Stock Code: 603609 Stock Abbreviation (English): Wellhope Wellhope Foods Co., Ltd. 2020 Annual Report March 2021 Important Statements I. The Board of Directors, Supervisory Board, Directors, Supervisors and Senior Management of Wellhope hereby warrant that there are no false representations, misleading statements or material omissions in this annual report, jointly and severally accept full responsibility for the truthfulness, accuracy and completeness of the contents of this report. II. All Directors attended the Board Meeting. III. SuyaJincheng CPA LLP has issued a standard audit report for Wellhope. IV. Wellhope's Chairman Jin Weidong and the Director of internal audit Zhang Wenliang warrant the truthfulness, accuracy and completeness of the information presented in the financial statements in this annual report. V. The dividend plan for the reporting period has been deliberated by the Board of Directors. The plan for 2020 dividend distribution will be: based on total share capital on the equity registration date, Wellhope plans to pay dividends of RMB 2.20 yuan per 10 shares (tax included) to all shareholders. This dividend plan has been approved by the Board of Directors, pending submission to the Shareholders' Meeting. VI. Risk Statement of Forward-looking Statements The forward-looking descriptions in this report such as plans, development strategies and other information cannot be deemed the Company's commitment to investors. Please beware of the investment risks. VII. There has been no occurrence of the Company's non-business capital being occupied by controlling shareholder and his related parties. VIII. There has been no occurrence of the Company violating its decision-making procedure while providing external guarantees. IX. Material Risk Warning Wellhope describes possible risks in detail, please refer to "Possible Risks" in Section IV "Business Operations Analysis". X. This annual report has been issued in both Chinese and English versions. In case there is any discrepancy or inconsistency between the two versions, the Chinese version shall prevail. The disclosed Chinese version of 2020 Annual Report can be obtained at: www.sse.com.cn. Contents Section I Glossary I. Glossary Section II Company Profile and Key Financial Information I. Company Information II. Contact Person III. Basic Information of the Company IV. Place where the Annual Report is Prepared V. Stock Information VI. Other Information VII. Key Accounting Data and Financial Performance Indicators in the Latest Three Years 1. Key accounting data Unit: yuan Currency: RMB 2. Key financial performance indicators VIII. Key Financial Figures by Quarters in 2020 Unit: yuan Currency: RMB IX. Extraordinary Items Unit: yuan Currency: RMB X. Item Measured at Fair Value Unit: yuan Currency: RMB Section III Business Overview I. Primary Business, Operation Model and Circumstance of Industries in the Reporting Period Wellhope is one of the renowned large-scale enterprises across domestic agriculture and animal husbandry industries, primary businesses cover animal feed, feed raw materials trade, broiler integration, and swine raising, it is also involved in veterinary drug, farming equipment manufacturing, pet clinic, etc. In 2018, Wellhope identified food business as its strategic business, which is now in full swing implementation. Since establishment, Wellhope has always adhered to its corporate mission, i.e., “Through advanced technology, professional service, and high-quality products, Wellhope is devoted to the development of China’s animal husbandry industry, resources conservation, environment protection, as well as food security for the benefit of people", and all Wellhope people hold together to set sights on becoming one of the world's leading enterprise across agriculture, animal husbandry, and food industries. During the reporting period, the primary businesses of Wellhope have not changed significantly. 1. Animal feed, feed raw materials trade businesses Wellhope produces and sells animal feed for swine, poultry, ruminant, aquatic and fur-farmed animals, which are marketed in 29 provinces and regions across China. It has also built feed mills in Nepal, Indonesia and the Philippines, etc. Driven by the concept of “constantly working on new products, never following the beaten path”, Wellhope always designs tailored products for animals in different phases, and it is committed to offering farmers integrated services such as animal raising, disease prevention and operation management, while helping farmers achieve desirable economic returns. The subsidiary trade companies mainly trade in feed raw materials such as fish meal, soybean meal and co-products of corn, also engage in feed additives including amino acid, antioxidant, mold inhibitors and vitamin. In addition, these trade companies are the sales agents of animal health products such as vaccines and veterinary drugs produced by global strategic suppliers. Now the trade business is active in the regions of Northeast, North, East, South, and Southwest regions across China, some products have been exported to Nepal, Mongolia and other countries. 2. Broiler integration business Wellhope has invested more than 50 holding and associated entities in the value chain of broiler integration, which are mainly located in the provinces of Liaoning, Hebei, Henan, Jilin and Shandong, etc. Wellhope's broiler integration business, with three business sectors in terms of broiler raising, meat processing and further processing, contains all parts in the industrial chain, including broiler breeders raising, day-old chick hatching, feed production, commercial broiler rearing, slaughtering and processing of raw meat, further processing of prepared and cooked food. Through standardized management and streamline operation, Wellhope, cooperating with its partners, consolidates the controls of bio-safety, drug residue and in-process hygiene to achieve traceable food safety. Based on the number of broilers slaughtered by holding and associated factories, Wellhope has stepped into the first echelon of white feather broiler industry and become one of the leading suppliers of broiler products nationwide. Broilerraising: Thissectorcoversbroilerbreederraising,day-old chickhatching,commercialbroilerrearingand feed processing.Byformulatingscientificand rationalfeedingprograms,lightprogramsandcomprehensive disease prevention systems,Wellhope provideshigh-qualityeggsforitshatching farms.Meanwhile,ithasestablished thorough managementsystemsin the hatching processand purchasedintelligent facilities that are available for hatching in batches,also equipped with high-efficient andenergy-saving hatcher and micro-environment controlsystemfor producing healthy day-old chicks.Entering commercial broiler sector, Wellhope mainly raises broiler by self-invested farms andcontract(out-sourcing)farmsunderthe pattern ofstandardized managementby unifying nine aspects. All these farms apply three-tier cages and automate all the processes from feed intake, water supply, temperature to moisture control, etc. The average weight of Wellhope’s commercial broiler has reached 3.0 kg with the livability of over 96%, and the European production index exceeded 390, which have received wide recognitions from the cooperative farms. Rawmeatprocessing: Wellhope hassetup 17 holding and associated slaughtering and processingfactories,which are equipped with domestically state-of-the-artproduction linesthatare available toslaughter800 million broilersperyear.Driven by strictall-in and all-outinspection and quarantine aswellasdrugresidue detection,everysingle factoryhasestablished atotalqualityguarantee systemandtraceability systemto monitor all the processes. Meanwhile, Wellhope constantly strengthensslaughtering and processing techniques by ways of systematic pre-job training and skillpromotiontraining as wellas conducting "6S"management(i.e.,Seiri,Seiton,Seiketsu,Shitsuke,Seiso,Safety),making the killing outpercentage and percapita slaughtering efficiency stand outamong companieswith similarscale.NowWellhope’sbroilerpartsproductshave entered the supply chain ofShinewayGroup,Jinluo Group,Yurun Group,China’s McDonalds and KFC,Yoshinoya,Wallace,DiliFresh Food,Yonghui Superstores, RT-MART, other regional large food distributors, fresh markets and foodprocessing plants,etc.In the meantime,broilerproductshave also been sold to the regionsofHongKongand Macao,and exported to some countriessuch asMongoliaand Bahrain,etc. Further processing: Relying on the advantage of integration,Wellhope uses high-quality chickensupplied byown slaughterhousesasrawmaterialsand installsefficientand energy-savingequipmenttoprocess rawmeatinto prepared products.Atpresentitsupplies over100 kinds offurther-processedchicken productsto centralkitchensofrestaurantchains,corporate and schoolcanteens,supermarketsand convenience stores.In termsofonline marketing,Wellhope’sflagship store offood productshasbeen launched on Taobao and JDcom,whilst some ofits independent-brand products produced byWellhope'ssubordinated companieshave also been marketed viacommunitye-commerce platforms.Inaddition,due to ever-growing demand fromconsumers,Wellhope has been vigorously expanding itsexportbusinessofcooked products,and such productshave successfully penetrated the Japanese andKorean marketswith good response. 3. Swine raising business By carefully considering industry trends and own strengthens, Wellhope has ventured swine raising business in 2016. Through solely-invested and co-invested operations, it has built farms and expanded businesses in some predominant regions suitable for raising swine, such as Liaoning, Jilin, Heilongjiang, Henan, Hebei, and Anhui provinces. Among these projects, those farms located in Hebei and Heilongjiang provinces are jointly built by Wellhope and Hunan Jiahe Agriculture and Animal Husbandry Company, top 15 in national swine raising industry, whilst farms located in Anhui province are jointly invested with Anhui Haoxiang Agriculture and Animal Husbandry Company, a leading enterprise in agricultural integration in Anhui province and a member of the National Swine Joint Breeding Cooperative Group, other farms are invested by Wellhope solely. At present, Wellhope's swine raising business mainly adopts the operation model that composes of pig breeders raising and sales, commercial piglet selling plus fattening via own farms and contract farms (such as leasing, agent construction, cooperative farming base). At the same time, each region set up boar house to reserve excellent boars to maintain breeding advantage. Through establishing comprehensive and strict bio-safety systems, advanced breeding systems and scientific feeding management systems, Wellhope is devoted to crafting an integrated chain that contains breeding, swine raising, slaughtering and processing. A. Building farms with high standard Wellhope insists on constructing farms in compliance with the principle of moderate scale for every single farm, whilst it strictly designs bio-safety systems driven by the philosophy of beginning with the end in mind. All newly-built and under-construction projects adopt advanced production process and farming equipment, while using intelligent feeding system, environmental control equipment, and production management software to improve productivity and create a comfortable environment for swine. B. Holistic operation a. In terms ofgenetic selection and breeding. Wellhope introduces high-quality pig breeders withFrench,American and Danish genesto match differentbusinessareasto provide parentstockwith pureblood and clear pedigree.Atthe same time,by establishing scientific breeding programs,Wellhopecontinuously optimizesthe structuresofbreeding stock to ensure the source ofexcellentbreeders,soasto enhance itscompetence in swine raisingindustry. b. In terms offeeding management. Wellhope hasestablished a dynamic managementsystemforfeeding swine.Itcoversfeed nutrition and rawmaterialdatabase,feed processing and productqualitydatabase as wellas production performance database, in combination with dynamic formulationtechnology,large-scale pigfarmfeedingmanagementtechnologyand bio-safetyprevention technologyto provide systematic nutrition solutionsforfarms.Meanwhile,through continuousmeasuressuch asdata collection and analysis, result tracking, Wellhope is capable to accurately optimize nutritionprograms,refine internalmanagementand riskwarningto improvefeedingperformance. c. In termsofbio-safety prevention .Aftermore than two yearsofexploration and experimentation,Wellhope has established the bio-safety management systemthat consists of smallgroup feeding,four-zone control,three-leveldisinfection,precise detection and monitoring with alarmsystem.Forinstance,variouslevelsofsecuritysystems,such asservice centersand disinfection areashave been setup outside the farms.Professionalstaffdisinfectpeople,vehiclesand materialsthoroughlystep bystep.Regarding inside farms, allthese farms have been divided into zones with different safety levelscorrespondingto quarantine and isolation remedy,with installation ofAIidentification and surveillancecamerasatkey linksand spotsofbio-safety.The visualization managementhelpsensure enforcementof bio-safety measures.Moreover,each business unit has set up laboratories specialized in testingAfrican swine fever,which apply techniques like fluorescence quantitative PCRto achieve precisedetection,discoveryand elimination to safeguard pigfarms. 4. The Company's position in the involved industries Wellhope has obtained the honorary titles of National Leading Enterprise in Agricultural Integration Industry, National-recognized Enterprise Technology Center, National High-Tech Enterprise. Since completing IPO in 2014, Wellhope has been elected as Top 100 Most Valuable Corporation of Chinese Public Companies for four times and ranked on China’s Top 500 Private Enterprise for four times. Meanwhile, it holds a leading position in the Northeast regions of China, whilst has also become a highly influential brand in North, East, Central and Northwest regions across China. Regarding feed business, Wellhope is the Vice Chairman of China Feed Industry Association, and has been awarded as National Top 10 Leading Feed Enterprise, with a higher sales volume of commercial feed in China. Regarding broiler integration, Wellhope’s broiler integration business has been developing rapidly in recent years. Based on the number of broilers slaughtered and processed by holding and associated companies, Wellhope is now among the top rank of China’s white feather broiler industry. 5. Development situation of the industries Wellhope has analyzed the development circumstances of feed, broiler and swine raising industries during the reporting period, which are detailed in Section IV "Business Operations Analysis" hereof. II. Core Competence Analysis within the Reporting Period The core competencies of Wellhope are embodied in a highly educated, loyal and enterprising management team, integrated with rationally planned and development-oriented business strategies, a sophisticated and advanced industrial chain, widespread adoption of a systematic and scientific-based innovative R&D system, constantly enhanced and increasingly matured brand influence, coupled with highly energized and dynamic corporate culture that powers the development of Wellhope. 1. A highly educated, loyal and enterprising management team Talented people are the primary resources and the competitive core of Wellhope. The highly-educated management team, led by seven cofounders, all with professional backgrounds, abundance of experiences and practices in management and animal husbandry industries, are highly capable of grasping the business environment accurately, formulating the development strategy scientifically, and have deep insights and high recognitions of Wellhope’s core values and business philosophy. The seven cofounders, who are praised as the "Seven Pioneers of the Industry”, have always held strong and fought together. They are united and stable, and have been working hard at the frontline of operation and management, making concerted efforts to move forward. Almost all the middle and senior managers are internally selected and promoted by Wellhope, these core members have been rewarded with various incentives, and they have a strong sense of ownership and devote themselves entirely for the sustainable development of the Company. For the past 26 years, the management team has managed to maintain a high degree of stability, almost none of the chief director and higher-level managers leave the Company, less those who were reassigned to other positions due to substandard performance. Meanwhile, newly promoted members of the management team born in the 1980s and 1990s are selected from key talents’ cultivation programs, such as “Seedling Plan” and “Sunflower Program”. They love the Company, continue to forge ahead, having become the backbone force of the management team. Wellhope also attaches great importance to the continuous learning and ability improvement of these managers, by setting up various senior training programs such as the EDP (Executive Development Program), leadership training camp, etc. At the same time, it also provides opportunities to broaden managers’ horizons, such as mutual investigations and exchanges with both domestic and overseas outstanding enterprises. The main cause of failure of some domestic companies is due to the “unstable and disunited management team”. In contrast, the highly educated, loyal and enterprising management team is one of Wellhope’s core competitive advantages at present and in the future, and it is also the main reason why the Company is so confident about the future. Continuous growth of talents and talent introduction can be attributed to Wellhope’s human resource policy. In terms of talent introduction, Wellhope always adheres to the principle of high-standard recruitment and upholds the core culture of "knowledge is power, unity is strength". In terms of talents training, Wellhope formulates progressive training system with dual-channel career paths, one being streamlined to become managers, and the other being technical experts, based on its strategic goals and in tandem with staff’s career development and progression. In terms of talents incentives, Wellhope continuously improves compensation policy by providing a fair, just and merit-based environment for rewarding employees. It also utilizes a "double appraisal system (job skill appraisal and work performance appraisal)", "performance analysis", "sudoku analysis" and other methods to assess team members. In the meantime, driven by the concept of "sharing bumper harvest", Wellhope shares its development achievements with staff in various ways, such as holding shares in parent company and its subsidiaries, profit sharing and elasticity welfare. In 2018, Wellhope initiated a share incentive program, where 372 identified core talents and key managers were granted restricted shares. Through this program, the interests of Wellhope, its shareholders and key employees have been combined to ensure the sustainable and stable development of the Company and ultimately achieve mutual benefits for all. In the meantime, Wellhope has been echeloning its talents team based on corporation strategies to build a more competitive and sustainable team to realize long-term goal. 2. Rationally planned and development-oriented business strategies Based on in-depth understanding of both domestic and global politics, economies and industries’ trends, Wellhope has always attached great importance to its sustainable development and risk control, with focus on operational quality and emphasis on profitable investment return from new projects. Driven by the investment concepts of steady growth, strong sense of responsibility, healthy and sustainable development, Wellhope, rationalizes its business layout and consolidates using a step by step approach, instead of pushing through rash and impulsive investment, to maintain the rationality and safety of its industrial chain and to mitigate all calculated risks faced by enterprise operations, taking the “Built to Last” philosophy as a significant objective. Rationally planned and development-oriented business strategies reflect in the following aspects. A. Business divisions Starting off with the premix business, Wellhope has been dedicated to expanding feed business over the years, at present it has become one of the top 10 commercial feed producers nationwide. In 2008, Wellhope entered broiler integration business after careful thinking. After 13 years of efforts, the number of broilers processed by Wellhope’s holding and associated entities have been standing at the forefront of the white feather broiler industry, with its management and key technical indicators ranking top position both at home and abroad. In 2018, in order to seize market opportunities and control operating risks, Wellhope decided to undertake swine raising as a strategic business. Since then, it has been mastering the core competitive advantage of this business through talents cultivation, practice accumulation and cooperating with leading companies. Meanwhile, in the year 2018, Wellhope further recognized its development strategy in the next ten years, i.e., while unceasingly making feed business grow stronger and larger, Wellhope would further boost broiler integration and swine raising businesses to create an operation model powered by these two complementary engines. Such business layout with high risks hedging will not lead the Company to the woes and ebbs due to tremendous blow or sharp downturn suffered by one of the businesses. B. Operation model Wellhope has gradually formed a value chain with high competence and capability of withstanding risk in the fields of animal feed, raising, slaughtering and further processing, which enables all business divisions to closely connect and support each other, reduce the cost of intermediate processes, lower trading risks, improve profit margin, and ensure food safety. Such set up has become a future direction for agricultural companies under an increasingly complex and changing economic and industrial environment. C. Market expansion Instead of expanding rapidly in the nationwide markets supported by the success of feed business in Northeast regions and broiler integration business, Wellhope, with rich experiences in market expansion, insists on exploring new markets based on overall analysis and investigations, carefully penetrating the markets step by step in the Northeast, Northwest, Northern China, Henan, Shandong provinces and other areas, while continuing to pursue asset-light operation, taking into account operational efficiency and returns on investment. D. Product mix Wellhope offers a full range of feed products. The sales volume and development of swine, poultry, ruminant and aquatic feed products have reached great height of achievements respectively, which in turn could mitigate operational risks caused by sporadic animal diseases or other cases beyond the Company’s control. E. Financial risk control Wellhope always attaches great importance to financial risk control. Since going public, it has gradually improved internal control system, regulated corporate governance structure and enhanced the awareness on risk control. It uses vertical management methods in coping with finances, such as centralized financing and credit management, centralized funds and cash management and centralized management of decision-making for providing guarantees. Due to its outstanding operating indicators and risk control, Wellhope was rated as one of the Top 50 Public Companies with Healthy Financial Position by the Data, a new media platform of China’s Securities Times, where only three enterprises involved in agriculture and animal husbandry industries were selected. 3. A sophisticated and advantaged industrial chain The advantages of Wellhope’s industrial chain are mainly reflected in geographical locations and business portfolios. A. Geographical location The head office of Wellhope is located at Shenyang in Liaoning province, with its primary businesses mainly involved distribution in Northern China, especially in the Northeast regions. Northeast China is a potential growth area for animal husbandry specially designated by the government, and is thus suitable for agricultural companies to expand their businesses with the availability of ample high-quality raw materials, mild climates, small stocking density and a relatively lower human resource cost. For instance, corn produced by the Northeast regions, characterized by high bulk density, low toxicity and low moisture, enables Wellhope to reduce purchasing costs while ensuring feed product quality. Meanwhile, broiler production in Liaoning, Jilin, Henan, Hebei and Shandong provinces, where Wellhope’s broiler integration businesses are mainly located in, account for over 75% of national production, and these areas are the most important regions for developing white feather broiler industry in China, with a strong foundation for broiler raising and more mature marketing system. Moreover, Wellhope is actively exploring overseas markets by building feed mills in the Philippines, Indonesia and Nepal, where animal husbandry is developing well with high potential. B. Business portfolio Centered on agriculture and animal husbandry industries, Wellhope adopts the expansion strategies of "diversification and integration" to constantly optimize its business portfolio, which has increasingly heightened its capacity on risk resistance and sustained profitability. In terms of diversification, while strengthening and expanding feed business, Wellhope has been vigorously promoting broiler integration and swine raising businesses to strive to build an operation model powered by these two businesses. The staggered fluctuations in broiler and swine raising industries can effectively weaken risks from any cyclical swing. In terms of integration, the integrated model is an inevitable trend for domestic companies that are active in agriculture and animal husbandry industries. After years of development in raw materials trading, feed production, animal raising, slaughtering and further processing businesses, Wellhope has formed a complete industrial chain with high competitive advantage and risk prevention capability, and it is gradually perfecting its support structure to each business sector in the chain, boldly exploring the field of further food processing to fast complete the industrial chain, while constantly standardizing and optimizing the division and cooperation system to further enhance the synergies among all business sectors. 4. A systematic and scientific-based innovative R&D system By holding fast to the corporate mission, i.e. “Through advanced technology, professional services, and high-quality products, Wellhope is devoted to the development of China’s animal husbandry industry, resources conservation, environmental protection, as well as food security for the benefit of the people”, Wellhope’s R&D system always adheres to market-oriented and customer-oriented principles as well as upholding the objective of producing “safe products, with stable quality, tailored nutrition and being customer-centric”, constantly exploring innovative technology and working on new products. A. Excellent R&D team Relying on a relatively complete industrial chain, Wellhope has built a R&D team specializing in animal raising, product formulation, manufacturing and related technologies to focus on feed, broiler integration, swine raising, biological feed additives, etc. Wellhope’s R&D team is composed of hundreds of master and doctorate degree holders, professors and senior experts. These experts, with profound knowledge, have transformed many cutting-edge technologies into actual applications. In the meantime, those experienced technicians focus on conducting trials and demonstrations projects to validate, choose and apply the most suitable technologies. Relying on technical strengths, Wellhope has received many national and local-level accreditations and honors, including the Nationally-recognized Enterprise Technology Center, National and Local Joint Engineering Research Center for the Development and Application of New Biological Feed, National R&D Branch Center of Feed Processing, Comprehensive Trial Farm for National Swine Raising Industry Technology System, R&D Center of Agricultural Products Further Processing and Bio-pharmaceutical Industry Cluster of Liaoning Province, Innovation Team for Feed Technology and Safety of Liaoning Province. B. Competitive R&D cooperation In 2006, Wellhope partnered with Royal De Heus, a century-old company from the Netherlands. By drawing on its globally advanced technological resources, leading know-how and a century of excellent management practices, Wellhope has made successful breakthroughs and progresses in producing safe and high-quality feed, with precise and efficient nutritional contents, and most importantly using antibiotic-free technologies. Meanwhile, the R&D teams from both sides have maintained frequent exchanges, which enable Wellhope to keep abreast with the world's latest technologies in R&D achievements. By combining own 26-year’s technologies and experiences, Wellhope is committed to providing customers with high quality products and technical service. Adding to these, it has also established various technical cooperation and other collaborative projects with institutions of higher learning such as the "Academician Workstation" and "Official Research Base for Postdoctoral Fellows" to accelerate its R&D capabilities. C. Top-class testing ability and database Wellhope's central laboratory has been accredited as National Laboratory by CNAS (China National Accreditation Service for Conformity Assessment), its test results are recognized in 60 countries or regions across the world. Very few feed companies have received this accreditation. The lab has been equipped with advanced testing equipment and divided into three functional rooms to cater for physics and chemistry testing, microbiology testing and precision instruments testing. From micro to macro levels, the central laboratory is able to maintain consistency in quality and plays a vital role in implementing the concept of safety first in every step of the production processes. Wellhope is among one of the very first companies capable of testing for prohibited additives, such as melamine. Meanwhile, it has also established an internal raw material database and shares data resources with the Dutch partner, using advanced regression methods to calculate the energy dynamics of raw materials, based on animal’s growth progress and feed intake, to formulate precise nutritional contents with the best cost-effective solutions. D. Fruitful research and development results Research and development power the sustainable development of an enterprise. Wellhope has made many fruitful achievements on the road of research and development. By the end of the reporting period, Wellhope has received 117 authorized patents, including 49 invention patents, and won 2 National Science and Technology Progress Awards, 1 National Technology Invention Award and nearly 20 provincial and ministerial-level sci-tech awards. Relying on fruitful achievements in the field of antibiotic-free feed, Wellhope has won quite a few coveted awards, such as Top 10 Innovation Enterprises regarding Antibiotic-free Technology and Its Alternatives, Outstanding Enterprise regarding Antibiotic-free Feed in China’s Swine Raising Industry Ecosphere, Pioneer Award of Antibiotic-free Creep Feed in the 9th Session of Creep Feed Development Summit Forum. Meanwhile, Wellhope's "WIN Plus” nursery feed has won the prestigious prize of being crowned as "China’s Good Feed 2020-Pioneer Antibiotic-free Feed Brand". This is one of the most important products in the application of Antibiotic-free feed, and was highly acknowledged by farmers after it was launched into the market. (See Section IV - Description of R&D Input for details) 5. Constantly enhanced and increasingly matured brand influence Wellhope has successfully established its product and corporate brand in domestic agriculture and animal husbandry industries for the past 26 years. With the constant transformation and upgrading of the animal husbandry industry, its branding will be further strengthened. A. Product brand Relying on leading-edge technology, high quality products and continuous improvement in customer service over the years, Wellhope’s brands have been widely accepted and trusted by customers in the market, especially in the Northern regions of China. The branding of Wellhope can also be witnessed from the positive growth of feed sales volume in 2020 and the rapid development of broiler integration business. Meanwhile, the brand “Wellhope” has been recognized and honored as Liaoning Province Famous-brand Product, Liaoning Province Famous Trademark, China Famous Brand, China’s Top 500 Most Valuable Brands, Most Influential Brand in National Animal Husbandry Industry, Trustworthy Product in China's Feed Industry, Governor's Quality Award of Liaoning Province. B. Corporate brand Driven by the core values of "Integrity, Responsibility, Double-Win", some of Wellhope’s businesses are joint ventures with partners, it has been working closely together with many partners for more than 10 or even 20 years, including a 15-year’s good relationship with Royal De Heus. These successful ventures have proven that “Wellhope”, as a corporate brand, has been well recognized and trusted by its partners. Meanwhile, the strength of Wellhope's brand has also been proved by long-term strategic partnerships with various multinational and domestic suppliers, and all loans provided by financial institutions over the years have been credit loans due to the good reputation of Wellhope. As a strong employer brand, “Wellhope” has been recognized and favored by employees, and potential job seekers. Wellhope has twice won the "Best Employer" based on rating by a third party Zhaopin.com. In 2020, Wellhope won the honorary title of "Outstanding Enterprise in Corporate Culture Construction" in the China Corporate Culture Construction Summit, and the successful holding of activities such as "Online Recruitment" and "Wellhope Cup" Outstanding Paper Contest, all these vividly demonstrated the strength of Wellhope's employer brand. 