Zhejiang NHU Company Ltd. 2026 Semi-Annual Report

August 2026

Section I Important Notes, Contents, and Definitions

The Board of Directors and its members and senior executives of the Company hereby guarantee that the information presented in this semi-annual report is authentic, accurate, complete and free of false records, misleading statements or material omissions, and they will bear individual and joint liabilities for such information.

Hu Baifan, the Company’s legal representative, Shi Guanqun, the officer in charge of accounting, and Wang Xiaobi, the head of accounting department hereby declare that they guarantee the financial statements in this semi-annual report are authentic, accurate and complete.

All members of the Board of Directors have attended the meeting of the Board of Directors for deliberation of this semi-annual report.

The future plan and other forward-looking information disclosed in this semiannual report shall not be regarded as a substantive commitment to investors. Investors are hereby cautioned to be mindful of investment risks. For a detailed description of potential operational risks of the Company and relevant countermeasures, refer to Item X Risks and Countermeasures under Section III Management’s Discussion and Analysis of this Report. Investors are hereby cautioned to be mindful of investment risks.

The profit distribution proposal reviewed and approved by the Board of Directors at this meeting is as follows: Based tentatively on 3,068,717,398 shares [Note], which is the total share capital of 3,073,421,680 shares as of July 31, 2026 after deducting 4,704,282 repurchased shares held in the special repurchase account, a cash dividend of RMB 2.00 (tax inclusive) per 10 shares will be distributed to all shareholders. No bonus shares (tax inclusive) will be issued, and no capitalization of capital reserves will be made.

[Note] The Company currently has a total share capital of 3,073,421,680 shares, of which 4,704,282 shares are held in the special repurchase account. In accordance with the Rules on Share Repurchases by Listed Companies, shares held in the special repurchase account are not entitled to profit distribution or capitalization of capital reserve.

If the total share capital of the Company changes prior to the implementation of the distribution plan due to factors such as conversion of convertible bonds, share repurchases, exercise of equity incentive options, or listing of new shares from refinancing, the total amount to be distributed will be adjusted accordingly while the distribution ratio per share remains unchanged.

This Semi-Annual Report is an English translation ofthe Chinese Semi-Annual Report. In case the English version does no conform to the Chinese version, the Chinese version prevails.

Contents

Section I Important Notes, Contents, and Definitions....1

Section II Company Profile and Key Financial Indicators....6

Section III Management Discussion and Analysis....9

Section IV Corporate Governance, Environmental and Society....21

Section V Significant Events....25

Section VI Movements in Share Capital and Shareholders....36

Section VII Bonds....42

Section VIII Financial Report....44

Documents Available for Reference

I. Financial statements signed and sealed by the Company’s legal representative, officer in charge of accounting, and head of accounting department;

II. Originals of all the Company’s documents and announcements published in newspapers designated by CSRC during the reporting period;

III. Other documents for reference.

Definitions

Section II Company Profile and Key Financial Indicators

I. Company profile

II. Contact information

III. Other Information

1. Company’s Contact Information

Whether the Company’s registered address, office address, zip code, website and e-mail address has changed during the reporting period

Applicable Not applicable

The Company’s registered address, office address, zip code, website and e-mail address have not changed during the reporting period, which can be found in the 2025 Annual Report.

2. Information Disclosure and Location of Documents for Public Inspection

Whether information disclosure and location of documents for public inspection has changed during the reporting period ApplicableNot applicable

The name of the Company’s selected information disclosure newspaper, the URL of the website designated by the CSRC where the semi-annual report is posted, and the place where the Company’s semi-annual report is available have not changed during the reporting period, which can be found in the 2025 Annual Report.

3. Other relevant Information

Whether other relevant information has changed during the reporting period

Applicable Not applicable

IV. Key accounting data and financial indicators

Whether the Company needs to perform a retroactive adjustment or restatement on the financial data of prior years Yes No

V. Differences in Accounting Data Under Chinese Accounting Standards and Overseas Accounting Standards

1. Difference in Net Profit and Net Assets in Financial Reports Disclosed Respectively Under IFRS Standards and Chinese Accounting Standards

Applicable Not applicable

During the reporting period, the Company has no difference in net profit or net assets in financial reports disclosed respectively under IFRS Standards and Chinese accounting standards.

2. Difference in Net Profit and Net Assets in Financial Reports Disclosed Respectively Under Overseas Accounting Standards and Chinese Accounting Standard

Applicable Not applicable

During the reporting period, the Company has no difference in net profit or net assets in financial reports disclosed respectively under overseas accounting standards and Chinese accounting standards

VI. Non-Recurring Profit or Loss

Applicable Not applicable

Unit: RMB Yuan

Remarks on other profit or loss satisfying the definition of non-recurring profit or loss:

Applicable Not applicable

The Company has no other profit or loss satisfying the definition of non-recurring profit or loss.

Remarks on defining non-recurring profit or loss listed in the “Interpretation Pronouncement on Information Disclosure Criteria for Public Companies No. 1 – Non-Recurring Profit or Loss” as recurring profit or loss

Applicable Not applicable

The Company has no situation of defining non-recurring profit or loss listed in the “Interpretation Pronouncement on Information Disclosure Criteria for Public Companies No. 1 – Non-Recurring Profit or Loss” as recurring profit or loss.

Section III Management Discussion and Analysis

I. Principal Business Activities During the Reporting Period

There were no material changes to the Company's core business operations during the reporting period. For details, please refer to the company's 2025 annual report.

II. Core Competitiveness analysis

There were no material changes to the Company’s core competitiveness during the reporting period. For details, please refer to the Company’s 2025 annual report.

III. Principal Business Activities Analysis

Overview

In the first half of the year, guided by the operating principle of “expanding markets and increasing sales, pursuing innovative development, empowering with smart manufacturing, and improving quality and efficiency,” the Company actively responded to the complex and changing domestic and international environment, seized development opportunities, and achieved steady growth in key operating indicators. During the reporting period, the Company achieved operating revenue of RMB 13.13 billion, representing a year-on-year increase of 18.28%; total profit of RMB 4.70 billion, an increase of 11.06% year-on-year; and net profit attributable to shareholders of the listed company of RMB 4.01 billion, an increase of 11.31% year-on-year

1. Steady growth of operating indicators

During the reporting period, the Company coordinated production, sales, and procurement to continuously improve operating quality and efficiency. On the sales side, the Company actively seized product market opportunities, continued to expand highvalue application fields, and achieved good results in developing “Four-New” markets. The market demand and price of methionine, a key product in the nutrition segment, rose significantly, and the methionine business achieved growth in both volume and price. Other segments also showed stable and improving sales. On the production side, the Company continued to promote cost reduction and efficiency improvement through measures such as shared-line production, centralized startup and shutdown, and high output with low consumption. On the procurement side, the Company accurately judged market conditions and effectively strengthened its supply chain risk defense.

2. Orderly advancement of project construction

During the reporting period, the Company upheld the philosophy of innovation-driven development and growth through market competition, and key projects progressed in an orderly manner. The civil construction of the Tianjin New Materials Nylon Industry Chain Project was basically completed and handed over for installation, with equipment arriving and installation commencing. The PPS Phase IV project began construction. The civil works for HA Phase II started smoothly. Other technical upgrading and management improvement projects advanced steadily, while reserve projects and new project planning were carried out in an orderly manner.

3. Innovation subjects enhance endogenous driving force

During the reporting period, the Company consistently adhered to innovation-driven development. On the one hand, it continued to deepen the research and development of new products, steadily advanced new product research subjects, and continuously expanded product categories. On the other hand, it reviewed special subjects on improving the competitiveness of existing products, continued to improve and innovate, and continuously enhanced product competitiveness. Through building a technology resource library and a unit technology database, the Company continued to strengthen technology platform capabilities, laying a

solid foundation for technological innovation.

4. Continuous improvement of globalization capabilities

During the reporting period, the Company continued to advance its global layout. Sales, R&D, and other overseas operations are accelerating localization. The Japan Research Institute was completed and put into use. At the same time, the Company continued to improve its international management system, promoted the construction of overseas warehousing resources in key regions, improved its overseas talent introduction and development mechanisms, and deepened employer brand building, laying a solid foundation for the Company’s internationalization strategy.

5. Risk prevention improves management effectiveness

During the reporting period, the Company continued to deepen full-process risk management, promoted confidentiality system development, consolidated supply chain security, upgraded information protection capabilities, and enhanced systemic risk contro capabilities. Meanwhile, the Company continued to improve internal control management, strengthened risk prevention and process management, and comprehensively ensured compliant and efficient operation, laying a solid foundation for long-term sustainable development.

6. Accelerating digital and intelligent transformation

During the reporting period, the Company relied on digital and intelligent transformation to achieve refined management, focusing on three major areas—smart factories, smart operations, and artificial intelligence-enabled management—and steadily advanced the digital and intelligent construction of each base. The smart operation system continued to iterate, and self-developed platform were continuously optimized, pushing the digital and intelligent transformation from “point-based pilots” to “full-domain empowerment” and injecting digital momentum into the Company’s high-quality development.

Year-on-year Changes in Key Financial Data

Unit: RMB Yuan

Significant changes in the composition of the Company’s profit or sources of profit during the reporting period Applicable Not applicable No significant changes in the composition of the Company’s profit or sources of profit during the reporting period.

Composition of Operating Revenue Unit: RMB Yuan

☑ Applicable Not applicable

Unit: RMB Yuan

In case the statistical caliber of the Company’s main business data was adjusted during the reporting period, the Company’s main business data of the preceding period adjusted according to the caliber at the end of the reporting period shall be indicated

Applicable Not applicable

IV. Non-Main Business Analysis

Applicable Not applicable

Unit: RMB Yuan

V. Assets and Liabilities Analysis

1. Significant Changes in Asset Composition

Unit: RMB Yuan

2. Major overseas assets

Applicable Not applicable

3. Assets and Liabilities at Fair Value

Applicable Not applicable

Unit: RMB Yuan

Remarks on other changes: None Whether the Company has significant changes in the measurement attributes of its main assets during the reporting period Yes No

4.Restrictions on Assets as of the End of the Reporting Period

Unit: RMB Yuan

VI. Investment Status Analysis

1. Overall Information

Applicable Not applicable

2. Significant equity investments made during the reporting period

Applicable Not Applicable

3. Significant non-equity investments in progress during the reporting period

Applicable Not Applicable

4. Investments in financial assets

(1) investments in securities

Applicable Not Applicable

There is no investment in securities during the reporting period.

(2) Investments in Derivatives

Applicable Not applicable

1) Derivative Investments for Hedge Purposes During the Reporting Period

Applicable Not applicable

Unit:RMB'0,000

2) Derivative Investments for Speculative Purposes During the Reporting Period

Applicable Not applicable

The Company had no derivative investments for speculative purposes during the reporting period.

5. Use of Proceeds from Fundraising

Applicable Not applicable

The Company did not utilize any proceeds from fundraising activities during the reporting period.

VII. Sale of Major Assets and Equities

1. Sale of Major Assets

Applicable Not applicable

There is no sale of major assets during the reporting period.

2. Significant Sale of Equities

Applicable ☑ Not applicable

VIII. Major Entities Controlled or Invested by the Company

Applicable Not applicable

Major subsidiaries and associates accounting for more than 10% of the Company’s net profit

Unit:RMB'0,000

Details of the acquisition and disposal of subsidiaries during the reporting period

Applicable Not applicable

Remarks on major holding investees

Not applicable

IX.Structured entities controlled by the Company

Applicable Not applicable

X. The risks faced by the Company and the countermeasures

（1）Macroeconomic Risk

The international environment remains complex and volatile, with intensifying geopolitical rivalry and unresolved regiona conflicts contributing to uncertainties in the global macroeconomy. The Company will accelerate its internationalization process and expedite its global strategic layout. It will strengthen localized operations and service capabilities to ensure steady progress in its international expansion. The Company will continue to improve its global innovation, sales, and information centers, and build diversified innovation chains, supply chains, and customer bases to promote sound and sustainable development.

（2）Industry and Market Competition Risk

The Company faces competition from peers in both domestic and international markets. Competitors continue to enhance their overall competitiveness in terms of technology, capital, talent reserves, and sales channels. The transition between old and new production capacity has further intensified market competition, presenting greater challenges to the Company within the industry. In the future, the Company will continue to strengthen its R&D and innovation capabilities, focus on core strategic directions, deepen its industrial chain layout, upgrade product technology and service levels, improve management efficiency, enhance value creation capabilities, and increase its overall competitiveness.

（3）Raw Material Price Fluctuation Risk

Geopolitical conflicts have heightened uncertainties in global raw material supply and increased price volatility. As raw material costs account for a relatively high proportion of the Company’s total costs, fluctuations in raw material prices may affect the Company’s profitability. In the future, the Company will mitigate the adverse effects of raw material price fluctuations b strengthening market research and analysis, establishing strategic partnerships with suppliers, and improving raw material utilization efficiency.

(4) Risks of Product Market Price Fluctuation

Due to changes in market supply and demand and other factors, the market prices of the Company's products fluctuate, which has a certain impact on the Company's operating performance. The Company will continuously strengthen market expansion, deepen its industrial-chain layout, optimize its product architecture, improve quality and efficiency, fully tap potential, enhance product value and application, and service capabilities. It will also build technological and cost moats and reduce the risks posed by market price fluctuations.

(5) Exchange Rate and Trade Risks

The current international environment has grown increasingly complex, with rising uncertainty in global geopolitical risks and more variable trade and tariff policies, which may have a certain impact on the Company's sales revenue and profitability. Going forward, the Company will strengthen market assessment, closely monitor changes in the international situation, and mitigate risks through the use of hedge instruments and by advancing the Company’s international market expansion, striving to consolidate the Company’s international market position and actively explore new sources of economic growth.

(6) Risks of Changes in Environmental Protection Policies

With the increased social awareness of environmental protection, the promotion of the ecological civilization construction of the CPC Central Committee, and the strategic goal of "carbon emission peak and carbon neutrality", the requirements for energy conservation, emission reduction, safety, and environmental protection in the chemical and pharmaceutical manufacturing industr in which the Company operates are stricter than before. The Company will operate with higher standards, fully integrate ESG and carbon reduction requirements into the management framework, and explore more environmentally friendly ways of production to achieve sustainable development.

XI. Development and implementation of market value management system and valuation enhancement plan

Whether the Company has formulated a market value management system.

Yes No

Whether the Company has disclosed the valuation enhancement plan.

Yes No

The Company considered and passed the Market Value Management System at the Eleventh Meeting of the Ninth Session of the Board of Directors of the Company held on April 11, 2025, which specifies the institutions and responsibilities of market value management, the main methods of market value management, the monitoring and early warning mechanism and the contingency measures, etc., as detailed in the announcement of the Company published on the CNINFO (http://www.cninfo.com.cn) on Apri 15, 2025.

