Zhejiang Cangnan Instrument Group Company Limited 浙江蒼南儀錶集團股份有限公司 (A joint stock company incorporated in the People’s Republic of China with limited liability) Stock code : 1743 ANNUAL REPORT 2020 Content 2 Company Profile 3 Corporate Information 5 Chairman’s Statement 7 Financial Highlights 8 Management Discussion and Analysis 22 Directors, Supervisors and Senior Management 31 Directors’ Report 43 Report of the Supervisory Committee 47 Corporate Governance Report 65 Environmental, Social and Governance Report 160 Independent Auditor’s Report 168 Consolidated Statement of Profit or Loss 169 Consolidated Statement of Comprehensive Income 170 Consolidated Balance Sheet 172 Consolidated Statement of Changes in Equity 173 Consolidated Statement of Cash Flows 175 Notes to the Consolidated Financial Statements 247 Definition and Glossary of Technical Terms 2 Zhejiang Cangnan Instrument Group Company Limited 2020 Annual Report Company Profile We (stock code: 1743) are a leading industrial and commercial gas flowmeter manufacturer in China. The Company has been successfully listed on the Main Board of the Stock Exchange since 4 January 2019. The total number of issued share capital of the Company was 69,791,167 Shares. Our operations can be traced back to 1977. Leveraging over 40 years of industry experience, the Company is dedicated to the manufacture and sales of a wide range of industrial and commercial gas flowmeter products, which are generally used by gas operators to measure the flow volume of gas. We engage in a comprehensive business integrating research and development (“R&D”), manufacture, sales and aftersales services. In addition to industrial and commercial gas flowmeter products, we have developed various series of residential gas meter products and possess the production capacity to produce 300,000 units of residential gas meters per annum. Leveraging our established sales network, we are committed to expanding our residential gas meter business in the PRC. We also produce and sell a small quantity of nuclear-related products, mainly nuclear-level throttling devices, used as accessories for nuclear power generation projects. Our customers of nuclear-level throttling devices include leading companies in the PRC nuclear power industry, which we believe testifies to both our technological capabilities and our product quality control capabilities. We also generate revenue from providing maintenance services mainly in relation to our industrial and commercial gas flowmeter products that are outside of the warranty period. Zhejiang Cangnan Instrument Group Company Limited 3 2020 Annual Report Corporate Information LEGAL NAME OF THE COMPANY Legal representative of the Company 浙江蒼南儀錶集團股份有限公司 Mr. Hong Zuobin ENGLISH NAME OF THE COMPANY Authorized representatives Zhejiang Cangnan Instrument Group Company Limited Mr. Huang Youliang Mr. Chan Chun Wai DIRECTORS Joint Company Secretaries Executive Directors Ms. Lin Zichan Mr. Hong Zuobin (Chairman) Mr. Chan Chun Wai Mr. Huang Youliang (General Manager) Mr. Jin Wensheng (appointed in June 2020) COMMITTEES OF THE BOARD Mr. Yin Xingjing Mr. Zhang Shengyi Nomination Committee Ms. Lin Zichan Mr. Hong Zuobin (Chairman) Mr. Lin Jingdian (resigned in June 2020) Mr. Li Jing Mr. Lin Zhongzhu Mr. Su Zhongdi Mr. Ye Xiaosen Non-executive Directors Mr. Wang Jingfu Mr. Ye Xiaosen Mr. Hou Zukuan Audit Committee Mr. Wong Hak Kun (Chairman) Independent Non-executive Directors Mr. Ng Jack Ho Wan Mr. Ng Jack Ho Wan Mr. Su Zhongdi Mr. Wong Hak Kun Mr. Wang Jingfu Mr. Wang Jingfu Mr. Hou Zukuan Mr. Li Jing Mr. Su Zhongdi Remuneration Committee Mr. Su Zhongdi (Chairman) Supervisors Ms. Lin Zichan Mr. Huang Xijun (Chairman) Mr. Yin Xingjing Mr. Ye Sigong Mr. Wong Hak Kun Mr. Zhou Xiaoding Mr. Ng Jack Ho Wan Mr. Lin Jingdian (appointed in June 2020) Mr. Liu Jie (appointed in June 2020) 4 Zhejiang Cangnan Instrument Group Company Limited 2020 Annual Report Corporate Information Registered Office Principal Bankers Industrial Demonstrative Park Agricultural Bank of China, Lingxi Town Cangnan County Sub-branch Cangnan County 125 Yucang Road Zhejiang Province Lingxi Town PRC Cangnan County Zhejiang Province Headquarters and Principal Place of PRC Business in the PRC Industrial Demonstrative Park Bank of China, Lingxi Town Cangnan Lingxi Sub-branch Cangnan County 268 Yucang Road Zhejiang Province Lingxi Town PRC Cangnan County Zhejiang Province Principal Place of Business in Hong Kong PRC Room 1503, 15/F Bank of East Asia Harbour View Centre H Share Registrar 56 Gloucester Road Computershare Hong Kong Investor Services Wan Chai Limited Hong Kong Shops 1712-1716 17/F, Hopewell Centre Auditor 183 Queen’s Road East PricewaterhouseCoopers Wan Chai Certified Public Accountants Hong Kong Registered Public