6. Highly energized and dynamic corporate culture that powers the development of Wellhope After 26 years of development, Wellhope has established energized and dynamic corporate culture that has been acknowledged by all staff and powers its development. The core value of "Integrity, Responsibility, Double-Win" and the management philosophy of "Innovation, Efficiency, Self-Discipline", have been deeply entrenched in the thinking and behaviors of employees, and has been applied without fail in day-to-day management, strategic planning and business decision. Common values play a crucial role in improving organization efficiency, enhancing organizational cohesion and organizational empowerment. A good corporate culture is the fundamental principle of success for corporate operation, which powers the long-term development of Wellhope. In 2020, Wellhope held live streaming events 3 times with the theme of “Telling Stories Experienced in Wellhope", where over 40 employees and managers have been invited to tell their stories, and managed to attract more than 220,000 viewers, which has successfully publicized Wellhope’s unique culture. Meanwhile, the annual corporate culture publicity campaign by Wellhope's managers, where good practices in daily work and leading by example have been freely shared as part of the corporate culture dissemination efforts. Wellhope recently ushered its 25th anniversary in 2020, and utilized this opportunity to carry out quite a number of culture promotional activities, including brand and marketing promotion competition, physical fitness programs involving all Wellhope people, job skill competition, essay writing, photography, calligraphy and painting activities, etc., with the purpose of enriching the staff's leisure life and displaying their strengths. In the face of COVID-19 pandemic, Wellhope is one of the first agricultural enterprises to resume work. In order to maintain operations and meet customer’s demand, many managers and employees overcame difficulties to actively return to work, doing their best to run production to ensure stable supply. Their devotions and passions have touched other staff deeply. Wellhope, together with its managers and employees, have donated more than RMB 12 million worth of materials and money for pandemic control efforts. All these stems from the strength of Wellhope's culture, the sense of mission and responsibility as well as true, genuine love for the Company. The history of Wellhope has fully proven that each time whenever Wellhope faces difficulties and trials, the corporate culture continues to assist it to defeat the hard times and to soar higher. . Section IV Business Operations Analysis I. Overview In 2020, the world economy saw a recession, international political and economic situations have remained complicated due to COVID-19 pandemic worldwide. In addition, African swine fever has also posed another stiff challenge. While putting in efforts in fighting the pandemic, Wellhope, driven by its business strategy of focusing on three primary businesses, grasped market changes and opportunities to further expand feed business, whilst vigorously developed broiler integration and swine raising businesses supported by the advantages of brand, technology, research and development, talents team. In 2020, Wellhope’s feed sales volume realized a year-on-year growth of 47%, the number of broilers raised by Wellhope’s holding and associated companies increased by 33%, whilst the number of slaughtered broilers increased by 22%. Meanwhile, the number of swine sold by holding and associated companies rose by 152% from a year earlier. All these three primary businesses overfulfilled their business objectives set at the beginning of the year. Since completing IPO in 2014, both operating revenue and net profit of Wellhope have grown for 7 consecutive years, with the compound annual growth rate reaching 16% and 32% respectively. The ROE has realized steady progress (although being declined a little bit influenced by the downward broiler industry, it still steadily increased by nearly 20%), showing stable profitability and good growth of the Company. The asset-liability ratio was 32.15%, remained below 40% in the past seven years, which was remarkably better than the average level of the industry, reflecting strong ability of risk resistance. Main accounting data and financial indicators since IPO 1. Business highlight Affected by the downturn of broiler market in 2020, the profit contributed by Wellhope’s broiler integration business declined, but the performance of animal feed, swine raising and feed raw materials trade businesses all achieved great breakthroughs, hitting record highs. Wellhope’s operating revenue exceeded RMB 20 billion for the first time, reaching RMB 23.818 billion with a year-on-year increase of 33.87%, the net profit attributable to shareholders of the Company recorded RMB 1.235 billion, increased by 2.99%, the net profit attributable to shareholders deducting extraordinary items realized RMB 1.231 billion, rose by 3.33%, the weighted average return on equity was 19.93%, decreased by 4.64 percentage points. At the end of the reporting period, the total assets reached RMB 11.647 billion with a year-on-year growth of 27.29%. The owner's equity attributable to the parent company reached RMB 6.752 billion, increasing 18.50% compared with the end of the prior year. 2. Review of industry development and the Company’s business progress A. Feed business a. Industry overview China's feed industry started thriving since mid-late 1970s, and in just a dozen years, China’s feed industry has achieved what developed countries have accomplished in decades. In 2011, China's feed production exceeded the United States for the first time, becoming the world's largest feed producer. Comparing with the rapid development of the early stage, China’s feed industry has witnessed a slowdown in the growth of production output in recent years, but it still has a huge market size. Under the backdrop of supply-side reform that has continuously deepened, the transformation of feed industry has been accelerated and showed remarkable polarization. Large enterprises have been rabidly grabbing market shares supported by their technologies, costing, branding, management, capital, logistics, and other advantages, whilst small and medium-sized companies have been gradually squeezed out the market, the consolidation of feed industry has been unceasingly enhanced. In 2020, with the official implementation of "ban of antibiotics" and the continuous promotion of "bulk feed", the entry barriers of feed industry have been raised again, customers have significantly increased their requirements on the comprehensive strength of feed suppliers, which quickened the elimination of companies lagging behind. In terms of supply, the production of national commercial feed in 2020 reached 252.761 million tons with a year-on-year increase of 10.4%. Among them, swine feed increased by 16.4%, reaching 86% of the peak production in 2018. The production of layer feed, broiler feed and ruminant feed rose by 7.5%, 8.4% and 18.9% respectively, all of them set record highs. From the point of view of sales model, the production of bulk feed amounted to 58.976 million tons with a year-on-year growth of 33.6%, accounting for 25.6% of the total output of compound feed, which increased by 4.6 percentage points over the prior year. From the perspective of industry consolidation, there were 749 feed mills with annual capacity over 100,000 tons, newly increased 128 producers compared with the prior year. These feed mills totally produced 133.52 million tons of feed throughout the entire year with a year-on-year increase of 19.8%, contributing towards 52.8% of the total national feed production, which rose by 6.2 percentage points over the previous year, indicating that the industry has been further transformed to intensification. In terms of demand, the swine production has been recovering in 2020 with the rebounded inventories and higher slaughtered weight, whilst the feed to meat ratio has been increased significantly compared with previous years. Meanwhile, the inventories of layer reached a record high, while the inventories of broilers keeping high level throughout the entire year. In regards to ruminant feed, due to the booming market of cattle and sheep products, farmers were keen to replenish their stocks, which led to a rapid increase of productions. Driven by above factors, it could be seen strong demands for feed in 2020, and customers' requirements for product quality have been significantly enhanced. Overall, China's feed industry has an enormous market size with a booming trend in both supply and demand. Although the overall growth rate has slowed down, the consolidation of this industry has been increasing. Those large groups have been growing swiftly in sales volume and market share, implying these industry leaders increasingly enjoying remarkable scale advantages. b. Business progress of feed business The demands for commercial feed in 2020 presented favorable growth, supported by factors such as continuous recovery of swine production, high inventories of poultry and prosperous supply and demand of cattle and sheep products. Wellhope, as one of the domestic feed industry leaders, clung to industry opportunities, exerted its competitive advantages in terms of brand, technology, marketing, service, and purchasing to swiftly response to market demands, and enhance market exploitations, pushing up feed sales volume reaching record level with the highest growth rate since completing IPO, which further improved market share. In 2020, Wellhope’s holding and associated companies totally produced 6.98 million tons of feed with a year-on-year growth of 41%. Among feed entities, Wellhope has 11 feed mills with annual capacity over 200,000 tons (6 holdings and 5 associates). Among them, the feed production of Dalian Heyuan, one of Wellhope’s subsidiaries, exceeded 520,000 tons. The entities included in the consolidated financial statements, produced 3.85 million tons of feed in 2020 with a year-on-year increase of 47.02%, hitting a new high. The feed business contributed RMB 12.11 billion in operating revenue, increased by 55.54% compared to the year earlier. In terms of sales regions, the feed sales volume of Northeast China increased by 49%, accounting for 60% of total sales volume, whilst the sales volume of Central China regions rose by 44%, accounting for 40% of the total. In terms of feed categories, the sales volume of compound feed increased by 51.18%, concentrate feed and premix rose by 36.19% and 20.45% respectively. In terms of feed varieties, the sales volume of swine feed increased by 71.59%, the creep feed, nursery feed and feed for lactation sows as well as piglet feed accounted for 75% of total swine feed. Whilst poultry feed rose by 35.64%, ruminant feed grew 40.85%. Among them, the sales volume of beef cattle feed continuously maintained a rapid growth (y-o-y 77%). Other feed categories increased by 8.62%. In general, Wellhope’s feed business in 2020 achieved explosive increase highlighted by three primary feed categories including swine, poultry and ruminant, while its growth rate being far ahead of the industry average level. Feed sales volume of companies included in the consolidated scope in 2020 During the reporting period, the main strategic actions and progresses of Wellhope's feed business are as follows. (a) Accelerating product development to capture market opportunities Facing the changes of market pattern, Wellhope, relying on strong product development platform and more than 20 years of technology accumulation, adhered to research on market demand-oriented products, also iterated and upgraded products to seize the market opportunities and support marketing. In response to African swine fever, Wellhope has successfully developed the line of products named “Wellhope Immune Nutrition”, which has effectively enhanced the immunity of swine. In response to the demand of raising large swine above 120kg, Wellhope quickly developed large swine feed to help customers capture the opportunity of benefitting from higher swine price. Also, Wellhope continuously developed and launched a series of high-yielding and fast-growing swine feed products. In terms of antibiotic-free feed, Wellhope has been preparing and researching on antibiotic-free technologies for a long time and carried out more than 100 experiments from 2013 and 2019, reserving a variety of comprehensive solutions to completely alternate antibiotics. Wellhope has already changed some feed products to be antibiotic-free before the ban of antibiotics being issued. By the end of June 2020, Wellhope has transformed all products to be antibiotic-free, which have realized constant growth performance, good customer feedback and high market recognition. As a result, Wellhope received the honor of "Top 10 Technology Innovation Enterprise regarding Anti-free Feed", and the “WIN plus (Upgraded Wellhope immune nutrition products)-Nursery Feed Product” was awarded as “China Good Feed 2020-Pioneer Anti-free Feed Brand”. (b) Implementing precision marketing and innovating customer service system In 2020, Wellhope paid close attention to the market changes and implemented precision marketing strategies in a multipronged manner. Firstly, Wellhope conducted in-depth researches on the market and precisely positioned the demands of products. Secondly, it exactly matched customer service and provided customers with "one-stop" services through profound cooperation with breeding farms, bio-tech companies, equipment companies, financial institutions, insurance companies and other third parties to enhance customer engagement. Thirdly, Wellhope increased the promotion of new products and bestsellers to strengthen its brand image and heighten profitability. Following, Wellhope vigorously explored new regions, new markets, and new customers to capture new profit growth points. Thereafter, Wellhope expanded its sales force and increased the density of market development to prepare for further exploration of market space. Owing to the impact of COVID-19 and changes in the market environment, Wellhope constantly innovated online service modes, actively provided efficient and accurate services to customers through online media such as video call, live streaming, short videos, WeChat and other platforms. In the meantime, Wellhope quickly carried out online guidance and training programs for customers, such as "remote questioning" and "remote teaching", to solve the problems effectively via remote interactions to ensure that farmers could operate their farms in an orderly manner. Also, Wellhope has built online service platforms, which guided farmers by launching market analysis, farming skills and preventive measures against epidemics to help farmers continuously expand their breeding knowledge and keep abreast of market conditions. The professional and systematic service system has been praised and highly trusted by a lot of customers. (c) Heightening internal operation to achieve high quality, high efficiency and synergy effect After the outbreak of COVID-19 in early 2020, Wellhope responded quickly and overcame difficulties to resume production as soon as possible to achieve the goal of "ensuring staff safety, guaranteeing production and supply, stabilizing sales and development”, and fulfilled the responsibilities of safeguarding residents’ meat supply. Although facing the pressures such as labor shortage, insufficient raw material, soaring demand and traffic control, Wellhope exerted its advantages such as strong execution, strategic and large-scale purchasing, lean production to ensure production and supply. In addition, Wellhope continued to improve internal operation, optimized its organizational structure to make sure all functional departments were able to operate in a standardized, orderly and efficient manner, which ensured that the Company’s management system could meet the needs of the growing business scale. (d) Seeping up business exploration to continuously expand production capacity During the reporting period, Wellhope quickened the business exploration in new markets to increase feed production capacity. It set up several feed mills in Liaoning, Hainan, Shanxi, Shandong, Jiangxi, Hunan, Sichuan, Fujian provinces by way of self-building, merger and acquisition, leasing, and OEM, which has laid a solid foundation for future rapid expansion. On the other hand, Wellhope constantly renovated feed production equipment and factories to increase efficiency and enhance the utilization of capacity. With the continuous generalization of bulk feed, Wellhope has increased input in bulk silo facilities, its sales volume of bulk feed achieved 400,000 tons in 2020, with a year-on-year growth of 124%. B. Broiler integration business a. Industry overview In 2020, the COVID-19 pandemic has significantly hit the supply and demand of white feather broilers, which weighted on the supply and significantly curbed the consumption demand of chicken. Compared with 2019, the overall profits of this industrial chain fell sharply, and the backward players have been weeded out quickly, while these large-scale companies continuously expanding their businesses to capture market opportunities. Regarding supply, in the first half of the year, the COVID-19 disrupted the sales channels, whilst the market was mandated to cut production capability by forced molting, and eliminating old broiler breeders, which caused the inventories of molted broiler breeders declining significantly. In the second half of the year, the number of broilers delivered for slaughter gradually recovered to a high level, reaching a five-year peak in September and October, which resulted in a rapid increase in supply and excessively low chicken prices. Thereafter, the supply of broiler decreased in November and December. For the whole year, the inventories of in-production grandparent stock and parent stock remained high, pushing the sales volume of commercial day-old chicks growing 8.1% compared to the year earlier, and the number of live broilers increasing 8.4%. The outbreak of COVID-19 in the first half of the year caused a certain obstacle to production, which in turn lowered the annual production, generating a less-than-expected growth in the overall supply of white feather broilers in 2020. In regard of demand, chicken consumption shrank remarkably in the first half of 2020 caused by the COVID-19 pandemic hitting domestic consumption, especially in the first quarter. Affected by this pandemic, the overall consumption of chicken in Q1 dropped by about 10% from a year earlier, among which, chicken consumed by catering and group meal decreased by more than 30%. In May and June, chicken consumption gradually recovered, but the average price of chicken products throughout the year declined by 19% compared to the year earlier due to extremely high intermediate and terminal inventories, coupled with the rapid growth of chicken supply in the second half of the year, and the remarkable decline of overall consumption power of residents. The overall profit of this industrial chain also fell significantly. To conclude, the COVID-19 has broken the original estimate of “an increase both in production and sales, a bloom both in supply and demand” within white feather broiler industry, both the supply and demand sides fell short of expectations in 2020. In short term, chicken has still played the role of the substitution for pork. Along with the economic recovery and the stabilization of the pandemic, chicken consumption is expected to grow, but because the supply is still running at a high level, the industry may be difficult to recover in a short time. As a result, unqualified companies will be continuously weeded out of the market, while large-scale enterprises constantly expanding their businesses to capture market opportunities. In long term, chicken will be becoming increasingly popular relying on its characters of high protein, low fat and low cholesterol, whilst white feather broilers also have greater advantages compared to swine in terms of growth rate, feeding costs, safety, and environmental protection. Seeing the experiences of developed countries, China's per capita chicken consumption still has large growth potential, showing a vast market space. Note: The statistical data in above industry information come from Industry Analysis Report of www. Boyar.cn. b. Business progress of broiler integration business In 2020, the broiler industry entered a downward cycle, and the COVID-19 pandemic had significantly impacted on national economy, which remarkably dented terminal consumption and pulled down the market environment. Under such unfavorable circumstances, Wellhope’s broiler integration business division focused on market exploration and chose opportunities to conduct business expansion. Meanwhile, based on the advantages of cost and efficiency formed over the years, it further heightened core competencies and constantly enlarged market reach under fierce competitions, making its market standing further enhanced. Although the performance of broiler integration business declined compared with the prior year, it has been still one of the important contributors towards the overall profit of Wellhope. In 2020, these holding and associated companies totally raised 561 million broilers with a year-on-year increase of 33%, slaughtered 639 million broilers with a year-on-year growth of 22%, whilst produced 1.68 million tons of broiler products, which increased by 26%. Meanwhile, Wellhope totally produced 26,100 tons of prepared food and cooked food with a year-on-year growth of 20%, including 3,010 tons of exported cooked food with an increase of 50%. (a) Conforming to the industry trends and planning business expansion steadily In 2020, the inventories of grandparent and parent stocks rose to high levels, boosting a sufficient supply of commercial chicks. In view of this, Wellhope proactively slowed down the construction progress of breeding farms, whilst strengthened the performance management of these farms. Although the percentage of self-produced day-old chicks in total commercial broilers raised by Wellhope declined compared with the prior year, the quality of day-old chicks has been significantly improved. Regarding commercial broiler raising business, Wellhope, relying on the geographical advantage of its slaughtering business, fully exerted its asset-light advantage by cooperating with contract farms, and steadily expanded the scale of commercial broiler as planned based on the precise control of capital investment, thus the ratio of broilers raised by Wellhope and contracted farms to broilers slaughtered by Wellhope increased significantly, making a further enhancement of food safety traceability of chicken product. For slaughtering and further processing business, Wellhope moderately expanded slaughtering production capacity, all of the newly invested slaughtering projects have been matched with food factories, and the resources of broiler integration have been deeply inclined to further processing business. (b) Refining internal operation and reserving talents to continuously improve operational capabilities In the context of downward broiler industry, Wellhope has continuously enhanced lean management in its broiler integration business, and rationally reduced period expenses, each sector in this industrial chain has maintained efficient and smooth operation. In terms of broiler raising, Wellhope took measures in certain aspects including day old chick, feed production, animal health products and equipment to constantly improve the growth performance of commercial broiler and further enhance automation. Regarding slaughtering, Wellhope vigorously heightened production efficiency to reduce operating costs and strengthen quality control. When new projects put into operation, Wellhope would rapidly expand the production and sales scale to achieve profitability at the fastest speed. In respect of finance, Wellhope stringently managed accounts receivables, reasonably arranged capital expenditures, and continuously accelerated the inventory turnover to ensure enough cash flow. While strengthening internal management, Wellhope gave full play to the influence of corporate culture to actively absorb talents, also optimized selection and training system, broadened talents reserve, echeloned talents team, and improved incentive policies, to lay a solid foundation for achieving long-term objectives. (c) Focusing on market trends to valorously explore business and unhesitatingly boosting food strategy The domestic consumption was significantly suppressed after the outbreak of COVID-19. Wellhope quickly responded to such changes and vigorously expanded new sales channels, also constantly optimized product mix, developed new cost-effective product portfolios, and continuously cultivated outstanding dealers, simultaneously improved their loyalty. Meanwhile, Wellhope continued to boost food business strategy unhesitatingly. With the advantage of raw materials, Wellhope used multi-brand business mode to quickly develop domestic and foreign sales channels, also focused on forging hit products, trained sales forces, expanded sales volume and strived to improve the percentage of both processed food and high-value products, as well as the exported cooked food, thus further improving the ecological niche. Influenced by the pandemic, the consumption of foreign residents also shrunk, as a result the total amount of further-processed chicken products exported to Japan and Europe decreased significantly. Even in such an unfavorable environment, Wellhope attracted great importance to the quality of cooked food, accelerated the exploration of new foreign customers, and rapidly explored small package products according to customers’ demand. Meanwhile, Wellhope dynamically adjusted production structure and rapidly entered new channels to seize new market share. In 2020, the export volume of Wellhope’s cooked food increased by 50% compared with the prior year, and the food strategy has achieved initial results. C. Swine raising business a. Industry overview In 2020, the production capacity of China's swine industry recovered in struggle under the joint attack from the COVID-19 and African swine fever. The price throughout the year was higher than expected, and the swine raising industry has ushered in an ultra-long period of gaining from higher swine price. On the supply side, benefiting from taking commercial gilts as pig breeders, the inventories of China’s breeding sows recovered faster, with a year-on-year growth of 43% in the end of 2020, basically approaching the numbers in 2017. However, the percentage of commercial gilts in breeding sows was relatively high, accounting for 40%-70% in the entire year, coupled with the long-term impact of African swine fever, resulting in a significant decline in the overall reproductivity of sows. From the perspective of commercial swine, the number of swine delivered for slaughter in 2020 still decreased by 35% compared with 2019. But due to the higher body weight, the decline in pork production was less, with a year-on-year decrease of 22%. To stabilize swine production and ensure pork supply, a series of policies have been introduced one after another, and large-scale companies constantly quickened business expansions to capture market shares relying on the advantages of capital, technology and talents, etc. On the demand side, dine out such as in eateries and group meals were blocked by the COVID-19, and the percentage of household consumption increased, making the sales channels of slaughtering factories change, and further processing companies began to expand new sales channels such as the rapidly developed e-commerce live streaming. In addition to the consumption scenario, residents' meat consumption manner also changed. High-priced pork has been already difficult to sell, the pandemic has tremendously impacted on the economy, and apparently weakened residents' consumption power, pushing a further drop in pork consumption. Those food processing companies have been compelled to adjust the percentage of pork in their formulas due to cost pressure. Meanwhile, the demand for pork alternatives increased, proving that the overall consumption habits of residents have changed. To conclude, China's swine industry has been still presented a tight supply, pushing swine raising industry ushering in a long profit-gaining period. The prevention of African swine fever has been still a major problem faced by the industry as this disease becoming normal that has hampered production recovery. With the increase of stocking density, small and medium-scale farms have been facing pressures regarding bio-safety, whilst those large companies took the chance to vigorously conduct strategic expansion to fast capture markets by taking advantages of their capital, talents, technology and other resources. In addition, at this stage, both swine raising companies and slaughtering factories have been showing their strategic intention to expand integrated businesses, which proved that the industry integration may further accelerate. Note: The statistical data in above industry information come from Industry Analysis Report of www. Boyar.cn. b. Business progress of swine raising business In 2020, influenced by the tight supply of swine and African swine fever, the swine price has been still at a historical high level. On the basis of making every effort to ensure safe production, Wellhope rapidly promoted the sales business of piglets and pig breeders, whilst further expanded swine fattening business via own farms and contract farms, overachieving the annual sales objective. (a) Expanding swine production vigorously to gain from high prices Swine raising industry has been witnessed an ultra-long period of benefitting from high swine prices. Wellhope seized this opportunity to vigorously boost the increase of swine production of farms in operation, whilst speeded up projects under construction, striving to rapidly expand swine production in North, East and Northeast regions across China. In the meantime, Wellhope actively implemented business expansion by leasing, out-source construction and cooperating with farms to expand available pen areas to rapidly increase the production capacity. Wellhope also followed the market situation to quickly adjust its sales structure, such as seizing the opportunity of higher piglet price to increase the sales of piglet, quickening swine fattening business via contract farms to contribute to the number of finishers to fully enjoy the industry bonus and increase the Company's profit. During the reporting period, Wellhope's holding and associated companies totally sold 682,000 heads of swine, including 216,000 heads of finishers, 369,000 heads of piglets (202,000 sold to subsidiary companies, and 167,000 to the market), and 97,000 heads of pig breeders. (b) Closing up bio-safety prevention system to make farms safety Under the threat of African swine fever, bio-safety has become a vital factor for pig farms. During the reporting period, Wellhope took production safety as the first priority and comprehensively reviewed bio-safety prevention systems of feed mills, own pig farms and contract farms. Wellhope has founded multi-level control systems and closed up the bio-safety prevention systems to guard against outside African swine fever cases and preventing infections inside the farms. Wellhope has also built material supplies disinfection and logistics centers, vehicle cleaning and disinfection centers, and personnel quarantine centers in each region to control the risk of African swine fever that might be brought in by vehicles, materials and personnel. Meanwhile, Wellhope has constantly iterated bio-safety regulations and systems inside the farms, isolated and blocked African swine fever through strictly preventive measures under the four-level control systems, namely red, orange, yellow and green. More frequent inspections by professional teams have been implemented to ensure timely supervision and prompt management. At the same time, Wellhope increased the intensity and frequency of the detection of African swine fever and other diseases, also established regional central laboratory and "satellite" testing laboratory to heighten the defensive monitoring and early warning of diseases, and all pig farms comprehensively conducted closed-loop management to ensure production safety. (c) Expanding the inventories of pig breeders with outstanding performance to power the rapid development of swine raising business Pig breeders lay a foundation of the rapid expansion of swine production. Within the reporting period, Wellhope swiftly increased the inventories of pig breeders by ways of strengthening internal breeding and outsourced purchasing, as well as combining the operation model of "separating farm building and breeders raising”, which provided a solid guarantee for Wellhope to increase swine production to maximumly seize the opportunities of this industry. Besides, Wellhope also continued to optimize and adjust the group structure of pig breeders to maintain the advantage of sows, and ensure the stability and sustainability of production performance. By the end of the reporting period, the percentage of Wellhope’s commercial gilts was only 6.5%, and the feeding performance of finishers, such as the growth rate and feed to meat ratio, has reached the advanced level nationwide. At present Wellhope has established a complete swine breeding system including great-grandparent and grandparent stock, etc. As at the end of 2020, the inventories of Wellhope’s sows reached 65,000 heads. (d) Exploring slaughtering business to curb risks caused by industrial chain fluctuations Apart from Chifeng slaughtering project that has been in operation, Wellhope actively boosted the construction of a new project located in Anhui province, which would be engaged in swine slaughtering, further processing of pork and cold chain logistics. It is expected to be completed and put into operation in 2021. Wellhope is well on its way to exploring business opportunities in related downstream industries, such as slaughtering and food processing, to continuously improve the blueprint of swine raising business and enhance the ability to withstand market risks. D. Feed raw materials trade business In 2020, both the revenue and net profit of feed raw materials trade business increased greatly, contributing to the performance of Wellhope. Performance driver--Influenced by the COVID-19, bulk commodities’ inflation has intensified, which caused the tight supply of feed raw materials, then the prices rose, bringing opportunities to Wellhope’s trade business. Meanwhile, the prosperity of the downstream feed industry increased strong demands of feed raw materials. With the high prices of swine and cattle, the customers’ demands for high-class animal health products have risen greatly. As Wellhope's animal health products are top brands at home and abroad, fueling the high market demands. In terms of internal reasons, the trade business division gave full play to its advantages, such as professional team and information platform, to study and judge the market conditions and implement precision marketing, which made its business operation safer and more efficient, and further enhanced profitability. 