XII. Implementation of the “Quality-Return dual improvement” action plan

Whether the Company disclosed the “quality-return dual improvement” action plan.

Yes No

In line with the guiding principles set forth at the meeting of the Political Bureau of the CPC Central Committee to “revitalize the capital market and boost investor confidence,” and at the State Council executive meeting to “vigorously enhance the quality and investment value of listed companies, and adopt more effective measures to stabilize the market and bolster confidence,” and with a view to safeguarding the rights and interests of all shareholders, strengthening investor confidence, and promoting the Company’s long-term sustainable development, the Company disclosed the Announcement on the Action Plan for “Dua Enhancement of Quality and Return” (2024-002) on March 9, 2024. The Action Plan focuses on four key areas: “Innovation‑Driven Development and Core Business Excellence,” “Contributor‑ Oriented Approach and Sharing the Fruits of Development,” “Deepening Corporate Governance and Enhancing Standardized Operations,” and “Compliant Information Disclosure and Sincere Two‑ Way Communication.”

During the reporting period, the Company actively advanced and implemented the “Quality and Return Dual Enhancement” Action Plan, continued to deepen the execution of various measures, consolidated and improved its operational quality and governance standards, and placed strong emphasis on shareholder returns and the communication of corporate value. Remarkable results have been achieved in multiple aspects. For details, please refer to the Announcement on the Implementation Progress o the “Quality and Return Dual Enhancement” Action Plan (2026-036) published by the Company on August 20, 2026 in designated information disclosure media and on the CNINFO（(http://www.cninfo.com.cn).

Section IV Corporate Governance, Environmental and Society

I.Changes of directors and senior executives

Applicable Not applicable

The Company’s directors and senior executives remains unchanged during the current reporting period, please refer to the 2025 Annual Report for details.

II. Profit distribution and conversion of capital reserve into share capital

Applicable Not applicable

III. Implementation of equity incentive plans, employee stock ownership plans or other employee incentive programs

Applicable Not applicable

1. Equity incentive

Not applicable.

2. Implementation of employee stock ownership plans

Applicable Not applicable

All active employee stock ownership plans during the reporting period

Shareholdings of directors and senior executives in the employee stock ownership plan during the reporting period

Changes in asset management agency during the reporting period

Applicable Not applicable

Changes in equity during the reporting period due to disposal of shares by holders

Applicable Not applicable

Exercise of shareholders’ rights during the reporting period

Pursuant to the Fifth Phase of Employee Stock Ownership Plan , such plan voluntarily waives the voting rights of holding shares in the Board of Shareholders of the Company, while shares acquired through the employee stock ownership plan carry no voting rights in the Board of Shareholders. During the reporting period, the employee stock ownership plan did not exercise the voting rights of holding shares in the Board of Shareholders, but still enjoyed the right to profit distribution.

Other relevant situations and remarks of the employee stock ownership plan during the reporting period

Applicable Not applicable

Change in membership of the management committee of employee stock ownership plan

Applicable Not applicable

The second holders’ meeting of the Company’s Fifth Phase Employee Stock Ownership Plan was held on June 23,

2026 by means of communication voting. In view of the work adjustment of Ms. Liu Fanglu, one of the management committee members of the Fifth Phase Employee Stock Ownership Plan of Zhejiang NHU Co., Ltd., and in order to better safeguard the overall interests of the employee stock ownership plan, this holders’ meeting elected Ms. Wang Xiaobi as a member of the management committee of the Fifth Phase Employee Stock Ownership Plan. Together with Ms. Xi Chun, Mr. Cao Ying, Mr. Yu Weiguo and Ms. Zeng Shuying elected at the first holders’ meeting, they jointly form the management committee of the Company’s Fifth Phase Employee Stock Ownership Plan, with a term of office equal to the duration of the Company’s Fifth Phase Employee Stock Ownership Plan.

Financial impact of employee stock ownership plan on the Company in the reporting period and related accounting treatments

Applicable Not applicable

Termination of employee stock ownership plan during the reporting period

Applicable Not applicable

Other Notes:

The number of shares held by directors and senior management in the employee stock ownership plan is calculated based on the proportion of the holders’ shares to the total shares of the employee stock ownership plan.

3.Other employee incentive programs

Applicable Not applicable

IV. Environmental Information Disclosure

Whether the listed company and its major subsidiaries are included in the list of enterprises required to disclose environmental information in accordance with the law

Applicable Not applicable

V. Social responsibilities

Not applicable

Section V Significant Events

I. Commitment performance fulfilled during the reporting period and overdue commitments as of the end of the reporting period by parties related to commitments including the actual controller of the Company, shareholders, related parties, acquirers and the Company itself.

Applicable Not applicable

II. Non-operating occupation of funds over listed companies by controlling shareholders and other related parties

Applicable Not applicable

There is no non-operating occupation of funds over listed companies by controlling shareholders and other related parties during the reporting period.

III. Illegal external guarantees

Applicable ☑ Not applicable

There is no illegal external guarantee during the reporting period.

IV.Engagement and dismissal of accounting firms

Whether the semi-annual report has been audited or not

Yes No

The semi-annual report has not been audited.

V. Statements by the Board of Directors on the “Modified Auditor’s Report” issued by the accounting firm during the reporting period

Applicable ☑ Not applicable

VI. Explanations by the Board of Directors on the “Modified Auditor’s Report” issued by the accounting firm last year

Applicable Not applicable

VII. Matters related to bankruptcy and restructuring

Applicable Not applicable

There are no matters related to bankruptcy and restructuring during the reporting period.

VIII. Lawsuits

Significant lawsuits and arbitration Applicable ☑ Not applicable There is no significant lawsuit and arbitration during the reporting period. Other lawsuits Applicable Not applicable IX. Penalties and rectification Applicable ☑ Not applicable

There is no instance of penalty or rectification for the Company during the reporting period.

X. Integrity of the Company, its controlling shareholders and the actual controller

Applicable Not applicable

XI. Significant related party transactions

1. Related party transactions relevant to daily operations

Applicable Not applicable

There is no related party transaction relevant to daily operations during the reporting period.

2. Related party transactions in purchase or sale of assets or equities

Applicable ☑ Not applicable

There is no related party transaction in purchase or sale of assets or equities during the reporting period.

3. Related party transactions in joint external investments

Applicable Not applicable

There is no related party transaction in joint external investments during the reporting period.

4. Related party creditor’s rights and debts

Applicable Not applicable

There is no related creditor’s rights or debts during the reporting period.

5. Transactions with related financial companies

Applicable ☑ Not applicable

There is no business of deposits, loans, credit granting or other financial businesses between the Company and its related financial companies.

6. Transactions between financial companies controlled by the Company and the Company’s related parties

Applicable ☑ Not applicable

There is no business of deposits, loans, credit granting or other financial businesses between financial companies controlled by the Company and the Company’s related parties.

7. Other significant related party transactions

Applicable Not applicable

There is no other material connected transactions during the reporting period.

XII. Significant contracts and performance

1. Matters of trusteeship, contracting and leases

(1) Trusteeship

Applicable Not applicable

There is no trusteeship during the reporting period.

(2) Contracting

Applicable ☑ Not applicable

There is no contracting during the reporting period.

(3) Leases

Applicable ☑ Not applicable

There is no lease during the reporting period.

2. Significant Guarantees

Applicable Not applicable

Unit:RMB'0,000

Specific description of the use of composite guarantees: None

3. Entrusted Cash Assets Management

☑ Applicable Not applicable

Unit:RMB'0,000

Details of the Company's activities, as the sole entruster, in commissioning financial institutions to conduct asset management, or investments in high-risk entrusted wealth-management products that have lower safety and poorer liquidit

Applicable Not applicable

4. Other Significant Contracts

Applicable ☑ Not applicable

There is no other significant contract during the reporting period.

XIII. Research, Communications, and Interviews Received by the Company During the Reporting Period

Applicable Not applicable

XIV. Other significant matters

☑ Applicable Not applicable

1. Progress of the Fifth Phase Employee Stock Ownership Plan

The Company held the 16th meeting of the Ninth Board of Directors and the 11th meeting of the Ninth Supervisory Board on December 10, 2025, and the third extraordinary general meeting of 2025 on December 26, 2025, at which it reviewed and approved the employee stock ownership plan-related proposals, including the Draft of the Fifth Phase Employee Stock Ownership Plan of Zhejiang NHU Co., Ltd. and Its Summary, and agreed to implement the Fifth Phase Employee Stock Ownership Plan. The Fifth Phase Employee Stock Ownership Plan was actually subscribed by 602 participants, with actual subscription funds of RMB 259.49 million. The controlling shareholder, NHU Holding Group Co., Ltd., provided a matching loan of RMB 259.49 million, and the total funds of the Fifth Phase Employee Stock Ownership Plan amounted to RMB 518.98 million. As of January 26, 2026, the Company received the Securities Transfer Registration Confirmation issued by the Shenzhen Branch of China Securities Depository and Clearing Corporation Limited. The 21,454,310 shares of the Company held in the Company’s special repurchase securities account were transferred by way of non-trading transfer to the dedicated securities account of “Zhejiang NHU Co., Ltd. – Fifth Phase Employee Stock Ownership Plan” on January 23, 2026, accounting for 0.6981% of the Company’s total share capital, at a transfer price of RMB 24.19 per share. The lock-up period for the underlying shares acquired by the Fifth Phase Employee Stock Ownership Plan is 12 months, calculated from the date on which the Company announced the registration and transfer of the last batch of underlying shares to the name of the Plan, i.e., from January 27, 2026 to January 26, 2027. The duration of the underlying shares acquired under this Employee Stock Ownership Plan is 24 months, calculated from the date on which the Company announced the registration and transfer of the last batch of underlying shares to the name of the Plan. For details, please refer to the relevant announcements published by the Company on the designated information disclosure media and CNINFO (http://www.cninfo.com.cn).

The second holders’ meeting of the Company’s Fifth Phase Employee Stock Ownership Plan was held on June 23, 2026 by means o communication voting. In view of the work adjustment of Ms. Liu Fanglu, one of the management committee members of the Fifth Phase Employee Stock Ownership Plan of Zhejiang NHU Co., Ltd., and in order to better safeguard the overall interests of the employee stock ownership plan, this holders’ meeting elected Ms. Wang Xiaobi as a member of the management committee of the Fifth Phase Employee Stock Ownership Plan. Together with Ms. Xi Chun, Mr. Cao Ying, Mr. Yu Weiguo and Ms. Zeng Shuying elected at the first holders’ meeting, they jointly form the management committee of the Company’s Fifth Phase Employee Stock Ownership Plan, with a term of office equal to the duration of the Company’s Fifth Phase Employee Stock Ownership Plan.. Fo details, please see the Announcement on Adjustment of Members of the Management Committee for the Fifth Phase Employee Stock ‑ ownership Plan disclosed on June 24, 2026 via designated information disclosure media and CNINFO (http://www.cninfo.com.cn).

2. Progress of Share Repurchase

At the 20th meeting of the Ninth Board of Directors held on June 23, 2026, the Company reviewed and approved the Proposal on the Share Repurchase Plan, agreeing to use its own funds to repurchase part of the Company’s publicly issued shares through centralized bidding transactions, for the purpose of implementing equity incentive plans or employee stock ownership plans. The repurchase amount is in the range of RMB 300 million to RMB 600 million, and the repurchase price shall not exceed RMB 45.50 per share The specific number of repurchased shares and its proportion to the total share capital shall be subject to the actual number of shares repurchased upon expiration of the repurchase period. For details, please refer to the Announcement on the Company’s Share Repurchase Plan(2026-027) published by the Company on the designated information disclosure media and CNINFO (http://www.cninfo.com.cn).

As of June 30, 2026, the Company had not yet commenced the share repurchase. For details, please refer to the Announcement on the Progress of Share Repurchase and the First Share Repurchase of the Company (2026-031) published by the Company on the designated information disclosure media and CNINFO (http://www.cninfo.com.cn).

XV. Significant matters of the subsidiaries of the Company

Applicable ☑ Not applicable

Section VI Movements in Share Capital and Shareholders

I. Movements in Share

1. Details

Unit: Share

Reason for movements

Applicable Not applicable

During the reporting period, there is no change in the total share capital of the Company. As the supervisory board had been cancelled in the previous period, the lock-up shares attributable to the resigned supervisors (as part of the senior management lockup shares) changed accordingly, resulting in corresponding changes in restricted shares. Approval on movements in shares Applicable ☑ Not applicable Transfer of shares Applicable ☑ Not applicable Actual progress of share repurchase Applicable Not applicable

The 20th meeting of the Ninth Board of Directors of the Company held on June 23, 2026, deliberated and approved the Proposal on the Share Repurchase Scheme. It was approved that the Company would repurchase part of its publicly held shares using its own funds through centralized bidding transactions, for the purpose of implementing an equity incentive plan or an employee stock ownership plan, with the total repurchase amount ranging from RMB 300 million to RMB 600 million. As of June 30, 2026, the Company had not yet commenced the implementation of the share repurchase.

Implementation progress of shareholding reduction for shares repurchased through centralized bidding

Applicable Not applicable

Effect of changes in shares on financial indicators of preceding year and preceding period such as basic EPS and diluted EPS, net assets per share attributable to shareholders of ordinary shares

Applicable Not applicable

Other contents the Company considered as necessary or securities regulatory institutions required disclosure

Applicable Not applicable

2.Movement in Restricted Stocks

Applicable Not applicable

Unit: Share

Note: The shares listed under the “Others” column of shareholders in the table represent the shares held by the company’s former supervisors.

II. Issuance and listing of securities

Applicable ☑ Not applicable

III. Number of shareholders of the Company and their shareholding conditions

Unit: Share

The participation of shareholders holding more than 5% of shares, the top 10 shareholders and the top 10 shareholders with unlimited shares in circulation in lending of shares in the transfer and financing business

Applicable ☑ Not applicable

Top 10 shareholders and top 10 shareholders with unlimited shares outstanding Change from the previous period due to lending/returning of convertible bond

Applicable Not applicable

Did the top 10 common shareholders and the top 10 unrestricted common shareholders of the company engage in any agreed repurchase transactions during the reporting period

Yes No

The top 10 common shareholders and the top 10 unrestricted common shareholders of the company did not engage in any agreed repurchase transactions during the reporting period.

IV.Changes in shareholdings of directors and senior executives

Applicable Not applicable

The shareholdings of the company’s directors and senior management personnel did not change during the reporting period. For details, please refer to the 2025 Annual Report.

V. Changes in controlling shareholders or actual controllers

If the Company has previously disclosed that its actual controller is planning a change of control but the change has not yet been completed, please describe the progress of the change of control

Applicable ☑ Not applicable

Changes of holding shareholders during the reporting period

Applicable Not applicable

The Company has no changes of holding shareholders during the reporting period.

