660	32,951
Issue of shares (Note)	2,039,433,000	20,394,330	18,399
At 31 December 2019 (audited) and 30 June 2020 (unaudited)	6,118,299,000	61,182,990	51,350

Note: On 22 October 2019, the Company issued 2,039,433,000 Rights Shares, on the basis of one Rights Share for every two existing shares held on the record date at the subscription price of HK$0.28 per Rights Share. Details of the Rights Issue are set out in the Company's prospectus dated 27 September 2019 and the announcements of the Company dated 26 August 2019 and 22 October 2019.

16. CAPITAL COMMITMENTS

	30.6.2020	31.12.2019
	RMB'000	RMB'000
	(unaudited)	(audited)
Capital expenditures contracted for but not provided for in the
condensed consolidated financial statements in respect of the
acquisition of property, plant and equipment	6,782	15,241

17. CONTINGENT LIABILITIES

As at 30 June 2020, neither the Group nor the Company had any significant contingent liabilities.

36

Jiangnan Group Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

18. SHARE AWARD SCHEME

The purposes of the share award scheme of the Company are to recognise the contributions by the Group's employees, executives, officers and directors and to provide them with incentives in order to retain them for the continuing operation and development of the Group and to attract suitable personnel for further development of the Group.

The share award scheme of the Company was adopted by the Board on 9 September 2015. Pursuant to the share award scheme, existing shares of the Company will be purchased by the trustee from the market out of cash contributed by the Group and be held in trust for the selected participants until such shares are vested with the selected participants in accordance with the provisions of the scheme. When the selected participant has satisfied all vesting conditions specified by the Board at the time of making the award and becomes entitled to the shares forming the subject of the award, the trustee shall transfer the relevant vested shares to that qualifying person.

On 28 January 2016, the Directors resolved to grant an aggregate of 35,300,000 shares in the capital of the Company (the "Awarded Shares") to certain employees and members of the management of the Group who shall remain employed within the Group (the "Qualified Employees") during the vesting periods pursuant to the share award scheme. Subject to the fulfilment of certain performance conditions set by the Board to each Qualified Employee, 25% of the Awarded Shares shall vest on each of 1 April 2016, 1 April 2017, 1 April 2018 and 1 April 2019 respectively.

The fair value of the Awarded Shares granted was determined with reference to the market value of the shares on the grant date taking into account the price volatility of the shares of the Company, the risk-free rate and the vesting period as well as the exclusion of the expected dividends, as the employees are not entitled to receive dividends paid during the vesting period. The fair value of the Awarded Shares on the grant date was approximately HK$30,182,000 (approximately RMB25,385,000). The total amount charged to profit or loss in respect of the fair value of the Awarded Shares amounted to approximately HK$449,000 (equivalent to approximately RMB394,000) for the six months ended 30 June 2019 (six months ended 30 June 2020: nil).

Movements of the shares granted to the Qualified Employees and vested under the share award scheme were as follows:

	Number of
	shares
	'000
Outstanding as at 1 January 2019	7,825
Awarded Shares vested (Note)	(7,800)
Awarded Shares forfeited (Note)	(25)
Outstanding as at 31 December 2019 (audited) and 30 June 2020 (unaudited)	-

Note: Based on the fulfilment of certain performance conditions, 7,800,000 Awarded Shares were vested on 1 April 2019 to certain Qualified Employees with 25,000 Awarded Shares being forfeited.

37

Jiangnan Group Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

18. SHARE AWARD SCHEME (continued)

Movements of the shares purchased under the share award scheme were as follows:

	Number
	of shares	Cost of	Cost of
	purchased	purchase	purchase
	'000	HK$'000	RMB'000
At 1 January 2019	55,935	55,377	46,702
Shares transferred out upon being vested	(7,800)	(7,722)	(6,512)
At 31 December 2019 (audited) and 30 June 2020 (unaudited)	48,135	47,655	40,190

19. RELATED PARTIES TRANSACTIONS

Other than the transactions and balances with related parties disclosed in the unaudited condensed consolidated statement of financial position as "Amounts due to directors" and "Loan to an associate", and the compensation of the Directors below (including the emoluments of the Directors), the Group had no other significant transactions and balances with related parties during the reporting periods.