3. Other progresses A. Strengtheningresearch and development,heighteningtechnologyleadership In 2020, faced with many market changes and competitive pressures, such as African swine fever, ban of antibiotics in feed, price fluctuation of raw materials, Wellhope increased investment in R&D, focusing on immune nutrition, antibiotic-free technology, raw materials’ substitution, and iteration of animal raising programs. In the aspect of feed research and development, Wellhope paid close attention to the market trends, continuously developed and upgraded marketable products, such as immune nutrition products, fast-growing large swine feed, new-type broiler feed, and concentrate supplement for dairy cattle, to continuously enhance product competitiveness. Regarding antibiotic-free feed, Wellhope continued to upgrade and optimize feed products without antibiotics as well as providing customized feeding programs to maintain the leading position and competitiveness of antibiotic-free technology. At the same time, it guided farmers to continuously improve bio-safety and on-site management. Regarding raw materials’ substitution, Wellhope excavated diversified raw material resources and carried out various substitution technologies to stabilize the impact of price fluctuations of raw materials. In regards of animal raising programs, Wellhope closely followed customer's demands to formulate integrated programs to help them improve production performance, such as the nutrition program for commercial gilt and large-weight finisher, and feeding programs for broiler raised by three-tier cage. Moreover, Wellhope further strengthened the direct sales to large farms, the R&D team provided specialized solutions through product optimization and program customization to jointly expand large-scale farms and integration companies with the sales team. (Details of R&D progress see "Description of R&D Input”). B. Improvingtheincentivemechanismand enrichingtalentsreserves Driven by the core values of "Integrity, Responsibility and Double-Win", and the management philosophy of "Innovation, Efficiency and Self-Discipline", Wellhope has been committed to building a highly-competent, innovative and potential team to lay a solid foundation for long-term and healthy development. In 2020, Wellhope continued to optimize talents selection, training, and incentive system, also revised and promoted “Administrative Measures on Talents Appointment”. Especially in feed and swine raising business sectors, Wellhope focused on salary design and innovated incentive policies to select and motivate talents better. During the reporting period, the performance appraisal objectives setting for the first lockup period (2019) stated in Wellhope’s 2018 Restricted Stock Incentive Plan have been fulfilled, 367 managers who were awarded the incentive shares could unlock the restricted shares. Wellhope’s performance achieved new high in 2020, the objectives for the second lockup period have been accomplished, Wellhope has once again achieved a win-win result with employees. Meanwhile, Wellhope also focused on the construction of talent echelon, paying close attention to the selection, training and retention of key staff, and accurately implemented the key talent training plan. In 2020, Wellhope recruited a large number of new staff specialized in technology, management, marketing, and finance through various channels. All of them are either excellent university graduates (except production line workers), or experienced and potential persons. Excellent and sufficient talents reserve have been the most critical factor for Wellhope to achieve medium and long-term strategic objectives. C. AcceleratingITconstruction to improvemanagementefficiency In 2020, Wellhope continuously heightened IT application and accelerated the digital transformation of the enterprise. Wellhope reorganized information resources for head office, feed, broiler integration, swine raising, raw materials trade business divisions to build a solid foundation for data management. During the reporting period, Wellhope completed lean digital management and system upgrade in the feed division, and finished system optimization in broiler integration, swine raising and trade sectors, which boosted the development of each business. In July 2020, Wellhope received a report from the China Academy of Information and Communication Research about the assessment of the construction capacity of the secondary node, which concluded that Welllhope could build the secondary node of the industrial internet identification, and was selected as a national digital business enterprise in this year. 4. Honors and recognitions received in 2020 FortuneChina500(fouryears--2015,2016,2017,2020) Top 100 MostValuableCorporation ofChinese PublicCompanies(fouryears--2016,2017,2019,2020) Top 100 Enterprisesin China’sLightIndustry,ranking23(2016-2019) Top 100 NationalLeadingEnterprisein AgriculturalIntegration Industry ARatingfromthe ShanghaiStockExchange forAnnualInformation Disclosure 2019 Governor’sAwardsofLiaoningProvince Outstanding Privately-owned Enterprise in Fight Against COVID-19 Pandemic Top 10 Technology Innovation Enterprise regarding Anti-free Feed 2020 Outstanding Enterprise in Corporate Culture Building II. Operations Analysis As at December 31, 2020, Wellhope's total assets recorded RMB 11.65 billion, the owner’s equity attributable to the Company reached RMB 6.75 billion, increased by 27.29% and 18.50% respectively compared with the end of prior year. Meanwhile, the operating revenue realized RMB 23.82 billion, and the net profit attributable to the shareholders of the Company reached RMB 1.24 billion, recorded the growth rate of 33.87% and 2.99% respectively. 1. Analysis of primary business A. Analysis of changes of income and cash flow Unit: yuan Currency: RMB B. Analysis of revenue and cost During the reporting period, Wellhope achieved an operating revenue of RMB 23.82 billion with a year-on-year growth of 33.87%, which was mainly contributed by the increased sales revenue of feed business. The operating cost recorded RMB 21.68 billion with a growth rate of 37.31%, mainly due to the growth of feed sales volume and the rising costs of raw materials. a. Primary business analyzed by industries, product classification and regions Unit: yuan Currency: RMB Notes --Analyzed by different industries and products During the reporting period, in response to the COVID-19 pandemic and changes in the feed market, Wellhope strengthened the ongoing research and development of feed products, market development and customer services to further improve product performance and market competence. The income of feed business increased by 55.54% compared to the year earlier. Meanwhile, Wellhope further accelerated business and production expansion of swine raising business, the deliveries of swine realized a significant year-on-year growth, and the income increased by 274.16%. --Analyzed by geographical region During the reporting period, Wellhope's sales revenue in East, North, Northeast, Central and South, Southwest and Northwest regions across China increased by more than 20%, mainly due to the rapid growth of feed business in the above regions. Wellhope’s overall feed sales volume realized a year-on-year increase of 47.02%. b. Analysis of sales volume c. Analysis of cost Unit: yuan Currency: RMB d. Top 5 customers and suppliers The sales revenue of top 5 customers reached RMB 1.00 billion, contributing towards 4.21% of Wellhope's total operating revenue, the sales revenue of which, arising from selling products to the related parties reached RMB 465.19 million, accounting for 1.95% of the total annual sales. The purchase orders of top 5 suppliers reached RMB 4.15 billion, accounting for 19.78% of Wellhope's purchase orders during the reporting period, of which, it did not occur the orders of purchasing products from the related parties. --Other Explanation Top 5 Customers Top 5 Suppliers C. Expense Unit: yuan Currency: RMB D. R&D Input Unit: yuan Currency: RMB During the reporting period, Wellhope increased input in R&D to continuously accumulate practices and make breakthroughs in immune nutrition technology, antibiotic-free technology, biological fermentation technology, know-how for broiler high killing out percentage, etc. The R&D expenses increased by 28.18% compared with the same period of prior year. The primary R&D achievements and progresses are as follows. A. Strengthening the development of marketable feed products to continuously enhance product competitiveness a. Swine feed: Faced with the circumstances of raging African Swine Fever, ban of antibiotics in feed, price fluctuation of raw materials and higher swine price, Wellhope put efforts into product development and upgrading in the immune nutrition, the integrated nutrition of sow and piglets, and the low protein with balanced amino acid technology, etc., including strengthening the development of immune nutrition products, accelerating the development and promotion of fast-growing finisher feed, increasing investment in the products of facilitating feed intake and growth rate of weaning piglet, and boosting the development and promotion of high-quality fast-growing swine product lines to further adapt to market changes. b. Broiler feed: Wellhope focused on product development to maximize the benefit of the whole broiler integration chain. In order to improve the growth performance of broiler further, Wellhope took certain measures, such as using unconventional feed raw materials, adjusting the database of broiler feed, and continuously optimizing diet design and feeding program. Meanwhile, Wellhope has developed a new shape of broiler feed, which solved the problems that the traditional shape was easy to be powdered during bulk transportation. c. Ruminant feed: Wellhope has researched on ruminant feed for many years. In 2020, Wellhope was keeping on improving feed product research in the field of dairy cattle, beef cattle and mutton sheep, and optimizing the integrated solution for farmers. For instance, Wellhope helped farms improve their economic returns through launching series of concentrate supplement for dairy cattle and balancing TMR through RENB technology, which can improve milk yield during peak of lactation by 1.0-1.8kg per day and decrease milk manufacturing cost by RMB 0.1-0.3/kg. d. Layer feed: In response of the market competition caused by COVID-19 pandemic and African Swine Fever as well as the sharp increase in raw materials price, Wellhope actively developed new products, such as launching a new type of compound feed for layer in egg producing period with higher cost-effectiveness. Meanwhile, Wellhope has improved the premix production line, optimized and upgraded the special poultry feed products such as laying duck and goose breeder, which has further enhanced the product competitiveness and market share. e. Aquatic feed: Wellhope carried on the upgrading of aquatic feed products for some important species, such as common carp, channel catfish, loach and pacific white shrimp, making the feed conversion efficiency of these products decreased by 0.05-0.10 compared with the prior year. At the same time, Wellhope increased investment in research and development of feed for special aquaculture animals, and promoted the competitiveness of high value products such as crayfish, giant freshwater prawn and yellow catfish. B.Improving the nutrition system of antibiotic-free feed and carrying out reducing the use of antibiotics on farms By the end of June 2020, all feed products of Wellhope have been successfully transitioned to be antibiotic-free after continuous researches and explorations based on more than one hundred test verification. The performance of the products has been proved stable, positive and been well received by the market. In order to maintain the leading position and market competitiveness, Wellhope constantly upgraded antibiotic-free feed products, also provided customized feeding programs to farmers. In the meantime, Wellhope further boosted reducing the use of antibiotics on farms and guided farmers to constantly improve bio-safety, farm management and feeding programs. C. Exploring diversified raw material resources to cope with price fluctuations of feed raw materials In 2020, the prices of corn, soybean meal and other raw materials have been fluctuating sharply. Combining own accumulations and experiences of partner Royal De Heus in raw material substitution, Wellhope has explored diversified raw material resources and adopted methods such as raw material substitution to optimize feed formula, so as to stabilize the impact of raw materials price fluctuations. For example, evaluating the application of unconventional raw materials, increasing the investment in research on low-protein and eco-friendly diets, using some local raw materials to reduce the dependence on soybean meal and control costs; selecting wheat, brown rice and other raw materials to alternate corn, and taking the lead in developing and promoting corn-free growing-fattening swine feed technology and related products in several regions to reserve the diet technology with a variety of grains in the future. D. Upgrading farming management programs to facilitate the development of large-scale farms a. Technology solutions for swine raising: In 2020, Wellhope has established health monitoring technology for breeding pig and concentrated breeding technology with different genes, also improved the integrated high-standard nutrition system of Danbred sows and piglets to continuously strengthen the reproductive performance of sows, as well as the livability and weaning weight of weaned piglets. Meanwhile, Wellhope has established the nutrition supporting programs and implementation measures for commercial gilts and large-weight finishers under the backdrop of the "post African Swine Fever era", which has successfully settled the problems faced by swine raising industry, such as low feed intake during lactation period of commercial gilts, lower weaning weight of piglets, serious backfat loss after weaning and difficulty in oestrus. b. Technology solutions for beef cattle and mutton sheep: Wellhope continued to implement the way of nutritionists cooperating with product managers to enhance farm benefits through providing on-site guidance, such as developing reasonable diet formulas and feeding programs that matched with feed model. c. Broiler raising and slaughtering technology: Wellhope further exerted the advantages of three tier cage system for broilers and combined different types and combinations of feeding programs to improve feed conversion rate, reduce mortality and culling rate, promoting the full growth potential of broiler. Meanwhile, Wellhope vigorously improved slaughtering know-how to enhance the killing-out percentage and meat quality, such as reducing broken wing percentage, and increasing skin water keeping ability, helping increase the profitability of the Company’s overall value chain. E. Introducing and reserving excellent talents to enhance the competence of the R & D system Wellhope has been always insisting on introducing and reserving key technological talents through various ways. In 2020, it introduced nearly 50 professional talents to work on market research, product development, technical support and other positions in the fields of swine, poultry, ruminant, etc. Some of them are doctors and post-doctors from both domestic and overseas agricultural universities, such as China Agricultural University, Nanjing Agricultural University, Wageningen University and the University of Queensland. The R&D team has been growing stronger, boosting Wellhope's R&D strength constantly enhancing. Honors and Patents E. Cash flow Unit: yuan Currency: RMB 2. Assets and liabilities Unit: yuan Currency: RMB 3. Investment analysis As at December 31, 2020, the balance of Wellhope's long-term equity investment recorded RMB 2.42 billion, increased by 17.14% compared with the end of prior year. For details, please refer to notes to the items of Consolidated Financial Statements--long-term equity investment. 4. Main holding and associated companies Unit: 10k yuan III. Outlook on the Company's Future Development 1. Industry outlook China is a large agricultural producer with a population of 1.4 billion. In China, agriculture has always been regarded as a strategic industry that provides security and stability to residents and lays a foundation for national economy. This is not only because agriculture is the source of food and clothing for mankind and the basis of survival, but also because it is the pillar of the independence and development of other industries. China has always paid great attention to the development of agriculture. Along with latest changes in international trade, resources and environment, technological circumstance, industrial structure, policies and regulations and other factors, the development of agriculture has also ushered in a new phase. In 2019, the No. 1 Central Document put forward that downward pressure on the economy has been mounting and profound changes have been taking place in the external environment, it was of special importance to do intensive work related to agriculture, rural areas and farmers. In 2020, the No. 1 Central Document made comprehensive plans for agriculture, rural areas and farmers to ensure a successful conclusion on the battle against poverty and building a moderately prosperous society in rural areas. The No. 1 Central Document of 2021 also further emphasizes that rural revitalization is necessary for national rejuvenation. This document is based on the present and takes into account the future, puts forward clear requirements for comprehensively promoting rural revitalization and accelerating agricultural and rural modernization. Under the backdrop of deepening reform on the supply-side and industrial transformation and upgrading, the animal husbandry industry in which Wellhope is active has also ushered in a new development opportunity despite numerous challenges. A. Edging out less qualified players, the consolidation of feed industry is increasingly heightened Along with fierce competitions taking place in the feed industry, extra-large companies are constantly expanding their businesses, medium-sized producers are seeking business opportunities, whilst small producers are gradually squeezed out of the market. For large companies, they enjoy their strengths and advantages in technology, cost, brand, management, capital and logistics to continuously improve their total factor productivity, rapidly expand production scale and seize market shares through mergers and acquisitions as well as embarking on new projects. Those small and medium-sized feed producers have been gradually edged out in the increasingly fierce competitions due to their lower technical level, higher comprehensive costs, weaker brand reputation, lack of management skills, and bigger financial pressure. In addition, with the formal implementation of ban of antibiotics, and the continuous promotion of bulk feed, the entry barriers of feed industry have been raised yet again, customers have also increased their requirements on the comprehensive strength of feed suppliers significantly, which will speed up the elimination of backward players. In 2020, there were 749 large-scale feed mills with annual capacity over 100,000 tons, increased 128 plants compared to the prior year. These feed mills have produced 133.52 million tons of feed with a year-on-year increase of 19.8%, which contributed towards 52.8% of China’s total feed production, rising by 6.2 percentage points. The feed industry has been further transformed to become more large-scale and intensive. B. Vertical integration of resources and continuous extension of industrial chain Animal husbandry industry consists of several industries such as feed production, animal health product, livestock and poultry raising, slaughtering and processing, etc., where the upstream activities are more related to crop planting, whilst the downstream activities focus more on agricultural and sideline food processing industries, with a mixture of other related industries in between to form an organic whole. As competition has intensified to edge out less qualified players, large-scale companies are continuously expanding their business scale. For reasons of risk control, profit growth, food safety and other needs, apart from engaging in mergers and acquisitions, these giants involved in animal husbandry industry gradually integrate resources during this phase, while continuously expanding their businesses in both upstream and downstream industries in order to break through the industrial chain and establish strong competitive advantages as well as develop better anti-risk capabilities. Under the development trend of integration, the industrial divisions of large enterprises in agricultural and animal husbandry industries have been gradually weakened, while seizing the resources of the whole industrial chain has become the theme of the development of animal husbandry industry. C. Constantly strengthened environment protection promoting the concept of green development being practiced In recent years, China has put forward a series of regulations on environmental protection, such as the revision of the Environmental Protection Law, the promulgation of the Environmental Protection Tax Law, and the release of the Regulations on Pollution Prevention of Large-scale Raising of Livestock and Poultry and the Action Plan for Pollution Abatement of Agriculture and Rural Areas, etc. These successively launched policies have showed China's determination to increase supervision on environmental protection in animal husbandry industry, local governments have also issued certain new regulations related to farm removal, ban of raising and restriction of farms, which will further edge out less qualified players and reframe animal husbandry industry. D. Increasingly stringent supervisions on food safety highlighting the advantages of large-scale companies In recent years, food safety in China has been improving, but at present the circumstances of the small-scale, and fragmented food industry with low entry barriers have not been changed much, and the farm-to-table industrial chain is too long and too large with many risk points. In October 2019, Premier Li Keqiang issued a Decree of State Council and released the new edition on Food Safety Regulation of the People’s Republic of China, which not only provided clear regulatory initiatives to address specific issues, but also strengthened the penalties for violations of the law through the policy of "implementing penalties to individuals". The Regulation came into force from December 1, 2019 and the market has since been the most heavily regulated. In the future, more attention will be paid to the normalization of food safety and industrial system. Stringent food safety supervision will further squeeze out less qualified players, at the same time highlighting the strengths and advantages of large integrated companies. E. Bio-safety becoming a key factor, the prevention of African swine fever becoming normal Disease has always been one of the major risks faced by animal raising industry. In August 2018, China’s first case of African swine fever was identified, soon spread to more than 20 provincial-level administrative regions within the next six months, which has severely hit swine raising industry. Affected by this epidemic, China's swine inventories fell sharply in 2019, the key factor of bio-safety has raised the entry barriers of swine raising industry, the living space of small and medium-sized back-yard farms were continuously compressed, whilst large group companies took the chance to vigorously expand their businesses to capture markets supported by their massive capital, talents, technology and other resources. In 2020, the prevention of African swine fever has become normal, boosting swine raising industry entering a prolonged period of gaining from high swine prices. However, the prevention of African swine fever remained the primary issue faced by the industry. African swine fever has restricted domestic swine stocking density, and the recovery of China's swine production will be hampered for a long time until a safe and reliable vaccine can be developed. F. High pork prices curbing consumer demand, accelerating the adjustment of meat consumption structure In 2019, African swine fever has hit China’s swine industry particularly hard, with severe production capacity losses and a remarkable increase in swine and pork prices, which fueled the prices of livestock and poultry products to record highs. In 2020, the outbreak of COVID-19 has severely attacked the national economy and significantly weakened the consumption power of residents. It has been already quite difficult to sell high-priced pork, the COVID-19 has once again reduced pork consumption, pork purchases from the group meal dropped remarkably and food producers were forced to shift raw materials to chicken and vegetarian food, which quickened the adjustment of consumption structure of domestic meat products, and the overall consumption habits of residents have begun to change. In addition, characterized by high protein, low fat and cholesterol levels, chicken has been well accepted by residents as a viable alternative to pork, and white feather broilers have a big advantage over swine such as growth rate and raising cost, etc. Seeing the experiences of developed countries, China's per capita chicken consumption still has great growth potential and a broad market. 2. Development strategy of the Company Wellhope’s long-term development objective is to become the world's leading enterprise across agriculture, animal husbandry and food industries. In the next three years, Wellhope will vigorously develop feed business, accelerate the pace of integration, complete the phased layout of food business to form a regional food brand, and finally become an enterprise with leading-edge quality and efficiency across agriculture, animal husbandry and food industries (2021-2023). According to the three-year plan, and the analysis and judgment of the economic and industrial development trend in 2021, Wellhope has determined its business strategy for 2021, i.e., by upholding the core values of “integrity, responsibility, double-win”, and the management philosophy of “innovation, high efficiency, and self-discipline”, Wellhope will further heighten systemic management and the core competences, whilst improve the synergy management among all business divisions, strengthen brand building and risk control, innovate incentive mechanism, enhance talents’ echelon, research and development, and information platform, aiming at building competitive and aggressive front platform(including product power, service ability, financial strength, marketing force), cost-efficient middle platform(including production, purchasing, quality assurance, technology), and energized back-end platform(including HR, finance, technology, R&D, purchasing, IT, corporate culture). While further strengthening and expanding feed business, Wellhope will also vigorously develop broiler integration and swine raising businesses, forming an integrated business mode that drives by broiler integration and swine raising businesses. Meanwhile, Wellhope will also speed up food business to lay a solid foundation for becoming a leading-edge enterprise with high quality and efficiency across agriculture, animal husbandry and food industries. 3. Business plan for 2021 Although coping with unprecedented challenges in 2020, such as prices of feed raw materials rising sharply, broiler industry entering a downward cycle, the COVID-19 inhibiting consumption, and African swine fever hindering the recovery of swine production, all Wellhope people put in efforts to move forward. In 2020, Wellhope’s operating revenue achieved a year-on-year growth of 33.87%, the net profit attributable to shareholders increased by 2.99%, realizing the seventh consecutive increase in revenue and profit after 2014-2019. 2021 is the year of a new round of strategic change of Wellhope. The Company will further develop three primary businesses to strive to achieve better operating results. In addition, driven by the target of heightening core competences in the fierce competition, Wellhope will make efforts to build competitive and aggressive front platform(including product power, service ability, financial strength, marketing force), cost-efficient middle platform(including production, purchasing, quality assurance, technology), and energized back-end platform(including HR, finance, technology, R&D, purchasing, IT, corporate culture). It will also further research on the markets to grasp industrial trends to boost production expansion step by step and reserve talents to support future development. A. Feed business Wellhope will exert the strength of know-how to center on enhancing product power and constantly improve the power of service, financing, and marketing to build competitive and aggressive front platform. At the same time, Wellhope will further strengthen the coordination among purchasing, technology, marketing, and production, and simultaneously further deepen benchmarking management based on data analysis and comparison, while centering on cost and efficiency to dig deeper into potential profit margin of each feed category and each feed mill to continuously improve the core capabilities of feed business. In addition, Wellhope will comply with the trend of the feed industry to embrace the era of bulk feed. Supported by the advantages of technology, finance, scale, branding and logistics services, Wellhope will swiftly increase the input of bulk feed such as equipment introduction and upgrading, pelleting technique improvement to seize the opportunities brought by industrial changes and grab market shares at the time of backward companies being eliminated. In 2021, regarding feed business in Northeastern provinces (Liaoning, Jilin, Heilongjiang), Wellhope will continue to heighten the advantages of management system and brand image to steadily improve market shares, and forward explore the potential profit growth margin. Other than the Northeastern provinces, Wellhope will vigorously seek for new markets to expand market reach rapidly. To conclude, Wellhope aims to achieve a growth rate of more than 20% regarding feed business in 2021. B. Broiler integration business In 2021, the inventories of grandparent and parent stock are expected to be at high level as well, which will increase the production capacity, thus the broiler industry is expected to remain a downward cycle. Under such unfavorable situations, Wellhope will implement the ideology of “guarding safety, controlling the pace of investment, cutting costs, heightening efficiency and increasing benefits” to further enhance internal operation, and guarantee safety margin. Meanwhile, Wellhope will also expand production capacity step by step to preempt market shares in such downward cycle, so that it can gain excess returns at the time of broiler industry entering an upward cycle. Regarding breeding business, Wellhope will slow down the expansion of production capacity, strengthen the management of self-produced day-old chicks and optimize production performance indicators, whist it will also enhance the selection of outsourced chicks to ensure quality. Regarding broiler raising sector, Wellhope will give full play to the advantage of asset-light operation by cooperating with large farms, steadily expand the scale of commercial broiler raising according to plans and continue to improve the production performance based on precise control of capital input. Regarding slaughtering sector, Wellhope will moderately enlarge the production scale, constantly improve internal operation, strengthen the sales system and explore marketing channels. Regarding processed food sector, Wellhope will push the progress of new projects, rapidly expand the scale of production and marketing, and improve the capacity to take down large orders. Besides, Wellhope will also strengthen the research and development to launch hit products, increase sales channels, train the marketing team, and continuously strengthen core abilities and branding. The resources of the Company will focus more on food business in the future. In addition, Wellhope will further accelerate the selection, cultivation and reserve of talents, and speed up the construction of talents’ echelon. In 2021, Wellhope plans to raise 610 million broilers and slaughter 720 million (including holding and associated companies). C. Swine raising business African swine fever has become normal in China. Due to the continuous impact of the epidemic, swine prices are higher than expected, the period of gaining profit is expected to be prolonged. At the same time, with the recovery of production capacity, the stocking density has been constantly increased, which stresses on the prevention of this epidemic. Owning to above circumstances, the prevention of African swine fever will be still the first priority in 2021. Thereby, Wellhope will continue to put bio-safety in the first place, such as constantly improving the professional skills of staff in pig farms, innovating preventive measures, further heighten the reward and punishment rules to ensure that the team can always maintain a high sense of responsibility and awareness. Under the premise of fully safeguarding the farms, Wellhope will take advantage of the structures of sows to rapidly expand swine production to maximumly grasp market opportunities. On the other hand, it will strive to build the core competences of swine raising business by heightening production performance, strengthening the quality of internal operation, and reducing comprehensive costs. In 2021, Wellhope plans to sell 1.2 million to 1.5 million heads of swine (including holding and associated companies). This business plan can’t be deemed as the Company's performance commitment to investors, please maintain sufficient risk awareness. 