Changes of actual controller within the reporting period

Applicable Not applicable

The Company has no changes in actual controller within the reporting period.

VI. Details of Preferred Stock

Applicable Not applicable

The Company has no preferred shares during the reporting period.

Section VII Bonds

Applicable Not applicable

I. Enterprise Bond

Applicable Not applicable

During the reporting period, the Company had no outstanding enterprise bonds.

II. Corporate Bond

Applicable Not applicable

During the reporting period, the Company had no outstanding corporate bonds.

III. Non-financial Enterprise Debt Financing Instruments

Applicable Not applicable

1. Basic Information on Non-financial Enterprise Debt Financing Instruments

Unit: RMB Yuan

Overdue Unpaid Bonds

Applicable Not applicable

2. Triggering and Implementation of Issuer’s or Investor’s Option Clauses and Investor Protection Clauses

Applicable ☑ Not applicable

3. Adjustments to Credit Rating Results during the Reporting Period

Applicable Not applicable

4. Implementation and Changes of Guarantees, Debt Repayment Plans and Other Debt Repayment Safeguard Measures during the Reporting Period and Their Impact on Bond Investors’ Rights and Interests

Applicable ☑ Not applicable

IV. Convertible Corporate Bonds

Applicable Not applicable

During the reporting period, the Company had no outstanding convertible corporate bonds.

V. Loss in consolidated scope during the reporting period exceeding 10% of net assets at end of prior year

Applicable Not applicable

VI. As of the end of the reporting period, the company's main accounting data and financial indicators for the past two years

Section VIII Financial Report

I. Audit Reports

Has the semi-annual report been audited

Yes No

The Company’s semi-annual report has not been audited.

II. Financial Statements

The monetary unit of the financial statements is Renminbi (RMB) Yuan.

1. Consolidated balance sheet

Prepared by Zhejiang NHU Co., Ltd.

June 30, 2026 Unit: RMB Yuan

Legal Representative: Hu Baifan Chief Accountant in Charge: Shi Guanqun Chief of Accounting Institution: Wang Xiaobi

2. Balance Sheet of the Parent Company

Unit: RMB Yuan

Legal Representative: Hu Baifan ChiefAccountant in Charge: Shi Guanqun Chief ofAccounting Institution: Wang Xiaobi

3. Consolidated income statement

Unit: RMB Yuan

Legal Representative: Hu Baifan Chief Accountant in Charge: Shi Guanqun Chief of Accounting Institution: Wang Xiaobi The net profit realized by the merged entity before the combination in the current period where a same-control business combination occurred is: RMB 0.00, and the net profit realized in the prior period is: RMB 0.00.

4. Income Statement of the Parent Company

Unit: RMB Yuan

5. Consolidated cash flow statement

Unit: RMB Yuan

Legal Representative: Hu Baifan Chief Accountant in Charge: Shi Guanqun Chief of Accounting Institution: Wang Xiaobi

6. Cash Flow Statement of the Parent Company

Unit: RMB Yuan

7. Consolidated statement of changes in owners’ equity

Amount of the current period

Unit: RMB Yuan

2026 Semi-Annual Report of Zhejiang NHU Co., Ltd.

2026 Semi-Annual Report of Zhejiang NHU Co., Ltd.

2026 Semi-Annual Report of Zhejiang NHU Co., Ltd.

Amount of the previous period Unit: RMB Yuan

2026 Semi-Annual Report of Zhejiang NHU Co., Ltd.

2026 Semi-Annual Report of Zhejiang NHU Co., Ltd.

2026 Semi-Annual Report of Zhejiang NHU Co., Ltd.

8. Statement of Changes in Owners' Equity of the Parent Company

Amount of the current period

Unit: RMB Yuan

2026 Semi-Annual Report of Zhejiang NHU Co., Ltd.

2026 Semi-Annual Report of Zhejiang NHU Co., Ltd.

Amount of the previous period

Unit: RMB Yuan

2026 Semi-Annual Report of Zhejiang NHU Co., Ltd.

III. Basic Information about the Company

Zhejiang NHU Co., Ltd. (hereinafter referred to as the Company or this Company) was established with the approval of the former Securities Committee of the People's Government of Zhejiang Province under document Zhe Zheng Wei [1999] No. 9. It was jointly established by Xinchang Synthetic Chemical Plant (renamed NHU Holding Group Co., Ltd. on November 17, 2009) together with nine individuals: Zhang Pingyi, Yuan Yizhong, Shi Cheng, Hu Baiyan, Shi Guanqun, Wang Xuewen, Shi Sanfu, Cui Xinrong, and Wang Xulin. The Company was registered with the Zhejiang Provincial Administration for Industry and Commerce on April 5, 1999, and is headquartered in Shaoxing City, Zhejiang Province. The Company currently holds a business license with unified social credit code 91330000712560575G, registered capital RMB 3,073,421,680.00, and a total of 3,073,421,680 shares (par value of RMB 1 per share). Among them, outstanding shares A subject to sale restrictions: 36,568,752 shares; outstanding shares A not subject to sale restrictions: 3,036,852,928 shares. The Company's shares were listed and began trading on the Shenzhen Stock Exchange on June 25, 2004.

The Company is in the pharmaceutical manufacturing industry. The main operating activities are research and development, production, and sales of nutritional products, aroma chemicals, and new polymer materials.

These financial statements have been approved for external disclosure by the Company at the 21st meeting of the ninth session of the Board of Directors on August 18, 2026.

IV. Basis for Preparing the Financial Statement

1. Basis for the preparation

The financial statements of the Company are prepared on the basis of a going concern.

2. Going concern

There are no events or circumstances that would give rise to major concerns as to the Company's capability to continue as a going concern for 12 months from the end of the reporting period.

V. Significant Accounting Policies and Accounting Estimates

Notes to specific accounting policies and accounting estimates:

The Company has established specific accounting policies and accounting estimates for transactions or matters such as impairment of financial instruments, inventories, depreciation of fixed assets, construction in progress, intangible assets, and revenue recognition based on the characteristics of its actual production and operations.

1. Statement on compliance with Accounting Standards for Business Enterprises

The financial statements prepared by the Company conform to the requirements of the accounting standards for business enterprises, and truly and completely reflect the relevant information of the Company, such as its financial status, operating results, and cash flow.

2. Accounting period

The fiscal year starts from January 1 to December 31 of the Gregorian calendar.

3. Operating cycle

Except for the real estate industry, the business cycle of the Company is short, and 12 months is taken as the liquidity division criteria for assets and liabilities. The operating cycle in the real estate industry, from property development to realization through sale, generally exceeds 12 months. The specific cycle is determined based on the circumstances of the development project, and the operating cycle is used as the criterion for classifying the liquidity of assets and liabilities.

4. Recording currency

The Company and its domestic subsidiaries use RMB as their currency for accounting purposes. Overseas subsidiaries such as NHU (Hong Kong) Trading Co., Ltd., NHU EUROPE GMBH, NHU Singapore Pte. Ltd., NHU/Chr.Olesen Latin America A/S, NHU LIFE SCIENCE GmbH, CONG TY TNHH NHU VIETNAM, NHU Japan Co., Ltd., NHU North America LLC, and NHU BESLENME GIDA SANAYi VE TiCARET LiMiTED SIRKETI conduct overseas operations and have chosen the currency of the primary economic environment in which they operate as their currency for accounting purposes.

5. Determination method and selection basis of importance standards

 Applicable □ Not applicable

6. The accounting treatment of business combinations involving enterprises under common control and business combinations not involving enterprises under common control

(1) The accounting treatment of business combinations involving enterprises under common control

For a business combination under common control, the acquirer measures the assets and liabilities of the acquiree obtained in the combination at the carrying amounts of the acquiree in the consolidated financial statements of the ultimate controlling party as of the date of the combination. The difference between the carrying amount of the consideration transferred in a business combination and the carrying amount of the net assets acquired in the combination is adjusted to capital reserve; if the capital reserve is insufficient to offset it, retained earnings are adjusted.

Business combination under common control achieved in stages through multiple transactions

The assets and liabilities of the acquiree obtained in the consolidation are measured at their carrying amounts in the ultimate controlling party’s consolidated financial statements on the acquisition date; the difference between the sum of the carrying amount of the investment held before the consolidation and the carrying amount of the consideration newly paid on the acquisition date and the carrying amount of the net assets acquired in the consolidation adjusts capital reserve; if the capital reserve is insufficient to offset the difference, retained earnings are adjusted. The long-term equity investment held by the merging party prior to the acquisition of the control right of the merged party, and the relevant profits and losses, other comprehensive income and other changes in owners’ equity have been confirmed from the later date on which the original equity is acquired and the merging party and the merged party are under common control to the date of merger are offset against the beginning retained earnings or current profits and losses of the comparative statement period respectively.

(2) The accounting treatment of business combinations not involving enterprises under common control

Business combination involving entities not under common control: The cost of combination is the fair value of the assets paid, the liabilities incurred or assumed, and the equity securities issued to acquire the control of the acquiree on the date of acquisition. On the acquisition date, the assets, liabilities, and contingent liabilities acquired from the acquiree are recognized at fair value.

Where the cost of combination is higher than the fair value of the identifiable net assets acquired from the merging party in business combination, such difference shall be recognized as goodwill, subsequently measured at cost less accumulated impairment losses.; where the cost of combination is less than the fair value of the identifiable net assets acquired from the merging party in business combination, such difference shall be charged to the profit or loss for the period after review.

Business combination under non‑common control achieved through multiple transactions in stages

The cost of a business combination is the sum of the consideration transferred on the purchase date and the fair value on the purchase date of the equity interests in the acquiree that were already held before the purchase date. For equity interests in the acquiree that were held before the acquisition date, remeasure those equity interests at their fair value at the acquisition date; the difference between fair value and their carrying amount is recognized in investment income for the current period. If the acquiree's pre‑acquisition equity holdings relate to other comprehensive income or other changes in owners' equity that are reclassified to income on the acquisition date, those amounts are reclassified to income for the current period, except for other comprehensive income arising from remeasurement of the investee's defined benefit plan net liability or net asset and except for other comprehensive income related to non‑trading equity instrument investments that were originally designated at fair value with changes recognized in other comprehensive income.

(3) Treatment of transaction costs in business combinations

Acquisition-related costs including auditing fees, legal services fees, valuation advice fees and other relevant management fees are generally recognized in profit or loss as incurred. The transaction costs of equity securities or debt securities issued as the consideration of combination are included in the initial recognition amount of equity securities or debt securities.

7. Criteria for Judging Control and Method for Preparing the Consolidated Financial Statement

(1) Assessment of control

The scope of consolidation of the consolidated financial statements is determined on the basis of control. Control means that the investor has the power with respect to the Company to obtain variable returns by engaging in relevant activities of the invested entity, and has the ability to influence the amount of its returns by applying its power with respect to the invested entity. Once any changes in relevant facts and circumstances cause the changes in relevant elements concerned in the definition of control, a reassessment shall be made by the Company.

When determining whether to include a structured entity within the scope of consolidation, the Company assesses whether it controls that structured entity based on all facts and circumstances, including evaluating the structured entity’s purpose and design, identifying the types of variable returns, and whether it is exposed to some or all of the variability of those returns through its involvement in the relevant activities.

(2) Preparation method of consolidated financial statements

The Company prepares its consolidated financial statements based on the financial statements of the Company and its subsidiaries, as well as other relevant information prepared by the Company. When preparing the consolidated financial statements, the

Company and its subsidiaries are required to maintain consistent accounting policies and accounting periods, and significant intercompany transactions and balances are eliminated.

During the reporting period, subsidiaries and businesses added as a result of business combinations under common control are treated as having been included in the Company's consolidated scope from the date they came under the common control of the ultimate controlling party; their operating results and cash flows from that date are included, respectively, in the consolidated income statement and the consolidated cash flow statement.

During the reporting period, subsidiaries and businesses added through business combinations not under common control have their revenue, expenses, and profit from the acquisition date to the end of the reporting period included in the consolidated income statement, and their cash flows included in the consolidated cash flow statement.

The portion of a subsidiary's shareholders' equity that is not owned by the Company is presented separately as non-controlling interests under shareholders' equity on the consolidated balance sheet; the portion of the subsidiary's net profit or loss for the period attributable to minority shareholders is presented under the net profit item on the consolidated income statement as the "profit or loss of minority shareholders" item. Where losses of a subsidiary attributable to the minority shareholders exceed the minority shareholders' interest entitled in the owners’ equity of the subsidiary at the beginning of the period, the remaining balance is allocated against the minority shareholders’ interest.

(3) Purchase of minority equity of subsidiaries

If there is a difference between the cost of the newly acquired long-term equity investment as a result of the purchase of minority shares and the share of the subsidiary's net assets continuously calculated from the purchase date or the merger date based on the increased shareholding ratio, and without losing control, if there is a difference between the disposal price of partial disposal of the equity investment in the subsidiary and the corresponding share of the subsidiary's net assets continuously calculated from the acquisition date or the merger date of the long-term equity investment disposal, the capital reserves in the consolidated balance sheet shall be adjusted. Where the capital reserve is insufficient to offset, retained earnings are adjusted.

(4) Treatment of loss of control of a subsidiary

If control over a former subsidiary is lost due to disposal of part of an equity investment or for other reasons, the remaining equity interest shall be remeasured at its fair value on the date control is lost; the difference between the sum of the consideration received for the disposed equity and the fair value of the remaining equity, and the sum of the portion of the former subsidiary’s net assets’ carrying amount attributable based on the original shareholding proportion and measured from the acquisition date, together with goodwill, shall be recognized as investment income in the period in which control is lost.

Other comprehensive income related to equity investments in the former subsidiary shall, upon loss of control, be accounted for on the same basis as the direct disposal of the assets or liabilities related to the former subsidiary. Other changes in owners' equity related to the former subsidiary that arise under the equity method shall be transferred to profit or loss for the current period upon loss of control.

8. Classification of joint arrangement and accounting treatment methods for joint operation

A joint arrangement is an arrangement that is jointly controlled by two or more parties. Joint venture arrangements of the Company are classified into joint operations and joint ventures.

(1) Joint operation

Joint operation means the joint venture arrangement in which the Company has the assets and assumes the liabilities related to such arrangement.

The Company recognizes the following items related to its interest in the joint operation and carries out accounting treatment in accordance with relevant accounting standards for business enterprises:

① The assets separately held by the Company and assets jointly held as recognized by its share;

② The liabilities separately assumed by the Company and liabilities jointly assumed as recognized by its share;

③ Income from selling the share of the Company in the output of the joint operation;

④ Income from joint operation of the sold output as recognized by its share;

⑤ The expenses separately incurred and expenses jointly incurred as recognized by its share;

(2) Joint venture

A joint venture is a joint arrangement where the Company has rights only to the net assets of the arrangement.