Compensation of Directors

The compensation of the Directors during the reporting periods was as follows:

	Six months ended
	30.6.2020	30.6.2019
	RMB'000	RMB'000
	(unaudited)	(unaudited)
Basic salaries and allowances	857	1,003
Share-based payments	-	101
Retirement benefits scheme contributions	18	25
	875	1,129

The remuneration of the Directors is determined by the remuneration committee of the Board having regard to the performance of the individual Directors and the market trends.

38

Jiangnan Group Limited Interim Report 2020

INTERESTS OF DIRECTORS AND CHIEF EXECUTIVES

DIRECTORS' AND CHIEF EXECUTIVES' INTERESTS AND SHORT POSITIONS IN THE SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY

As at 30 June 2020, the interests and short positions of the Directors and the chief executives of the Company in the shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong (the "SFO")) as recorded in the register maintained by the Company under section 352 of the SFO, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies as set out in Appendix

10 to the Listing Rules (the "Model Code"), were as follows:

Long positions in the issued shares of the Company

				Approximate
		Number of ordinary	percentage
Name of Director	Capacity/Nature of interest	shares held	of interest
				(Note 1)
Mr. Chu Hui	Interest of controlled corporations	1,888,257,000	(Note 2)	30.86%
	Beneficial owner	252,429,000	(Note 3)	4.13%
Ms. Xia Yafang	Beneficial owner	1,668,000		0.03%
	Interest of spouse	1,500,000	(Note 4)	0.02%
Mr. Jiang Yongwei	Beneficial owner	1,500,000		0.02%

Notes:

1. The total number of ordinary shares of the Company in issue as at 30 June 2020 (i.e. 6,118,299,000 shares) has been used for the calculation of the approximate percentage of interest.
2. The shares were held by Power Heritage Group Limited ("Power Heritage"), a company wholly-owned by Spectrum Investment (HK) Limited ("Spectrum HK"), a wholly-owned subsidiary of 無錫光普投資有限公司, which is wholly-owned by Mr. Chu Hui. Mr. Chu Hui is deemed to be interested in the shares held by Power Heritage by virtue of the SFO.
3. These shares represent 252,429,000 shares held directly by Mr. Chu Hui. As at 30 June 2020, Power Heritage and Mr. Chu Hui had pledged 1,258,838,000 ordinary shares and 168,286,000 ordinary shares in the issued share capital of the Company respectively, representing approximately 20.57% and 2.75% of the issued share capital of the Company as at the date of this report respectively, in favour of an independent third party (within the meaning ascribed to it in the Listing Rules), as security for a loan provided to Mr. Chu Hui, the ultimate beneficial owner of Power Heritage. The aforesaid shares pledged do not fall within the scope of Rule 13.17 of the Listing Rules.
4. These shares represent 1,500,000 shares held by Mr. Han Wei, who is the spouse of Ms. Xia Yafang. Under the SFO, Ms. Xia Yafang is deemed to be interested in all the shares in which Mr. Han Wei is interested.

Save as disclosed above, as at 30 June 2020, none of the Directors or chief executives of the Company had any interests or short positions in the shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO).

39

Jiangnan Group Limited Interim Report 2020

INTERESTS OF SUBSTANTIAL SHAREHOLDERS AND OTHER PERSONS

SUBSTANTIAL SHAREHOLDERS' AND OTHER PERSONS' INTERESTS AND SHORT POSITIONS IN THE SHARES AND UNDERLYING SHARES OF THE COMPANY

As at 30 June 2020, the following persons (other than the Directors or chief executives of the Company) had interests or short positions in the shares or underlying shares of the Company as recorded in the register maintained by the Company under section 336 of the SFO:

Long positions in the issued shares of the Company

				Approximate
		Number of ordinary	percentage
Name of shareholder	Capacity/Nature of interest	shares held	of interest
				(Note 1)
Substantial shareholders
Ms. Rui Yiyun	Interest of spouse	2,140,686,000	(Note 2)	34.99%
Power Heritage	Beneficial owner	1,888,257,000	(Note 3)	30.86%
無錫光普投資有限公司	Interest of controlled corporations	1,888,257,000	(Note 4)	30.86%
Other persons
Mr. Jiang Shu	Beneficial owner	329,134,000		5.38%
Ms. Jiang Qin	Interest of spouse	329,134,000	(Note 5)	5.38%

Notes:

1. The total number of ordinary shares of the Company in issue as at 30 June 2020 (i.e. 6,118,299,000 shares) has been used for the calculation of the approximate percentage of interest.
2. Under the SFO, Ms. Rui Yiyun, the spouse of Mr. Chu Hui, is deemed to be interested in all the shares in which Mr. Chu Hui is interested.
3. As at 30 June 2020, Power Heritage and Mr. Chu Hui had pledged 1,258,838,000 ordinary shares and 168,286,000 ordinary shares in the issued share capital of the Company respectively, representing approximately 20.57% and 2.75% of the issued share capital of the Company as at the date of this report respectively, in favour of an independent third party (within the meaning ascribed to it in the Listing Rules), as security for a loan provided to Mr. Chu Hui, the ultimate beneficial owner of Power Heritage. The aforesaid shares pledged do not fall within the scope of Rule 13.17 of the Listing Rules.
4. These shares were held by Power Heritage, a company wholly-owned by Spectrum HK, a wholly-owned subsidiary of 無錫光普投資有限公司, which is wholly-owned by Mr. Chu Hui.
5. Under the SFO, Ms. Jiang Qin, the spouse of Mr. Jiang Shu, is deemed to be interested in all the shares in which Mr. Jiang Shu is interested.

Save as disclosed above, as at 30 June 2020, the Company has not been notified of any persons (other than the Directors or chief executives of the Company) who had interests or short positions in the shares or underlying shares of the Company, which would fall to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the SFO and section 336 of the SFO.

As at 30 June 2020, Mr. Chu Hui was a director of each of Power Heritage, Spectrum HK and 無錫光普投資有限公司. Save as disclosed above, as at 30 June 2020, none of the Directors was a director or an employee of a company which had an interest or a short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

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Jiangnan Group Limited Interim Report 2020

CORPORATE GOVERNANCE AND OTHER INFORMATION

EMPLOYEES AND REMUNERATION

As at 30 June 2020, the Group had a total of 3,376 employees. The total staff costs, net of the remuneration of the Directors, amounted to approximately RMB130.9 million (six months ended 30 June 2019: RMB135.0 million) for the period under review. The Group's remuneration policy is based on the position, duties and performance of individual employees. The remuneration of the Group's employees, including their salaries, overtime allowance, bonus and various subsidies, varies according to their positions. The performance appraisal cycle varies according to the positions of the Group's employees. The performance appraisal of the Group's senior management is conducted annually, and that of the department heads is conducted quarterly while that of the Group's remaining staff is conducted monthly. The performance appraisal is supervised by the Group's performance management committee.

The Board adopted a share award scheme on 9 September 2015 as an incentive to recognise the contributions made by the employees, executives, officers and directors of the Group, to retain them for the continuing operation and development of the Group and to attract suitable personnel for further development of the Group. No share of the Company was granted under the share award scheme during the period under review.

PROPERTY, PLANT AND EQUIPMENT

The Group's property, plant and equipment increased from approximately RMB882.9 million as at 31 December 2019 to approximately RMB913.5 million as at 30 June 2020, representing an increase of approximately 3.5%. This increase represented the net effect of the addition of machineries for the power cable production lines and the depreciation charged on property, plant and equipment during the period under review.

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

For the period under review, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the listed securities of the Company.

CODE ON CORPORATE GOVERNANCE PRACTICES

The Company has adopted the code provisions set out in the Corporate Governance Code (the "CG Code") contained in Appendix 14 to the Listing Rules. Pursuant to code provision A.2.1 of the CG Code, the roles of chairman and chief executive officer should be separate and should not be performed by the same individual. However, the Company has not had a separate chairman and chief executive officer during the period under review. The Board believes that vesting both the roles of chairman and chief executive officer in the same person has the benefit of ensuring consistent leadership within the Group and enables more effective and efficient overall strategic planning for the Group. The Board considers that the balance of power and authority for the present arrangement will not be impaired as all major decisions are made in consultation with the Board members and the senior management of the Company. The current arrangement will enable the Company to make and implement decisions promptly and efficiently. The Group nevertheless will review the structure from time to time in light of the prevailing circumstances.

Save as disclosed above, the Company has complied with all the applicable code provisions of the CG Code during the period under review.

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Jiangnan Group Limited Interim Report 2020

CORPORATE GOVERNANCE AND OTHER INFORMATION

MODEL CODE FOR SECURITIES TRANSACTIONS

The Company has adopted a code on securities transactions by the Directors on terms not less exacting than the required standards contained in the Model Code. Specific enquiry has been made of all the Directors who have confirmed their compliance with the required standards set out in the Model Code and the Company's code of conduct regarding Directors' securities transactions during the period under review.