4. Possible risks A. Risks of fluctuations in raw material prices Most costs of the feed business come from raw materials. Factors in terms of production changes in producing areas, import policies, purchasing, storage, and grants, exchange rate fluctuations, logistics costs, etc., may cause fluctuations in the raw material market, which will affect the Company's feed business costs and gross profit margins. With deepened globalization of the trade of agricultural products in recent years, the supply-demand relationship and trading price of raw materials have been affected by market conditions such as spot and futures at home and abroad, and the price trend has become more complex followed by increasingly fierce fluctuations, which further increases the difficulties of the Company’s cost management. In addition, the fluctuations of COVID-19, Sino-US relations, international political and economic environment, and other factors have also made the purchase price of raw materials more variable. Solutions a. Wellhope has established strategic partnerships with many leading domestic and overseas raw material suppliers. Meanwhile, it adopts three-level purchasing mode that includes centralized purchasing of head office, bidding purchasing of different business regions and local subsidiary purchasing to clarify the role of purchasing. b. Wellhope combines its raw material trading business with purchasing management, i.e., the professional and practical raw materials’ purchasing team conducts targeted forward-looking researches and real-time tracking on the market to strategically reduce the purchasing price, such as uniformly managing different variety of raw materials, adopting spot purchasing and futures together. c. The purchasing team works closely with the R&D team to further optimize the purchasing cost by way of re-formulating the feeds i.e., changing the composition of the feed to use cheaper alternative raw materials while achieving the same results. d. Wellhope and Royal De Heus have set up an information sharing channel, which enables the two sides to timely share the market trends of raw materials and additives. In addition, the two sides may carry out joint purchasing cooperation in the future, which will greatly enhance the overall bargaining power. B. Risks of fluctuations in livestock and poultry prices Animal husbandry industry is a typical cyclical industry, and the hysteretic adjustment of supply causes the prices fluctuating periodically. At present, China's animal husbandry industry is still dominated by back yard farms and small-scale farms, these farm owners show the character of non-rational decision-making with an obvious “herd effect”, which further aggravates the cyclical fluctuations in the market price. Solutions a. Wellhope always keeps high attention of upstream and downstream product price fluctuations, continues to deepen market research to accurately predict industry trends and adjust business strategies. Meanwhile, Wellhope’s three primary businesses share resources and boost business layout as planned to effectively control the risk of price fluctuations from the strategic level. b. Wellhope's broiler integration business has established an industrial chain from broiler breeder raising, day-old chick hatching, feed production, commercial broiler raising, slaughtering, processing to further processing of prepared food and cooked food. In the meantime, Wellhope’s swine raising business has also been entering downstream industries, such as the smooth development of slaughtering business. The continuous improvement of the industry chain makes the price fluctuations of each sector in the chain can be fully hedged, which maximumly mitigate the price fluctuations of the whole industry chain. c. Wellhope has always been committed to improving the production standard of each sector, constantly innovating the practical operation technology and management mode of various businesses, reducing overall operating costs indirectly by optimizing the production indicators and improving per capita efficiency. Costs advantage can mitigate the negative impacts of downward industry on the Company while improving the overall profitability when facing a booming market. C. Risks of serious animal epidemic Feed and animal raising are Wellhope's two core businesses. Epidemic is one of the main risks faced by animal raising companies. Once an animal epidemic happens, it will certainly cause panic in the market, which will reduce the demands, then lessen the production, the income shrinks and the cost rises. The feed industry mainly serves downstream animal raising industry, thus, the downstream market will directly affect the performance of feed business. As an unpredictable emergency, an explosive epidemic will undoubtedly have a strong impact on the Company's operations. Solutions a. Wellhope attaches great importance to regional distribution and business structure, which is the most direct way to divert the risk of animal epidemic. b. Wellhope continues to improve the prevention technology of major epidemics, completes the early warning system and strives to control epidemics effectively before spreading. c. When the epidemic comes, the speed of response is particularly critical, the faster to response, the less to loss. Wellhope has set an emergency command system for major epidemics to minimize losses when they occur. d. Wellhope has been continuously conducting post-epidemic analysis and researches. Meanwhile, it has been constantly strengthening the ability to prevent epidemics from multiple aspects such as animal nutrition and veterinary services. e. For African swine fever, Wellhope has formed a relatively complete prevention system from product researches to farm management. Specific preventive measures have been detailed in Section IV hereof-Swine raising business. D. Risks of the industrial pattern adjustment caused by environmental protection policies China has put forward some environmental protection regulations in recent years, such as Environmental Protection Tax Law, etc., which show the government's determination to increase supervision on environmental protection in animal husbandry industry, whilst the local governments have also issued certain new regulations regarding farm demolition, prohibition or restriction of animal raising. It can be seen that the continuously strengthened environmental protection is the trend of the industry, also an inevitable reality, which will further weed out unqualified players and reframe the industry. Solutions During the start-up period, Wellhope had input "saving resources, being committed to environmental protection" as part of its Mission. During the past 26 years, Wellhope has always considered saving resources and protecting environment as its important mission, taking strict compliance with laws and regulations, and implementing environmental protection requirements as key performance appraisal indicators for managers. a. In the face of increasingly strict environmental protection requirements, all Wellhope’s subordinated entities have carried out a comprehensive identification of environmental risk points, and formulated emergency plans for emergent environmental incident based on actual circumstances and the requirements of local governments at all levels. In view of the key pollutant discharge entity, Wellhope has made a complete self-monitoring program to identify problems timely and eliminate hidden dangers, it also constantly increases personnel, capital investment in environmental protection to ensure that the key pollutant discharge entities always meet the national standards. b. Wellhope has always performed all environmental standards of the state with the most rigorous attitude, established complete control measures for waste gas, noise, wastewater, solid waste and other pollution generated during the production process. Meanwhile, it uses eco-friendly raw materials and additives in feed formulas, and continuously develops safe diet to reduce the emissions of heavy metals, nitrogen and phosphorus. E. Risks of exchange-rate fluctuations Wellhope's international business started early and has been developed rapidly, which can be affected by exchange-rate fluctuations in raw material purchasing, product export, overseas investment, including the following aspects. Firstly, international development has made the global purchasing of raw materials becoming normally, therefore, the risk of exchange-rate fluctuations is particularly acute for raw materials that are largely supplied from abroad. Secondly, Wellhope’s export business of broiler parts products is growing rapidly with customers from many countries and regions across the world, and the exchange-rate fluctuations are inevitably caused by the settlements of multiple currencies. Finally, due to the large overseas investment and overseas operations, the cross-border capital transactions and settlements will also be affected by exchange-rate fluctuations. Solutions a. Wellhope closely focuses on the dynamic international foreign exchange market, whilst enhances the awareness of foreign exchange risk, and improves the researching and forecasting capabilities of the foreign exchange market. b. Wellhope continues to improve the bargaining power in foreign trade transaction by enhancing the competitiveness of products and using RMB for settlement, while reducing the exchange rate risks by adding insured value clause and the exchange-rate risk allocation clause in the contract. c. By making full use of foreign exchange forwards, swaps and options (portfolios) and other instruments to maintain the exchange-rate for foreign exchange exposure. d. According to specific conditions of different countries, based on the principle of "using foreign currencies in foreign trade", Wellhope reasonably matches the income and debts to control the exchange-rate risks. F. Risks of food safety In recent years, there have been some food safety incidents in China, which affected consumers' confidence in food safety. China has continuously improved the legislation on food safety and food sources, conducted forceful measures on handling food violations. Once the food safety incident happens, it will directly damage the interests of consumers and cause panic, which may greatly impact the downstream demands, affect the brand and performance of the enterprises. Solutions Since its establishment, Wellhope has always attached great importance to the issues of food safety and quality assurance, adhering to implement the quality policy of "six never" with the most rigorous attitude--Never accept unqualified raw material, Never use abnormal equipment, Never allow nonstandard operation, Never produce substandard product, Never ignore unsatisfied customer, Never tolerate imperfect service. Wellhope’s head office has set up Food and Quality Safety Management Committee, whilst all business sectors and corresponding subsidiaries have established food and quality safety management group to ensure that the team always maintains a high sense of responsibility and awareness. a. Wellhope has established a three-level quality management mechanism and testing system that compose of head office, regional center and subsidiary. By adopting international standards such as ISO9001, ISO22000 and ISO-IEC17025, and thoroughly implementing a series of quality standards such as the "Feed Quality and Safety Management Practice" and "Veterinary Drug Production Quality Management Practice" issued by the Ministry of Agriculture and Rural Affairs, Wellhope has controlled the whole production process and established the traceability system. Meanwhile, it vigorously popularizes near-infrared detection technology, improves detection efficiency to timely share data and quickly realize risk early warning. Wellhope also focuses on the detection and monitoring of heavy metals, harmful microorganisms, mycotoxins, which provides an important guarantee for the safety of feed products. In addition, by learning from the technical experiences of antibiotic-free feed in Europe, coupled with the current situation of China’s animal raising industry, Wellhope has achieved a leading advantage in the field of antibiotic-free feed, and now all the feed products have successfully transited to be antibiotic-free. b. In terms of production management, Wellhope strictly monitors and checks the drug selection and drug residue control in broiler integration and swine raising businesses. Whilst it constantly strengthens the quality management in slaughtering and processing, earnestly implements the inspection and quarantine as well as drug residue detection. Regarding business model, Wellhope's broiler integration business has formed an industrial chain including broiler breeder raising, day-old chick hatching, feed production, commercial broiler rearing, slaughtering and processing of raw meat, further processing of prepared and cooked food. The integrated operation ensures sufficient supply of raw materials in each sector of the chain, and strictly controls the whole process of food and quality safety from the source. Through standardized management and streamline operation, Wellhope consolidates the controls of bio-safety, drug residue and in-process hygiene to achieve traceable food safety. Section V Important Disclosures I. Common Stock Profit Distribution or Capital Reserve Converted into Share Capital 1. Cash dividend Driven by the goal of realizing long-term and sustainable development, Wellhope has established a sustainable, stable and scientific profit distribution system for investors based on considering its actual operation, shareholders’ need, social factors such as capital costs, external financing environment, current and future profitability, cash flow, project investment and capital demand, bank credit and debt financing environment, etc. Wellhope held the 2nd meeting of the 7th Session of Board of Directors to formulate and deliberate the Shareholders’ Dividend Plan for the Next Three Years (2020-2022), which will be submitted to its 2020 Annual Shareholders’ Meeting. At least every three years, Wellhope re-reviews its Shareholders’ Dividend Return Plan for the Next Three Years to evaluate on-going profit distribution policy and make necessary modifications according to the opinions of shareholders (especially non-controlling shareholders), independent directors and supervisors, and determines the Shareholders’ Dividend Plan for that period. During the reporting period, according to the Proposal of 2019 Profit Distribution Plan approved by Wellhope's 2019 Annual Shareholders’ Meeting on April 20, 2020: based on the total share capital on the equity registration date, Wellhope paid cash dividends of RMB 2.20 per 10 shares (tax included) to all shareholders, amounted to RMB 202,853,177.12. The dividends had been paid in June 2020. Wellhope's 2020 profit distribution plan will be: based on the total share capital on the equity registration date, it plans to pay cash dividends of RMB 2.20 per 10 shares (tax included) to all shareholders. This profit distribution plan is pending to be submitted to 2020 Annual Shareholders' Meeting. During the reporting period, Wellhope's planned cash dividends accounted for less than 30% of the net profit attributable to shareholders of the Company in the current year, reasons are listed as follows. Feed, broiler integration, and swine raising are Wellhope’s three primary businesses. Feed industry has a huge market size with increasing industry consolidation, and the leaders are expanding rapidly. Broiler industry now enters a downward cycle, those leading companies conduct business expansion under such circumstance to steadily expand. Swine raising industry is under the phase of production recovery, large groups are actively expanding production to seize market share. In 2020, these three primary businesses have all exceeded the objectives set at the beginning of the year, the operating revenue and net profit attributable to shareholders of the Company have realized growth for the seventh consecutive year, with the compound growth rate reaching 16% and 32% respectively. Wellhope is now in the stage of rapid development and expansion. Wellhope has been always focusing on returns to investors. The formulation of profit distribution plan is a reasonable arrangement based on the goal of sustainable development and taking into full consideration of many factors such as the development stage of the industry, the growth cycle of the Company, future strategic planning and capital plan, so as to ensure the continuity and stability of profit distribution for investors in the future. The retained profits will be mainly used for the expansion of the primary businesses, while taking into account the capital needs to deal with external risks, so as to provide a solid guarantee for long-term planning. 2. Plan or scheme of common stock profit distribution or capital reserve converted into share capital in the latest three years Unit: yuan Currency:RMB II. Execution of Commitment III. Changes in Accounting Policies and Estimates made by the Company For details, please refer to Financial Report- Significant Accounting Policies and Estimates, Changes in Significant Accounting Policies and Estimates. IV. Accounting Firm Engaged by the Company Unit: 10k yuan Currency: RMB Accounting Firm (Local) SuyaJincheng CPA LLP Payment 110 Length of Service 10 years Name Payment Accounting Firm of Internal SuyaJincheng CPA LLP 35 Control Sponsor Xu Hailin, He Yu V. Major litigation and Arbitration Matters Non VI. Statement of the Integrity of the Company, its Controlling Shareholder and Actual Controller during the Reporting Period During the reporting period, there is no occurrence of the Company's controlling shareholder and actual controller failing to perform the effective judgment of the court, needing to pay a large amount of unliquidated debt due. VII. Employee Equity Incentive Plan, Stock Ownership Plan or Other Incentive Measures and Impacts Overview Query URLs On March 27, 2020, Wellhope’s 14th meeting of the 6th Session of Board of Directors and the 12th meeting of the 6th Session of Supervisory Board approved the proposals of Unlocking Restricted Shares after Achieving the Performance Objective Stated in 2018 Restricted Stock Incentive Plan, Adjusting the Repurchase Price of Restricted Shares, Repurchasing and Writing off Part of Locked Restricted Shares 1. 367 managers could totally unlock 4.233 million restricted shares. Details can be obtained at www.sse.com.cn, 2. As Wellhope had paid cash dividends on June announcements disclosed on March 31, 2020, 13, 2019, the repurchase price of per No. 2020-011, 2020-017, 2020-018, 2020-019, restricted share had been adjusted as RMB 2020-023 4.67 per share. 3. In view of 5 managers (Yu Hongbing, Jiang Hua, Ma Dongmei, Zhang Peng, Wang Haibin) leaving the Company, they were no longer eligible for the incentive rules. 31 managers did not meet the conditions of unlocking restricted shares due to their work performance appraisal, 244,500 shares held by these 36 individuals would be repurchased and written off by the Company. VIII. Related Party Transaction Matters do not disclose in the Company's extraordinary announcement Unit: 10k yuan Currency: RMB IX. The Circumstance of Entrusting others to Manage Cash Assets 1. Cash management Unit: 10k yuan Currency: RMB 2. Details Unit: 10k yuan Currency: RMB X. Circumstance of Social Responsibilities 1. Anti-poverty project of the Listed Company A. Targeted poverty alleviation The 19th National Congress of the Communist Party of China has put forward to take targeted poverty alleviation as one of the three major challenges that must be fought to secure a decisive victory in building a moderately prosperous society in all respects. The year 2020 was a decisive year to win the battle against poverty and finish building a moderately prosperous society in all respects. In respect to poverty alleviation, President Xi Jinping noted, "Resolutely overcoming the impact of COVID-19 and uncompromisingly winning the comprehensive victory in the battle against poverty". Wellhope positively responds to the call and requirements of the Party Central Committee and the government at all levels for targeted poverty alleviation. Driving by the principle of contributing to the society, it has formulated poverty alleviation programs and work plans regarding to agricultural industry to facilitate targeted poverty alleviation. B. Overview of targeted poverty alleviation In terms of poverty alleviation through industry development, Wellhope signed the agreement of “Targeted Poverty Alleviation by Industry Development” with Woniushan Village of Dongliu Town of Zhangwu County in Fuxin City of Liaoning Province. Wellhope invested the funds of RMB 117,600 as the collective assets into the cattle raising cooperation of this village, those registered poverty-stricken households would receive dividends based on their shareholdings. Meanwhile, Jiaozuo Wellhope Feed Mill, one of the subsidiaries of Wellhope, positively participated in the new poverty alleviation model, which was named "capital to households and equity to households" in Chongyi Town of Qingyang City, and paid RMB 50,000 as poverty alleviation funds in 2020. In terms of social poverty alleviation, in order to help Beipiao city to fight against poverty, Liaoning Wellhope Food Company, one of the subsidiaries of Wellhope, donated RMB 100,000 to the government of Beipiao City for poverty alleviation. With regard to poverty alleviation contributed by Wellhope’s associated entities, Lankao Duck Company, responds to the call of LanKao County Party Committee and county government by launching a duck integration project for targeted poverty alleviation in Lankao County, which has implemented the operating mode of rearing ducks by the company and contract farms. In line with the principle of mutual benefit, Lankao Duck Company signs contracts with farmers and adopts unified supply of ducklings, feed, medicine, technical service and repurchasing, farmers are not required to prepare working capital. It also provides uniform subsidies for farmers, such as veterinary drugs, coal subsidy in winter and cooling subsidy in summer. In 2020, Lankao Duck Company repurchased 18.98 million ducks with veterinary subsidy of RMB 3.80 million and other subsidies of RMB 0.90 million. C. Figures of targeted poverty alleviation Unit: 10k yuan Currency: RMB D. Follow-up targeted poverty alleviation Wellhope will vigorously respond to the call for targeted poverty alleviation. Based on further developing current poverty alleviation projects, Wellhope will exert its strengths to innovate poverty alleviation methods, optimize poverty alleviation channels, and increase poverty alleviation efforts to contribute to the goal of building a moderately prosperous society in all respects. 2. Social responsibilities As an important intermediate part in the agricultural industry chain, the upstream industries of animal husbandry connect crop and feed industry, whilst the downstream industries serve slaughtering and food processing industries. The animal husbandry industry is related to the national economy and people's livelihood, such as food supply and farmers' income. At the start-up period, Wellhope announced its Declaration and Mission inside and outside the industry, indicating and admonishing all employees that while developing business, Wellhope should also bear social responsibilities at the same time. Over the years, Wellhope has been strictly fulfilling its commitment and practicing corporate responsibilities. In 2018 it further refined its core values characterized by "Integrity, Responsibility, Double-win", once again stressed the importance of social responsibilities. A. Responsibilities to society and industry a. Practice of Wellhope Mission. “Through advanced technology, professional service, andhigh-quality products,Wellhope isdevoted to the developmentofChina’sanimalhusbandry industry,resourcesconservation,environmentprotection,aswellasfood securityforthe benefitofpeople”,thishasbeen taken asthe mission and ultimate goalofWellhope since itsestablishment. Savingresources. Chinaneedsto use only7%ofthe world'sland to feed 22%oftheworld'spopulation. In response to increasingly shortage of natural resources and under the backdrops of the implementation of ban of antibiotics and food safety, Wellhope has been exploring new products and optimizing products based on the original intention of saving food and resources. Meanwhile, it reduces the use of corn, soybean meal and other grains in feed by transitioning from simple to complex diversified diet technology, and fully exploits the application of various raw materials. In terms of animal raising technology, Wellhope helps farmers apply energy-saving technologies to improve resource utilization. In terms of broiler slaughtering, Wellhope equips high-efficient equipment and constantly refines technologies, also conducts lean management to heighten slaughtering operation, which has achieved efficient killing-out percentage and energy saving. Environmentprotection. Byreason ofanimalhusbandry having certain pollutionsto the environment,Wellhope hasbeen alwaysutilizing variouswayssuch astechnologicalinnovation and equipmentinputto protectenvironmentto achieve the sustainable development.In termsoftechnologicalinnovation,Wellhope continuously researches on safe and eco-friendly feed.Through the application ofenzymepreparation and the design offeed formula with lowphosphorus and lowprotein,the nitrogen andphosphorusfromanimalfeed have been greatly reduced.In termsofanimalraising and slaughtering,Wellhope automatesproduction linesand continuously strengthensthe recycleswastesand combinesplantingwith animalraisingto realizeenvironmentalprotection. Food safety. Wellhope hasneverforgotten socialresponsibility since itsestablishment.In 2018,itsetlong-termdevelopment objective as "being committed to becoming the world's leading enterpriseacross agriculture,animalhusbandry and food industries,and becoming a manufacturerofsafe andhigh-quality meatproduct",unswervingly pursuing the quality and safety offeed processing and foodproduction.Wellhope’s centrallaboratory has been equipped with advanced testing equipmentandalwaysconducted strictquality controlofrawmaterialsand productsto ensure safety offeed.Forthebroilerbusiness,Wellhope takesstringentcontrolofsupply,production,sale process,and through the“nine unified”operation mode to combine biosafety,drug residue controland in-process hygiene toachieve traceable food safety.Meanwhile,Wellhope has always attached importance to the researchand development of antibiotic-free technology, all of the feed products have been successfullytransitioned to be antibiotic-free,the effectofthe alternative programshasbeen stable with favorablefeedback,which has been further enhanced the productpower.With years offocuses ofprovidinghigh-quality,stable and safe products,Wellhope ranked the 7th in "2020 ChinaFood Green CreditIndexTop 50 Report"with a "Green CreditIndex"score of86.3.In the future,Wellhope willcontinue to payattention to food safetyand provide safe and high-qualityproductswith globalperspectives. Contributing to publiccharity giving. Wellhope hasalwayspersisted in the principle ofcontributing toits motherland by operating excellent businesses and giving back to the society. Over the years,Wellhope has donated to disaster areas,disabled aid projects and related educationalinstitutionsdirectly orthrough the Red Cross.Since the outbreak ofCOVID-19,Wellhope’sholding and associatedcompanies,some managersand employees,have raised fundsofRMB12 million to supportnationaland local-levelgovernmentofficesto defeatthe disease,which included the donation of18 ambulancesto severalregions.Wellhope also activelydevotesto educationalpublicwelfare undertakings.In recentyears,Wellhope hasbeen workingwith asupplierto participate in donation activitieson World EggDayby providing high-quality eggs to poor pupils to care for their healthy growth.Moreover,Wellhopeprovidesawardsand bursarysupportsto manycollege studentsnationwide,italso holdsthe“WellhopeCup”regularly,this is a postgraduate scientific and technologicalpaper competition,which aims toencourage the innovation ofpostgraduatesin related fieldsand offersthemopportunitiesto attend ininternships and field trips.Moreover,the holding and associated companies ofWellhope vigorouslyparticipate in charity activities organized by local-levelgovernments.The managers ofWellhope alsodevote themselvesto the publiccharityin differentforms. b. Offering job opportunities Talented person is the foundation of the development of an enterprise. According to the needs, Wellhope holds job fair and campus recruitment every year, creating job opportunities for the society while developing ourselves. In 2020, under the grim employment situation caused by the downward pressure on the economy, Wellhope quickly carried out online recruitment via live broadcast to offer opportunities for job seekers, it has recruited a large number of middle and junior staff from the society through variety channels, and also introduced more than 500 undergraduates, masters and doctors from several universities and provided systematic trainings to help them grow rapidly. B. Responsibilities to shareholders Information disclosure complying with lawsand regulations. Wellhope alwaysadheresto the code ofconductofhonesty and trustworthiness,and improves corporate governance to ensure the internaloperation complying with laws and regulations.In 2020,in strictaccordance with the regulations ofChina Securities Regulatory Commission,ShanghaiStock Exchange,the Company Constitution andotherinternalregulations,Wellhope continued to consciouslystandardize the information disclosure toguarantee thatalldisclosed information wastrue,accurate,complete and timely.During the reportingperiod,Wellhope honestly and normatively disclosed 65 extraordinary announcementsand 4 periodicreportsvia designated media.Moreover,itsannualinformation disclosure wasappraised asA-levelbyShanghaiStock Exchange.Entering 2021,Wellhope willconstantly practice the principle of honestoperation and protectthe legitimate rightsand interestsofthe non-controllingshareholders. Return to shareholders. In line with the principle of "sharing the results", besides carefullyimplementing the development strategy and continuously improving internaloperation, Wellhopesparesno effortsto return to investorsand share the operating results.Since completing IPOin 2014,itsaverage dividend payoutratio was20%with accumulated cash dividendsofRMB646 million.Allthefundsraised fromIPOhave been returned to investorsbycash dividends. C. Responsibilities to staff Adhering to“sharing bumper harvest”. Driven by the philosophy of“sharing bumper harvest”,Wellhope sharesitsachievementswith employeesby way ofoptimizing the remuneration systemanddiversifying incentive methods.In 2018,372 identified key managers were awarded with restrictedshares.During the reporting period,these manages have unlocked the restricted shares ofthe firstlockup period.Thisplan hasachieved positive effectsindeed based on the profitofthe Company andotherevaluationsin 2020,achieved awin-win situation. Powering career development of staff. In strict accordance with national laws and regulations,Wellhope providessocialassurance and additionalwelfare to employeesand also benefitstheirfamilies.Wellhope also expands the scope of welfare through internalresource sharing, and pilot flexiblebenefits to improve employees’happiness. In the meantime, Wellhope continues to upgrade itsthree-leveltraining system,by using Wellhope E-Learning College and externalresource to providemore training resourcesto promote the growth and value enhancementofemployees.In the aspectofcareerdevelopment,Wellhope has created a“H-shaped”dual-channelcareerpath foremployees tomake every single one can choose suitable careerdevelopmentaccording to theirstrengths,aiming tohelp themfullydisplaypotentialabilitiesto achieve careergoals. Caring aboutemployees’life. The“WingsofLove”charitable foundation,established by Wellhope in2007, continues to care for employees. It gives certain rewards to employees’children who areadmitted to the universities, encouraging employees to cultivate talents for the society. In themeantime,italso providesfinancialassistance to the familiesofemployeesin difficulty,helping themtide over hard time.Since the foundation being established,it has donated RMB4.16 million toemployees.Moreover,every year Wellhope organizes different forms of activities to continuouslyenrich thelifeofemployees. D. Responsibilities to customers Continuouslyprovidingsuperiorqualityproducts. Wellhope conductsbusinesseshonestlyand controlsproductquality strictly.Through integrated operation,high-quality rawmaterialpurchasing,scientificformula design,professionalquality managementand intelligentproduction,etc.,Wellhope providessuperiorquality productsto the society,and constantly developsnewproductsto meetthe needsofcustomersforproductsafety. Constantlyimprovingtechnicalservices. Driven bythe conceptofprogressingtogetherwith customers,Wellhope is dedicated to providing comprehensive technical services. In terms of animalraising,Wellhope offers farmers systematic services such as raising methods, feeding programs, diseasediagnosisand latestmarketinformation,also providesthemtrainingsand farmmanagementsolutionsto improve theirtechnology leveland operation skills.In respectto African swine fever,Wellhope hasvigorously builttechnicalteamto render services in terms ofpreventive measures and solutions toresume production,etc.Meanwhile,Wellhope actively conducts on-line services and managementguidance,including holding live streaming and expertson line to help customerspreventAfrican swinefeverand reduce losses,makingprogresstogetherwith customers. 3. Environment information A. Information of pollution discharge Puyang Wellhope Food Company (hereinafter referred to as "Puyang Wellhope"), a subsidiary of Wellhope, has been listed as the company with pollution discharging of Puyang City. Dalian Zhongjia Wellhope Food Company (hereinafter referred to as "Zhongjia Food") and Dalian Huakang Xinxin Food Company (hereinafter referred to as "Dalian Huakang"), subsidiaries of Wellhope, have been listed as the company with pollution discharging of Dalian City. Kaifeng Wellhope Meat Food Company (hereinafter referred to as "Kaifeng Wellhope"), a subsidiary of Wellhope, has been listed as the company with pollution discharging of Kaifeng City. Shenyang Huakang Broiler Company (hereinafter referred to as "Shenyang Huakang"), a subsidiary of Wellhope, has been listed as the company with pollution discharging of Shenyang City. Pingyuan Wellhope Food Processing Company (hereinafter referred to as "Pingyuan Wellhope"), a subsidiary of Wellhope, has been listed as the company with pollution discharging of Handan City. Changchun Wellhope Food Company (hereinafter referred to as "Changchun Wellhope"), a subsidiary of Wellhope, has been listed as the company with pollution discharging of Changchun City. Chifeng Wellhope Fuxinyuan Food Company (hereinafter referred to as "Chifeng Wellhope"), a subsidiary of Wellhope, has been listed as the company with pollution discharging of Chifeng City. Shandong Heyuan Food Company (hereinafter referred to as "Shandong Heyuan"), a subsidiary of Wellhope, has been listed as the company with pollution discharging of Weihai City. Details are presented as follows. Number of discharge outlet Whether discharge Company Primary pollutants Way of discharge Distribution of outlets Emission concentration Pollutant discharge standards Total amount of discharge Total approved emissions excessive pollutants 1 waste water emission outlet located in the southeast corner of the sewage monitoring station, 1 waste gas exhaust outlet distributed in the boiler room in the northeast Waste water (COD, ammonia nitrogen, total phosphorus, PH, suspended solids, biochemical oxygen demand, animal and plant oil, total coliform, total nitrogen). Waste gas (SO2, nitric oxide, particulate matter) Waste gas—direct discharge after treatment, waste water-- indirect discharge COD--45mg/L, ammonia nitrogen --4.19mg/L, total phosphorus --1.74mg/L, total nitrogen --7.97mg/L, SO2--0mg/m3, nitric oxide --19mg/m3, particulate matter --2.8mg/m3 Discharge Standard of Water Pollutants for Meat Processing Industry (GB 13457-1992). Boiler Air Pollutant Emission Standard (GB 13271-2014) 1 outlet for waste gas, 1 for waste water COD--5.358t/a, ammonia nitrogen --0.218t/a COD--15.58t/a, ammonia nitrogen --2.95t/a Puyang Wellhope No corner of the factory Waste water enters the sewage plant through the pump; the exhaust gas outlet is distributed in the boiler house on the north side of the company Waste water (COD, ammonia nitrogen, total phosphorus, PH, suspended solids, biochemical oxygen demand, total nitrogen). Waste gas (SO2, nitric oxide, particulate matter) COD--41.35mg/L, ammonia nitrogen--1.98mg/L, total nitrogen--21.46mg/L, total phosphorus-- 2.64mg/L, PH--7.27, particulate matter--22.9mg/m³, sulfur dioxide--209mg/m³, nitric oxide--132mg/m³ Waste gas—direct discharge after treatment, waste water-- access to sewage works Comprehensive Wastewater Discharge Standard of Liaoning Province (GB 21/1627-2008). Boiler Air Pollutant Emission Standard (GB 13271-2014) 1 outlet for waste gas, 1 for waste water Zhongjia Food Simplified management of no emissions Non No Wastewater discharge outlet is distributed in the southeast corner of the company's sewage treatment workshop; exhaust gas outlet is located on the roof of the company's boiler house Waste water (COD, ammonia nitrogen, total phosphorus, PH, suspended solids, total nitrogen). Waste gas (SO2, nitric oxide, particulate matter) Waste water-- put into the pipe network after treatment, waste gas—direct discharge Comprehensive Wastewater Discharge Standard of Liaoning Province (GB 21/1627-2008). Boiler Air Pollutant Emission Standard (GB 13271-2014) Waste water enter the pipe network, no discharge. Smoke--531KG, sulfur dioxide--1976KG, nitric oxide--2570KG COD--112mg/L, ammonia nitrogen--2.26mg/L, smoke--30.5mg/m³, sulfur dioxide—113mg/³, nitric oxide—147mg/³ 1 outlet for waste gas, 1 for waste water Dalian Huakang Non No Wastewater discharge outlet is distributed in the northeast corner of the company's sewage monitoring infrastructure station Waste water (COD, ammonia nitrogen, total phosphorus, PH, suspended solids, biochemical oxygen demand, animal and plant oil, total coliform, total nitrogen) Waste water— indirect discharge Level 2 standard of Discharge Standard of Water Pollutants for Meat Processing Industry (GB 13457-1992) COD--3.43t/a, ammonia nitrogen--0.77t/a COD--3.6t/a, ammonia nitrogen--0.79t/a Kaifeng Wellhope 1 outlet for waste water COD--43mg/L, ammonia nitrogen--6.5mg/L No Wastewater discharge outlet is distributed in the southeast corner of the company's sewage monitoring base station.? The exhaust gas outlet is located at the boiler house in the northeast corner of the company COD--40mg/m3, suspended matter--8mg/m3, ammonia nitrogen--25.915mg/m3, 5 days biochemical oxygen demand--4.3mg/m3, total phosphorus--4.05mg/m3, animal and plant oil--5.33mg/m3, coliform group<20MPN/L, particulate matter--26.9mg/m3, sulfur dioxide--9mg/m3, nitrogen oxides--133mg/m3, mercury and its compounds<0.003ug/m3, ringelman emittance Waste water (coliform group, 5 days biochemical oxygen demand, suspended matter, animal and plant oil, ammonia nitrogen, PH, chemical oxygen demand, total phosphorus). Waste gas (particulate matter, sulfur dioxide, nitrogen oxides, smoke blackness, mercury and its compounds) Discharge Standard of Water Pollutants for Meat Processing Industry (GB 13457-1992). Comprehensive Wastewater Discharge Standard (GB 21/1627-2008). Boiler Air Pollutant Emission Standard (GB 13271-2014) Integrated Emission Standard of Air Pollutants (GB 16297-1996). Emission Standards for Odor Pollutants (GB 14554-92) Waste gas—direct discharge after treatment, waste water-- put into the municipal pipe network after treatment 1 outlet for waste gas, 1 for waste water COD--6.5556t/a, ammonia nitrogen--0.984t/a COD--84t/a, ammonia nitrogen--13.44t/a Shenyang Huakang No Wastewater discharge outlet is distributed in the north of the company sewage monitoring base station house, ?the exhaust gas outlets are distributed in the boiler house on the east side of the company Waste water (COD, ammonia nitrogen, total phosphorus, PH, suspended