The Company accounts for its investment in associates in accordance with the equity method of accounting for long-term investments.

9. Criteria for determining cash and cash equivalents

Cash shown in the cash flow statement refers to the cash on hand and the deposits that can be used for payment at any time. Cash equivalents mean the investments held by the Company that are short-term, highly liquid, easy to convert into known amounts of cash, and have little risk of value change.

10. Conversion of transactions and financial statements denominated in foreign currencies

(1) Foreign currency transactions

The Company translates foreign-currency transactions into the currency in which the accounts are kept using exchange rates determined by the system through a reasonable method that approximate the spot exchange rates on the transaction date.

The monetary items of foreign currency on the balance sheet date shall be converted by adoption of the spot exchange rate on the balance sheet date. The exchange difference arising from the difference between the spot exchange rate on the balance sheet date and that at the time of initial recognition or the previous balance sheet date shall be included into the current profits and losses; The non-monetary items of foreign currency measured at historical cost shall still be converted at the approximate spot exchange rate on the transaction date; The non-monetary items of foreign currency measured at fair value shall be converted at the spot exchange rate of the fair value on the recognition date. The difference between the converted and original amount of recording currency shall be included into the current profits and losses, or other comprehensive income for the current period, depending on the nature of the non-monetary item.

(2) Translation of foreign currency financial statements

On the balance sheet date, when the foreign currency financial statement of overseas subsidiaries is converted, the items of assets and liabilities in the balance sheet shall be converted at the spot exchange rate on the balance sheet date, while the item of shareholders’ equity, excluding the item of "undistributed profit", shall be converted at the spot exchange rate on the date of occurrence.

Items of income and expenses in the income statement are converted at a rate similar to the spot rate on the date of occurrence of the transaction determined in a systematic and reasonable manner

All items in the statement of cash flows are converted using exchange rates determined by a systematic and reasonable method that approximate the spot exchange rates on the dates the cash flows occur. The influence of changes in exchange rate on cash shall be taken as adjustment items, and it shall be separately presented and reflected in the item of "influence of changes in exchange rate on cash and cash equivalents" in the cash flow statement.

The difference arising from financial statement conversion shall be reflected in the item of "other comprehensive income" under the item of “shareholders’ equity” in the balance sheet.

When the Group disposes of, and loses control over, an overseas operation, exchange differences from translation which are presented in “equity” of the balance sheet and related to the overseas operation are, all or based on the disposal proportion, transferred to the profit or loss of the period of disposal.

11. Financial instruments

Financial instruments mean the contracts that form the financial assets of one Party and the financial liabilities or equity instruments of the other Party.

(1) Recognition and derecognition of financial instruments

A financial asset or financial liability shall be recognized when the Company becomes a party to a financial instrument contract.

In case of meeting one of the following conditions, the financial assets shall be derecognized: ① The contractual right of collecting the cash flow of such financial assets is terminated; ② The financial assets have been transferred and comply with the following derecognition conditions for the transfer of financial assets.

If all or partial current obligations of financial liabilities have been cancelled, such financial liabilities or part of such financial liabilities shall be derecognized. If the Company (debtor) signs an agreement with the creditor, so as to replace the existing financial liabilities in the way of undertaking the new financial liabilities, and the contract clauses regarding the new financial liabilities are substantially different from those regarding the existing financial liabilities, the existing financial liabilities shall be derecognized, and meanwhile, the new financial liabilities shall be recognized.

If the financial assets are transacted in a conventional manner, accounting recognition and derecognition shall be conducted on the transaction date.

(2) Classification and measurement of financial assets

Pursuant to the business model of managing financial assets and the contractual cash flow characteristics of financial assets upon initial recognition, the financial assets are classified into three categories as below: Financial assets measured at amortized cost, financial assets measured at fair value with changes included in other comprehensive income, and financial assets measured at fair value with changes included in the current profits and losses.

When financial assets are initially recognized, they shall be measured at their fair values. For the financial assets measured at fair value through profit and loss, the related transaction costs shall be included directly in the current profits and losses. For the financial assets or financial liabilities of other categories, the related transaction costs shall be included in the initially recognized amount. For receivables arising from the sale of products or the provision of labor services, which do not include or consider major financing components, the amount of consideration that the Company is expected to be entitled to be taken as the initial confirmation amount.

1) Financial assets measured at amortized cost

The financial assets which satisfy the following conditions, and are not designated as financial assets at fair value through profit or loss will be classified by the Company as financial assets at amortized cost:

① The Company's business model for managing the financial asset is aimed at collecting the contractual cash flows;

② The contractual terms of the financial assets specify that the cash flow generated on a specific date is only the payment of principal and interest based on the amount of outstanding principal.

After initial recognition, the amortized cost is applied for measurement with the effective interest rate method with respect to these financial assets. The profits and losses, arising from a financial asset which is measured at the amortized cost and is not a part of any hedging relationship shall be included in the current profits and losses when it is terminated from recognition, or is amortized according to the actual interest rate method, or is recognized as impaired.

2) Financial assets measured at fair value with changes recorded in other comprehensive income

The financial assets which satisfy the following conditions, and are not designated as financial assets at fair value through profit or loss will be classified by the Company as the financial assets at fair value through other comprehensive income:

① The Company manages the financial asset under a business model that has both the objective of collecting contractual cash flows and the objective of selling the financial asset;

② The contractual terms of the financial assets specify that the cash flow generated on a specific date is only the payment of principal and interest based on the amount of outstanding principal.

After initial recognition, the financial assets are subsequently measured at fair value. The interest, impairment loss or gain, and exchange gain or loss calculated by the effective interest rate method are included in current profits and losses, while other gains or losses are included in other comprehensive income. Upon the termination of recognition, the accumulated gains or losses previously included in other comprehensive income shall be transferred out of other comprehensive income and included in the current profits and losses.

3) Financial assets measured at fair value through profit and loss

Except for the financial assets at amortized cost, and financial assets at fair value through other comprehensive income, all the remaining financial assets are classified as the financial assets at fair value through profit or loss. At initial recognition, to eliminate or significantly reduce the accounting mismatch, the Company may irrevocably designate part of the financial assets measured at amortized cost, or the financial assets measured at fair value with changes included in other comprehensive income, as those measured at fair value with changes included in the current profits and losses.

After initial recognition, the financial assets are subsequently measured at fair value. The gains or losses generated (including interest and dividend income) shall be included in the current profits and losses, unless such financial assets are part of the hedging relationship.

The business model for managing financial assets refers to how the Company manages financial assets to generate cash flows. The business model determines whether the cash flows of the financial assets managed by the Company are derived from collecting contractual cash flows, from selling financial assets, or from both. The Company determines the business model for managing financial assets based on objective facts and on the specific business objectives for managing financial assets determined by key management personnel.

The Company assesses the contractual cash flow characteristics of financial assets to determine whether, on a specified date, the contractual cash flows of the relevant financial assets are solely payments of principal and interest on the outstanding principal amount. Among them, principal refers to the fair value of the financial asset at initial recognition; interest includes consideration for the time value of money, the credit risk associated with the amount of principal outstanding over a specific period, and other basic lending risks, costs, and profits. In addition, the Company assesses contractual terms that could result in changes to the timing or amount of the contractual cash flows of a financial asset to determine whether they meet the requirements of the contractual cash flow characteristics described above.

Reclassification shall occur only when the Company changes the business model for managing financial assets. In such cases, all affected financial assets shall be reclassified on the first day of the first reporting period after the change in business model; otherwise, financial assets shall not be reclassified after initial recognition.

(3) Classification and measurement of financial liabilities

The financial liabilities of the Company, when initially recognized, are classified as: financial liabilities at fair value through profit or loss and financial liabilities at amortized cost. For the financial liabilities unclassified to be those measured at fair value and changes of which are included into the current profits and losses, the relevant transaction expenses shall be included into the initial recognition amount.

1) Financial liabilities measured at fair value through profit or loss

The financial liabilities measured at fair value with changes recorded in the current profits and losses when initially recognized shall include transaction financial liabilities and financial liabilities designated as those measured at fair value through profit or loss. For such financial liabilities subsequently measured at fair value, gains or losses generated from changes in fair value, and the dividends and interest expenses related to the financial liabilities are included in the current profits and losses.

2) Financial liabilities measured at amortized cost

For other financial liabilities, the subsequent measurement shall be conducted by adoption of the effective interest rate method at the amortized cost, and the gains or losses arising from derecognition or amortization shall be included into the current profits and losses.

3) Distinction between financial liabilities and equity instruments

Financial liabilities are liabilities that meet one or more of the following conditions:

① a contractual obligation to deliver cash or another financial asset to another.

② a contractual obligation to exchange financial assets or financial liabilities with another under conditions that are potentially unfavorable to the Company.

③ a contract that will or may be settled in the Company's own equity instruments, and a non-derivative instrument for which the enterprise will be obliged to deliver a variable number of its own equity instruments.

④ a contract that is a derivative instrument that will or may be settled in the enterprise's own equity instruments, other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the enterprise's own equity instruments.

Equity instruments refer to the contract which can prove that certain enterprise holds the residual equity of the assets after the deduction of all liabilities.

If the Company fails to avoid performing a contractual obligation with cash payment or other financial assets unconditionally, then the contractual obligation complies with the definition of financial liabilities.

Where a financial instrument will or may be settled in the Company's own equity instrument, considerations shall be given to whether the enterprise's own equity instrument as used to settle the financial instrument is a substitute of cash or another financial asset or for the purpose of entitling the holders of the financial instrument to the residual interests in the issuer's assets less all of its liabilities. If the former, this instrument is the financial liabilities of the Company; If the latter, this instrument is the equity instrument of the Company.

(4) Derivative financial instruments and embedded derivative instruments

The derivative financial instruments of the Company shall include forward foreign exchange contracts and foreign exchange option contracts, etc. It shall be initially measured at fair value on the date when the derivative transaction contract is signed and subsequently measured at its fair value. The derivative financial instrument with positive fair value shall be recognized as an asset, and that with negative fair value shall be recognized as a liability. The gains or losses which do not comply with the hedge accounting provisions arising from changes in fair value shall be directly included into the current profits and losses.

For hybrid instruments that contain embedded derivatives, where the host contract is a financial asset, the hybrid instrument as a whole shall be subject to the relevant provisions on the classification of financial assets. If the host contract is not a financial asset, and the hybrid instrument is not measured at fair value with changes recognized in profit or loss, and the embedded derivative is not closely related to the economic characteristics and risks of the host contract, and a standalone instrument with the same terms as the embedded derivative meets the definition of a derivative, the embedded derivative is separated from the hybrid instrument and accounted for as a standalone derivative financial instrument. If it is impossible to conduct separate measurement to the embedded derivative instrument when it is obtained or on the subsequent balance sheet date, the hybrid instrument shall be designated entirely as the financial assets or financial liabilities measured at fair value and changes of which are included into the current profits and losses.

(5) Fair value of financial instruments

The methods for determining the fair value of financial assets and financial liabilities are set out in Note 12 of Section V of the financial report.

(6) Impairment of financial assets

The Company measures impairment and recognizes loss allowances for the following items on the basis of expected credit losses:

① Financial assets measured at amortized cost;

② Receivables and investments in debt instruments measured at fair value with changes recorded in through other comprehensive income;

③ Contracted assets as defined in the Accounting Standards for Business Enterprises No. 14 - Revenue;

④ Lease receivables;

⑤ Financial guarantee contracts (except for those measured at fair value with changes recognized in profit or loss, or those arising from transfers of financial assets that do not meet the conditions for derecognition or from continuing involvement in transferred financial assets).

Measurement of expected credit loss

The “expected credit loss” refers to the weighted average of the credit losses of financial instruments weighted by the risk of default. The “credit loss” means the difference between all contractual cash flows receivable by the Company under a contract and discounted at the original actual interest rate, and all cash flows expected to be received, i.e., the present value of all cash shortages. Taking into the reasonable and well-grounded information including past matters, current situation and prediction of future economic conditions, the Company calculates the possibly weighted amount of the present value of the difference between the cash flows receivable under the contract and the cash flows expected to be received, taking the risk of default as the weight, and recognizes the expected credit loss.

The Company measures the expected credit losses for financial instruments at different stages separately. If the credit risk has not increased significantly since the initial recognition of the financial instruments and has been in the first stage, its loss provision is measured by the Company according to the amount equivalent to the expected credit loss in the next 12 months. In the second stage, if there is a significant increase in credit risk since initial recognition of the financial instruments but there is no credit impairment, its loss provision is measured by the Company according to the amount equivalent to the expected credit loss of the instruments throughout the duration. In the third stage, if there have been credit-impaired financial assets since initial recognition of the financial instruments, its loss provision is measured by the Company according to the amount equivalent to the expected credit loss of the instruments throughout the duration.

For financial instruments with relatively low credit risks on the balance sheet date, the Company assumes that their credit risks have not increased significantly since the initial recognition, and measures the provision for loss based on the expected credit loss within the next 12 months.

Lifetime expected credit losses refer to the expected credit losses resulting from all possible default events that may occur over the entire expected life of a financial instrument. Expected credit losses over the next 12 months refer to anticipated credit losses resulting from potential default events on financial instruments that may occur within 12 months after the balance sheet date (or the expected life of the financial instruments if it is less than 12 months). These losses form part of the expected credit losses over

the entire duration.

When measuring expected credit losses, the Company shall consider the longest contractual period over which it is exposed to credit risk (including consideration of renewal options).

For financial instruments in the first stage and the second stage, as well as those with lower credit risk, the Company calculates interest income based on the gross carrying amount before impairment provisions and the effective interest rate. For financial instruments in the third stage, interest income is calculated based on the amortized cost after impairment provisions have been deducted and the effective interest rate.

For notes receivable, accounts receivable, receivables financing, other receivables, contract assets, and other receivable items, if a customer's credit risk characteristics are significantly different from those of other customers in the portfolio, or if that customer's credit risk characteristics change significantly, the Company individually recognizes an allowance for doubtful accounts for that receivable. Except for receivables for which allowance for doubtful accounts is recognized individually, the Company classifies receivables into portfolios based on credit risk characteristics and calculates the allowance for doubtful accounts on a portfolio basis.