As required by the Company, relevant officers and employees of the Company are also bound by the Model Code, which prohibits them to deal in the securities of the Company at any time when they possess inside information in relation to those securities. No incident of non-compliance of the Model Code by any relevant officers or employees during the period under review was noted by the Company.

AUDIT COMMITTEE

The Audit Committee has reviewed with management the accounting principles and practices adopted by the Group, discussed auditing, internal control and financial reporting matters and has reviewed the unaudited interim financial statements of the Group for the period under review and this report.

During the period under review, the members of the Audit Committee were Mr. Kan Man Yui Kenneth (chairman), Mr. He Zhisong and Mr. Yang Rongkai, all being independent non-executive Directors.

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Jiangnan Group Limited Interim Report 2020

CORPORATE SOCIAL RESPONSIBILITY

Corporate social responsibility is a vital mission in the process of globalisation of an enterprise. The Group has been maintaining a high standard of social responsibility since its incorporation. The Group considered "contributing to society with the wealth gained therein and to be a responsible corporate citizen" as a long-term and meaningful mission. In the first half of 2020, the Group focused on the creation of social values while ensuring its profitability in order to contribute to the society and realise the integration and consolidation of the sustainable development of the enterprise and the society.

(1) PROTECTION OF THE INTERESTS OF THE STAKEHOLDERS

The Group has been continuously perfecting its governance structure as a legal person and has adopted the code provisions set out in the CG Code. It has established an interactive platform to communicate with the investors, strictly performed its obligations in disclosure and ensured the information disclosed is true, timely, accurate and complete.

(2) PROTECTION OF THE INTERESTS OF THE STAFF

The Group respects and protects the interests of its staff. The Group has devoted much effort in employee training. As the Group also cares about the health, safety and satisfaction of its staff, it has created a harmonious and stable employment relationship with its staff which encourages progress for both the staff and the Group.

For the protection of the welfare of its staff, the Group has strictly complied with the relevant labour laws and regulations and the requirements of the governing authorities.

For the education and training of its staff, the Group has provided all-rounded and persistent occupational training to its staff. These training programs aim at stimulating the work enthusiasm of the staff, enhancing the quality of the staff in all aspects and promoting their growth. The Group also shares corporate and industry information on WeChat with its staff.

For occupational health and safety, the Group strictly follows the occupational health and safety management system in its operation. The dangerous elements in the work process are monitored at all times so that the production and operation activities are scientific, systematic and safe throughout the entire process. Various experiential activities were organised for the staff during the reporting period. The Group strived to prevent occupational hazards at their early stage, so as to create safe and healthy working and living environments for its staff. During the reporting period, no event affecting the health and safety of the staff had occurred.

(3) ENVIRONMENTAL PROTECTION AND SUSTAINABLE DEVELOPMENT

The Group has established a comprehensive environmental management system, which improves its daily control of environmental protection work, and incorporates elements of the "low-carbon, energy saving, green, environment- friendly" ideology into every detail of its operations.

To ensure that the Group complies with ISO 14064-1: 2006 and its carbon emission level does not exceed the limit thereunder, the Group has engaged China Quality Certification Centre to carry out an independent third-party external examination of the Group's greenhouse gas emission level every year. The certification issued by China Quality Certification Centre in June 2020 showed that the Group's major wholly-owned subsidiary, Jiangnan Cable, which accounted for nearly 73% of the turnover of the Group in the first half of 2020, has complied with ISO 14064-1: 2006 during the year ended 31 December 2019, with its carbon emission not exceeding the prescribed level under ISO 14064-1: 2006.

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Jiangnan Group Limited Interim Report 2020

CORPORATE SOCIAL RESPONSIBILITY

(4) PUBLIC RELATION AND SOCIAL WELFARE

The Group adheres to the operation philosophy of "Caring for the community, being people-oriented, morality and profit". In order to carry out its social responsibilities, the Group has focused on active participation in community activities and charity events in the society. Over the years, the Group has made donations to different causes, including cultural education, sports, disaster relief, poverty relief, medicine and sanitation. It has also encouraged its employees to take part in different charity activities, such as blood donation.

In the second half of 2020, as a leading industrial enterprise in the PRC, the Group will continue to carry out its economic, social and environmental responsibilities. It will use its best endeavours to fulfil and realise the expectation of all its stakeholders and focus on the creation of social values.

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