matter, biochemical oxygen demand, animal and plant oil, total coliform group, total nitrogen). Waste gas (SO2, nitric oxide, particulate matter) COD--100mg/L, ammonia nitrogen--20mg/L, PH--6-9, suspended matter--200mg/L, biochemical oxygen demand—60, animal and plant oil--20mg/L, SO2--0mg/Lm³, nitric oxide--21mg/Lm³, particulate matter--2.8mg/Lm³ Waste gas—direct discharge via natural gas boiler, waste water—indirect discharge Discharge Standard of Water Pollutants for Meat Processing Industry (GB 13457-1992) and inlet water quality requirements of Linzhang County. Boiler Air Pollutant Emission Standard (GB 13271-2014) COD--39.45t/a, ammonia nitrogen--2.724t/a, SO2--2.31t/a, nitric oxide--2.36t/a 2 outlets for waste gas, 1 for waste water COD--13t/a, ammonia nitrogen--2.6t/a, SO2--0t/a, nitric oxide--0.8t/a Pingyuan Wellhope No Waste water (COD, ammonia nitrogen, total phosphorus, PH, suspended matter, biochemical oxygen demand, total nitrogen). Waste water-- discharge after entering the sewage treatment station Wastewater discharge outlet is distributed in the company's sewage COD--14mg/L, suspended matter--8mg/L, coliform group—non, PH--7.96mg/L, ammonia nitrogen--0.587mg/L, 5 days biochemical oxygen Level 2 standard of Discharge Standard of Water Pollutants for Meat Processing Industry (GB 13457-1992) COD--3.487t/a, ammonia nitrogen--0.104t/a COD--12.619t/a, ammonia nitrogen--2.524t/a Changchun Wellhope 1 outlet for waste water No monitoring station demand--2.7mg/L, animal and plant oil--0.17mg/L Wastewater outlet is distributed in the east side of the company's sewage monitoring base station.?The exhaust gas outlet is located on the north side of the boiler house Waste water (COD, ammonia nitrogen, total phosphorus, PH, suspended solids, biochemical oxygen demand, animal and plant oil, total coliform group, total nitrogen). Waste gas (SO2, nitric oxide, particulate matter) Discharge Standard of Water Pollutants for Meat Processing Industry (GB 13457-1992). Integrated Emission Standard of Air Pollutants (GB 16297-1996). Emission Standards for Odor Pollutants (GB 14554-93). Boiler Air Pollutant Emission Standard (GB 13271-2014) Waste gas—direct discharge after treatment, waste water-- indirect discharge 1 outlet for waste gas, 1 for waste water COD--100mg/L, ammonia nitrogen--20mg/L, PH--6-8.5 COD--0.92t/a, ammonia nitrogen--0.034t/a COD--40.6t/a, ammonia nitrogen--6.28t/a Chifeng Wellhope No Wastewater outlet is distributed in the southeast side of the sewage pool of the company's sewage treatment station, the exhaust gas outlet is distributed in the boiler house on the northwest side of the company Waste water (chemical oxygen demand, suspended matter, coliform group, anionic surfactant, ammonia nitrogen, PH, total nitrogen, total phosphorus, PH, 5 days biochemical oxygen demand). Waste gas (particulate matter, sulfur dioxide, nitrogen oxides) Waste water— discharge after entering the sewage treatment plant Chemical oxygen demand--32mg/L, ammonia nitrogen--1mg/L, total nitrogen--12mg/L, total phosphorus--0.2mg/L, PH--6-8.5 Comprehensive Discharge Standard for Water Pollutants in Peninsula Watershed of Shandong Province (DB37/676-2007). Emission Standard for Air Pollutants from Boilers (DB 37/2374-2018) COD--0.048t/a, ammonia nitrogen--0.002t/a, total nitrogen--0.018t/a, total phosphorus--0.0003t/a 1 outlet for waste gas, 1 for waste water Shandong Heyuan Non No B. Circumstance of building and operating pollution control facilities Puyang Wellhope a. Sewage treatment: Puyang Wellhope has a 2,000-tons-per-day sewage treatment station, which adopts the treatment process of "pretreatment-oil separation-A2O-disinfection" to treat the wastewater. Its environmental protection facilities are running normally, and the pollutant emission indexes all meet the required standards. b. Waste gas treatment: Gas generated by the waste water pool of the sewage treatment station is collected and purified by alkali washing tower and activated carbon adsorption and then discharged through the 21-meter-high chimney in accordance with related standard. The waste gas of the slaughtering shed and broiler suspension platform can be collected and treated by alkali washing tower and activated carbon adsorption and purification. After that, the waste gas can be discharged through the 15-meter-high chimney. The traditional coal-fired boilers are replaced by gas-fired boilers, and the company carried out low nitrogen upgrading, all kinds of pollutants meet the emission standards. Kaifeng Wellhope Sewage treatment: Kaifeng Wellhope has a 1,500-tons-per-day sewage treatment station, which adopts the treatment process of "air floatation-A2O" to treat the wastewater. Its environmental protection facilities are running normally, and the pollutant emission indexes all meet required standards. Zhongjia Food a. Sewage treatment: Zhongjia Food has a 1,200-tons-per-day sewage treatment station, which adopts the treatment process of "mechanical barrier-oil separator-regulation pool-hydrolysis pool- catalytic oxidation pool-sedimentation pool-sand filter" to treat the wastewater. b. Waste gas treatment: Dedusting smoke and dust by wet method and conducting desulfurization by magnesium oxide. Discharging gas by a 25-meter-high chimney to effectively met related standards. Shenyang Huakang Sewage treatment: Shenyang Huakang has a 2,220-tons-per-day sewage treatment station, which adopts the treatment process of "pretreatment-oil separation-A2O-secondary sedimentation tank- flocculation dephosphorization sedimentation tank (advanced treatment process)" to treat wastewater. Its environmental protection facilities are running normally, and the pollutant emission indexes have reached all required standards. Dalian Huakang a. Sewage treatment: Dalian Huakang has a 300-tons-per-day sewage treatment station that adopts the treatment process of "mechanical barrier-oil separator-regulation pool-air flotation-hydrolysis pool-A2O-sedimentation pool-advanced treatment pool-clean water pool", which can achieve required standards. b. Waste gas treatment: Dedusting the smoke and dust by wet method and conducting desulfurization by magnesium oxide, then discharging gas by a 16-meter-high chimney. Gas emission meet all required standards. Pingyuan Wellhope a. Sewage treatment: Pingyuan Wellhope has a 1,000-tons-per-day sewage treatment station, which adopts AO treatment process to dispose wastewater. Its environmental protection facilities are running normally, and the pollutant emission indexes have reached all required standards. b. Waste gas treatment: Gas generated by the waste water pool of the sewage treatment station is collected and purified by activated carbon adsorption and then discharged through the 15-meter-high chimney. The traditional coal-fired boilers are replaced by gas-fired boilers with low carbon, all kinds of pollutants meet the emission standards. Discharging gas by a 12-meter-high chimney. Changchun Wellhope Sewage treatment: Changchun Wellhope has a 1,000-tons-per-day sewage treatment station, which adopts the treatment process of “air flotation-A2O” to dispose wastewater. Its environmental protection facilities are running normally, and the pollutant emission indexes have reached all required standards. Chifeng Wellhope: Wastewater treatment: Chifeng Wellhope has a 2,400-tons-per-day sewage treatment station, which adopts the treatment process of A²/0. The equipment and facilities are running normally, which can automatically monitor the COD, ammonia nitrogen, PH and flow of wastewater discharge, and it is networked with the Municipal Natural Environmental Protection Bureau. The company has also constructed a biogas project with a daily output of 8,000 m³, which can ferment waste water and manure, etc., marsh gas can be used for boiler production, biogas residue and slurry used as fertilizer to grain. Waste gas treatment: Chifeng Wellhope has taken certain measures to lessen the waste gas, such as, stopping feeding swine and broilers when enter the factory and slaughtering the animals on the same day, washing the houses in time, building closed waiting houses and installing fan exhaust to enhance ventilation, etc. Shandong Heyuan a. Sewage treatment: Shandong Heyuan has a 2,000-tons-per-day sewage treatment station, which adopts AO treatment process to dispose wastewater. Its environmental protection facilities are running normally, and the pollutant emission indexes have reached all required standards. b. Waste gas treatment: Gas generated by the waste water pool of the sewage treatment station is collected and purified by activated carbon adsorption and then discharged through the 15-meter-high chimney. The traditional coal-fired boilers are replaced by gas-fired boilers, all kinds of pollutants meet the emission standards. Discharging gas by a 10-meter-high chimney. C. Environmental impact assessment of construction projects and other administrative permits for environmental protection During the reporting period, all the construction projects of the Company met the requirements of environmental impact assessment and other environmental protection administrative licenses. The Company has strictly implemented related environmental protection requirements. D. Emergency plan for environmental incident According to the requirements of environmental protection authorities and relevant laws and regulations, each factory of the Company has identified the site with potential environmental risk and formulated the emergency plans for environmental incident. Meanwhile, related companies conducted emergency exercises to improve self-rescue ability and continued to identify the hidden danger to ensure normal operations. E. Self-monitoring program for environment In accordance with requirements of self-monitoring environment and information disclosure, the pollutant discharging entities of the Company have formulated self-monitoring programs to monitor environment and disclose information as scheduled. Section VI Changes in Common Shares and Shareholder Information I. Changes in Common Shares 1. Changes of common share Explanation of changes in shares Wellhope held the 14th meeting of the 6th Session of Board of Directors on March 27, 2020, and held 2019 Annual Shareholders’ Meeting on April 20, 2020, to deliberate and approve the proposal of Repurchasing and Writing off Part of Locked Restricted Shares. 244,500 shares held by 36 individuals had been repurchased and written off by the Company on May 19, 2020. The total number of shares of Wellhope decreased from 922,304,396 to 922,059,896. 2. Changes in restricted shares II. Shareholder and Actual Controller 1. Total shareholders 2. Top ten shareholders and top ten shareholders holding unrestricted shares as at the end of the reporting period Unit: share Top ten shareholders holding restricted shares Unit: share III. Controlling Shareholder and Actual Controller 1. Controlling shareholder A. Natural person B. A block diagram of the property rights and controlling relationship between the Company and its controlling shareholder Note: As at the end of the reporting period,Jin Weidong directly held 149,549,498 shares of theCompany,accounting for16.22%ofthe totalshare capital.He controlled 5.24%ofthe voting rightsofthe Companythrough holdingWulian HeliInvestment,and controlled 24.55%ofthe votingrightsoftheCompany through signing the AgreementofActing in Concertwith Ding Yunfeng(shareholding 8.89%),WangFengjiu(shareholding5.20%),Shao Caimei(shareholding5.40%)and WangZhongtao(shareholding5.06%).Jin Weidong is the actualcontroller of the Company,who totally controls 46.01%of theCompany’svotingrights. 2. Actual controller A. Natural person B. A block diagram of the property rights and controlling relationship between the Company and its actual controller Note:Note: Asatthe end ofthe reporting period,Jin Weidong directly held 149,549,498 sharesoftheCompany,accounting for16.22%ofthe totalshare capital.He controlled 5.24%ofthe voting rightsofthe Companythrough holdingWulian HeliInvestment,and controlled 24.55%ofthe votingrightsoftheCompany through signing the AgreementofActing in Concertwith Ding Yunfeng(shareholding 8.89%),WangFengjiu(shareholding5.20%),Shao Caimei(shareholding5.40%)and WangZhongtao(shareholding5.06%).Jin Weidong is the actualcontroller of the Company,who totally controls 46.01%of theCompany’svotingrights. Section VII Preference Share Not Applicable Section VIII Directors, Supervisors, Senior Management and Employees I. Changes in Shareholdings and Remuneration 1. Changes in shareholdings and remuneration of incumbent and outgoing directors, supervisors and senior management during the reporting period 2. Post held in other entity II. Remuneration of Directors, Supervisors and Senior Management III. Employees of the Parent Company and Major Subsidiaries 1. Headcount 2. Remuneration policy Wellhope always follows the human resource strategy of providing a fair, just and merit-based environment for rewarding employees, constantly optimizes and innovates incentive methods from the aspects of reward management, performance appraisal, appointment management, and talents’ echelon construction, etc. In 2020, Wellhope has accelerated the promotion of broad-banding in some business sectors and regions. Wellhope also continuously optimized the salary management and control mode, as well as amended the rank of post value to maximize the motivation of employees and ensure internal fairness. Meanwhile, Wellhope bravely tried to innovate the incentive mode in swine raising business to attract and motivate talents with the booming development of swine business. Wellhope also revised the “Administrative Measures on Appointment” in 2020 to further boost the construction of talents’ echelon, and screen out more outstanding young managers through scientific selection system, as well as provide a rapid development channel for them. Moreover, Wellhope has been paying close attention to the long-term incentives for outstanding employees. In 2018, 372 key managers were granted restricted shares, they signed performance agreements with the Company, and they could unlock the restricted shares according to the results of working performance. By doing this, it can fully mobilize the enthusiasm and sense of ownership of key talents and promote the rapid development of all business sectors. In 2020, these managers have successfully unlocked part of their restricted shares. In addition, Wellhope, in strict accordance with national laws and regulations, also offers staff social insurances and housing fund. Besides, Wellhope provides commercial insurance to benefit employees and their families, also enriches their benefits through internal resource sharing, 25th anniversary’s benefits package, “Wings of Love” foundation and other ways to improve satisfaction. 3. Training plan Under the guidance of overall strategy and human resource strategy, Wellhope continues to build and update the training system to help employees make signs of progress. In 2020, stressed by the COVID-19 and African swine fever, Wellhope focused on creating online training methods and improving course design, as well as centered on the improvement of basic skills and professional knowledge of employees. A. Continuously improving the training system and optimizing the selection & training mechanism The three-level training system supported by Wellhope’s head office, business regions and subsidiary have been becoming increasingly clear, and each performs own roles and cooperates with others in multiple aspects, such as new employee training, middle and senior manager training. In regards to new employees, Wellhope innovated the training methods via online platform and other tools to watch the growth of new bloods and help them adapt to their job effectively. Regarding middle managers, Wellhope carried out three-dimensional training to continuously improve the ability of the Company’s backbones. For instance, holding the "Sunflower" training program and other programs to constantly improve the professional competence of the managers. In addition, Wellhope actively organized video conferences and live streaming for all employees, including both external cooperation and internal courses, to lay a solid foundation for long-term development. B. Further developing the training courses to boost up professional knowledge Wellhope has been actively promoting the development of new training courses based on work scenarios and task modules, etc. During the reporting period, Wellhope developed a total of more than 140 new courses for each business line, with an internal course system update rate of over 20%, and the overall learning participation rate of was over 95%, showing a significant increase in employees’ learning enthusiasm. To cope with the adverse impact brought by the COVID-19, Wellhope rapidly updated relevant courses, widely introduced external training resources, and vigorously organized trainings via various methods such as live broadcast and online academy. 4. Labor outsourcing Section IX Corporate Governance I. Overview of Corporate Governance In accordance with the Corporation Law, the Securities Law, the Guidelines for Governance of Listed Company and other requirements, Wellhope has constantly improved corporate governance and internal control, such as shareholder’s meeting, board meeting, supervisory board meeting, etc. In 2020, Wellhope held 1 time of shareholders' meeting, 6 times of board meetings and 5 times of supervisory board meetings. The actual circumstance of corporate governance has been basically in line with the requirements of the normative documents issued by China Securities Regulatory Commission. Wellhope’s corporate governance regarding shareholder’s meeting, board meeting, supervisory board meeting, information disclosure and stakeholder complied with the requirements of relevant documents. A. Shareholder and shareholders’ meeting. Wellhope convened and held shareholders’ meeting in strict accordance with relevant laws, and adopted physical voting and online voting to ensure that all shareholders, especially non-controlling shareholders, could fully exercise their right to vote. The controlling shareholder (actual controller) of the Company conscientiously performed the obligation of good faith and did not damage the rights and interests of the Company and non-controlling shareholders. B. Board directors and board meeting. The convening procedure of the board of directors complied with the requirements of laws and regulations. All directors actively attended the board meetings and shareholders’ meetings held by the Company, got familiar with relevant laws and regulations, understood the rights, obligations and responsibilities of directors, and safeguarded the legitimate rights and interests of all shareholders. C. Supervisors and supervisory board meeting. Wellhope's supervisors, in accordance with the Company Constitution and relevant laws and regulations, have conscientiously performed their duties, supervised the Company's financial position, related transactions, periodic reports, as well as the compliance of the directors and senior managers regarding their performance of duties, and safeguarded the legitimate rights and interests of the Company and its shareholders. D. Information disclosure. Wellhope strictly implemented its Information Disclosure Management Regulation, which has clarified the person taking charge of information disclosure to ensure that the disclosed information could be true, accurate, complete, timely and fair. It designated the board secretary to take charge of information disclosure and investor relations management, strictly implemented the Company’s regulations regarding information disclosure, such as Management Regulation on Insider Information Registration, so as to disclose information truly, accurately, completely and timely to guarantee that all shareholders could have equal right to know the information of the Company. Meanwhile, Wellhope constantly improved corporate governance structure and standardized internal operations in strict accordance with the requirements of the Corporation Law, the Securities Law, relevant laws and regulations issued by China Securities Regulatory Commission. E. Stakeholder. Wellhope fully respected and safeguarded the legitimate rights and interests of stakeholders, strived to achieve the coordination and balance among shareholders, employees, and other parties, and jointly promoted the sustainable, healthy and stable development of the Company. II. Shareholders' Meeting Convened during the Reporting Period Explanation: During the reporting period, Wellhope held Annual Shareholders' Meeting to deliberate 2019 Annual Report, dividend plan, the proposals of revising the Company Constitution, etc. The meeting resolution had been detailed in the Company's extraordinary announcement No. 2020-031 published on the website of Shanghai Stock Exchange. The convening, holding, voting and other relevant procedures of the shareholders’ meeting complied with laws and regulations, and relevant provisions of the Company's Constitution and Rules of Procedure of the Shareholders’ Meeting, which could guarantee that all shareholders, especially non-controlling shareholders, enjoyed equal status and fully exercised their rights. III. Performance of Duties of the Board Director IV. Whether Disclosing Self-evaluation Report of the Internal Control Wellhope will disclose the evaluation report of internal control when discloses 2020 Annual Report. Details please refer to the website of Shanghai Stock Exchange (http://www.sse.com.cn). V. Explanation of Audit Report for Internal Control SuyaJincheng CPA LLP issued the Audit Report of Internal Control, put forward that Wellhope has maintained effective internal control over financial reports in all major aspects on December 31, 2020 in accordance with relevant regulations. Details please refer to the website of Shanghai Stock Exchange (http://www.sse.com.cn). Section X Corporate Bond Not applicable Section XI Financial Statements I. Audit Report Audit Report Suya Audit No. [2021]248 To all the shareholders of Wellhope Foods Co., Ltd., 1. Opinion We have audited the financial statements of Wellhope Foods Co., Ltd. (hereinafter referred to as "the Company"), which comprise the statement of financial position as at December 31, 2020, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and notes to the financial statements. In our opinion, the financial statements give a true and fair view of the financial position of the Company as at December 31, 2020, and of its operating performance and cash flow for the year then ended, and have been properly prepared in compliance with the Accounting Standards for Business Enterprises ("the ASBE"). 2. Basis for Opinion We conducted our audits in accordance with China's CPA Auditing Standards. Our responsibilities under those standards are further described in the "Auditor’s Responsibilities for the Audit of the Financial Statements" section of our report. We are independent of the Company in accordance with China CPA's Code of Ethics for Professional Accountants ("the Code"), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 3. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements in the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 4. Other Information The management of the Company is responsible for the other information. The other information comprises information covered by the Company's 2020 Annual Report, but excludes the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained during the audit or otherwise appears to be materially misstated. If, based on the work we have executed, we confirm that there is a material misstatement in the other information, we are required to report the fact. We have nothing to report in this regard. 5. Responsibilities of the Management and Those Charged with Governance for Financial Statements The management team of the Company is responsible for preparing the financial statements that give a fair view in accordance with the ASBE, and for designing, executing and maintaining requisite internal control to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the management either intends to liquidate the Company or to cease operation, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. 6. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with the auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: A. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. B. Obtain an understanding of the internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. C. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the management. D. Conclude on the appropriateness of the management’s use of the going concern basis of accounting and, based on the obtained audit evidence, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required by the auditing standards to draw the statements users’ attention in our auditor’s report to the related disclosures in the financial statements, or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. E. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. F. Obtain sufficient and appropriate audit evidence regarding the financial information of related entities or business activities within the Company to express an opinion on its financial statements. We are responsible for guiding, overseeing and performing the audit of the Company, and solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timetable of the audit and significant audit findings, including any noteworthy deficiencies in the internal control that we identify during our audit. We also provide those charged with governance with a statement to declare that we have complied with the professional ethics related to independence, and communicate with the governance on all relationships and other matters that may reasonably be considered to affect our independence, as well as the relevant precautions. From the matters communicated with those charged with governance, we determine which matters are the most important for the audit of the current financial statements and thus constitute the key audit matters. We describe these matters in the audit report, unless laws and regulations prohibit the public disclosure of these matters, or in rare cases, if it is reasonably expected that the negative consequences of communicating a matter in the audit report will outweigh the benefits in terms of the public interest, we determine that the matter should not be communicated in the audit report. SuyaJincheng CPA LLP CPA: Zhou Jiawen (Project Partner) CPA: Wang Lei China Nanjing March 29, 2021 II. Financial Statements Consolidated Balance Sheet December 31, 2020 Wellhope Unit: yuan Currency: RMB Consolidated Balance Sheet(continue) Unit: yuan Currency: RMB Consolidated Balance Sheet of Parent Company December 31, 2020 Unit: yuan Currency :RMB Consolidated Income Statement January-December, 2020 Wellhope Unit: yuan Currency: RMB Consolidated Income Statement of Parent Company January-December, 2020 Unit: yuan Currency: RMB Consolidated Statement of Cash Flow January-December, 2020 Wellhope Unit: yuan Currency: RMB Consolidated Statement of Cash Flow of Parent Company January-December, 2020 Unit: yuan Currency: RMB Change Statement of Owner's Equity January-December, 2020 Unit: yuan Currency: RMB Change Statement of Owner's Equity of Parent Company January-December, 2020 Unit: yuan Currency: RMB III. Basic Information of the Company 1. Overview of the Company Approved by the People's Government of Liaoning Province, Wellhope Foods Co., Ltd. (former name Liaoning Wellhope Agri-Tech Joint Stock, hereinafter referred to as the Company) is a limited liability company founded by 23 natural persons, including Jin Weidong, Ding Yunfeng, etc., which was registered in the Administrative Bureau of Industry and Commerce of Liaoning Province on March 27, 2003. The head office of the Company is located in Shenyang, currently it holds the business license with the number of 9121000074712989XU and the registered capital of RMB 922.06 million, registered address (head office)--No. 169, Huishan Street, Shenbei New District, Shenyang, Liaoning Province. Jin Weidong is the legal representative. The primary business of Wellhope covers feed, feed raw material trade, broiler integration, swine raising. The business scope of its parent company covers feed and feed additives processing, marketing; grain purchase (self-use), sales of feed raw materials, poultry and livestock raising, seawater and freshwater aquaculture, agricultural and sideline products processing, enterprise management service, supply chain management, information services (internet information services only), ordinary road freight (the business activities that need to be approved by the laws, shall receive the approval of relevant authorities). These financial statements have been approved to be disclosed by the 2nd board meeting of the 7th Session of Board of Directors on March 29, 2021. 2. Scope of the consolidated financial statements The scope of the Company's consolidated financial statements is determined on the basis of control, all the controlled subsidiaries are included in the consolidated financial statements. The changes in the scope of the consolidated financial statements are shown in the table below. A. The subsidiaries which are newly included in the consolidation scope in the reporting period B. The subsidiaries excluded from the consolidation scope in the reporting period IV. Basis of Preparing Financial Statements 1. Basis of preparing The Company, on the basis of going concern operation, confirms and measures the transactions and activities actually occurred in accordance with the Accounting Standards for Business Enterprises--Basic Standards, various specific accounting standards, and other relevant provisions, prepares financial statements on this basis. 2. Going concern The Company has the ability of going concern within at least 12 months since the end of the reporting period, and there are no major issues affecting the ability of going concern. V. Important Accounting Policies and Accounting Estimates The following important accounting policies and accounting estimates of the Company are formulated in accordance with the Accounting Standards for Business Enterprises. The business that does not mentioned is subject to relevant accounting policies in the Accounting Standards for Business Enterprises. 1. Declaration about compliance with Accounting Standards for Business Enterprises The financial statements prepared by the Company are in line with the requirements of Accounting Standards for Business Enterprises, which truly and completely reflect the financial position, operating results, changes in shareholders' equity, cash flow, and other relevant information during the reporting period. 2. Accounting period The Financial Year of the Company starts from January 1 and ends on December 31 of the Gregorian calendar. 3. Operating cycle The Company takes a 12-month operating cycle. 