Notes receivable, accounts receivable, and contract assets

For notes receivable, accounts receivable, and contracted assets, regardless of whether there exist significant financing components, the Company always measures the loss reserve according to the amount equivalent to the expected credit loss in the entire duration. When it is impossible to assess the expected credit losses of a single financial asset or contracted asset based on reasonable costs, the Company will, according to the feature of credit risks, classify notes receivable, accounts receivable, and contracted assets into different portfolios, measure the expected credit loss on a portfolio basis, and determine the basis of the portfolios as below:

①Notes receivable

Notes receivable portfolio 1 - bank acceptance bill

Notes receivable portfolio 2 - commercial acceptance bills

②Accounts receivable

Accounts receivable portfolio 1: Aging composition

For notes receivable classified as portfolio, the expected credit loss shall be calculated in light of the current conditions and forecasts of future economic condition, by referring to historical credit loss experience and through default risk exposure and expected credit loss rate throughout the life.

For account receivable portfolio, the expected credit loss shall be calculated in light of the current conditions and forecasts of future economic condition, by referring to historical credit loss experience and preparing the comparison table between aging of the accounts receivable and expected credit loss rate throughout the life. The aging of accounts receivable is calculated from the

date of recognition.

Other receivables

The Company will, according to the feature of credit risks, classify accounts receivable into portfolios, measure the expected credit loss on portfolio basis and determine the portfolios as follows:

① Other receivables portfolio 1: Tax refund receivables

② Other receivables portfolio 2: Land deposit receivables portfolio

③ Other receivables portfolio 3: Guarantee deposits receivable from customs and tax authorities

④ Other receivables portfolio 4: Special capital injection funds group

⑤ Other receivables portfolio 5: Other receivables

For other receivables classified as portfolio, the expected credit loss shall be calculated by the Company using the default risk exposure and the expected credit loss rate in the next 12 months or throughout the life. For other receivables grouped by aging, the aging is calculated from the date of recognition.

Debt investments, and other debt investments

For debt investments and other debt investments, the Company calculates expected credit losses based on the nature of the investments and the various types of counterparties and risk exposures, by applying the default risk exposure and the expected credit loss rates within the next 12 months or over the entire remaining life.

(7) Transfer of financial assets

Transfer of financial assets refers to that the financial assets are transferred or delivered to the other party (transferee) other than the issuer of such financial assets.

If the Company has transferred nearly all of the risks and remunerations related to the ownership of financial assets to the transferee, such financial assets shall be derecognized; if nearly all the risks and remunerations related to the ownership of financial assets are retained, such financial assets shall not be derecognized.

If the Company does not transfer or retain nearly all of the risks and remunerations related to the ownership of financial assets, it shall deal with it according to the following situations respectively: If the Company gives up the control over such financial assets, such financial assets shall be derecognized, and the assets and liabilities generated shall be recognized; If the Company does not give up the control over such financial assets, the relevant financial assets shall be recognized according to the degree of its continuous involvement in the financial assets transferred, and the relevant liabilities shall be recognized accordingly.

(8) Offset of financial assets and financial liabilities

When the Company has the legal right to offset the recognized financial assets and financial liabilities, which is enforceable for the time being, and the Company plans to settle on a netting basis or capitalize financial assets and serve financial liabilities, any amount from netting of financial assets and financial liabilities is presented in the balance sheet. Apart from this, financial assets and financial liabilities shall be presented separately in the balance sheet and shall not offset each other

12. Measurement at fair value

Fair value refers to the price that market participants can receive by selling an asset or need to pay by transferring a liability in the orderly transactions on the measurement date.

The Company measures related assets or liabilities at fair value, assuming that the orderly transaction of selling assets or transferring liabilities is conducted in the main market of related assets or liabilities; If there is no principal market, the Company assumes that the transaction will be conducted in the most favorable market of related assets or liabilities. The main market (or the most favorable market) is the trading market that the Company can enter on the measurement day. The Company adopts the assumptions used by market participants to maximize their economic benefits when pricing the assets or liabilities.

The fair value of financial assets or financial liabilities in an active market (if any) is determined by the Company at the price quoted in the active market. If there is no financial instrument in an active market, its fair value is determined by the Company via valuation technique.

When measuring non-financial assets at fair value, the ability of market participants to apply the assets for the best purpose to generate economic benefits or the ability to sell the assets to other market participants for the best purpose to generate economic benefits shall be considered.

The Company adopts the valuation technology which is applicable in the current situation and supported by sufficient available data and other information, and gives priority to the relevant observable input values. The unobservable input values are used only when the relevant observable input values are unavailable or impracticable.

For assets and liabilities measured or disclosed at fair value in financial statements, the fair value level is determined according to the lowest level input value which is of great significance to fair value measurement as a whole: The first-level input value is the unadjusted quotation of the same assets or liabilities that can be obtained on the measurement date in an active market; The second-level input value is directly or indirectly observable input value of related assets or liabilities except the first-level input value; The third-level input value is the unobservable input value of related assets or liabilities.

On each balance sheet date, the Company reassesses the assets and liabilities recognized in the financial statements that are continuously measured at fair value to determine whether there is a conversion between the fair value measurement levels.

13. Inventories

(1) Classification of inventory

The Company’s inventories are classified as raw material, work in progress, finished goods, goods dispatched, materials entrusted for processing, low-value consumables, packaging materials, development costs, etc.

(2) Determination of cost

The Company's inventories are valued at actual cost on acquisition. The raw material and merchandise inventory are priced according to the weighted average method when it is delivered.

(3) Basis for determination and method of calculation for inventory falling price reserves

On the balance sheet date, inventory is measured at cost or net realizable value (whichever is lower). If the net realizable value is lower than its cost, the provision for inventory depreciation shall be made. The net realizable value is the amount obtained by deducting the estimated incurred cost till completion, estimated selling expenses and the relevant taxes and dues from the estimated selling price of inventory. In determining net realizable value of an inventory, based on obtained proof, the Group considers the purpose of the inventory and the impact of any matters occurring after the balance sheet date. The Company usually provides for inventory write-down on an individual inventory item basis. At the balance sheet date, if the factors that previously caused a write-down of inventory value have ceased to exist, the provision for inventory write-down shall be reversed to the extent of the amount previously recognized.

(4) Inventory system of inventory

The inventory system of the Company adopts a perpetual inventory system.

(5) Amortization of low-value consumables and packaging materials

The Company expenses low-value consumables using the one-time write-off method upon issuance. Packaging materials for turnover are amortized using the one-time write-off method.

14. Long-term equity investments

Long-term equity investments include equity investments in subsidiaries, associates, and joint ventures. Where the Company can exercise significant influence over the investee, the investee is an associate of the Company.

(1) Determination of initial investment cost

For the long-term equity investment formed by business merger: For the long-term equity investment obtained through the business combination under the common control, the share of book value in the consolidated financial statement of the owner’s equity which the final control party has obtained from the merged party on the merger date shall be taken as the investment cost; For the long-term equity investment obtained through the business combination under the non-common control, the merger cost shall be taken as the investment cost of long-term equity investment.

For the long-term equity investment obtained by other means: For the long-term equity investment obtained through cash payment, the purchase price actually paid shall be taken as the initial investment cost; For the long-term equity investment obtained through issuance of equity securities, the fair value of the equity securities issued shall be taken as the initial investment cost.

(2) Method of subsequent measurement and recognition of profit and loss

The Company’s investment in subsidiaries shall be subject to accounting by using the cost method unless the investment meets the criteria for held for sale, and the investment in associates and joint ventures shall be subject to accounting by using the equity method.

For long-term equity investments measured according to the cost method, except for actual price paid when the investment is obtained or the cash dividends or profits that are included in the consideration that has been declared but not yet paid, the cash dividend or profit declared by the invested entity will be recognized as the investment income, and included into the current profits and losses.

When the equity method is adopted for calculation of the long-term equity investment, if the initial investment cost of long-term equity investment is more than the share of fair value of the identifiable net assets of the invested unit that shall be enjoyed at the time of investment, the investment cost of long-term equity investment shall not be adjusted; If the initial investment cost is less than the share of fair value of the identifiable net assets of the invested unit that shall be enjoyed at the time of investment, the book value of long-term equity investment shall be adjusted, and the difference shall be included into the current profits and losses. When the equity method is adopted, according to the share of the net profit and loss and other comprehensive income realized by the invested entity, the investment income and other comprehensive income shall be recognized respectively, and adjusts the book value of the long-term equity investment; The book value of the long-term equity investment is reduced correspondingly in accordance with the portion of the profits or cash dividends declared and distributed by the invested entity; For changes in owner’s equity other than net profit and loss, other comprehensive income and profit distribution of the invested entity, the book value of long-term equity investment is adjusted and included in capital reserves (other capital reserves). When confirming the share of net profit and loss of the invested entity, based on the fair value of various identifiable assets of the invested entity when the investment is made, the net profit of the invested entity is recognized after adjustment in accordance with the accounting policies and accounting periods of the Company.

In the case of being able to exert a significant influence on the invested unit or implement joint control (but not constitute control) due to investment increase and other reasons, the sum of the fair value of the equity originally held and the new investment cost on the date of conversion shall be taken as the initial investment cost calculated according to the equity method. For equity investments that were originally classified as non‑trading equity instruments measured at fair value with changes recognized in other comprehensive income, the cumulative fair value changes previously recognized in other comprehensive income relating to them are transferred to retained earnings when they are subsequently accounted for under the equity method.

If, due to the disposal of part of an equity investment or for other reasons, joint control of or significant influence over an investee is lost, the remaining equity interest after the disposal shall be accounted for, from the date on which joint control or significant influence is lost, in accordance with Accounting Standards for Business Enterprises No. 22 - Recognition and Measurement of Financial Instruments, and the difference between its fair value and carrying amount shall be recognized in profit or loss for the current period. Other comprehensive income recognized by the original equity investment due to the adoption of the equity method is calculated on the same basis as the invested entity's direct disposal of related assets or liabilities when the equity method is terminated. Other changes in equity related to original equity investments are transferred to current profit or loss.

If the Company loses control over an investee due to the disposal of part of its equity investment and the remaining equity can be used upon disposal to exercise joint control or significant influence over the investee, the equity method shall be used for accounting instead and the remaining equity shall be deemed to be accounted and adjusted by using the equity method when it is acquired. If the remaining equity upon disposal cannot be used to exercise joint control or significant influence over the investee, the accounting treatment shall be carried out in accordance with the provisions of Accounting Standards for Business Enterprises No. 22 - Recognition and Measurement of Financial Instruments, and the difference between the fair value and the book value when the control is deprived of shall be included in the current profits and losses.

If, due to additional capital injections by other investors, the Company’s shareholding percentage decreases and the Company thereby loses control but can still exercise joint control over or exert significant influence on the investee, the Company shall, based on the new shareholding percentage, recognize the portion of the investee’s net asset increase resulting from the capital increase that the Company is entitled to, and shall include in current profit or loss the difference between that amount and the original carrying amount of the long‑term equity investment corresponding to the portion of the shareholding percentage to be transferred; thereafter, the Company shall, under the new shareholding percentage, make adjustments by treating the investment as having been accounted for using the equity method from the date of acquisition.

For the unrealized profits and losses from the internal transaction incurred between the Company and the associates or joint ventures, the part that belongs to the Company shall be calculated according to the shareholding proportion, and the investment profits and losses shall be recognized on the basis of offset. However, if the unrealized loss from the internal transaction between the Company and the invested unit belongs to the impairment loss of the assets transferred, the offset shall not be conducted.

(3) Criteria for judging joint control and significant influence

Joint control is the contractually agreed sharing of control of an arrangement, and exists only when requiring the unanimous consent of the parties sharing control before making decisions about the relevant activities of the arrangement. When determining whether joint control exists, first determine whether the arrangement is collectively controlled by all the parties or by a combination of the parties, and then determine whether decisions about the arrangement's relevant activities require the unanimous consent of those parties that collectively control the arrangement. If all parties, or a group of parties, must act in concert to determine the relevant activities of an arrangement, those parties are considered to collectively control the arrangement; if there exists a combination of two or more parties that can collectively control an arrangement, joint control does not exist. When assessing whether there is joint control, protective rights are not taken into account.

Significant influence refers to the investor’s right to participate in an invested entity's financial and business decision-making, but not to control or jointly control the formulation of these policies with other parties. In determining whether the investor can exert significant influence over the investee, the investor considers the voting rights held directly or indirectly in the investee, as well as the impact of exercisable potential voting rights held by the investor and other parties, assuming their conversion into equity interests in the investee. This includes the effects of warrants, share options, and convertible corporate bonds issued by the investee.

When the Company directly or indirectly via subsidiaries owns more than 20% (20% inclusive) but less than 50% of the voting shares of the invested unit, it will be generally regarded as having a significant influence on the invested unit, except there is a clear evidence proving that the Company cannot participate in the production and business decision-making thereby not having a significant influence on the invested unit under this situation; Generally, when the Company owns less than 20% (exclusive) of the voting shares of the invested unit, it will be regarded as having no significant influence on the invested unit, except there is a clear evidence proving that the Company can participate in production and business decision-making thereby having a significant influence on the invested unit under this situation.

(4) Impairment test method and impairment provision accrual method

For investments in subsidiaries, associates and joint ventures, the method of providing for asset impairment is set out in Note 20 of Section V of the financial report.

15. Fixed assets

(1) Recognition criteria

Fixed assets of the Company mean the tangible assets held for the production of goods, provision of labor services, leasing or management, and with a useful life exceeding one fiscal year.

Only when the economic benefits related to such fixed assets are likely to flow into the enterprise, and the cost of such fixed assets can be reliably measured, the fixed assets can be recognized.

The fixed assets of the Company shall be initially measured at the actual cost at the time of obtaining.

Subsequent expenditures related to fixed assets shall be included in the cost of the fixed assets when it is probable that the related economic benefits will flow to the Company and their costs can be measured reliably; routine repair expenses of fixed assets that do not meet the capitalization criteria for subsequent expenditures shall, when incurred, be charged to current profit or loss or to the cost of the related asset based on the beneficiary. For the replaced parts, derecognize their carrying amount.

(2) Depreciation method

16. Projects under construction

The cost of construction in progress of the Company is determined at the actual construction expense, including various necessary construction expenditures incurred during the period of construction, capitalizable borrowing costs and other related expenses before the project reaches the predetermined conditions for use.

Construction in progress shall be transferred to fixed assets when it has reached the working condition for its intended use. The method for making impairment provisions for construction in progress is set out in Note 20 of Section V of the financial report.

17. Borrowing costs

(1) Criteria for recognition of capitalized borrowing costs

If the borrowing costs incurred by the Company can be directly attributed to the acquisition or production of assets that meet the capitalization requirements, they are capitalized and included in the relevant asset costs; Other borrowing costs, when incurred, are recognized as expenses according to the amount incurred, and included in the current profits and losses. Capitalization of borrowing costs begins when the following three conditions are fully satisfied:

① expenditures for the assets (including cash paid, transferred non-currency assets or expenditure for holding debt liability for the acquisition, construction or production of assets qualified for capitalization) have been incurred;

② borrowing costs have been incurred;

③ acquisition, construction or production that are necessary to enable the asset reach its intended usable or saleable condition have commenced.