Interest Entity Auditor 22/F, Prince’s Building Stock Abbreviation and Stock Code Central, Hong Kong CANGNAN INST (1743) Legal Advisors Compliance Advisor As to Hong Kong Law First Shanghai Capital Limited Herbert Smith Freehills 19/F, Wing on House, 23/F Gloucester Tower 71 Des Voeux Road Central Hong Kong 15 Queen’s Road Central Central, Hong Kong Investor Enquiry As to PRC law Special telephone line for investors: +86-577-64837701 Haiwen & Partners +86-577-64839376 20/F, Fortune Financial Center 5 Dong San Huan Central Road Fax: +86-577-64839306 Chaoyang District, Beijing Website: www.zjcnyb.com China E-mail: [email protected] Zhejiang Cangnan Instrument Group Company Limited 5 2020 Annual Report Chairman’s Statement To all the shareholders: On behalf of the Board of Directors of the Company, I am pleased to present the annual results of the Group for the year ended 31 December 2020 to all the shareholders. 2020 was the final year for our Company to implement the 13th Five-Year Plan and the crucial year for our Company to deepen reforms, accelerate innovation, and plan for the 14th Five-Year Plan. The Group kept focusing on its core business and devoted itself to the reliability and intelligence of industrial and commercial flowmeter products, thereby winning and accumulating the trust from and good reputation among the vast number of users. On this basis, the Group held on tight the favorable opportunity for the strategic adjustment of the national energy structure and the in-depth development of the natural gas industry, and achieved good results. However, materially affected by the sudden outbreak of COVID-19, and influenced by the natural gas sources, prices, pipeline construction, and insufficient interconnection, the industry showed a “weak” development trend. In the past year, we continued to adhere to the basic policy of “deepening reform, accelerating innovation, expanding opening-up, and implementing scientific management”, improved the Company’s basic management system, enhanced the Company’s governance capabilities and standards, focused on innovation-driven development, vigorously strengthened efforts for technology and product innovation, strove to cultivate new economic growth points for the Company, and promoted high-quality development. In 2020, taking the opportunity of winning the Mayor’s Quality Award, we further established a sound and efficient quality management organization, continued to innovate management methods, implemented “quality awareness” and “brand awareness” always throughout the entire process of production and operation, and continued to promote “Made in Zhejiang” and the international certification of products. At the same time, the Group won many honors such as the “Zhejiang Potential Champion Cultivation Enterprise”, “Excellent Unit for Technological Innovation”, “Advanced Group for the Creation of “Two Healthy (healthy development of non-public economy and healthy growth of non-public economic persons)” Pioneer Zones in the New Era of Wenzhou City”, and “Enterprise with Outstanding Contribution to Combating the Epidemic”. We continued to facilitate technological reforms, strengthen R&D and accelerate the development of new products under the principle of “market demand-oriented”. We set up an enterprise research institute to further improve our independent innovation capabilities and continuously develop new technologies, new processes and new products with market prospects and competitiveness. We closely tracked the latest technological development of “Internet + Energy”, and increased the technological empowerment of our products by expanding the application of intelligence and IOT. 6 Zhejiang Cangnan Instrument Group Company Limited 2020 Annual Report Chairman’s Statement We strove to cultivate a team of management talents, and made every effort to improve the multiple capabilities of strategic decision-making, innovative thinking, operational management, and competitive awareness so as to deal with complex situations. We facilitated the reform of marketing system and mechanism, and innovative marketing thinking. While maintaining the existing market and users, we put more efforts to tap into new markets and built a harmonious relationship with customers. We used the Internet and big data technology platform to build a new service system with rapid response, strengthened the construction of service technology guidance stations and service network, and always followed the service philosophy of “Cangnan Instrument always stays by its customers and customers are always at the heart of us”, with a view to provide better, faster and quality after-sales services. Under the epidemic, the great-changing period unseen in a century is accelerating to bring about more profound,