4. Bookkeeping base currency RMB 5. Accounting arrangement methods for business combination under the same control or the different control (1). Accounting arrangement methods for business combination under the same control The Company adopts pooling of interest method to deal with the accounting of business combination, which is under the same control. On the date of combination, the assets and liabilities acquired by the Company in business combination under the same control shall be measured according to the book value of assets and liabilities of the combining party in the consolidated financial statements of the final controlling party. The share of the book value of the owner's equity held by the combining party, which is owned, by the final controlling party in the consolidated statement of the final controlling party is regarded as the initial investment cost of long-term equity investment in the individual financial statements. The balance between initial cost of investment of long-term equity investment and paid combining consideration (including paid cash, non-cash assets transferred, book value of occurred or assumed debt as well as the total face value of issued stocks), capital reserve (equity premium or capital premium) shall be adjusted; If the balance of capital reserve (equity premium or capital premium) is not sufficient for offset, the surplus reserves and undistributed profit shall be offset successively. (2). Accounting arrangement methods for business combination under the different control The Company adopts acquisition method to deal with the accounting of business combination, which is under the different control. ① The identifiable assets, liabilities and contingent liabilities acquired in the business combination under the different control are measured at fair value. Based on the fair value of assets, liabilities incurred or assumed and issued equity securities paid out as the combining consideration on the acquisition date, the balance between the fair value and the book value of the Company is included into current gains and losses. ② Combined cost shall be recognized according to the following conditions respectively: (A) For the business combination realized by one-time transaction, the combined costs shall be recognized by the sum of the fair values, on the acquisition date, of the assets paid, the liabilities occurred or assumed and the equity securities issued by the Company to obtain the control right on the acquiree and the contingent consideration complying with the recognition conditions. Combined cost is initial investment cost of such long-term equity investment. (B) For business combination realized step by step through multiple exchange transactions, the combined cost shall be the sum of the amount of equity investments held prior to the acquisition date that are re-measured at fair value on the acquisition date and the investment cost newly increased on the acquisition date. The long-term equity investment in individual financial statements is the sum of the book value of the equity investment held before the acquisition date and the investment cost newly increased on the acquisition date. Exclude package deal. ③ The Company allocates the combined cost between the identifiable assets and liabilities acquired on the acquisition date. (A) Where other assets other than intangible assets obtained from the Acquiree in the business combination (not only finite to the assets which have been originally recognized by the Acquiree), the future economic benefits are expected to flow into the Company and the fair values reliably measured, they shall be separately recognized and measured at the fair values. (B) Where the fair value of the intangible assets of the Acquiree acquired by the Company in business combination can be reliably measured, it shall be separately recognized and measured at the fair value. (C) Where the acquiree's liabilities, other than contingent liabilities, acquired by the Company in business combination, are expected to result in the outflow of economic benefits from the Company and the fair value can be reliably measured, they shall be separately recognized and measured at the fair value. (D) Where the fair value of the contingent liabilities of the Acquiree acquired by the Company in business combination can be reliably measured, they shall be separately recognized as liabilities and shall be measured at the fair values. (E) When the Company allocates the cost of business combination and confirms that it has acquired identifiable assets and liabilities in the combination, it shall not consider the goodwill and deferred income tax items that have been recognized by the Acquiree before the combination. ④ Disposal of the balance of the business combination cost and the share of the fair value of the identifiable net assets obtained from the Acquiree in the combination. (A) The balance between the business combination costs greater than the share of fair value of the identifiable net assets obtained from the Acquiree in the combination, shall be recognized as goodwill. (B) The balance between the business combination cost less than the share of fair value of the identifiable net assets obtained from the Acquiree in the combination shall be disposed pursuant to the following provisions. (a) The measurement of the fair values of the identifiable assets, liabilities and contingent liabilities obtained from the Acquiree as well as the combination costs shall be reviewed; (b) After the review, if the combined costs are still less than the fair value share of the identifiable net assets obtained from the Acquiree in the combination, the balance shall be included into the current gains and losses. (3) Disposal of relevant expenses accrued due to business combination by the Company ① All direct related expenses accrued due to business combination of the Company (including audit, legal service, assessment consultation and other agency expense and other relevant administrative expenses accrued due to business combination), shall be included into current gains and losses when accruing. ② The commission and service fee paid by the Company for issuing debt securities for the merger of enterprise shall be included in the initial measurement amount of debt securities. (A) If the bond is issued at the discount or par value, the amount of discount will be increased. (B) If the bond is issued at premium, the premium amount shall be reduced in this part of expenses. ③ The commission and service fee paid by the Company for issuing equity securities as consideration for the business combination shall be included in the initial measurement amount of equity securities. (A) When equity securities are issued at the premium, the cost shall be deducted from the capital reserve (equity premium). (B) When equity securities are issued at par value or at discount, the retained earnings shall be written down from the fee. 6. Preparation methods for consolidated financial statements (1) Uniform accounting policy and accounting period All the accounting policies and accounting period adopted by subsidiaries included in the consolidated financial statements shall be consistent with the Company. In case of any inconsistency, adjustment according to the accounting policies and accounting period is necessary when preparing consolidated financial statements. (2) Preparation methods for consolidated financial statements Based on the financial statements of the Company and its subsidiaries, according to other relevant information, the parent company prepares consolidated financial statements after adjusting the long-term equity investment in the subsidiaries according to the equity method to offset the impact of internal transactions among the Company and its subsidiaries on the consolidated financial statements. (3) The reflection of excess deficit of subsidiaries in consolidated financial statements In the consolidated financial statements, if the current loss shared by the parent company exceeds its share of the owner's equity of the subsidiary company at the beginning of the period, the balance of write-downs shall be attributed to the owner's equity of the parent company (undistributed profits). If the current loss shared by the non-controlling shareholders of the subsidiaries exceeds its share of the owner's equity of the subsidiary company at the beginning of the period, the balance shall continually offset the non-controlling interests. (4) Disposal of increased or decreased number of subsidiaries during the report period ①Disposal of increased number of subsidiaries during the report period (A) Disposal of increased number of subsidiary due to business combination under the same control during the report period During the report period, if the number of subsidiary increases due to business combination under the same control, the Company shall adjust the opening balance of consolidated balance sheet, take the income, expenses and profit of such subsidiary from the beginning to the end of combination into the consolidated income statement, and the cash flow of the subsidiary from the acquisition date to the end of the report period shall be included in the consolidated cash flow statement. (B) Disposal of increased number of subsidiary due to business combination under the different control during the report period During the report period, if the number of subsidiaries increases due to business combination under the different control, the Company shall not adjust the opening balance of consolidated balance sheet, take the income, expenses and profit of such subsidiary from the acquisition date to the end of the report period into the consolidated income statement, and the cash flow of the subsidiary from the acquisition date to the end of the report period shall be included in the consolidated cash flow statement. ②Disposal of subsidiary during the report period Where the company disposes a subsidiary during the report period, the opening balance of the consolidated balance sheet shall not be adjusted, take the income, expenses and profit of such subsidiary from the beginning of the beginning to the disposal date into the consolidated profit statement, and include the cash flow of such subsidiary into the consolidated cash flow statement, and the cash flow of the subsidiary from the beginning to the disposal date shall be included in the consolidated cash flow statement. 7. Recognition standard of cash and cash equivalents Cash shall include cash on hand of the Company, as well as bank deposit and other monetary funds that can be used for payment at any time. The investments with short term (generally refer to three months from the acquisition date), high liquidity, convenience to convert into known amount of cash and with low risk of change in value owned by Company shall be recognized as cash equivalent. 8. Foreign currency transactions and foreign currency statement translation (1) Accounting methods of foreign currency transactions ①Initial recognition of foreign currency transaction For foreign currency transactions, the Company shall convert the amount of foreign currency into the amount of the book-keeping base currency according to the spot exchange rate (intermediate price) announced by the People's Bank of China on the date of the transaction. Of which, for foreign currency exchange or related transactions, the Company shall convert according to the exchange rate on the date of the transaction. ②Adjustment or settlement of balance sheet date or settlement date On the balance sheet date or settlement date, the Company shall dispose the foreign currency monetary items and foreign currency non-monetary items according to the following methods: (A) Accounting arrangement principle for foreign currency monetary item For foreign currency monetary items, on the balance sheet date or settlement date, the Company adopts spot exchange rate (intermediate price) for conversion on the balance sheet date or settlement date to adjust the amount of the accounting base currency of foreign currency monetary items caused by exchange rate fluctuations, and treat them as exchange balances. Among them, the exchange balance between foreign currency loans related to the acquisition, construction or production of assets eligible for capitalization is included in the cost of assets eligible for capitalization. Other balance of exchange shall be included into current financial expense. (B) Accounting arrangement principle for foreign currency non-monetary item (a) For the foreign non-monetary currency asset measured at historical cost, the Company shall convert at spot rate (intermediate price) on transaction date with unchanging its original recording currency amount and without exchange balance. (b) For inventory measured at a lower cost between the cost and net realizable value, if the net realizable value is recognized in foreign currency, the Company first converts the net realizable value into the accounting standard currency, and then compares it with the inventory cost reflected by the accounting standard currency when determining the end value of the inventory. (c) For non-monetary items measured at fair values, if the fair value at the end of the period is reflected in foreign currency, the Company shall convert the foreign currency into the amount of recording currency based on the spot exchange rate on the day when fair values are recognized, then compare them with the original amount of recording currency, and the balance shall be treated as gains and losses from the changes in fair value and included into current gains and losses. (2) Accounting arrangement methods for foreign currency statement translation ①The Company shall conduct translation of the financial statements of overseas operations as the following methods: (A) The asset and liability items in the balance sheets shall be translated at a spot exchange rate on the balance sheet date, among the equity items of owner, except for the items as “undistributed profits”, other items shall be translated at the spot exchange rate at the time when they are incurred. (B) The income and expense items in the profit statements shall be c translated at the spot exchange rate of the transaction date, or at a spot exchange rate which is recognized through a systematic and rational method and which is approximate to the spot exchange rate on the transaction date. The balance in the financial statement of foreign currency translated by the above-mentioned methods shall be listed in the owners’ equity item "Other Comprehensive Income" of consolidated balance sheet. ②The Company shall translate the financial statements of overseas operations in hyperinflation economy according to the following methods: (A) The Company shall restate the balance sheet items by utilizing the general price index, restate the items of the income statement by utilizing the variation of the general price index, and then translate them at the spot exchange rate on the recent balance sheet date. (B) If an overseas business is no longer situated in the hyperinflationary economy, the Company shall stop the restatement and shall translate the restated financial statements at the price of the cessation date. ③When the Company disposes any overseas operation, shall translate the balance of foreign currency financial statements related to the overseas business as shown below under the owner's equity items in the balance sheet, and the balance shall be transferred from the owner's equity items and disposed as current gains and losses; When the Company disposes part of the overseas operations, shall calculate the balance according to the proportion of the disposal of foreign currency financial statements, and record the balance as the current gains and losses. 9. Financial instrument The financial instrument refers to a contract that forms the financial assets of one party and the financial liabilities or equity instruments of the other party. (1) Classification of financial instruments ①Classification of financial assets According to the business model of financial assets management and the contractual cash flow characteristics of financial assets, the Company classifies financial assets into the following three categories :(A) financial assets measured at amortized cost; (B) financial assets measured at fair value and the changes included in other comprehensive income (including financial assets designated to be measured at fair value and the changes are included in other comprehensive income);(C) financial assets measured at fair value and the changes recorded in current gains or losses. ②Classification of financial liabilities According to business characteristics and risk management requirements, the Company divides the financial liabilities into the following two categories: (A) The financial liabilities measured at fair value and the changes included in current gains and losses(including trading financial liabilities and the financial liabilities designated to be measured at fair value and of the changes included in current gains or losses); (B) Other financial liabilities. (2) Recognition basis and measurement method of financial instruments ①Recognition basis of financial instruments When becoming one party of financial instrument contract, the Company shall confirm a financial asset or financial liability. ②Measurement method of financial instruments (A)Financial assets Financial assets shall be measured at fair value when they are initially recognized. For financial assets measured at fair value and the changes booked into current gains or losses, relevant transaction expenses shall be directly recorded into current gains or losses; for other financial assets, relevant transaction expenses shall be included in the initial recognized amount. Accounts receivable or notes receivable arising from selling products or providing labor services that do not contain a significant financing component or do not consider the financing component of contracts that do not exceed one year, shall take the amount of consideration to which it is expected to be entitled as the initially recognized amount. (a) Financial assets measured at amortized cost After the initial recognition, the real interest method shall be adopted to implement follow-up measurement of such financial assets at amortized cost. Gains or losses of financial assets measured at amortized cost and not belong to part of any hedging relationship shall be recorded into current gains and losses when recognition is terminated, reclassified, amortized or recognized as impairment according to the real interest method. (b) Financial assets measured at fair value and the changes included in other comprehensive income After the initial recognition, such financial assets shall be subsequently measured at fair value. The impairment loss or gain, exchange gain or loss and the interest calculated by the real interest method shall be recorded into current gains or losses, other gains or losses shall be booked into other comprehensive income. When the recognition is terminated, the accumulated gains or losses booked into other comprehensive income before shall be transferred out from other comprehensive income and booked into current gains or losses. Where the Company designates part of non-trading equity instrument investments as the financial assets that measured at fair value and the changes included in other comprehensive income, relevant dividend income of such financial assets shall be included in current gains or losses, and changes in fair value shall be included in other comprehensive income. When the recognition is terminated, the accumulated gains or losses recorded in other comprehensive income shall be transferred to retained income, and not recorded in current gains or losses. (c) Financial assets measured at fair value and the changes recorded in current gains and losses. Besides the financial assets measured at amortized cost and those measured at fair value and the changes included in other comprehensive income, the Company classifies other financial assets as the assets measured at fair value and the changes included in current gains or losses. In addition, in the initial recognition, in order to eliminate or significantly reduce accounting mismatches, the Company designates some financial assets as the financial assets measured at fair value and the changes recorded into current gains or losses. For such financial assets, the Company adopts fair value for follow-up measurement, and the changes in fair value are recorded into current gains or losses. (B) Financial liabilities (a) Financial liabilities measured at fair value and the changes included in current gains or losses Trading financial liabilities (including derivative instruments belonging to financial liabilities) shall be subsequently measured in accordance with the fair value, and the changes in fair value shall be recorded into current gains or losses except for those related to hedge accounting. For the financial liabilities that are designated to be measured at fair value and the changes included in current gains or losses, in case the changes in the fair value of liabilities are caused by the changes in the Company's own credit risk shall be included in other comprehensive income, and when terminates such liabilities, the accumulated changes in fair value shall be transferred to retained earnings. Other changes in fair value shall be booked into current gains or losses. (b) Financial liabilities measured at amortized cost Besides the financial liabilities that do not meet the condition of derecognition or the financial liabilities formed by transferred financial assets or financial guarantee contract, other financial liabilities shall be measured at amortized cost, gains or losses arising from the termination of recognition or amortization shall be booked into current gains or losses. (3) The recognition basis and measurement method of financial assets transfer If the Company transfers almost all the risks and rewards in the ownership of financial assets, it shall terminate to recognize the financial assets and separately recognize the rights and obligations generated or retained in the transfer as assets or liabilities; if almost all the risks and rewards in the ownership of financial assets are retained, the transferred financial assets shall continue to be recognized. If the Company neither transfers nor retains almost all the risks and rewards on the ownership of the financial asset, it shall deal with the following situations: ① If it does not retain control of the financial asset, the recognition of the financial asset shall be terminated, and the rights and obligations generated or retained in the transfer shall be separately recognize as assets or liabilities; ② If the control of the financial asset is retained, the relevant financial asset shall be recognized according to the phases of transferred financial asset, and relevant liabilities shall be recognized accordingly. (4) Terminating the recognition of financial liabilities When the current obligation of the financial liability (or part thereof) has been discharged, the Company shall terminate the recognition of such financial liability (or part thereof) and record the difference between its book value and the consideration paid (including non-cash assets transferred or liabilities assumed) into the current gains or losses. (5) Offsetting financial assets and financial liabilities Financial assets and financial liabilities shall be listed separately in the balance sheet and shall not be offset mutually. However, if the following conditions are met at the same time, the net offset shall be shown in the balance sheet: ①The Company has the legal right to offset recognized amount, and such legal right is currently enforceable. ②The Company plans to implement net settlement, or simultaneously sell off the financial assets and liquidate such financial liabilities. (6) Equity instrument Equity instruments are the contracts that prove the ownership of the residual equity in the Company's assets after deducting all liabilities. Instruments issued (including refinancing), repurchased, sold or written off by the Company shall be taken as the disposal of changes in equity. The company does not recognize changes in the fair value of equity instruments. Transaction expenses associated with equity transactions shall be deducted from equity. The Company shall take the distribution of equity instrument holders as profit distribution, and the stock dividends paid will not affect the total equity of shareholders. (7) The method of recognizing the fair value of financial instruments When implement initial recognition, if the fair value of the financial asset or financial liability is determined by quoting the same asset or liability in an active market or by other means other than valuation techniques of observable market data, the Company will defer the difference between that fair value and the trading price. After the initial recognition, the Company recognizes the deferred difference as the gain or loss of the corresponding accounting period based on the degree of change of a factor in the corresponding accounting period. (8) Impairment of financial assets Regarding the financial assets measured at amortized cost and the debt instrument investment measured at fair value and the changes recorded in other comprehensive income, the Company recognizes loss provision based on expected credit losses. ①Recognition method of impairment provision (A)General method At each balance sheet date, the Company measures the expected credit losses of financial instruments at different stages. If the credit risk of the financial instrument has not significantly increased since its initial recognition, it is in the first stage. The Company measures the loss provision according to the expected credit loss within the next 12 months. If the credit risk of the financial instrument has significantly increased since its initial recognition but no credit impairment has occurred, it is in the second stage, the Company measures the loss provision according to the expected credit loss of the instrument during the whole period. If the financial instrument has experienced credit impairment since its initial recognition, it is in the third stage, and the Company measures the loss provision according to the expected credit loss of the instrument during the whole period. For the financial instruments (such as time deposit in commercial banks with high credit rating, financial instruments with external credit rating of "investment grade" or above), that have lower credit risk in the balance sheet date, assuming that the credit risk has not increased significantly since the initial recognition, the Company measures the loss provision according to expected credit loss within the next 12 month. (B)Simplified method For accounts receivable and revenue-related notes receivable that do not contain a significant financing component or do not consider the financing component of contracts that do not exceed one year, the Company measures the loss provision in accordance with the expected credit loss for the entire duration. ②Criteria for determining whether credit risk has increased significantly since the initial recognition If the probability of default of the financial asset recognized on the balance sheet date is significantly higher than the probability of default at the time of initial recognition, the credit risk of the financial asset is proved to be significantly increased. No matter which way used by the Company to assess whether a significant increase in credit risk, if the contract payment is overdue more than 30 (included), usually can presume the credit risk of financial assets increase significantly, unless rational and evidence-based information is available to be obtained by the company at reasonable cost to prove that the credit risk does not increase significantly even after 30 days of delay Except for special cases, the Company uses the change of default risk within the next 12 months as a reasonable estimate of default risk in the whole duration to determine whether the credit risk has increased significantly since the initial recognition. ③ The combination method and determination basis of credit risk assessment based on combination The Company respectively evaluates the credit risks of notes receivable, accounts receivable and other receivables with the following characteristics. Such as: the receivables in dispute with the other party or involving litigation or arbitration; receivables with a clear indication that the debtor is likely to be unable to repay. When it is impossible to evaluate the information of the expected credit loss of each financial asset at a reasonable cost, the Company divides the receivables into several portfolios according to the credit risk characteristics and calculates the expected credit loss based on the portfolios. 10. Notes receivable The recognition method and accounting arrangement method for the expected credit loss of the receivables have been shown in "Financial Instruments". Receivables include notes receivable, accounts receivable, other receivables, and long-term receivables. 11. Accounts receivable The recognition method and accounting arrangement method for the expected credit loss of the receivables have been shown in "Financial Instruments". Receivables include notes receivable, accounts receivable, other receivables, and long-term receivables. 12. Other receivables The recognition method and accounting arrangement method for the expected credit loss of the receivables have been shown in "Financial Instruments". Receivables include notes receivable, accounts receivable, other receivables, and long-term receivables. 13. Inventory (1) Classification of inventory The Company's inventory is divided into materials in transit, raw materials, revolving materials (including packaging and low-value consumables), in process products, finished products (inventory), delivered products, expendable biological assets, project construction costs and so on. Expendable biological assets include broiler, piglet, finishing swine, etc. (2) Valuation method for delivery of inventory The delivered materials, delivered finished products, and delivered expendable biological assets shall be calculated by weighted average method. (3) Recognition basis of net realizable value of inventory and the accrual method for inventory falling price reserves ① Recognition basis of net realizable value of inventory (A) For merchandise inventory (or finished products) for sale including materials for direct sale, during the normal production and operation, the net realizable value shall be recognized by the amount of estimated sales price of the inventory deducting the estimated selling expenses and related taxes and dues. (B) The materials inventory needs to be processed, during the normal process of production and management, the estimated sale price of the finished products minus the estimated costs when finished the works, the estimated selling expenses and related tax payments, the net realizable value can be recognized. (C) For the inventory hold to execute sale contract or labor contract, its net realizable value shall be calculated based on the contract price; In case inventory quantity hold by the Company is more than the order quantity of the sale contract, the net realizable value of the exceeding part inventory shall be calculated based on general sale price. (D) But for materials held for production, etc., if the net realizable value of finished products made from the materials is higher than the cost, the materials shall still be measured at the cost; If the decline of material prices indicates that the net realizable value of finished products is lower than the cost, the materials can be measured based on net realizable value. (E) For expendable biological Assets: on the balance sheet date, the expendable biological assets shall be measured at the lower of cost and net realizable value, and the falling price reserves shall be calculated by the same way as that for recognizing the falling price reserves of inventory. If the influencing factors of impairment have disappeared, the amount of write-down shall be recovered and the amount of write-down shall be reversed back and recorded into the current gains or losses. If the Company changes the use of consumable biological assets, the cost after the change of use shall be determined by the book value at the time of the change of use. ②Accrual method of inventory falling price reserves The Company shall accrue inventory falling price reserves according to the lower of cost and net realizable value of a single inventory item. For those inventories with large number and low unit price, the falling price reserves for inventory shall be accrued according to the categories. (4) Inventory system The Company adopts perpetual inventory system for the stock inventory and regularly conducts physical inventory. (5) The amortization method for revolving materials ① The amortization method of low-value consumption goods The Company adopts fifty percent amortization method for ring mould and wooden pallets, and one-time amortization method for other low-value consumables. ② Amortization method of packing material The Company shall conduct amortization by once write-off process in case of receiving packing materials. 14. Contract assets The contract assets refer to the company's rights to charge consideration for product that has transferred to the customer, and such rights shall depend on factors other than the passage of time. The Company's contract assets mainly include completed and unsettled assets, and quality retention money. The contract assets and contract liabilities under the same contract shall be shown on a net amount, and the contract assets and contract liabilities under different contracts shall not be offset. 15. Available-for-sale assets (1) Available-for-sale ① Range of non-current assets and disposal group of available-for-sale assets When the Company recovers its book value mainly by selling (including the exchange of non-monetary assets with commercial substance) rather than continuing to use non-current asset or disposal group, it classifies the non-current asset or disposal group as holding for sale. Disposal group refers to a group of assets disposed of as a whole through sale or other means in transaction, and liabilities directly related to these assets transferred in the transaction. ② Recognition condition for non-current assets and disposal group of available-for-sale assets (A) The Company shall classify the non-current assets and the disposal group that meet the following conditions as available-for-sale assets: According to the usual practice of selling such assets or disposal groups in similar transactions, they can be sold immediately in the current situation. (B) They are likely to be sold, that is, the Company has made a decision on sale plan and obtained definite purchase commitment, and the sale is expected to be completed within one year. They can be sold with the approval of the relevant authority or regulatory authority of the Company. ③ Accounting arrangement method and reporting for non-current assets and disposal group of available-for-sale assets. The Company shall measure the book value of assets and liabilities in non-current assets or disposal groups according to relevant accounting standards before dividing non-current assets or disposal groups into available for sale assets for the first time. When the Company initially measures or recalculates non-current assets or disposal groups held for sale on the balance sheet date, if its book value is higher than the net amount of fair value minus selling expenses, the book value is written down to the net amount of fair value minus selling expenses, and the amount written down is recognized as the loss of assets impairment, which is recorded in the current gains and losses, and the provision for holding impairment of assets for sale is made. For the amount of loss of impairment of assets recognized by the disposal group held for sale, it shall firstly offset the book value of goodwill in the disposal group, and then offset proportionally the book value according to the proportion of the book value of each non-current asset in the disposal group. There is no depreciation or amortization of non-current assets held for sale. The non-current assets held for sale or assets in disposal groups held for sale shall not offset each other with the liabilities in the disposal group held for sale and shall be shown as current assets and current liabilities respectively. If the Company loses control of its subsidiary Company due to the sale of its investment in subsidiary Company or other reasons, no matter whether the enterprise retains part of equity investment after the sale, when the investment in subsidiary Company to be sold meets the conditions for the classification of categories held for sale, the investment in subsidiary Company will be divided into categories held for sale as a whole in the individual financial statements of the parent Company , and all assets and liabilities of subsidiaries will be divided into category of available-for-sale in the consolidated financial statements. (2) Discontinuing operation Termination of business refers to a separate component of Company that meets one of the following conditions and has been disposed of or classified as category held for sale: ① The constituent part represents an independent principal business or a principal business region; ② The constituent part is a part intended for disposal planning of a major independent business or a main business region; ③ The constituent part is a subsidiary Company specially acquired for resale. 