(2) Capitalization period of borrowing costs

When the assets eligible for capitalization for acquisition and construction or production of the Company reach the estimated serviceable or marketable condition, the capitalization of borrowing costs shall be stopped. The borrowing costs incurred after the assets eligible for capitalization reach the estimated serviceable or marketable condition shall be recognized as expense according to the incurred amount at the time of occurrence and included into the current profits and losses.

If the assets eligible for capitalization are interrupted abnormally in the acquisition and construction or production process, and the interruption time lasts for more than 3 months continuously, the capitalization of borrowing costs shall be suspended; The capitalization of borrowing costs during the normal interruption period shall be continued.

(3) Calculation of capitalization rate and amount of borrowing costs

The amount to be capitalized is the actual interest expense incurred on the designated borrowings less any bank interest earned from unused funds of the designated borrowings or any investment income on the temporary investment of those funds. The amount to be capitalized on the general borrowings is calculated by applying a capitalization rate to the weighted average of the excess amounts of cumulative expenditures on the asset over and above the amounts of the designated borrowings. Capitalization rate is calculated and determined based on the weighted average interest rate of general loans.

During the period of capitalization, exchange differences arising from special borrowings in a foreign currency shall be fully capitalized, and exchange differences arising from general borrowings in a foreign currency shall be recognized in profits and losses.

18. Intangible assets

(1) Measurement method, useful lives and impairment test

The intangible assets of the Company shall include land use right, software, patent right, non-patented technologies, etc.

The intangible assets shall be initially measured at cost and its service life shall be analyzed and judged at the time of obtaining the intangible assets. If the useful life is limited, from the date when the intangible assets are available, the amortization method which can reflect the expected realization method of the economic benefits related to such assets shall be adopted for amortization within the expected useful life; If the expected realization method is unable to be reliably recognized, the intangible assets shall be amortized according to the straight-line method; The intangible assets with uncertain service life shall not be amortized.

The amortization method of intangible assets with limited service life is as follows:

The Company shall review the useful life and amortization method of intangible assets with the limited useful life at the end of each year. If the result is different from the previous estimate, the original estimate shall be adjusted, and it shall be disposed according to the changes in accounting estimates.

If it is expected that certain intangible asset is unable to bring the future economic benefits to the enterprise on the balance sheet date, the book value of such intangible asset shall be completely transferred into the current profits and losses.

The method used to provide for impairment of intangible assets is set out in Note 20 of Section V of the financial report.

(2) Scope of R&D expenditures and related accounting treatment

The R&D expenses of the Company are the expenses directly related to its R&D activities, including: salaries and wages of R&D personnel; directly incurred expenses; depreciation expenses and long-term deferred expenses; amortization of intangible assets; design expenses; equipment commissioning and testing expenses; commissioned R&D expenses; and other expenses. The salaries of R&D personnel are allocated to R&D expenses based on project hours.

The expenses for internal research and development projects of the Company are divided into expenses in the research phase and expenses in the development phase.

Expenses in the research phase are recorded into the profits and losses for the current period when they occur.

Expenditures during the development phase can only be capitalized when they satisfy the following conditions simultaneously: It is technically feasible to finish intangible assets for use or sale; there is an intention to complete and use or sell the intangible assets; the methods for the intangible assets to generate economic benefits, including those which can prove that there is a market for the products manufactured by applying the intangible assets or that there is a market for the intangible assets themselves and that the intangible assets will be used internally, can prove their usefulness; there are sufficient technologies, financial resources and other resources that can support the development of the intangible assets, and the enterprise is able to use or sell the intangible assets; and the development expenditures of the intangible assets can be reliably measured. Development expenditures that do not meet the above conditions are recognized in profit or loss for the current period.

The research and development projects of the Company will enter the development stage after the above conditions are met, the technical and economic feasibility studies are completed, and the project is approved.

Capitalized development-stage expenditures are presented on the balance sheet as development expenditures and are transferred to

intangible assets on the date the project reaches its intended use.

19. Research and development expenses

The R&D expenses of the Company are the expenses directly related to its R&D activities, including: salaries and wages of R&D personnel; directly incurred expenses; depreciation expenses and long-term deferred expenses; amortization of intangible assets; design expenses; equipment commissioning and testing expenses; commissioned R&D expenses; and other expenses. The salaries of R&D personnel are allocated to R&D expenses based on project hours.

The expenses for internal research and development projects of the Company are divided into expenses in the research phase and expenses in the development phase.

Expenses in the research phase are recorded into the profits and losses for the current period when they occur.

Expenditures during the development phase can only be capitalized when they satisfy the following conditions simultaneously: It is technically feasible to finish intangible assets for use or sale; there is an intention to complete and use or sell the intangible assets; the methods for the intangible assets to generate economic benefits, including those which can prove that there is a market for the products manufactured by applying the intangible assets or that there is a market for the intangible assets themselves and that the intangible assets will be used internally, can prove their usefulness; there are sufficient technologies, financial resources and other resources that can support the development of the intangible assets, and the enterprise is able to use or sell the intangible assets; and the development expenditures of the intangible assets can be reliably measured. Development expenditures that do not meet the above conditions are recognized in profit or loss for the current period.

The research and development projects of the Company will enter the development stage after the above conditions are met, the technical and economic feasibility studies are completed, and the project is approved.

Capitalized development-stage expenditures are presented on the balance sheet as development expenditures and are transferred to intangible assets on the date the project reaches its intended use.

20. Partial impairment of long-term assets

The impairment of assets such as long-term equity investments in subsidiaries, associates and joint ventures, investment properties subsequently measured using the cost model, fixed assets, construction in progress, right-of-use assets, intangible assets, goodwill, etc. (excluding inventories, deferred tax assets and financial assets) shall be determined as follows:

To judge whether there is a sign of possible impairment in the assets on the balance sheet date, if there is a sign of impairment, the Company shall estimate its recoverable amount to conduct impairment test. An impairment test will be conducted every year for intangible assets whose goodwill and service life are uncertain due to a business combination, and intangible assets not yet available for their intended use, regardless of whether there are signs of impairment.

The recoverable amount is determined based on the higher of the net value of the fair value less cost of disposal and the present value of the estimated future cash flow of assets. The Company shall estimate its recoverable amount based on a single asset; for the recoverable amount of a single asset which is difficult to estimate, the recoverable amount of the assets group shall be recognized on the basis of the assets group to which such asset attributes. The identification of an asset group is based on whether the main cash inflows generated by the asset group are independent of the cash inflows of other assets or asset groups.

When the recoverable amount of assets or assets group is less than its book value, the Company shall write down its book value to the recoverable amount, with the written-down amount included into the current profits and losses, and withdraw the corresponding assets impairment provision simultaneously.

For the impairment test to goodwill, the Company shall, as of the purchasing day, allocate on a reasonable basis the book value of the goodwill formed by merger of enterprises to the relevant asset groups, or if there is a difficulty in allocation, to allocate it to the sets of asset groups. Relevant asset groups or the sets of asset groups mean those can benefit from the synergy of business combination and are not larger than the reportable segment determined by the Company.

When carrying out impairment testing, if an asset group or a combination of asset groups related to goodwill shows indications of impairment, first perform impairment testing on the asset group or combination of asset groups that do not include goodwill, calculate the recoverable amount, and recognize the corresponding impairment loss. Then an impairment test is performed on the asset group or combination of asset groups that includes goodwill, comparing its carrying amount with its recoverable amount. If the recoverable amount is lower than the carrying amount, an impairment loss on goodwill is recognized. The assets impairment loss shall not be reversed in the following accounting periods once recognized.

21. Long-term deferred expenses

The long-term deferred expenses incurred by the Company are measured at actual cost and amortized on a straight-line basis over the estimated benefit period. For long-term deferred expense items that cannot benefit future accounting periods, their amortized value shall be fully charged to profit or loss for the current period.

22. Employee compensation

(1) Accounting treatment method of short-term compensation

During the accounting period when the employees provide services, the Company shall recognize the actual employee wage, bonus and housing accumulation fund, as well as such social insurance premium as medical insurance premium, industrial injury insurance premium and maternity insurance premium paid for the employee according to the specified benchmark and proportion, as liabilities and include them into the current profits and losses or relevant assets cost.

(2) Accounting treatment of post-employment benefits

The welfare after demission plans shall include defined contribution plans and defined benefit plans. Wherein, defined contribution plans refer to that the enterprise shall not undertake any further payment obligations on the welfare after demission plans after depositing a fixed expense to the independent fund; Defined benefit plans refer to the welfare after demission plans except the defined contribution plans.

Defined contribution plans shall include basic endowment insurance, unemployment insurance, etc.

During the accounting period when the employees provide services, the amount to be deposited according to the defined contribution plans is recognized as a liability and included in the current profits and losses or related asset costs.

For the defined benefit plans, the actuarial evaluation shall be conducted by the independent actuary on the annual balance sheet date, and the cost to provide welfare by the expected accumulated welfare unit method shall be recognized. The employee compensation costs arising from the Company's defined benefit plans include the following components:

① Service cost, including current service cost, previous service cost and settlement gains or losses. Wherein, current service cost refers to the increase amount of the present value of the obligations in the defined benefit plans due to employee services during the current period; Previous service cost refers to the increase or decrease of the present value of the obligations in the defined benefit plans related to the employee services during the previous period due to the changes in the defined benefit plans.

② The net interest of the net liability or net asset in the defined benefit plans shall include the interest income of the planed assets, the interest expenses of the obligations in the defined benefit plans and the interest affected by the upper limit of assets.

③ Changes in net liability or net asset from re-measurement of defined benefit plans.

Unless other accounting standards require or permit employee benefit costs to be included in the cost of assets, the Company will recognize the above items ① and ② in profit or loss for the current period; item ③ will be recognized in other comprehensive income and will not be reclassified to profit or loss in subsequent accounting periods, and upon termination of the originally established defined benefit plan, the portions previously recognized in other comprehensive income will be fully transferred to retained earnings within equity.

(3) Accounting treatment of dismissal welfare

If the dismissal welfare is provided by the Company to employees, the employee compensation liabilities arising from the dismissal welfare shall be determined at the earliest of the following two, and included in the current profits and losses: When the Company cannot unilaterally withdraw the dismissal welfare provided due to the termination of labor relations plan or layoff proposal; When the Company determines the costs or expenses associated with the restructuring involving the payment of dismissal welfare.

For the employee’s internal retirement plan, the economic compensation before the official retirement date belongs to the dismissal welfare, and the intended payment of the wage and social insurance premium of the internal retirement employees, during the period when the employees stop providing services until the official retirement date, shall be included into the current profits and losses at one time.The economic compensation (such as normal pension) after the official retirement date shall be disposed according to the welfare after demission.

(4) Accounting treatment methods of other long-term employee benefits

Other long-term employee welfare provided by the Company for employees which complies with the conditions of defined contribution plans shall be disposed according to the above relevant provisions of defined contribution plans. For those complying with the defined benefit plans, they shall be disposed according to the above relevant provisions of defined benefit plans, but “Changes in net liability or net asset from re-measurement of defined benefit plans” of the relevant employee remuneration cost shall be included into the current profits and losses or relevant assets cost.

23. Provisions

The Company shall recognize the obligations related to contingencies as provisions, when all of the following conditions are satisfied:

(1) The obligation is a present obligation of the Company;

(2) It is probable that an outflow of economic benefits will be required to settle the obligation;

(3) The amount of the obligation can be measured reliably.

Provisions are initially measured at the best estimate of the expenditure required to settle the present obligation, taking into account factors such as risks, uncertainties and the time value of money related to contingent matters. Where the effect of the time value of money is material, the best estimate shall be determined by discounting the related future cash outflow. The Company reviews the carrying amounts of provisions at the balance sheet date and adjusts the carrying amounts to reflect the best curren estimates.

If all or part of the expenses required to pay off the provisions are expected to be compensated by a third party or other parties, the amount of compensation is recognized separately as an asset when it is basically recognized that it can be received. The amount recognized for the reimbursement shall not exceed the book value of the estimated liability.

24. Share-based payments and equity instruments

(1) Type of share-based payment

Share-based payment is classified into cash-settled share-based payment and equity-based share-based payment.

(2) Determination method of the fair value of equity instruments

The fair value of equity instruments, such as options, granted by the Company in an active market is determined by the price quoted in the active market. The fair value of granted equity instruments such as options without active market is determined by option pricing model. The selected option pricing model considers the following factors: A. The exercise price of options; B. The validity period of the option; C. The current price of the underlying shares; D. Estimated volatility of share price; E. Expected dividend of shares; F. Risk-free interest rate within the validity period of the option.

(3) Basis for determining the best estimation of feasible equity instruments

On each balance sheet date during the waiting period, the Company makes the best estimate based on the latest available follow-up information such as changes in the number of employees with feasible rights, and revises the estimated number of equity instruments with feasible rights. On the vesting date, the final estimated number of vesting rights and interests instruments shall be consistent with the actual number of vesting rights.

(4) Accounting treatment related to implementation, modification and termination of share-based payment plan

Equity-settled share-based payment is measured at the fair value of equity instruments granted to employees. If the right is exercised immediately after the grant, the relevant costs or expenses shall be included in the fair value of equity instruments on the grant date, and the capital reserve shall be increased accordingly. I If the rights can be exercised only after the services within the waiting period are completed or the specified performance conditions are met, on each balance sheet date within the waiting period, based on the best estimate of the number of equity instruments available, the services obtained in the current period shall be included in the relevant costs or expenses and capital reserve according to the fair value on the grant date of equity instruments. After the vesting date, the recognized related costs or expenses and the total owner's equity will not be adjusted.

Cash-settled share-based payment shall be measured according to the fair value of liabilities calculated and determined on the basis of shares or other equity instruments undertaken by the Company. If the right is exercised immediately after the grant, the fair value of the liabilities assumed by the Company shall be included in the relevant costs or expenses on the grant date, and the liabilities shall be increased accordingly. For cash-settled share-based payment that is feasible only after the service within the waiting period is completed or the specified performance conditions are met, on each balance sheet date within the waiting period, based on the best estimation of the feasibility and according to the fair value of the liabilities assumed by the Company, the services obtained in the current period are included in the costs or expenses and corresponding liabilities. On each balance sheet date and settlement date before the settlement of related liabilities, the fair value of liabilities shall be re-measured, and the changes shall be included in the current profits and losses.

When the Company modifies the share-based payment plan, if the fair value of the granted equity instruments is increased by modification, the increase of the services obtained shall be recognized according to the increase of the fair value of the equity instruments; If the number of granted equity instruments is increased by modification, the fair value of the increased equity instruments will be recognized as the increase in services obtained accordingly. The increase of fair value of equity instruments refers to the difference between the fair values of equity instruments before and after modification on the modification date. If the total fair value of share-based payment is reduced by modification or the terms and conditions of the share-based payment plan are modified in other ways that are unfavorable to employees, the accounting treatment of the obtained services will continue, as if with no changes unless the Company cancels some or all of the granted equity instruments.