16. Long-term equity investment (1) Initial investment cost recognition of long-term equity investment ① The recognition of the initial investment cost of long-term equity investment formed by business combination can be seen in the accounting arrangement of business combination under the same control and under the different control in Note 5. ② Besides the long-term equity investment formed by business combination, the initial investment cost of the long-term equity investment obtained by other means shall be recognized in accordance with the following provisions: (A) For long-term equity investment acquired through paying cash, the acquisition price actually paid shall be taken as the initial investment cost. The initial investment cost includes the expenses directly related to the long-term equity investment obtained, taxes and other necessary expenses. (B) The long-term equity investment obtained by issuing equity securities (equity instruments) is regarded as its initial investment cost according to the fair value of equity securities (equity instruments) issued. If there is conclusive evidence that the fair value of long-term equity investment obtained is more reliable than that of equity securities (equity instruments) issued, the initial investment cost is recognized on the basis of the fair value of long-term equity investment invested by investors. If the fees directly related to the issuance of equity securities (equity instruments), including service fees and commissions, are reduced by the issuance premium, and if the premium is insufficient to be reduced, the surplus reserve and undistributed profits are reduced in turn. Long-term equity investment obtained by issuing debt securities (debt instruments) shall be treated by issuing equity securities (equity instruments). (C) For the long-term equity investment obtained through debt restructuring, the Company takes the fair value of the shares enjoyed by the creditor's rights into equity as its initial investment cost. (D) For long-term equity investment acquired through non-monetary assets exchange, if non-monetary assets exchange is of commercial substance and fair value of converted assets can be reliably measured. The Company confirms its initial investment cost on the basis of fair value of converted assets, unless there is solid evidence that the fair value of converted assets is more reliable. If the above-mentioned conditions cannot be met, the book value of swap-out assets and related payable taxes shall be taken as the initial investment cost of swap-in long-term equity investments. The expenses, taxes and other necessary expenses incurred by the Company directly related to the acquisition of long-term equity investment are included in the initial investment cost of long-term equity investment. No matter how the Company acquires long-term equity investment, the cash dividends or profits declared but not yet paid in actual payments or consideration shall be accounted for separately as the dividend receivable and shall not constitute the cost of long-term equity investment. (2) The subsequent measurement and loss and profit recognition method of long-term equity investment ① The long-term equity investment checked and calculated by cost method (A) The Company shall adopt method to calculate the long-term equity investment can be controlled by the invested unit, that is, investment in subsidiaries. (B) For long-term equity investment calculated by cost method, except for cash dividends or profits which have been declared but not yet paid in the actual price or consideration at the time of investment, the Company, regardless of whether it belongs to the net profits realized by the invested units before and after investment, shall recognize the investment income according to the cash dividends or profits declared by the invested units. ② The long-term equity investment checked and calculated by equity method (A) A Company shall adopt the equity method to account for joint venture under the joint control of the invested entity or joint venture with significant influence. (B) For long-term equity investment adopted equity method, if the initial investment cost is more than the enjoyed share of net asset fair value identified by the invested units when the investment happens, the initial investment cost of the long-term equity interest investment shall not be adjusted; If the initial investment cost is less than the enjoyed share of net asset fair value identified by the invested units when the investment happens, its balance shall be included into the current gains and losses and the initial investment cost of the long-term equity investment shall be adjusted simultaneously. (C) After obtaining a long-term equity investment, the Company shall confirm the investment losses and profits and other comprehensive income respectively and adjust the book value of the long-term equity investment in terms of the due owned or borne share of the net gains or losses and other comprehensive income achieved by the invested unit. When confirming the net loss and profit of the invested unit that shall be owned or borne, recognition shall be conducted for the net profit of the invested unit upon adjustment based on fair value of net identifiable assets of the invested unit when obtaining the investment. However, if the Company is unable to reasonably confirm the fair value of the identifiable assets of the invested unit at the time of obtaining investment, the balance between the fair value of the identifiable assets of the invested unit at the time of investment and book value is small or it is impossible to obtain relevant information of the invested unit due to other reasons, the Company shall directly calculate and confirm the investment gains and losses on the basis of the net book gains and losses of the invested unit. The Company shall reduce correspondingly the book value of the long-term equity investment according to the deserved portion of assigning cash dividends or profit declared by the invested unit. As for other changes concerning owner's equity of the invested unit besides net profit or loss, other comprehensive income and profit distribution, the Company shall adjust the book value of the long-term equity investment and include them into the owner's equity. When affirming the investment income generated by the investment of joint ventures, the Company offsets the unrealized internal transaction income between the Company and the joint venture which belongs to the Company according to the share-holding ratio, and affirms the investment gains and losses. The internal transaction loss occurred between the Company and invested unit belongs to assets impairment loss, which shall be recognized in full amount. The Company shall offset the unrealized internal transaction gains and losses between subsidiaries incorporated into combination and joint ventures in accordance with the above-mentioned principles, and confirm the investment gains and losses. When net deficiency of the invested entity that recognized to be borne, it shall be disposed as the following orders: The book value of the long-term equity investment shall be offset at first. If the book value of long-term equity investment is not enough to be offset, the investment losses shall be recognized continuously according to the limit that the book value of other long-term equity investments substantially constitutes the net investment in the invested entity, to offset the book value of long-term receivables. After the process above, if the Company still shall share extra duty according to investment contract or the agreement, confirm beforehand liabilities according to estimated duty that shall be undertaken and include it in the current investment loss. If the invested unit realizes to be profitable in the following period, the Company shall process it in the sequence contrary to the mentioned above after deducting the contribution of loss that hasn’t been recognized, write down the book value that has been recognized to be estimated liabilities, resume other book values that constitute the long-term interest and long-term equity investment of the invested unit in substance and meanwhile confirm investment income. (3) The basis recognized to have joint control and significant influence on the invested entity ① The basis recognized to have joint control on the invested entity The joint control refers to the control jointly performed towards certain arrangement as per the related agreements, and the related activities thereof must be agreed by all the participants who share the control rights before making decisions. The relevant activities generally include sale and purchase of goods or labor services, management of financial assets, acquisition and disposal of asset, R&D activities and financing activities. Joint venture refers to the joint venture arrangement that the Company has the right to arrange the net assets of the Company. The joint venture arrangement in which the joint venture party enjoys assets related to arrangement and bears relevant liabilities is cooperation rather than joint venture. ② The basis recognized to have significant influence on the invested entity The significant influence refers to having the rights to participate in the decision-making of the financial and business policies of the invested entity, but not being able to control or jointly control the formulation of these policies together with other parties. When the Company is able to exert significant influence on the invested entity, the invested entity shall be its associated company. 17. Fixed assets (1). Recognition conditions The fixed assets refer to the tangible assets held for commodity production, rendering service, lease or operation management with a service life of more than one accounting year. The fixed assets are recognized when the following conditions are met, ① The economic interests related to the fixed assets are likely to flow into the Company; ② The costs of the fixed assets can be calculated reliably. (2). Method of depreciation (3). Recognition basis, pricing and depreciation method of fixed assets under finance lease ①Recognition basis of fixed assets under finance lease At the beginning of the lease period, the Company shall recognize the leased fixed assets that meet the financial lease criteria as the financial leased fixed assets. ② Pricing method of fixed assets under finance lease At the beginning of the lease period, the Company shall regard the lower of the fair value of leased assets and the present value of the minimum lease payment on the lease start date and the initial direct expenses incurred as the accounting value of the financing leased assets, the lowest lease payment as the value of the long-term accounts payable, and the balance between the lower of the fair value of leased assets and the present value of the minimum lease payment on the lease start date as the accounting value of the financing leased assets and the minimum rental payments as unrecognized financing cost. Unrecognized financial charges shall be amortized to each period in lease term according to effective interest method. ③ Method for depreciation of fixed assets under finance lease The Company shall adopt the depreciation policy consistent with owned fixed asset to accrue leasing asset depreciation. If it is reasonable to be certain that the lessee will obtain the ownership of the leasing asset when the lease term expires, the leasing asset shall be accrued depreciation within its service life. If it is not reasonable to be certain that the lessee shall obtain the ownership of the leasing asset at the expiry of the lease term, the leasing asset shall be accrued depreciation within the shorter one between the lease term and the service life of leasing asset. 18. Construction in progress (1) Category of construction in process Construction in process shall be calculated separately according to the approved projects (2) The standard and time point for construction in process carried down fixed assets All expenditures of the construction in progress that incurred before it reaches the estimated serviceable condition shall be regarded as entry value of the fixed assets. The self-operating engineering shall be measured according to direct materials, direct wages, direct mechanical construction costs, etc.; Package project is measured according to the payable project price; The borrowing expenses that meet the capitalization conditions and occur before the project under borrowing reaches its intended usable state shall be capitalized and included in the cost of the project under construction. If the fixed assets have reached the intended usable state but have not yet completed the final accounts, the Company shall, from the date of reaching the intended usable state, determine its cost according to the project budget, cost or actual cost of the project, as well as the estimated value, transfer it to the fixed assets, and calculate the depreciation of the fixed assets in accordance with the Company's fixed assets depreciation policy; After final account is completed, the Company shall adjust the original provisionally estimated value according to actual cost, but not adjust the previously accrued amount of depreciation. 19. Borrowing costs (1) Range of the borrowing costs The borrowing cost of the Company shall include interest on borrowings, amortization of discount or premium, auxiliary expenses, and exchange balance incurred from foreign currency borrowings. (2) Recognition principle of borrowing costs Where the incurred borrowing cost of the Company can be directly attributable to the acquisition and construction or production of assets eligible for capitalization, it shall be capitalized and reckoned in the costs of relevant assets. Other borrowing costs shall be recognized as costs on the basis of the actual amount accrued, and shall be included into current gains and losses. The term "assets eligible for capitalization" shall refer to the fixed assets, investment real estate, inventories and other assets, of which the acquisition and construction or production may take quite a long time to get ready for its intended use or for sale. (3) Recognition of the time period for capitalization of the borrowing cost ① Recognition of the time point for capitalization of the borrowing cost After assets expenditures and the borrowing expenses have happened, the necessary acquisition and construction or production activities have already started in order to reach the pre-recognized usable or marketable state for the assets, the borrowing expenses can begin capitalization. The asset expenses shall include the cash, transferred non-cash assets or expenses that bearing debts paid for the acquisition and construction or production for assets eligible for capitalization ② Recognition of the suspending time point for capitalization of the borrowing costs If assets eligible for capitalization is interrupted abnormally during the course of acquisition and construction or production, and the interruption lasts more than 3 months, the capitalization of borrowing costs shall be suspended. The borrowing costs occurred during the interruption shall be recognized as current gains or losses, until the acquisition and construction or production activities of the asset restart, the capitalization of borrowing costs shall be continued. If the interruption is a necessary step for making the acquired, built or produced assets which are eligible for capitalization reaching estimated usable and marketable status, the capitalization of the borrowing costs shall be continued. ③ Recognition of the suspending time point for capitalization of the borrowing costs When the acquired, built or produced assets which are eligible for capitalization can reach estimated usable and marketable state, shall stop capitalizing on borrowing costs; the borrowing costs incurred thereafter shall be recognized as current gains and losses according to the real amount. Where each part of the acquired, built or produced assets which are eligible for capitalization is completed separately, and every single part is available to use or sell during the continuing construction of other parts, and the acquisition and construction or production activities, which are necessary to make such part of asset reaching the estimated status of being available to use or sell, have already been completed substantially, shall stop capitalizing on the borrowing costs in relation to this part of asset. Where each part of the acquired, built or produced assets which are eligible for capitalization is completed separately and but it cannot be available to use or sell till the whole construction finishing, shall stop capitalizing on the borrowing costs when the assets can be completed entirely. (4) The recognition of the amount of the capitalization of borrowing costs ① The recognition of the amount of the capitalization of borrowing interests During the capitalization period, the interests' capitalization amount (including the amortization of discounts or premiums) in each accounting period shall be recognized according to the following provisions: (A) As for special borrowing costs arising from the acquisition and construction or production of assets which are eligible for capitalization, the amount shall be recognized based on the interests cost of the special borrowings costs occurred actually in the current period deducting the interests' income earned from depositing the unused borrowing costs or the income from temporary investment. (B) If ordinary borrowings used for acquisition and construction or production of assets which are eligible for capitalization, the interests' amount of ordinary borrowings to be capitalized shall be recognized by the weighted average of the asset expenditures for cumulative capital expenditure that exceed the capital expenditure of specific borrowings to multiply the capitalization rate of ordinary borrowings. The capitalization rate is recognized by the calculation of the weighted average interest rate of general borrowing costs. (C) If there is any discount or premium of the borrowings, the number of discounts or premiums amortized during each accounting period shall be recognized by the effective interest rate method, and an adjustment shall be made to the amount of interests in each period. (D) Within period of the capitalization, the interest capitalization amount of each accounting period shall not exceed the amount of interest actually occurred to the relevant borrowings in the current period. ② The recognition of the amount of the capitalization of borrowing auxiliary expenses (A) Article For the ancillary expense incurred to a specifically borrowings, those incurred before assets eligible for capitalization under acquisition, construction or production is ready for the intended use or sale shall be capitalized at the incurred amount when they are incurred, and shall be included into the costs of the asset eligible for capitalization those incurred after a qualified asset under acquisition and construction or production is ready for the intended use or sale shall be recognized as expenses on the basis of the incurred amount when they are incurred, and shall be recorded into the gains and losses of the current period. (B) The auxiliary expenses arising from general borrowings shall be recognized as expenses at the time of occurrence and shall be included into the gains and losses of the current period. ③ The recognition of the amount of the capitalization of the balance of exchange During the period of capitalization, the exchange balance on foreign currency specific borrowings shall be capitalized, and shall be included in the cost of assets eligible for capitalization. 20. Biological assets (1) Classification of biological assets Biological assets refer to live animals and plants. The Company's biological assets are divided into expendable biological assets and productive biological assets. (2) Conformation conditions of biological assets The Company shall confirm the biological assets that satisfy the following conditions at the same time: ① The Company possesses or controls the biological asset as a result of past transaction or matter. ② The economic benefits or service potential concerning this biological asset are likely to flow into the Company. ③ The cost of the biological asset can be measured reliably. (3) Depreciation of productive biological assets The Company shall depreciate the productive biological assets that have achieved the predetermined purposes of production and operation, and reasonably confirm their service life, estimated net residual value and depreciation method according to nature, usage and expected realization of the economic benefits involved. The type, service life, anticipated net residual value and yearly depreciation of the Company's productive biological assets are as follows: prepared for impairment are recalculated according to the book value, estimated net residual value and usable life of the productive biological assets. The Company reviews the service life, estimated net residual value and depreciation methods of productive biological assets at regular intervals. If the expected number of service life or estimated net residual value is different from the original estimate, or if there is any significant change in the expected realization of the economic benefits involved, it shall be treated as a change in accounting estimate. 21. Intangible assets (1). Valuation methods, service life, and impairment test ①Initial measurement of intangible assets (A) Initial measurement of outsourcing intangible assets The cost of outsourcing intangible assets, including acquisition price, relevant taxes and dues as well as other expenditures which is directly attributed to make intangible assets to the estimated purpose. When the payment of purchased intangible assets price exceeding normal credit conditions is delayed in payment, with financing nature in essence, the intangible assets cost shall be recognized based on the present value of purchase price. The balance between the cost actually paid and the present value of the purchasing cost will be included into the current gains and losses during the credit period except the part that shall be capitalized. (B) Initial calculation for independently developed intangible assets The cost of self-developed intangible assets shall be recognized according to the total expenditure incurred from meeting the capitalization conditions to reaching the intended purpose, and the expenditure already expended in the previous period shall not be adjusted. For the intangible assets researched and developed by the Company, the expenditure during research stage shall be recorded into the current gains and losses as occurring; if the expenditures in development stage which don't meet the conditions of capitalization shall be included into current gains and losses when it occurs. Those meeting the condition of capitalization shall be recognized as intangible assets. When the expenditures occur during research or development stage cannot be distinguished, all the R&D expenditures occurred shall be included into the current gains and losses. ②Subsequent measurement of intangible assets The service life shall be analyzed and recognized by the Company when obtaining the intangible assets. The intangible assets acquired by the Company include intangible assets with finite service life and indefinite service life. (A) Subsequent calculation for intangible assets with finite service life For intangible assets with limited service life, the Company will adopt the straight-line method to amortize them in phases during their service life from the time they reach their intended purpose, without reserving residual value. The amortization amount of intangible assets shall be included into current gains and losses. If the economic benefits of an intangible asset are realized through product or other assets, the amortization amount shall be included into the cost of the relevant assets. The categories of intangible assets, estimated service life, estimated net residual value and annual amortization rate are listed as follows: The Company shall review the service life and the amortization method of intangible assets with the finite service life on the balance sheet date. (B) The subsequent measurement for intangible assets with indefinite service life The Company shall not amortize intangible assets with uncertain service life during the holding period. ③Estimate the service life of intangible assets (A) The service life of the intangible asset derived from the contractual rights or other statutory rights shall be recognized according to the limit not exceed the contractual rights or other statutory rights; If when the contract rights or other statutory rights are due, they can be extended because of renewal, and there is evidence that the Company does not need to pay a large amount of cost to renew contract, then the renewal period shall be included into the service life. (B) If the service life is not stipulated in the contract or law, the Company shall confirm the period when intangible assets can bring economic benefits to the Company by employing relevant experts for demonstration or comparing with those in the same industry and referring to the Company's historical experience. (C) In accordance with the above method, if it is still unable to reasonably confirm the time limit when the intangible assets can bring economic benefits for the Company, the intangible assets shall be deemed as the intangible assets with uncertain service life. ④Arrangement of land use right (A) The land use right acquired by the Company is usually recognized as intangible assets, but if the land use right is used to earn rent or capital appreciation, it will be converted into investment real estate. (B) If the Company develops and constructs buildings such as factory buildings, it shall treat the relevant land use rights and buildings separately. (C) The price paid for the acquisition of land and buildings shall be allocated between the building and the right to use the land. If they cannot be reasonably distributed, they shall be recognized as fixed assets. (2). Accounting policies of internal R&D expenditure ①The specific standard for the partition of the research stage and development stage of the Company internal R&D project According to the actual situation of R&D, the Company divides R&D projects into two stages: research stage and development stage. (A) Research stage Research stage refers to the stage for ingenious and planned investigation, research activities so as to acquire and understand new scientific or technical knowledge, etc. (B) Development stage Development stage refers to before the commercial manufacture or use, the stage for the application of research achievement and other knowledge to a certain plan or design to produce new or substantial improved materials, devices or products, etc. The expenditure of the internal R&D projects at the research stage shall be included into current gains and losses when incurred. ②The specific standards for expenditure at development stage which meet capitalization The expenditure of the internal R&D projects at the development stage shall be recognized as the intangible assets when meeting the following conditions simultaneously: (A) Complete the intangible assets to make them feasible to be used or sold in technology; (B) Possess the intention to complete the intangible assets and use or sell them; (C) The ways of intangible assets to generate economic benefits include the ability to prove the existence of the market where there are the products produced by the intangible assets or the existence of that of the intangible assets, and prove its usefulness if intangible assets will be used internally; (D) There are sufficient technologies, financial resources and other resources supporting to complete the development of the intangible assets, and the Company is able to use or sell the intangible assets; (E) Expenditures that belong to the development stage of the intangible assets can be measured reliably. 22. Impairment of long-lived assets The impairment test shall be made to long-term equity investments, investment property measured by using the cost model, fixed assets, projects under construction, intangible assets with finite service life and other long-term assets with signs of impairment on the balance sheet date. If the impairment test result is indicated that the recoverable amount of assets is lower than its book value, it is withdrawn impairment reserves in accordance with the balance and calculated into the impairment loss. The recoverable amount shall be the higher one of the net amounts of the fair value of the assets deducted by the disposal expenses and the present value of the expected future cash flow of the assets. Calculate and confirm the assets impairment reserves based on single asset; shall it be difficult to estimate the recoverable amount of single asset, the recoverable amount of the asset group shall be recognized based on its belonging asset group. Asset group is the minimum asset portfolio that can generate cash inflow independently. Each year, the Company performs the impairment test on the goodwill and the intangible assets with uncertain service life, no matter whether there are signs of impairment or not. When the Company conducts the impairment test on business reputation, as for the book value of goodwill formed due to the business combination, it shall be amortized to related assets groups from the acquisition date according to the reasonable methods; The part that is hard to be allocated to related assets groups shall be amortized to related combined assets groups. When apportioning the book value of the goodwill to the relevant asset groups or combinations of asset groups, it shall be apportioned on the basis of the proportion of the fair value of each asset group or combination of asset groups to the total fair value of the relevant asset groups or combinations of asset groups. Where it is difficult to measure the fair value reliably, it shall be apportioned on the basis of the proportion of the carrying value of each asset group or combination of asset groups to the total carrying value of the relevant asset groups or combinations of asset groups. When making an impairment test on the relevant asset groups or combinations of asset groups including goodwill, if any evidence shows that the impairment of asset groups or combinations of asset groups is possible, the Company first makes an impairment test on the asset groups or combinations of asset groups not including goodwill, calculate the recoverable amount, compare it with the relevant carrying value and confirm the corresponding impairment losses. The Company makes an impairment test of the asset groups or combinations of asset groups containing business reputation, and compares the book value of these relevant asset groups or combinations of asset groups (including the book value of goodwill amortized thereto) and their recoverable amount. Where the recoverable amount of relevant assets or combinations of the asset groups is lower than the book value thereof, the depreciation of the goodwill losses shall be recognized. Once the impairment loss of above-mentioned asset is recognized, it shall not be reversed in following accounting periods. 23. Long-term prepaid expenses (1) Scope of long-term prepaid expense The long-term prepaid expense refers to an expense that has incurred but shall be amortized by the current period and subsequent periods with the time limit of more than 1 year (exclusive), and includes improvement expenditures incurred in fixed assets by way of operating lease. (2) Initial calculation for long-term prepaid expense The long-term prepaid expense received initial calculation based on the actual cost. (3) Amortization of long-term prepaid expense Long-term prepaid expenses in benefit period will be of amortization average using the straight-line method. 24. Contract liabilities Recognition method of contract liabilities Contract liabilities refer to the obligation of the Company to transfer commodities to customers as the Company has received the consideration or needs to receive the consideration from customers. Before the Company transferring the commodities to the customer, if the customer has paid the contract consideration or the Company has obtained an unconditional right to collect the accounts, the Company shall record the accounts received or needed to receive as the contractual liabilities based on the time when the customer actually pays the accounts or when the accounts become due. The contract assets and contract liabilities under the same contract shall be recorded on a net basis, and the contract assets and contract liabilities under different contracts shall not be offset. 25. Employee remuneration (1). The accounting arrangement method of short-term remuneration Short-term remuneration refers to employee remuneration that needs to be paid in full amount within 12 months after the end of annual report period that the employee provides related service, except for the remuneration given for labor relation removing with the employee. Short-term remuneration includes: Employee salary, bonus, allowance and subsidy, employee welfare expenses, medical insurance premiums, industrial injury insurance premium, birth insurance premium and other social insurance premiums, housing accumulation fund, labor union expenditure and employee education expenditure, short-term compensated absence, short-term profit-sharing plan, non-monetary welfare and other short-term remunerations. The Company shall confirm the actual short-term remuneration accrued as liabilities and include it into current gains and losses or related asset cost during the accounting period of services provided by staff. (2). The accounting arrangement method of post-employment welfare The Company participates in the establishment of withdrawal plans, which include basic pension insurance premiums, unemployment insurance premiums and enterprise annuity payments for employees in accordance with relevant regulations. The amount due for deposit shall be recognized as the debt of employee remuneration on the balance sheet date in order to exchange for the service provided by employees during accounting period, and include into the current gains and losses or relevant asset cost. (3). Accounting arrangement method of dismissal welfare Dismissal welfare refers to the remuneration for the employee when the Company terminates the labor relationship with the employee before the labor contract expires or when the Company encourages the employee to receive layoff voluntarily. If the Company provides dismissal welfare for staffs, the staff remuneration liability generating from confirming dismissal welfare on the earlier one of the following two dates shall be included into current gains and losses: ① When the Company cannot unilaterally withdraw the dismissal welfare provided by labor relationship relief plan or reduction suggestion. ② When the Company confirms cost or expense relevant to the restructuring involved in paying dismissal welfare. (4). Accounting arrangement method of other long-term employee benefits Other long-term employee welfare refers to other welfares of all employees other than short-term remuneration, welfare after demission and dismisses welfare. At the end of report period, staff remuneration cost generating from other permanent staff welfare shall be recognized to the following constituent parts: ① Cost to serve. ② Net interest amount of net liabilities or net asset of other permanent staff welfares. ③ The change generating from the recalculation of net liability or net asset of other permanent staff welfares. In order to simplify the relevant accounting arrangements, the total net amount of above items is recorded into current gains and losses or relevant asset costs. 26. Estimated liabilities (1) Recognition principles of estimated liabilities When the external guarantees, pending litigation or arbitration, product quality assurance, loss of contract, the obligation of restructuring matters or the relevant business meet three of the following conditions, it shall be recognized as estimated liabilities: ① That obligation is a current obligation undertaken by the Company; ② It is likely to cause the economic benefit to flow out of the Company due to the performance of the obligation; ③ The amount of the obligation can be measured reliably. (2) Calculated method for estimated liabilities The amount of the estimated liability is measured in accordance with the best estimate of the expenditure required for the contingency. ① If there is a sequent range for the necessary expenses and if all the outcomes within this range are equally likely to occur, the best estimate shall be recognized in accordance with the middle estimate within the range. ② In other cases, the best estimate shall be disposed according to the following cases respectively: (A) If the contingencies involve a single item, it shall be recognized according to the most likely outcome. (B) If the contingencies involve two or more items, the best estimate shall be calculated and recognized according to all possible outcomes and the relevant probabilities. 27. Share-based payment The share-based payments shall consist of equity-settled share-based payments and cash-settled share-based payments. (1) Accounting arrangement on the grant date In addition to share-based payments of the immediate vesting, regardless of equity-settled share-based payment or cash-settled share-based payment, the Company shall not accept accounting arrangement on the grant date. (2) Accounting arrangement on each balance sheet date in the waiting period In the waiting period of each balance sheet date, services acquired in hiring employees or other parties shall be included in the cost, and the owner's equity or liabilities shall be recognized. As for share-based payments with market conditions, as long as employees meet all other non-market conditions, the acquired service shall be recognized. When the performance conditions are non-market conditions, after the waiting period is fixed, if the subsequent information indicates that the estimation of feasible rights needs to be adjusted, the earlier estimate shall be modified. As for equity-settled share-based payment involving employees, according to fair value of equity instruments in the grant date, it shall be included in cost and capital reserve (other capital reserve), and its subsequent changes of fair value shall not be recognized. As for cash-settled share-based payment involving employees, it shall be recounted according to fair value of equity instruments at each balance sheet date to recognize the cost and payable employee remuneration. On each balance sheet date within the waiting period, the Company shall make the best estimates according to the newly obtained changes in exercisable right staff number variation and other follow-up information, and amend the number of equity instruments of expected exercisable right. According to the fair value of the above-mentioned equity instruments and the number of equity instruments with predicted feasible rights, the cumulative cost and expense amount that shall be recognized up to the current period is calculated, with the cumulative recognized amount in the previous period subtracted, as the cost and expense amount that shall be recognized in the current period. (3) Accounting Arrangement on the Vesting Date ① As for equity-settled share-based payment, after vesting date, the recognized cost and the total owner equity shall no longer be adjusted. On the vesting date, the Company shall confirm the share capital and share premium according to the exercise situation, and the capital reserve (other capital reserve) in the waiting period shall be carried forward at the same time. ② As for cash-settled share-based payment, after the vesting date, the Company shall no longer confirm the cost, and changes in fair value of liabilities (staff remuneration) shall be included in current gains and losses (changes of profit or loss in fair value). (4) Accounting arrangement for using repurchased share as incentive stock option for staff Where the Company rewards its employees in the form of share repurchase, when it repurchases shares, it shall treat all the expenditures of the share repurchase as stock shares, and make a record. On each balance sheet date during the waiting period, according to the fair value of equity instruments on the granting date, the obtained staff services are included in the cost and expenses, and the capital reserve (other capital reserve) is increased. When the employee's right to purchase shares of Company receives the price, the cost of the stocks in stock delivered to the employee and the accumulated amount of capital reserve (other capital reserve) during the waiting period shall be resold, and the capital reserve (equity premium) shall be adjusted according to its balance. 