During the waiting period, if the granted equity instruments are cancelled (except those cancelled due to non-market conditions that do not meet the feasible rights conditions), the Company will treat the cancellation of the granted equity instruments as an accelerated exercise, and immediately record the amount to be recognized in the remaining waiting period into the current profits and losses, and recognize the capital reserve at the same time. If the employee or other party can choose to meet the non-feasible right condition but fails to meet it during the waiting period, the Company will treat it as a cancellation for granting equity instruments.

25. Revenue

Disclose the accounting policies adopted for revenue recognition and measurement according to the type of business

(1) General principles

The Company recognizes the revenue when it performs its obligations under the contract, that is, when the customer obtains the control right of related goods or services.

If the contract contains two or more performance obligations, the Company, at the beginning of the contract, allocates the transaction price to each individual performance obligation according to the relative proportion of the individual selling price of the goods or services committed by each individual performance obligation. The Company measures the income according to the transaction price allocated to each individual performance obligation.

If one of the following conditions is met, it belongs to the performance obligation within a certain period of time; otherwise, it belongs to the performance obligation at a certain time point:

① The customer acquires and consumes the economic benefits arising from the Company's performance while the Company performs the contract.

② Customers can control the goods under construction during the performance of the Company.

③ The commodities produced by the Company during the performance possess have irreplaceable usage, and the Company has the right to collect payment for the performance part accumulated so far during the entire contract period.

For the performance obligations performed within a certain period of time, the Company recognizes the revenue according to the performance schedule within that period of time,. If the performance schedule cannot be reasonably determined and the costs already incurred by the Company are expected to be compensated, the Company recognizes the revenue according to the amount of the incurred costs until the performance schedule can be reasonably determined.

For the performance obligations performed at a certain point of time, the Company will recognize the revenue when the customer acquires the right of control over relevant commodities or services. While determining whether the customer has acquired the control over the commodities or services, the Company will take the following into consideration:

① The Company has the current collection right for the such commodities or services, that is, the customer has the curren payment obligation for such commodities.

② The Company has transferred the legal title of such commodities to the customer, that is, the customer already has the legal title of such commodities.

③ The Company has transferred the physical commodities to the customer, that is, the customer has possessed the physical commodities.

④ The Company has transferred the major risks and rewards of the commodity title to the customer, that is, the customer has acquired the major risks and rewards of the commodity title.

⑤ The customer has accepted the goods or services.

⑥ Other signals that the customer has acquired control over commodities.

(2) Specific methods

Sales revenue from commodities

The Company primarily sells nutrition products, aroma chemicals products, and new materials, which are performance obligations satisfied at a point in time. Domestic sales revenue is recognized when the Company delivers the product to the contractually agreed delivery location, the customer confirms acceptance, payment has been received or the right to receive payment has been obtained, and it is probable that related economic benefits will flow to the Company. For export sales settled on an FOB or CIF basis, revenue is recognized when the Company has declared the products to customs in accordance with the contract, obtained the bill of lading, and has received payment or obtained the right to receive payment, provided that it is probable that the related economic benefits will flow in; for export sales settled on a DDP basis, revenue is recognized when the Company has delivered the goods to the designated destination in the importing country and the customer has confirmed acceptance, and payment has been received or the right to receive payment has been obtained, provided that it is probable that the related economic benefits will flow in.

Different operating modes in the same kind of business lead to different revenue recognition methods and measurement methods

None

26. Contract costs

Contract costs include incremental costs incurred to obtain the contract and costs of contract performance.

Incremental cost incurred to obtain the contract refers to the cost that will not be incurred if the Company does not obtain the contract (such as sales commission, etc.). If such costs are expected to be recoverable, the Company recognizes them as costs to obtain a contract and records them as an asset. The Company recognizes other costs incurred in obtaining a contract in profit or loss when incurred, except for incremental costs that are expected to be recovered.

Costs incurred to fulfill a contract that do not fall within the scope of other enterprise accounting standards such as inventory, and simultaneously meet the following conditions, will be recognized by the company as a contract fulfillment cost and recognized as an asset:

① The cost is directly related to a current or expected contract, including direct labor, direct materials, manufacturing costs (or similar costs), costs clearly borne by customers, and other costs only incurred due to the contract;

② The costs enrich the Company's resources for future contract performance;

③ The cost is expected to be recovered.

Assets recognized as costs of obtaining a contract and assets recognized as costs of fulfilling a contract (hereinafter referred to as "assets related to contract costs") are amortized on the same basis as the recognition of revenue from the goods or services related to the asset and are charged to profit or loss for the period; if the amortization period does not exceed one year, they are expensed as incurred.

In case the book value of assets related to contract costs is higher than the difference between the two items below, the Company will accrue the impairment provision for the extra part, and recognize that part as an impairment loss:

① Estimated residual consideration to be obtained by the Company from the transfer of commodities or services related to the assets;

② The costs expected to be incurred for the transfer of the relevant goods or services.

27. Government subsidies

The government subsidies shall be recognized when the conditions attached thereto are satisfied and the subsidies can be received. The governmental subsidy of monetary assets shall be measured according to the amount received or to be received. The governmental subsidy of non-monetary assets shall be measured at the fair value; If the fair value cannot be reliably obtained, it shall be measured according to the nominal amount of RMB 1.

Governmental subsidy related to assets refers to the governmental subsidy obtained by the Company and used for acquisition and construction, or forming long-term assets by other means; otherwise, it shall be taken as the governmental subsidy related to income.

If government documents do not specify the object of subsidy, and long-term assets can be formed, the part of government subsidy corresponding to the value of assets shall be regarded as the government subsidy related to assets, and the rest as the government subsidy related to income. If it is difficult to distinguish them, the whole government subsidy shall be regarded as the government subsidy related to income.

If asset-related government subsidies are recognized as a deferred income, they shall be included in the profits and losses in stages according to a reasonable and systematic method within the use period of the relevant assets. Governmental subsidy related to income, which is used to compensate the relevant cost or loss already incurred, shall be included into the current profits and losses; Those used for compensation of the relevant cost or loss in the subsequent periods shall be included into the deferred income, and shall be included into the current profits and losses during the recognition period of the relevant cost or loss. The governmental subsidy measured at the nominal amount shall be directly included in the current profits and losses. The Company shall adopt the same method to dispose the same or similar governmental subsidy business.

Government subsidies related to daily activities shall be included in other income based on the economic substance of the transactions. Government subsidies unrelated to the daily activities are included in non-operating revenue.

When a recognized government grant must be returned: if at initial recognition it reduced the carrying amount of the related asset, adjust the asset's carrying amount; if there is a balance of related deferred income, offset that deferred income balance and recognize the excess in profit or loss; in other cases, recognize the refund directly in profit or loss.

For policy-based preferential loan interest subsidies received, when the finance department disburses the subsidy funds to the lending bank, the actual loan amount received will be recorded as the loan value. Borrowing costs will be calculated based on the loan principal and the applicable policy-based preferential interest rate. If the finance department directly disburses the interest subsidy to the Company, the interest subsidy shall be offset against borrowing costs.

28. Deferred income tax assets / deferred income tax liabilities

Income tax comprises current income tax and deferred income tax. Except for deferred tax arising from adjustments to goodwill resulting from a business combination, or deferred tax related to transactions or events recognized directly in owner's equity, all other deferred tax is recognized as income tax expense in profit or loss.

The Company recognizes deferred taxes using the balance sheet liability method based on temporary differences between the carrying amounts of assets and liabilities at the balance sheet date and their taxable bases

All taxable temporary differences shall be recognized as deferred income tax liabilities, except for the taxable temporary differences that arise from the following transactions:

(1) The initial recognition of goodwill, or the initial recognition of assets or liabilities arising from transactions that have the following characteristics: the transaction is not a business combination, and at the time of the transaction neither accounting profit nor taxable profit is affected (except for individual transactions in which the initial recognition of the assets and liabilities gives rise to equivalent taxable temporary differences and deductible temporary differences);

(2) For taxable temporary differences associated with investments in subsidiaries, associates, and joint ventures, the Company is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

For deductible temporary differences, and deductible losses and tax credits that can be carried forward to later years, the Company recognizes the resulting deferred tax assets to the extent that it is probable that taxable profits will be available in the future, unless those deductible temporary differences arise in the following transactions:

(1) The transaction is not a business combination, and at the time of the transaction neither accounting profit nor taxable profit is affected (except for individual transactions in which the initial recognition of the assets and liabilities gives rise to equivalent taxable temporary differences and deductible temporary differences);

(2) The deferred income tax assets shall be recognized if the deductible temporary differences associated with investments in subsidiaries, associates, and joint ventures simultaneously meet the following conditions: It is probable that the temporary difference will reverse in the foreseeable future and that taxable profits will be available in the future against which the temporary difference can be utilized.

On the balance sheet date, the Company measures deferred tax assets and deferred tax liabilities at the tax rates that are expected to apply to the periods when the asset is expected to be recovered or the liability is expected to be settled, and reflects on the balance sheet date the tax effects of the expected manner of recovery of the asset or settlement of the liability.

On the balance sheet date, the Company will review the carrying amount of the deferred income tax assets. If no sufficient taxable income is likely to be obtained to offset the benefits of deferred income tax assets in the future, the carrying amount of deferred income tax assets shall be written down. The amount written down shall be reversed when it is probable that sufficient taxable profit will be available.

On the balance sheet date, the deferred income tax assets and the deferred income tax liabilities will be presented by the ne amount after offsetting when the following conditions are fulfilled:

(1) The taxable entity within the Company is granted the legal rights of net settlement of current income tax assets and curren income tax liabilities;

(2) Deferred income tax assets and deferred income tax liabilities relate to income taxes levied by the same tax authority on the same taxable entity within the Company.

29. Lease

(1) Accounting treatment method for leasing by the lessee

At the commencement date of the lease term, the Company recognizes all right-of-use assets and lease liabilities, except for shortterm leases and low-value asset leases according to applicable business standards.

The accounting policies for right-of-use assets are set out in Note 30 of Section V of this financial report.

Lease liabilities are initially measured at the present value of the lease payments not yet paid as of the lease commencement date, discounted using the interest rate implicit in the lease. The incremental borrowing rate will be adopted as the discount rate if the interest rate implicit in the lease is not determinable. The lease payment includes fixed amount (and the substantially fixed amount) less the relative amount of any lease incentives enjoyed if there are lease incentives; the index or rate-based variable amount; the exercise price of a purchase option, provided that the lessee reasonably determines that it will exercise the option; the payment for exercising the option to terminate the lease, provided that it is reflected in the lease period that the lessee will exercise the option to terminate the lease; and the estimated amount to be paid according to the residual value of guarantee provided by the lessee. The interest expense of the lease liabilities during each period of the lease term will be calculated at a fixed periodic interest rate later and include it in the current profit or loss. Variable lease payments not included in the measurement of lease liabilities shall be included in the current profits and losses when they are actually incurred.

1) Short-term leases

The short-term lease refers to the lease that does not contain the purchase option and has a lease period of no more than 12 months from the lease commencement date.

The Company records the lease payments under short-term leases into the cost of the related assets or to current income or loss on a straight-line basis over the respective periods of the lease term.

For short-term leases, the Company, by category of leased asset, selects to apply the simplified approach described above to items within asset types that qualify as short-term leases.

2) Low-value asset leases

The Company records the lease payments under low-value asset leases into the cost of the related assets or to current income or loss on a straight-line basis over the respective periods of the lease term.

For leases of low-value assets, the Company selects, based on the specific circumstances of each lease, to apply the simplified approach described above.

3) Change of lease

The Company accounts for a lease change as a separate lease if the change occurs and both of the following conditions are met: ① the lease change increases the scope of the lease by adding the right to use one or more underlying assets; and ② the consideration for the lease increases by an amount and the scope of the lease increased by an extent that is commensurate with the stand-alone price for the increase in consideration and scope as adjusted for the particular circumstances of the contract.

If the lease change is not subject to accounting treatment as a separate lease, on the effective date of the lease change, the Company will re-apportion the consideration of the changed contract, re-determine the lease term, and remeasure the lease liabilities at the present value worked out according to the changed lease payment and the revised discount rate.

If the lease change results in narrower scope of lease or shorter lease term, the Company will reduce the carrying amount of the right-of-use assets accordingly, and will include relevant gain or loss from partial or full termination of the lease in the current profit or loss.

If other lease changes result in re-measurement of the lease liabilities, the Company will adjust the carrying amount of the right-ofuse assets accordingly.

(2) Accounting treatment method for leasing by the lessor

When the Company acts as a lessor, leases that substantially transfer all the risks and rewards incidental to ownership of the asset are recognized as finance leases, while leases other than finance leases are recognized as operating leases.

1) Operating lease

For operating leases, rental payments are recognized by the Company on a straight-line basis in profit or loss for each period during the lease term. The initial direct expenses related to an operating lease incurred shall be capitalized, apportioned during the lease term on the same recognition basis as rental income, and included into the current profit and loss by installments. The variable lease amount received under an operating lease, which is not included in the lease receipt, is included in the profit or loss of the current period at the time of actual occurrence.

2) Change of lease

In the case of any change to the operating lease, the Company will conduct accounting treatment with respect to the changed operating lease as a new lease as of the effective date of the change, and the lease payments received in advance or receivable with respect to the lease before the change will be taken as the lease receipts for the new lease.

The Company accounts for a finance lease change as a separate lease if the change occurs and both of the following conditions are met ① the change increases the scope of the lease by adding the right to use one or more underlying assets; and ② the consideration for the lease increases by an amount and the scope of the lease increased by an extent that is commensurate with the stand-alone price for the increase in consideration and scope as adjusted for the particular circumstances of the contract.

If changes to a finance lease are not subject to accounting treatment as a separate lease, the Company will treat the changed lease in the following circumstances: ① If assuming that the change takes effective at the lease commencement date, and the lease is classified into operating leases, the Company will, from the effective date of the lease change, consider the change as a new lease and the net lease investment prior to the effective date of the lease commencement as the carrying value of the leased asset; ② Assuming that the change takes effective at the lease commencement date, and the lease is classified into financing leases, the Company will apply the provisions of Accounting Standards for Business Enterprises No. 22 - Recognition and Measurement of Financial Instruments concerning the modification or re-negotiation of contract.

30. Right-of-use assets

(1) Conditions for recognition of right-of-use assets

Right-of-use asset refers to the Company's right, as lessee, to use the leased asset during the lease term.

On the lease commencement date, the right-of-use assets are initially measured at cost. Such cost includes: the initial measurement amount of the lease liability; lease payments made at or before the commencement date, less the portion relating to any lease incentives received; initial direct costs incurred by the Company as lessee; and an estimate of costs expected to be incurred by the Company as lessee for dismantling and removing the leased asset, restoring the site on which it is located, or restoring the leased asset to the condition required by the terms of the lease. The Company, as a lessee, recognizes and measures costs such as dismantling, restoration, and similar items in accordance with Accounting Standards for Business Enterprises No. 13 - Contingencies. Subsequent adjustments are made for any remeasurement of lease liabilities.

(2) Depreciation method of right-of-use assets

The Company shall withdraw the depreciation according to the straight-line method. If the Company, as a lessee, can reasonably determine that it will obtain ownership of the leased asset when the lease term expires, the right-of-use asset is depreciated over the remaining useful life of the leased asset. If the Company cannot reasonably determine that it will obtain the ownership of leased assets when the lease term expires, the right-of-use asset is depreciated over the shorter of the lease term and the remaining service life of the leased assets.

(3) The impairment test method for right-of-use assets and the impairment provision accrual method are set out in Note 20 of Section V of this financial report.

31. Work safety funds

The Company makes provisions for work safety funds in accordance with the Administrative Measures for the Collection and Utilization of Enterprise Work Safety Funds (C.Z. [2022] No. 136) jointly issued by the Ministry of Finance and the Ministry of

Emergency Management.

Work safety funds, when appropriated, are included in the cost of the related products or recognized in profit or loss for the curren period, and are simultaneously recorded in the “special reserve” account

When work safety funds are appropriated and utilized for expense-type expenditures, they directly reduce the special reserve. Expenditures that result in the formation of fixed assets are first accumulated in the "construction in progress" account; upon completion and attainment of the intended usable state, they are recognized as fixed assets. Concurrently, the special reserve is reduced by the cost of the fixed assets formed, and the same amount of accumulated depreciation will be recognized. These fixed assets will not be depreciated in subsequent periods.

32. Accounting treatment related to the repurchase of the Company's shares

The shares repurchased by the Company are held as treasury stock prior to cancellation or transfer, and all expenses incurred for the repurchase of shares shall be recorded as the cost of treasury stock. The consideration paid and transaction costs in a share repurchase reduce equity; gains or losses are not recognized on the repurchase, transfer, or cancellation of the Company's shares. When treasury shares are transferred, the difference between the actual proceeds received and the carrying amount of the treasury shares shall be recorded in capital reserve; if the capital reserve is insufficient to absorb the difference, surplus reserve and retained earnings shall be reduced to cover the shortfall. When treasury shares are cancelled, share capital is reduced by the par value per share and the number of shares canceled, and the difference between the carrying amount of the cancelled treasury shares and their par value will write off the capital reserve; if the capital reserve is insufficient to absorb the difference, surplus reserve and retained earnings shall be reduced to cover the shortfall.

33. Significant accounting judgments and estimates

The Company continuously evaluates the significant accounting estimates and key assumptions it uses, based on historical experience and other factors, including reasonable expectations about future events. Below are the major accounting estimates and key assumptions that may pose a significant risk of material adjustments to the carrying values of assets and liabilities in the upcoming financial year:

1) Classification of financial assets

The Company’s significant judgments in determining the classification of financial assets include analysis of the business mode and the characteristics of the contractual cash flows.

The Company establishes its business model for managing financial assets at the portfolio level by considering various factors. These include how the performance of financial assets is assessed and communicated to key management personnel, the risks influencing asset performance and their management, as well as the compensation structure for the relevant business managers. When evaluating whether the contractual cash flows of a financial asset align with a basic lending arrangement, the Company primarily considers the following key judgments: whether the principal amount may vary in timing or amount throughout the instrument’s term due to prepayment or other factors; and whether the interest reflects only the time value of money, credit risk, other fundamental lending risks, and appropriate compensation for costs and profit. For instance, it is important to determine whether the early repayment amount includes only the outstanding principal, the interest accrued on that principal, and any reasonable compensation for the early termination of the contract.

2) Measurement of expected credit loss of accounts receivable

The Company calculates expected credit losses on accounts receivable using the accounts receivable exposure to default risk and the expected credit loss rate, and determines the expected credit loss rate based on the probability of default and the loss in the event of default. When determining the expected credit loss rate, the Company relies on its internal historical credit loss experience along with other data, and adjusts the historical data to reflect current conditions and forward-looking information. When considering forward-looking information, the Company takes into account various indicators such as the risk of an economic downturn, shifts in the external market environment, technological developments, and customer conditions, among others. The Company regularly monitors and reviews the assumptions related to the calculation of expected credit losses.

3) Goodwill-impairment

The Company conducts an annual assessment to determine whether there has been any impairment of goodwill. This requires estimating the value in use of the asset group to which goodwill has been assigned. When estimating value in use, the Company needs to project the future cash flows generated by the asset group and apply a suitable discount rate to determine the present value of those cash flows.

4) Deferred income tax assets

If and to the extent that it is likely that there will be enough taxable profits to cover the losses, the Company recognizes deferred tax assets for all unused tax losses. In this case, the management has to use significant judgment to estimate the time and amount of future taxable profits and, in combination with its tax plan, to determine the amount of deferred tax assets that should be recognized.

34. Other significant accounting policies and accounting estimates

None

35. Changes in significant accounting policies and accounting estimates

(1) Changes in significant accounting policies

□ Applicable  Not applicable

(2) Changes in significant accounting estimates

□ Applicable  Not applicable

(3) Adjustments to related items of the financial statements at the beginning of the year of initial application of the new accounting standards (effective from 2025)

□ Applicable  Not applicable

36. Others

VI. Taxation

1. Main tax categories and rates

[Note] This information is applicable to the subsidiaries NHU EUROPE GMBH, NHU Performance Materials GmbH,

Bardoterminal GmbH and NHU Life Science GmbH.

If there are taxable entities with different tax rates of enterprise income tax, disclose the specific information

2. Tax incentives

(1) Corporate income tax incentives

① High-tech enterprise tax incentives

The Company has been officially recognized as a high-tech enterprise, as confirmed by the High-tech Enterprise Certificate (GR202333009429) issued by the Department of Science and Technology of Zhejiang Province, the Zhejiang Provincial Department of Finance, and the Zhejiang Provincial Tax Service, State Taxation Administration. As a result, the Company will benefit from high-tech enterprise tax incentives from 2023 through 2025, with a corporate income tax rate of 15% applicable in 2026 temporarily.

The subsidiary, Shangyu NHU Bio-Chem Co., Ltd., has been officially recognized as a high-tech enterprise, as confirmed by the High-tech Enterprise Certificate (GR202533006963) issued by the Department of Science and Technology of Zhejiang Province, the Zhejiang Provincial Department of Finance, and the Zhejiang Provincial Tax Service, State Taxation Administration. As a result, it will benefit from high-tech enterprise tax incentives from 2025 through 2027, with a corporate income tax rate of 15% applicable in 2026.

The subsidiary, Shandong NHU Pharmaceutical Co., Ltd., has been officially recognized as a high-tech enterprise, as confirmed by the High-tech Enterprise Certificate (GR202337003609) issued by the Department of Science & Technology of Shandong Province, the Shandong Provincial Department of Finance, and the Shandong Provincial Tax Service, State Taxation Administration. As a result, it will benefit from high-tech enterprise tax incentives from 2023 through 2025, with a corporate income tax rate of 15% applicable in 2026 temporarily.

The subsidiary, Shandong NHU Amino-acids Co., Ltd., has been officially recognized as a high-tech enterprise, as confirmed by the High-tech Enterprise Certificate (GR202437003425) issued by the Department of Science & Technology of Shandong Province, the Shandong Provincial Department of Finance, and the Shandong Provincial Tax Service, State Taxation Administration. As a result, it will benefit from high-tech enterprise tax incentives from 2024 through 2026, with a corporate income tax rate of 15% applicable in 2026 temporarily.

The subsidiary, Zhejiang NHU Specialty Materials Co., Ltd., has been officially recognized as a high-tech enterprise, as confirmed by the High-tech Enterprise Certificate (GR202433008150) issued by the Economy and Information Technology Department of Zhejiang, the Zhejiang Provincial Department of Finance, and the Zhejiang Provincial Tax Service, State Taxation Administration. As a result, it will benefit from high-tech enterprise tax incentives from 2024 through 2026, with a corporate income tax rate of 15% applicable in 2026.

The subsidiary, Heilongjiang NHU Biotechnology Co., Ltd., has been officially recognized as a high-tech enterprise, as confirmed by the High-tech Enterprise Certificate (GR202423000652) issued by the Department of Science and Technology of Heilongjiang Province, the Finance Bureau of Heilongjiang Province, and the Heilongjiang Provincial Tax Service, State Taxation Administration. As a result, it will benefit from high-tech enterprise tax incentives from 2024 through 2026, with a corporate income tax rate of 15% applicable in 2026.

The subsidiary, Zhejiang NHU Pharmaceutical Co., Ltd., has been officially recognized as a high-tech enterprise, as confirmed by the High-tech Enterprise Certificate (GR202533005415) issued by the Department of Science and Technology of Zhejiang Province, the Zhejiang Provincial Department of Finance, and the Zhejiang Provincial Tax Service, State Taxation Administration. As a result, it will benefit from high-tech enterprise tax incentives from 2025 through 2027, with a corporate income tax rate of 15% applicable in 2026.

The subsidiary, Shandong NHU Fine Chemical Science and Technology Co., Ltd., has been officially recognized as a high-tech enterprise, as confirmed by the High-tech Enterprise Certificate (GR202537002216) issued by the Department of Science & Technology of Shandong Province, the Shandong Provincial Department of Finance, and the Shandong Provincial Tax Service, State Taxation Administration. As a result, it will benefit from high-tech enterprise tax incentives from 2025 through 2027, with a corporate income tax rate of 15% applicable in 2026.

② Tax incentives for overseas enterprises

Pursuant to Chapter 112 of the Laws of Hong Kong, the Tax Ordinance, Section 14, Hong Kong adopts the territorial source principle for taxation: only profits arising in Hong Kong are subject to tax in Hong Kong, while profits arising elsewhere are not subject to Hong Kong profits tax. The subsidiary, NHU (Hong Kong) Trading Co., Ltd., calculates and pays corporate income tax at the applicable preferential tax rate.

(2) VAT preference

Pursuant to the Announcement on VAT Additional Deduction Policy for Advanced Manufacturing Enterprises (No. 43 Announcement of Ministry of Finance and State Administration of Taxation in 2023), from January 1, 2023, to December 31, 2027, advanced manufacturing enterprises are permitted to deduct an additional 5% of the current deductible input VAT from their VAT payable. The Company and its subsidiaries Shangyu NHU Bio-Chem mathrm C o.. , Ltd., Zhejiang NHU Pharmaceutical Co., Ltd., Zhejiang NHU Specialty Materials mathrm C o.. , Ltd., Shandong NHU Amino-acids mathrm C o., , Ltd., Shandong NHU Pharmaceutical mathrm C o. , Ltd., Shandong NHU Fine Chemical Science and Technology Co., Ltd., and Heilongjiang NHU Biotechnology Co., Ltd. enjoy a preferential policy of additional deduction/offset of input VAT.

VII. Notes to consolidated financial statements

1. Cash and cash equivalents

Unit: RMB Yuan

Other notes: Monetary funds that are subject to usage restrictions and are not classified as cash or cash equivalents are detailed in the financial report, specifically in Note 19 of Section VII, and Note 57(3)(4) of Section VII.

2. Financial assets held for trading

Unit: RMB Yuan

3. Accounts receivable

(1) Disclosure by aging

Unit: RMB Yuan

(2) Classification and disclosure by bad debt provision method

Unit: RMB Yuan

Provision for bad debts is made on a portfolio basis: Accounts receivable grouped by aging for bad debt provision

Unit: RMB Yuan

Explanation of the basis for determining the grouping: Provision for bad debts is made based on aging groups If the provision for bad debts on accounts receivable is based on the general model of expected credit losses: □ Applicable  Not applicable

(3) Provision, recovery or reversal of bad debt reserve in current period

Provision for bad debts of this period:

Unit: RMB Yuan

(4) The status of accounts receivable and contract assets in the top five of the ending balance collected according to debtors Unit: RMB Yuan

4. Receivables financing

(1) Financing of accounts receivable by classification

Unit: RMB Yuan

(2) Classification and disclosure by bad debt provision method

Unit: RMB Yuan

Provision for bad debts by portfolio: Bank acceptance bills Unit: RMB Yuan

(3) Receivables financing pledged at the end of the period

Unit: RMB Yuan

(4) Receivables financing endorsed or discounted by the Company at the end of the period and not yet due on the balance sheet date

Unit: RMB Yuan

5. Other receivables

Unit: RMB Yuan

(1) Other receivables

1) Classification of other receivables according to the nature of payment

Unit: RMB Yuan

2) Disclosure by aging

Unit: RMB Yuan

3) Classification and disclosure by bad debt provision method

 Applicable □ Not applicable

Unit: RMB Yuan

Category name for bad debt provisions calculated by combination: Other receivables for which bad debt provisions are calculated by combination Unit: RMB Yuan

Provision for bad debts under the general model of expected credit losses: Unit: RMB Yuan

Criteria for dividing each stage and the bad-debt reserves calculation and withdrawal proportion

Classification criteria for stages are as follows: Accounts with an aging period of up to one year and those undergoing individual impairment assessment are categorized as Stage I; accounts aged between one and two years fall under Stage II; and accounts exceeding two years in age are designated as Stage III.

Significant changes in the carrying amounts of items with material changes in the allowance for losses during the period □ Applicable  Not applicable

4) Provision, recovery or reversal of bad debt reserve in current period

Provision for bad debts of this period:

Unit: RMB Yuan

5) Top five other receivables by period-end balance, aggregated by debtor

Unit: RMB Yuan

6. Advance payments

(1) Presentation of advance payments by age of account

Unit: RMB Yuan

Explanation of reasons why prepayments with more than 1 year's age and significant amount are not settled in time: None

(2) Top five ending balances of prepayments, grouped by payee

7. Inventories

Whether the Company needs to comply with disclosure requirements of real estate industry No

(1) Inventory classification

Unit: RMB Yuan

(2) Provision for inventory write-downs and impairment provision for contract performance costs

Unit: RMB Yuan

The specific criteria used to determine the net realizable value, along with the explanations for any reversals or write-offs of inventory impairment provisions during the current period

Accrual standard of provision for inventory obsolescence by portfolio: None

8. Other current assets

Unit: RMB Yuan

9. Other equity instrument investments

Unit: RMB Yuan

Derecognition in the current period: None