28. Revenue The revenues mainly consist of the income of selling goods, providing labor services, and transferring the right to use assets. And the principles of income recognition shall be driven as below: (1) Confirming principle of the revenue for selling products The main risks and rewards of the property in the commodities have been transferred to the acquiree by the Company; The Company retains neither continuing management right related with the ownership nor effective control over the products sold; The amount of revenue can be measured in a reliable way; The relevant economic interests may be flowed into the Company; When the relevant cost incurred or to incur can be measured reliably, it shall be recognized as the realization of product sales income. The Company's sales revenue, mainly includes feed products, feed raw materials, poultry products and raising business. The revenue shall be recognized after receipt of payment or completion of credit procedures and delivery of products. (2) Confirming principle of the revenue for providing labor services ① Principle of recognition of labor income is to provide labor transactions in the case of reliable estimation On the balance sheet date, when the labor service transaction results rendered can be reliably estimated, the Company shall confirm the revenue from providing labor service by the percentage-of-completion method. When the amount of income can be reliably measured, the relevant economic benefits may flow into the Company, the completion schedule of the transaction can be reliably recognized, and the costs that have occurred and will occur in the transaction can be reliably measured, the results of the labor transaction can be reliably estimated. ②Recognition principle of labor income under the condition that provide labor transactions in the case of unreliable estimation On the balance sheet date, when the labor service transaction results provided by the Company cannot be reliably measured, it shall confirm labor services income by the following three kinds of condition. (A) If labor service cost incurred is estimated to be compensated in full amount, provision of labor service income shall be recognized according to the amount that has been regained or can be regained by estimation and carry forward the labor service cost that has accrued; (B) If the labor cost estimation that has occurred can be compensated partly, the labor revenue shall be recognized to provide as the labor cost amount that has occurred or can be compensated, and the occurred labor cost will be carried over; (C) If the cost of labor services incurred is expected not to be compensated, the cost incurred shall be included into current gains and losses (main business cost), and no income from the provision of labor services will be recognized. (3) Recognition principles of transferring the right to use assets When the trade-related economic interest is likely flow into this Company, and the relevant revenue that can be reliably calculated, the realization of the revenue from transferring the right to use assets shall be recognized. 29. Contract costs Contract costs can be divided into contract performance costs and contract acquisition costs. Costs incurred by the Company in the performance of a contract shall be recognized as an asset when the following conditions are met. (1) Such costs are directly related to a current or anticipated contract (2) Such costs increase the Company's resources that will be used in the future to meet performance obligations. (3) Such costs are expected to be recovered Assets related to contract costs are amortized on the same basis as the revenue recognition of commodities or services related to such assets. However, if the amortization period of the contract acquisition costs is less than one year, the Company shall record such amortization into current gains or losses when it is incurred. If the book value of the assets related to the contract costs is higher than the difference between the following two items, the Company will make provision for impairment of the excess part and recognize it as impairment loss of the assets. (1) The remaining consideration that is expected to be obtained as a result of transferring the commodities or services related to such assets. (2) The estimated costs that will be incurred due to transfer such commodities or services. 30. Government grant (1) Category of government grant Government grant refers to the monetary assets or non-monetary assets that the Company obtains from the government free of charge, including the government grant related to assets and income. The government grants pertinent to assets refer to the government assets that are obtained by enterprises used for purchase or construction, or forming the long-term assets by other ways. The government grants related to earnings refer to the government grants besides the government grants related to assets. (2) Recognition principle and recognition time-point of government grant Recognition principle of government grant ① The Company can meet all attached conditions for governmental grant. ② The Company is able to receive governmental grant. Government grant may be recognized on condition that it meets the above conditions simultaneously. (3) Measurement for government grant ① If the government grants belong to monetary assets, shall be calculated according to the received or receivable amount. ② Non-monetary assets of government grants shall be measured by the fair value; if the fair value cannot be obtained reliably, it shall be measured according to the nominal amount (the nominal amount is RMB 1). (4) Accounting arrangement method for government grants ① The government grant related to assets shall, when acquired, be deducted with the book value of the relevant assets or recognized as deferred income. If it is recognized as deferred income, it shall be divided into gains and losses in stages according to a reasonable and systematic method during the service life of the relevant assets. The governmental grants calculated according to the nominal amount shall be directly included in the current gains and losses. ② Government grant related to the incomes shall be disposed separately according to the conditions: (A) If the grants are used to compensate for related expenses or losses in the later period of the Company, it shall be recognized as deferred income and included in the current gains and losses during recognition of relevant expenses or loss (B) Those used for compensating the related expenses or losses have been incurred shall be included in current gains and losses directly or relevant offset cost as obtaining. ③ If government grants that include both asset-related and revenue-related parts can be distinguished, they are treated separately in different parts. If it is difficult to distinguish, it shall be wholly recognized as government grants related to incomes. ④ Government grants related to the day-to-day operation of the Company shall be accounted for as other benefits or deducted with relevant costs in accordance with the nature of its economic operations. Government grants unrelated to the daily activities of enterprise are included in the income and expenditure of non-business activities. If the finance allocates the discount funds directly to the Company, the Company will deduct the relevant borrowing costs from the corresponding discount. ⑤ If it is necessary to return governmental grants which have been recognized, it shall be disposed respectively according to the following conditions: (A) If the book value of the relevant assets is deducted at the time of initial recognition, the book value of the assets shall be adjusted. (B) If there is the deferred income concerned, the book balance of the deferred income shall be offset against, but the excessive part shall be included in the current gains and losses. (C) In other circumstances, it shall be directly included in the gains and losses of the current period. 31. Deferred income tax assets or deferred income tax liabilities The Company adopts the balance sheet debt method to calculate the income tax. (1) Recognition of the deferred income tax assets and the deferred income tax liabilities ① When the Company obtains the assets or liabilities, it shall determine its tax basis. On the balance sheet date, the Company analyses and compares the book value of assets and liabilities with their tax basis, and the book value of assets and liabilities with their tax basis. If there is temporary balance between the book value of assets and liabilities and their tax basis, the Company shall recognize deferred income tax liabilities or deferred income tax assets respectively for taxable temporary balance or deductible temporary balance if the relevant temporary balance occurs in the current period and meets the recognition conditions. Tax assets. ② Recognition basis of deferred income tax assets (A) The Company shall confirm the deferred income tax assets arising from a deductible temporary balance to the extent of the amount of the taxable income which it is likely to obtain and which can be deducted from the deductible temporary balance. The amount of taxable income likely to be obtained in the future period includes the amount of taxable income realized in normal production and operation activities in the future period, and the amount of taxable income increased due to the return of temporary balance of taxable income during the period of deductible temporary balance. (B) As for any deductible losses and tax deduction that can be carried over to the next years, the corresponding deferred income tax assets shall be recognized to the extent that the amount of future taxable income to be offset for the deductible loss and tax to be likely obtained. (C) On the balance sheet date, the book value of deferred income tax assets shall be re-checked. If it is unlikely to obtain sufficient taxable income to deduct from the benefit of the deferred income tax asset, the carrying amount of the deferred income tax assets shall be written down. The write-down amount shall be reversed when it is likely that the sufficient taxable income is available. ③ Recognition basis of the deferred income tax liabilities The Company shall confirm the current or past taxable temporary balance that shall be paid but is not paid as deferred income tax liabilities. But it doesn’t include goodwill and transaction formed by non- business combination and the temporary balance neither affects the accounting profit nor taxable income when transaction incurred. (2) Measurement for the deferred income tax assets and the deferred income tax liabilities ① On the balance sheet date, the deferred income tax assets and deferred income tax liabilities shall be measured at the applicable tax rate of the period during which the assets are expected to be recovered or the liabilities are expected to be settled. ② If the applicable tax rate varies, the deferred income tax assets and deferred income tax liabilities which have been recognized are re-measured, excluding the deferred income tax assets and deferred income tax liabilities arising from any transactions or events directly recognized as the owners' equities, the amount affected by them shall be included into the income tax expenses of the current period during which the change occurs. ③ When measuring deferred income tax assets and deferred income tax liabilities, the Company adopts tax rates and tax basis consistent with the expected way of recovering assets or paying off debts. ④ The Company shall not discount any deferred income tax asset and deferred income tax liability. 32. Lease (1) Accounting arrangement method of operating lease A tenant includes the rental payment of operation lease into the relevant cost of assets or current gains and losses according to the straight-line method in each period of the lease term. The initial direct costs accrued to the Company shall be included into current gains or losses. The contingent rental shall be included into the current gains or losses when it is actually accrued. A lessor includes the assets subject to operating lease in relevant items of its balance sheets in light of the nature of the asset. The rent in operating lease shall be recognized as current gains and losses during each lease term according to straight-line method. The initial direct costs accrued to the Company shall be included into current gains and losses. The depreciation of fixed assets in the operation lease assets shall be withdrawn by adopting depreciation policy of similar asset; other operation lease assets shall be amortized adopting systematic and reasonable method. The contingent rental shall be included into gains and losses of the current period when it is actually accrued. (2) Accounting arrangement methods of financial lease As tenant, on the commencement date of the lease term, the lower one between fair value of leased asset and present value of minimum lease payments as account record value of leased asset, and regard the minimum lease payments as account record value of long-term payables, and their balance shall be treated as the unrecognized financing costs. The initial direct costs such as commissions, attorney's fees and traveling expenses, stamp duties, etc. directly attributable to the leased item incurred during the process of lease negotiating and signing the leasing agreement shall be included into the rent asset value. The unrecognized financing costs shall be amortized during each lease term, and the current financing costs shall be recognized adopting real interest method. The contingent rental shall be included into gains and losses of the current period when it is actually accrued. On the commencement date of the lease term, a lessor recognizes the sum of the minimum lease receipts on the lease commencement date and the initial direct costs as the entry value in an account of the finance lease values receivable, and record the un-guaranteed residual value at the same time. The balance between the sum of the minimum lease collection amount, the initial direct expenses and the non-guaranteed residual value, and the sum of their present values shall be recognized as the unrealized financing income. The unrealized financing income shall be allocated to each period during the lease term. The lessor shall calculate and recognize the financing income at the current period by adopting the effective interest rate method. The contingent rental shall be included into the gains and losses of the current period when it is actually accrued. 33. Changes of important accounting policies and estimates A. Significant changes in accounting policies B. Adjustment of financial statements when firstly implementing the new revenue standard and new leasing standard Consolidated balance sheet Unit: yuan Currency: RMB Consolidated balance sheet of parent company Unit: yuan Currency: RMB Explanation of adjustment In accordance with new revenue standards, Wellhope adjusted relevant items in the financial statements at the beginning of 2020, the amounts that meet the requirements of accounting of contract liabilities have been adjusted from "advance receipt" to "contract liabilities", and unamortized output VAT has been adjusted to other current liabilities. VI. Tax 1. Categories of taxes and tax rate 2. Tax preference A. Value-added tax In accordance with the Notice on the Exemption of Value-added Tax on Feed Products and other documents, the sales of feed products of the Company and related subsidiaries are exempted from value-added tax. According to the regulation issued by the Ministry of Finance and Taxation of China, from April 1, 2019, taxpayers occurred taxable sales of VAT, where the tax rates of 16% and 10% were originally applicable, the tax rates shall be adjusted to 13% and 9% respectively. According to the announcement issued by the General Tax Bureau of the Ministry of Finance regarding VAT policy for supporting work resumption of privately or individually-owned companies, during the outbreak of the COVID-19 pandemic, VAT shall be levied at a rate of 1% for small-scale taxpayers. B. Income tax The Company and related subsidiaries, which are suitable to related government policies, such as receiving the certificates of High-Tech enterprise, the applicable corporate income tax rate is 15% in the valid period. VII. Notes to the Items of Consolidated Financial Statements 1. Monetary capital Unit: yuan Currency: RMB Other explanation: Balance of letter of credit included in other monetary capital was RMB 1,144.57, futures margin was RMB 11,524,011.55 in the end of the period. 2. Trading financial assets Unit: yuan Currency: RMB Other explanation: The Company bought structural deposit from Industrial and Commercial Bank of China on September 29, 2020 with the principal of RMB 50 million and will be due on April 7, 2021 with an expected annualized return of 1.50%-3.20%. 3. Derivative financial assets Unit: yuan Currency: RMB 4. Notes receivable A. Classification Unit: yuan Currency: RMB B. Bad debt provision Unit: yuan Currency: RMB 5. Accounts receivable A. Categorized by aging Unit: yuan Currency: RMB B. Categorized by bad debt accrual method Unit: yuan Currency: RMB Accruing bad debt provision individually Unit: yuan Currency: RMB Accruing bad debt provision according to aging Unit: yuan Currency: RMB C. Bad debt provision Unit: yuan Currency: RMB D. Accounts receivable that were actually written off in current period Unit: yuan Currency: RMB Circumstances of other important accounts receivable that were written off Unit: yuan Currency: RMB E. Top 5 accounts receivable Unit: yuan Currency: RMB 6. Prepayments A. Presenting by aging Unit: yuan Currency: RMB B. Top 5 prepayments Unit: yuan Currency: RMB 7. Other receivables Unit: yuan Currency: RMB A. Dividends receivable Unit: yuan Currency: RMB B. Other receivables a. Presenting by aging Unit: yuan Currency: RMB b. Presenting by nature Unit:yuan Currency: RMB c. Accruing bad debt provision Unit: yuan Currency: RMB d. Bad debt provision Unit: yuan Currency: RMB e. Top 5 other receivables Unit: yuan Currency: RMB f. Receivables involving government grant Unit: yuan Currency: RMB 8. Inventory A. Category of inventory Unit: yuan Currency: RMB B. Falling price reserves and provision for impairment of contract performance costs Unit: yuan Currency: RMB 9. Contract assets A. Circumstance of contract assets Unit: yuan Currency: RMB B. Accruing provision for impairment of contract assets in 2020 Unit: yuan Currency: RMB 10. Other current assets Unit: yuan Currency: RMB 11. Long-term equity investment Unit: yuan Currency: RMB The investment of Unphung Joint Venture Company, Nepal Wellhope Agri-tech Pvt. Ltd. and NEXUS WELL-HOPE AGRITECH INTERNATIONAL LIMITED adopts cost method due to the local market and regulatory environment as well as the effects that can be exerted on these three companies. 12. Other equity instruments Investment A. Other equity instruments Investment Unit: yuan Currency: RMB B. Non-transactional equity instrument investment Unit: yuan Currency: RMB 13. Fixed assets Unit: yuan Currency: RMB Circumstance of fixed assets Unit: yuan Currency: RMB 14. Construction in progress Unit: yuan Currency: RMB A. Circumstance of construction in progress Unit: yuan Currency: RMB B. Changes of important constructions in progress Unit: yuan Currency: RMB 15. Productive biological asset Productive biological assets using cost measurement model Unit: yuan Currency: RMB 16. Intangible assets Unit: yuan Currency: RMB 17. Goodwill Original value of goodwill Unit: yuan Currency: RMB 18. Long-term prepaid expenses Unit: yuan Currency: RMB 19. Deferred income tax assets or deferred income tax liabilities A. Deferred income tax assets that have not been offset Unit: yuan Currency: RMB B. Deferred income tax liabilities that have not been offset Unit: yuan Currency: RMB C. Details of unrecognized deferred income tax asset Unit: yuan Currency: RMB D. The deductible losses of unrecognized deferred income tax assets will be due in the following years Unit: yuan Currency: RMB 20. Other non-current assets Unit: yuan Currency: RMB 21. Short-term borrowing Unit: yuan Currency: RMB Explanation: The guaranteed loan is the bank loan guaranteed by the Company for its subsidiary companies, including Lingyuan Wellhope, Chongqing Dahong Machinery, Liaoning Expert Trading Company,Lixin Xiangfeng Agriculture and Animal Husbandry, Puyang Wellhope Food and Kaifeng Wellhope Meat Food. 22. Notes payable Unit: yuan Currency: RMB 23. Accounts payable Unit: yuan Currency: RMB 24. Advance receipt Unit: yuan Currency: RMB 25. Contract Liabilities Unit: yuan Currency: RMB 26. Payroll A. Payroll payable Unit: yuan Currency: RMB B. Short-term benefits Unit: yuan Currency: RMB C. Defined contribution plan Unit: yuan Currency: RMB 27. Tax payable Unit: yuan Currency: RMB 28. Other payables Unit: yuan Currency: RMB A. Interest payable Unit: yuan Currency: RMB B. Dividends payable Unit: yuan Currency: RMB C. Other payables Other payables presented by nature Unit: yuan Currency: RMB 29. Non-current liability due within 1 year Unit: yuan Currency: RMB 30. Other non-current liability Unit: yuan Currency: RMB 31. Long-term borrowings Unit: yuan Currency: RMB 32. Long-term payables Unit: yuan Currency: RMB Long-term payable presented by nature Unit: yuan Currency: RMB 33. Deferred income Unit: yuan Currency: RMB Projects receiving government grants Unit: yuan Currency: RMB 34. Share capital Unit: yuan Currency: RMB 244,500 shares of the first lockup period of 2018 Restricted Stock Incentive Plan were repurchased and written off by the Company. 35. Capital reserve Unit: yuan Currency: RMB Note: The change in other capital reserve was caused by restricted shares. The amount of share-based payment of restricted shares settled by equity that was attributable to the parent company, and those repurchased and cancelled restrict shares that did not meet the unlocking conditions increased RMB 5,330,798.53. The changes of the Company's share of equity in subsidiaries increased RMB 106,051.83. 36. Treasury stock Unit: yuan Currency: RMB Explanation: The Company granted restricted shares to 372 managers in December 2018 and recognized the treasury shares of restricted stock with repurchase obligation. In the first lockup period, these restricted shares that met unlocking conditions reduced treasury shares by RMB 19,768,110.00, those restricted shares that did not meet unlocking conditions reduced treasury shares by RMB 1,185,825.00, and the revocable cash dividends paid during the waiting period for the unlockable restricted shares reached RMB 4,039, 000.00. 37. Other comprehensive income Unit: yuan Currency: RMB 38. Surplus reserve Unit: yuan Currency: RMB 39. Undistributed profit Unit: yuan Currency: RMB Explanation: Due to retroactive adjustment in accordance with Accounting Standards for Business Enterprises and its related new provisions, the impacts on the opening balance of undistributed profits was 0 yuan. 40. Operating revenue and cost Unit: yuan Currency: RMB 41. Taxes and surtaxes Unit: yuan Currency: RMB 42. Sales expenses Unit: yuan Currency: RMB transportation cost of products incurred for the performance of contracts as contract performance costs in the operating costs. 43. Administration expense Unit: yuan Currency: RMB 44. R&D expenditure Unit: yuan Currency: RMB 45. Financial expense Unit: yuan Currency: RMB 46. Other income Unit: yuan Currency: RMB Explanation: Details are listed in “Government Grants” 47. Income from investment Unit: yuan Currency: RMB 48. Income from changes in fair value Unit: yuan Currency: RMB 49. Credit impairment loss Unit: yuan Currency: RMB 50. Asset impairment loss Unit: yuan Currency: RMB 51. Income from assets disposal Unit: yuan Currency: RMB 52. Non-operating Income Unit: yuan Currency: RMB Government grants recorded in current gains and losses Unit: yuan Currency: RMB 53. Non-operating expenditure Unit: yuan Currency: RMB 54. Income tax expense Unit: yuan Currency: RMB Adjustment procedure for accounting profit and income tax expense Unit: yuan Currency: RMB 55. Other comprehensive income See note. 56. Items in cash flow statement A. Cash received from other activities related to operating Unit: yuan Currency: RMB B. Cash paid for other activities related to operating Unit: yuan Currency: RMB C. Cash received from other activities related to investment Unit: yuan Currency: RMB D. Cash paid for other activities related to investment Unit: yuan Currency: RMB E. Cash received from other activities related to financing Unit: yuan Currency: RMB F. Cash paid for other activities related to financing Unit: yuan Currency: RMB 57. Supplementary information of cash flow statement A. Supplementary information Unit: yuan Currency: RMB B. Net cash paid for acquiring subsidiaries Unit: yuan Currency: RMB C. Cash and cash equivalents Unit: yuan Currency: RMB 58. Assets in which ownership or use rights were restricted Unit: yuan Currency: RMB 59. Foreign currency monetary items A. Foreign currency monetary items Unit: yuan B. Explanation of overseas business entity 60. Government grants Unit: yuan Currency: RMB VIII. Change of Consolidation Scope 1. Business combination under different control A. Business combination under different control occurred in current period Unit: yuan Currency: RMB B. Combined cost and goodwill Unit: yuan Currency: RMB C. Identifiable assets and liabilities of the investee on the acquisition date Unit: 10k yuan Currency: RMB D. Gain or loss arising from remeasuring the equity held prior to the acquisition date by fair value Unit: yuan Currency: RMB 2. Disposal of subsidiary Unit: yuan Currency: RMB 3. Change of consolidation scope caused by other reasons During the year, the Company newly initiated 26 subsidiaries, cancelled 2 subsidiaries. Details are listed in the notes. IX. Equity in other Entities 1. Equity in subsidiaries A. Composition of the Company B. Important non-wholly owned subsidiary Unit: yuan Currency: RMB C. Financial figures of important non-wholly owned subsidiary Unit: yuan Currency: RMB 2. Transactions that change the share of owner's equity of the Company in subsidiaris but the Company still controls the subsidiary A. Circumstance of the change of owner's equity During the current period, the Company transferred 5.00% of shareholdings of Xi'an Wellhope Feed Sci-Tech Company and 15.00% of Shenyang Xiangmai E-commerce Company. B. The impact of the transaction on non-controlling interests and the equity attributable to the owners of parent company Unit: yuan Currency: RMB 3. Equity in joint ventures or associated companies A. Important joint ventures or associated companies Unit: yuan Currency: RMB B. Financial figures of important joint ventures or associated companies Unit: yuan Currency: RMB C. Financial information of unimportant joint ventures and associated companies Unit: yuan Currency: RMB Note: Unphung Joint Venture Company, Nepal Wellhope Agri-tech Pvt. Ltd., NEXUS WELL-HOPE AGRITECH INTERNATIONAL LIMITED use cost method. X. Risks Related to Financial Instruments The Company's main financial instruments include equity investment, borrowing, accounts receivable and accounts payable. Detailed descriptions of various financial instruments can be found in the relevant items in Note V. The Company manages and monitors these risk exposures to ensure that these risked can be contained within limits. The Company's objective in risk management is to strike a balance between risks and return, minimize the negative impact of risk on the Company's operating results, and maximize the benefits of shareholders and other equity investors. Based on this risk management objective, the basic strategy of the Company’s risk management is to identify and evaluate various risks faced by operation, set up appropriate risk bearing bottom line and carry out risk management, and supervise various risks in a timely and reliable way to control risks within the limited range. 1. Market risks A. Interest rate risk The Company's risk of cash flow changes in financial instruments due to the changes in interest rates mainly related to floating-rate bank loans. The Company's policy is to maintain the floating-rate of these loans. B. Foreign exchange risks Foreign exchange risk refers to the risk of loss caused by exchange rate movement. The Company's main business activities are settled in RMB, with a small amount of import and export business, changes in exchange rate have little impact on the Company. 2. Credit risk The maximum credit risk exposure that may cause financial losses to the Company mainly comes from financial assets loss caused by the other party of contract failed to perform duty. In order to reduce credit risk, the Company constantly strengthens the risk management awareness of accounts receivable, and only deals with recognized and reputable third parties. In accordance with the Company's policies, it is necessary to conduct credit audit and approval, carefully confirm the credit limit, implement other monitoring procedures and take necessary measures to recover overdue claims. 3. Liquidity risk In regard of managing liquidity risk, the Company monitors cash and cash equivalents, to satisfy its operation demand, and to reduce the influence caused by cash flow fluctuation. The management of the Company supervises the usage circumstances of bank loans and ensures the Company complying with the agreement of loan. XI. Disclosure of fair value 1. Fair value of assets and liabilities in the end of period Unit: yuan Currency: RMB 2. The basis for determining the market price of continuous and non-continuous first-level fair value measurement items The derivative financial assets of the Company are futures, which are measured by the unadjusted quoted price of the same assets or liabilities in the active market on the balance sheet date. XII. Related Party and Transaction 1. Snapshot of joint ventures and associated companies Circumstance of the joint ventures and associated companies, which had related transactions with the Company in the period. Other explanation-- In July 2020, the Company made additional investment and acquired 31.00% of shareholding of Dunhua Wellhope Agri-Tech and Dunhua Fengda Agriculture and Animal Husbandry separately, the shareholding percentage changed from 20.00% to 51.00%, and the associated company became a subsidiary. 2. Snapshot of other related parties 3. Snapshot of related party transaction A. Purchasing and selling products, providing and accepting labor service Unit: yuan Currency: RMB Selling products or providing labor service Unit: yuan Currency: RMB B. Related party guarantee The Company acted as the guarantor Unit: yuan Currency: RMB C. Borrowings to related party Unit: yuan Currency: RMB D. Remuneration for key management Unit: 10k yuan Currency: RMB 4. Related party receivables and payables A. Receivables Unit: yuan Currency: RMB B. Payables Unit: yuan Currency: RMB XIII. Share-based Payment 1. Circumstance of share-based payment Unit: share Currency: RMB Note: In accordance with the approved resolutions--Wellhope 2018 Restricted Stock Incentive Plan and Its Abstract (draft), Adjusting Related Items regarding to 2018 Restricted Stock Incentive Plan, the Company issued 14.575 million restricted shares to 372 key managers at the price of 4.85 yuan per share in 2018, increased RMB 14.575 million of the registered capital. This incentive plan should be valid from the date of granting restricted shares to the date when all restricted shares could be unlocked or repurchased and written off by the Company, with a maximum period of no more than 48 months. The restricted shares should not be transferred, used for guarantee or repaying debts before removing the trading restrictions, and the shares and dividends obtained from the restricted shares due to the Company conducting capital reserve converted to share capital, paying dividends, etc., should be simultaneously locked according to the incentive plan. After the expiration of restricted period, the Company shall cope with related matters, such as removing trading restrictions, whilst the restricted shares held by the managers who could not meet the conditions of unlocking shares, should be repurchased and written off by the Company, relevant equity could not be deferred to the next period. Arrangement of restricted shares On March 27, 2020, the board meeting of the Company approved the proposal of Unlocking restricted common shares after achieving the performance objective stated in 2018 Restricted Stock Incentive Plan, 367 managers could totally unlock 4.233 million restricted shares in the first lockup period. On April 9, 2020, these 4.233 million shares could be traded in the capital market. 2. Equity-settled share-based payment Unit: yuan Currency: RMB XIV. Commitment and Contingency 1. Important commitment As at December 31, 2020, the operating lease contracts that the Company had signed or were ready to perform, were mainly the lease of operating site and buildings, as follows: 2. Contingency The Company has no material contingencies that need to be disclosed. XV. Post Balance Sheet Events 1. Circumstance of paying profit Unit: yuan Currency: RMB XVI. Notes to major Items of the Parent Company's Financial Statements 1. Accounts receivable A. Categorized by aging Unit: yuan Currency: RMB B. Categorized by bad debt provision method Unit: yuan Currency: RMB Accruing bad debt provision on an individual basis Unit: yuan Currency: RMB Accruing bad debt provision by grouping Unit: yuan Currency: RMB C. Bad debt provision Unit: yuan Currency: RMB D. Top 5 accounts receivable Unit: yuan Currency: RMB 2. Other receivables Unit: yuan Currency: RMB A. Dividends receivable Unit: yuan Currency: RMB B. Other receivables a. Categorized by aging Unit: yuan Currency: RMB b. Categorized by nature Unit: yuan Currency: RMB c. Bad debt provision accruing Unit:yuan Currency: RMB d. Bad debt provision Unit:yuan Currency: RMB e. Top 5 other receivables Unit: yuan Currency: RMB 3. Long-term equity investment Unit: yuan Currency: RMB A. Investment in subsidiaries Unit: yuan Currency: RMB B. Investment in associated companies and joint ventures Unit: yuan Currency: RMB 4. Operating revenue and cost Unit: yuan Currency: RMB 5. Income from investment Unit: yuan Currency: RMB XVII. Supplementary Information 1. Extraordinary items in 2020 Unit: yuan Currency: RMB 2. Return on equity and earnings per share Section XII Reference Chairman of the Board of Directors: Jin Weidong The submission date approved by the Board of Directors: March 31, 2021
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